<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q/A
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1996
----------------------------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
------------------ ------------------
Commission File #0-17403
ROOSEVELT FINANCIAL GROUP, INC.
---------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 43-1498200
- - ------------------------------------ ---------------------------
(State or other Jurisdiction (I.R.S. Employer ID No.)
of incorporation or organization)
900 ROOSEVELT PARKWAY, CHESTERFIELD, MISSOURI 63017
------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (314) 532-6200
-----------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No
----- -----
Indicate the number of shares outstanding of each of the registrant's
classes of common stock, as of the latest practicable date.
Class Outstanding at May 6, 1996
------------------- --------------------------------
Common Stock 42,130,094
Par Value $.01
<PAGE> 2
During August 1996, the Staff of the Securities and Exchange Commission
(Staff) performed a regular review of the 1995 Form 10-K of Roosevelt
Financial Group, Inc. (Company) in conjunction with Registration Statements on
Form S-4 filed by the Company related to three pending acquisitions.
As a result of this review, the Staff questioned the Company's original
accounting treatment surrounding the deferral and recognition of gains and
losses on financial futures contracts used to reduce the interest rate risk of
certain mortgage-backed securities in the Company's available for sale
portfolio. The Company originally recognized a $34.8 million charge to fourth
quarter 1995 earnings regarding the cessation of deferral accounting.
At issue was the Staff's contention that the financial futures contracts did
not meet the "high correlation" criteria of Statement of Financial Accounting
Standards No. 80, "Accounting for Futures Contracts", thus not qualifying for
deferral accounting from the inception of the hedge in March 1994 and
requiring the recognition of subsequent gains and losses in income. The
Company originally ceased deferral accounting when management concluded that
high correlation measured using the "cumulative dollar approach" was unlikely
to be achieved on a consistent basis.
Accordingly, at the Staff's request, the Company has restated its 1994 and
1995 consolidated financial statements to reflect the cessation of deferral
accounting, from the inception of the hedge, with respect to the
aforementioned financial futures contracts. The restatement had the effect of
decreasing previously reported 1995 net income for the year ended December 31,
1995 by $18.0 million. This restatement is one of the timing of recognition
of gains and losses in the Statement of Operations and has no impact on total
stockholders' equity at any date since both the futures contracts and the
related mortgage-backed securities have been previously marked to market
through stockholders' equity at each reporting period. Other appropriate
conforming changes to reflect the statement have been made throughout this
document.
Subsequent to December 31, 1995, the Company terminated all of its futures
positions and maintained its interest rate risk management position by
principally redesigning existing interest rate exchange agreements to the
available for sale portfolio. Such interest rate exchange agreements were
utilized prior to the redesignation to manage the interest rate risk of
interest-bearing deposits and other short-term borrowings.
<TABLE>
INDEX
ROOSEVELT FINANCIAL GROUP, INC.
<CAPTION>
PAGE
<C> <S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
- Consolidated Balance Sheets 2
- Consolidated Statements of Operations 3
- Consolidated Statements of Stockholders'
Equity 4
- Consolidated Statements of Cash Flows 5
- Notes to Consolidated Financial
Statements 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 10
PART II. OTHER INFORMATION
SIGNATURES
</TABLE>
<PAGE> 3
<TABLE>
ROOSEVELT FINANCIAL GROUP, INC.
Consolidated Balance Sheets
(dollars in thousands, except share data) (Unaudited)
<CAPTION>
March 31, December 31,
1996 1995
------------ ------------
<S> <C> <C>
Assets:
Cash and cash equivalents $ 44,746 $ 15,433
Securities available for sale:
Investment securities 154,029 159,857
Mortgage-backed securities 1,305,755 1,446,604
Securities held to maturity:
Investment securities 115,139 119,186
Mortgage-backed securities 3,461,875 3,430,954
Loans 3,777,160 3,577,892
Real estate owned 14,471 15,433
Office properties and equipment, net 52,016 52,466
Other assets 209,469 195,236
----------- -----------
$ 9,134,660 $ 9,013,061
=========== ===========
Liabilities and Stockholders' Equity:
Deposits $ 4,921,047 $ 4,907,497
Securities sold under agreements to repurchase 1,068,724 1,082,814
Advances from Federal Home Loan Bank 2,455,688 2,377,138
Other borrowings 47,558 47,523
Other liabilities 132,538 101,183
----------- -----------
Total Liabilities 8,625,555 8,516,155
----------- -----------
Stockholders' equity:
Preferred stock - $.01 par value, 6.5% non-cumulative perpetual
convertible; 3,000,000 shares authorized and 1,301,000 issued and
outstanding at March 31, 1996 and December 31, 1995 13 13
Common stock - $.01 par value; 90,000,000 shares authorized;
42,117,674 and 41,991,701 shares issued and outstanding at March 31, 1996
and December 31, 1995, respectively 421 420
Paid-in capital 263,887 262,381
Retained earnings - subject to certain restrictions 237,589 223,606
Unrealized gain on securities available for sale, net of taxes 8,687 12,019
Unamortized restricted stock awards (1,492) (1,533)
----------- -----------
Total Stockholders' Equity 509,105 496,906
----------- -----------
$ 9,134,660 $ 9,013,061
=========== ===========
See accompanying notes to consolidated financial statements
</TABLE>
<PAGE> 4
<TABLE>
ROOSEVELT FINANCIAL GROUP, INC.
Consolidated Statements of Operations
(dollars in thousands, except per share information) (Unaudited)
<CAPTION>
Three Months Ended
March 31,
1996 1995
---------- ----------
<S> <C> <C>
Interest income:
Loans $ 72,010 $ 58,940
Securities available for sale 29,348 37,224
Securities held to maturity 64,477 60,014
Other 308 258
---------- ----------
Total interest income 166,143 156,436
---------- ----------
Interest expense:
Deposits 61,164 54,391
Other borrowings 53,346 53,292
Interest rate exchange agreements, net 5,259 440
---------- ----------
Total interest expense 119,769 108,123
---------- ----------
Net interest income 46,374 48,313
Provision for losses on loans 300 300
---------- ----------
Net interest income after
provision for losses on loans 46,074 48,013
---------- ----------
Noninterest income (loss):
Retail banking fees 3,132 2,532
Insurance and brokerage sales commissions 1,698 2,011
Loan servicing fees, net 2,019 2,042
Net gain (loss) from financial instruments 341 (32,804)
Unrealized losses on impairment of
mortgage-backed securities held to maturity -- (27,063)
Other 1,328 998
---------- ----------
Total noninterest income (loss) 8,518 (52,284)
---------- ----------
Noninterest expense:
Compensation and employee benefits 9,882 8,633
Occupancy 3,922 4,281
Federal insurance premiums 2,339 3,211
Other 5,575 5,368
---------- ----------
Total noninterest expense 21,718 21,493
---------- ----------
Income before income tax expense 32,874 (25,764)
Income tax expense 11,309 (9,589)
---------- ----------
Net income $ 21,565 $ (16,175)
========== ==========
Net income attributable to
common stock $ 20,508 $ (17,247)
========== ==========
Earnings per share:
Primary $ 0.48 $ (0.43)
========== ==========
Fully-diluted $ 0.46 $ (0.43)
========== ==========
Dividends Paid $ 0.155 $ 0.140
========== ==========
See accompanying notes to consolidated financial statements
</TABLE>
<PAGE> 5
<TABLE>
ROOSEVELT FINANCIAL GROUP, INC.
AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity
(Dollars in thousands) (Unaudited)
<CAPTION>
Preferred Stock Common Stock
-------------------- --------------------- Paid-in Retained
Shares Amount Shares Amount Capital Earnings
--------- ------- ---------- ------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1994 1,319,000 $ 13 40,173,527 $ 402 $ 255,655 $ 209,379
Net income -- -- -- -- -- 27,098
Purchase of common stock for treasury -- -- -- -- -- --
Issuance of common stock through stock options
and employee stock plans -- -- 243,763 3 1,531 (1,572)
Issuance of common stock in the acquisition of
Kirksville Bancshares, Inc. -- -- 1,521,435 15 5,426 15,475
Exchange of preferred stock for common stock (18,000) -- 52,976 -- (231) --
Amortization of restricted stock awards -- -- -- -- -- --
Cash dividends declared:
Common stock -- -- -- -- -- (22,531)
Preferred stock -- -- -- -- -- (4,243)
Unrealized gains on securities
available for sale, net -- -- -- -- -- --
--------- ------- ---------- ------- --------- ---------
Balance, December 31, 1995 1,301,000 13 41,991,701 420 262,381 223,606
Net income -- -- -- -- -- 21,565
Issuance of common stock through stock options
and employee stock plans -- -- 125,973 1 1,506 --
Amortization of restricted stock awards -- -- -- -- -- --
Cash dividends declared:
Common stock -- -- -- -- -- (6,525)
Preferred stock -- -- -- -- -- (1,057)
Unrealized losses on securities available for
sale, net -- -- -- -- -- --
--------- ------- ---------- ------- --------- ---------
Balance, March 31, 1996 1,301,000 $ 13 42,117,674 $ 421 $ 263,887 $ 237,589
========= ======= ========== ======= ========= =========
<CAPTION>
Unrealized
gain (loss) on
securities
Treasury Stock available for Unamortized Total
----------------------- sale, net Restricted Stockholders'
Shares Amount of taxes Stock Awards Equity
---------- ---------- ---------------- -------------- -------------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1994 (10,000) $ (150) $ (23,673) $ -- $ 441,626
Net income -- -- -- -- 27,098
Purchase of common stock for treasury (214,500) (3,426) -- -- (3,426)
Issuance of common stock through stock options
and employee stock plans 209,976 3,345 -- (1,621) 1,686
Issuance of common stock in the acquisition of
Kirksville Bancshares, Inc. -- -- -- -- 20,916
Exchange of preferred stock for common stock 14,524 231 -- -- --
Amortization of restricted stock awards -- -- -- 88 88
Cash dividends declared:
Common stock -- -- -- -- (22,531)
Preferred stock -- -- -- -- (4,243)
Unrealized gains on securities
available for sale, net -- -- 35,692 -- 35,692
--------- --------- --------------- ------------- ------------
Balance, December 31, 1995 -- -- 12,019 (1,533) 496,906
Net income -- -- -- -- 21,565
Issuance of common stock through stock options
and employee stock plans -- -- -- -- 1,507
Amortization of restricted stock awards -- -- -- 41 41
Cash dividends declared:
Common stock -- -- -- -- (6,525)
Preferred stock -- -- -- -- (1,057)
Unrealized losses on securities available for
sale, net -- -- (3,332) -- (3,332)
--------- --------- --------------- ------------- ------------
Balance, March 31, 1996 -- $ -- $ 8,687 $ (1,492) $ 509,105
========= ========= =============== ============= ============
</TABLE>
<PAGE> 6
<TABLE>
ROOSEVELT FINANCIAL GROUP, INC.
Consolidated Statements of Cash Flows
(dollars in thousands) (Unaudited)
<CAPTION>
Three Months Ended
March 31,
1996 1995
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 21,565 $ (16,175)
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 1,046 999
Amortization of discounts and premiums, net 6,591 (13)
Increase in accrued interest receivable (2,901) (4,408)
(Decrease) increase in accrued interest payable (3,914) 337
Provision for losses on loans 300 300
Unrealized losses on impairment of mortgage-backed securities held to maturity -- 27,063
Other, net (6,392) (9,309)
------------ ------------
Net cash provided by operating activities 16,295 (1,206)
------------ ------------
Cash flows from investing activities:
Principal payments and maturities of securities available for sale 55,770 23,397
Principal payments and maturities of securities held to maturity 271,370 148,644
Principal payments on loans 256,427 90,896
Proceeds from sales of securities available for sale 358,252 342,354
Purchase of securities available for sale (274,727) (520,880)
Purchase of securities held to maturity (301,363) (504,507)
Purchase of loans (170,830) (82,466)
Originations of loans (288,923) (81,332)
Net proceeds from sales of real estate 3,179 1,874
Purchase of office properties & equipment (526) (343)
------------ ------------
Net cash used in investing activities (91,371) (582,363)
------------ ------------
Cash flows from financing activities:
Proceeds from FHLB advances 4,992,500 4,021,000
Principal payments on FHLB advances (4,914,000) (3,736,000)
Proceeds received from termination of interest rate exchange agreements 14,185 --
Excess of deposit receipts over withdrawals (withdrawals over receipts) 13,430 (44,931)
(Decrease) increase in securities sold under agreements to repurchase, net (14,090) 370,161
Proceeds from exercise of stock options 1,019 293
Purchase of treasury stock -- (2,152)
Cash dividends paid (7,582) (6,692)
Net increase in advances from borrowers for taxes and insurance 18,927 14,934
------------ ------------
Net cash provided by financing activities 104,389 616,613
------------ ------------
Net increase in cash and cash equivalents 29,313 33,044
Cash and cash equivalents at beginning of period 15,433 22,106
------------ ------------
Cash and cash equivalents at end of period $ 44,746 $ 55,150
============ ============
Supplemental disclosures of cash flow information:
Payments during the period for:
Interest $ 123,683 $ 107,786
Income taxes -- 5,500
Noncash investing and financing activities:
Redesignation of interest rate exchange and cap agreements to securities
available for sale 3,235 --
See accompanying notes to consolidated financial statements
</TABLE>
<PAGE> 7
ROOSEVELT FINANCIAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - BASIS OF PRESENTATION
The consolidated financial statements include the accounts of Roosevelt
Financial Group, Inc. (the Company), its wholly- owned subsidiaries,
Roosevelt Bank, (the Bank) and F & H Realty (Realty) and the Bank's
wholly-owned subsidiaries as of March 31, 1996 and for the three month
periods ended March 31, 1996 and 1995.
In the opinion of management, the preceding unaudited consolidated
financial statements contain all adjustments (consisting of normal recurring
accruals and the other than temporary impairment write-down of certain
private issuer mortgage-backed securities discussed further in Note 7 and
under the heading "Management's Discussion and Analysis of Financial
Condition and Results of Operations") necessary for a fair presentation of
the financial condition of the Company as of March 31, 1996 and the results
of its operations for the three month periods ended March 31, 1996 and 1995.
The preceding unaudited consolidated financial statements have been
prepared in accordance with the instructions to Form 10-Q and therefore do
not include all information and footnotes necessary for a fair presentation
of financial condition, results of operations and cash flows in conformity
with generally accepted accounting principles. The following material under
the heading "Management's Discussion and Analysis of Financial Condition and
Results of Operations" is written with the presumption that the users of the
interim financial statements have read, or have access to, the Company's
latest audited financial statements and notes thereto, together with
Management's Discussion and Analysis of Financial Condition and Results of
Operations as of December 31, 1995 and for the three year period then ended.
Therefore, only material changes in financial condition and results of
operations are discussed in the remainder of Part I.
When necessary, reclassifications have been made to prior period balances
to conform to the current period presentation.
During August 1996, the Staff of the Securities and Exchange Commission
(Staff) performed a regular review of the Company's 1995 Form 10-K in
conjunction with Registration Statements on Form S-4 filed by the Company
related to three pending acquisitions.
As a result of this review, the Staff questioned the Company's original
accounting treatment surrounding the deferral and recognition of gains and
losses on financial futures contracts used to reduce the interest rate risk of
certain mortgage backed securities in the Company's available for sale
portfolio. The Company originally recognized a $34.8 million charge to fourth
quarter 1995 earnings regarding the cessation of deferral accounting.
At issue was the Staff's contention that the financial futures contracts
did not meet the "high correlation" criteria of Statement of Financial
Accounting Standards No. 80, "Accounting for Futures Contracts", thus not
qualifying for deferral accounting from the inception of the hedge in March
1994 and requiring the recognition of subsequent gains and losses in income.
The Company originally ceased deferral accounting when management concluded
that high correlation measured using the "cumulative dollar approach" was
unlikely to be achieved on a consistent basis.
Accordingly, at the Staff's request, the Company has restated its 1995
consolidated financial statements to reflect the cessation of deferral
accounting, from the inception of the hedge, with respect to the
aforementioned financial futures contracts. The restatement had the effect of
decreasing previously reported net income for the three month period ended
March 31, 1995 by $21.9 million. This restatement is one of the timing of
recognition of gains and losses in the Statement of Operations and had no
impact on total stockholders' equity since both the financial futures
contracts and the related mortgage-backed securities had been previously
marked to market through stockholders' equity.
Subsequent to December 31, 1995, the Company terminated all of its
financial futures positions and maintained its interest rate risk management
position by principally redesignating existing interest rate exchange
agreements to the available for sale portfolio. Such interest rate exchange
agreements were utilized prior to the redesignation to manage the interest
rate risk of interest-bearing deposits and other short-term borrowings.
NOTE 2 - ACQUISITIONS
On April 16, 1996, the Company announced the execution of a definitive
agreement to acquire Community Charter Corporation (CCC), a commercial bank
holding company, in a stock-for-stock transaction. CCC is the parent company
of the Missouri State Bank and Trust Company (MSB), which serves the St. Louis
metropolitan area. The Company does not plan to merge MSB into its existing
wholly-owned subsidiary, Roosevelt Bank. Instead, the Company will own MSB as
a separate legal entity, which will continue to be regulated by the Missouri
Division of Finance. In the transaction each holder of the common stock of CCC
will receive 1.6 shares of the Company for each share of CCC. The transaction
will be accounted for under the pooling of interests method of accounting.
CCC's consolidated total assets were $62 million at March 31, 1996.
On April 9, 1996, the Company announced the execution of a definitive
agreement with Mutual Bancompany, Inc. (Mutual), the holding company for
Mutual Savings Bank. The transaction will result in the merger of Mutual
Savings Bank into Roosevelt Bank. At December 31, 1995, Mutual had total
assets of approximately $55 million. In the transaction, each holder of the
common stock of Mutual will receive $23 in value of common stock of the
Company based on the market price of such stock prior to closing. The
transaction is subject to the approval of the stockholders of Mutual and
federal banking regulators. The transaction is structured to qualify as a
tax-free reorganization and will be accounted for under the pooling of
interests method of accounting.
On March 22, 1996, the Company announced the execution of a definitive
agreement with Sentinel Financial Corporation (Sentinel), the holding company
for Sentinel Federal Savings and Loan Association. The transaction will
result in the merger of Sentinel Federal Savings and Loan Association into
Roosevelt Bank. At December 31, 1995, Sentinel had total assets of
approximately $152 million. In the transaction each holder of the common
stock of Sentinel will receive 1.4231 shares of common stock of the Company
for each share of Sentinel. The transaction is subject to the approval of
the stockholders of Sentinel and federal banking regulators. The transaction
is structured to qualify as a tax-free reorganization and will be accounted
for under the pooling of interests method of accounting.
<PAGE> 8
NOTE 3 -SECURITIES AVAILABLE FOR SALE
The amortized cost and market value of securities available for sale at
March 31, 1996 are summarized as follows:
<TABLE>
<CAPTION>
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
--------- ---------- ---------- ------
(in thousands)
<S> <C> <C> <C> <C>
Investment Securities:
U.S. Government and agency obligations $ 1,174 $ 317 $ -- $ 1,491
Corporate securities 14,329 1,301 (5) 15,625
---------- ------ ------- ---------
15,503 1,618 (5) 17,116
FHLB stock 136,913 -- -- 136,913
---------- ------ ------- ---------
152,416 1,618 (5) 154,029
---------- ------ ------- ---------
Mortgage-backed Securities:
Mortgage-backed certificates:
GNMA 674,744 12,526 (1,251) 686,019
FNMA 256,987 1,108 (3,072) 255,023
FHLMC 286,320 1,967 (2,976) 285,311
Other 55,956 4,035 (1,457) 58,534
Derivative financial instruments:
Interest rate exchange agreements (13,900) 11,659 (528) (2,769)
Interest rate cap agreements 28,828 222 (11,223) 17,827
Interest rate floor agreements 4,041 3,619 (1,850) 5,810
---------- ------ ------- ---------
1,292,976 35,136 (22,357) 1,305,755
---------- ------ ------- ---------
$ 1,445,392 $36,754 $(22,362) $1,459,784
========== ====== ======= =========
</TABLE>
Gross realized gains and gross realized losses on sales of securities
available for sale are summarized as follows:
<TABLE>
<CAPTION>
Three Months Ended March 31,
----------------------------
1996 1995
------------ ------------
<S> <C> <C>
Gross realized gains $ 6,157 $ 4,919
Gross realized losses (3,067) (941)
------ ------
$ 3,090 $ 3,978
====== ======
</TABLE>
<PAGE> 9
NOTE 4 - SECURITIES HELD TO MATURITY
The amortized cost and market value of securities held to maturity at March
31, 1996 are summarized as follows:
<TABLE>
<CAPTION>
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
--------- ---------- ---------- ------
(in thousands)
<S> <C> <C> <C> <C>
Investment Securities:
U.S. Government and agency obligations $ 109,489 $ 1,607 $ -- $ 111,096
Corporate securities 5,650 67 -- 5,717
---------- ------- -------- --------
115,139 1,674 -- 116,813
---------- ------- -------- --------
Mortgage-backed Securities:
Mortgage-backed certificates:
GNMA 12,676 160 (218) 12,618
FNMA 124,857 1,726 (374) 126,209
FHLMC 224,396 2,679 (977) 226,098
Private pass-throughs 2,764,441 21,620 (24,909) 2,761,152
Collateralized mortgage obligations 335,505 1,784 (6,661) 330,628
---------- ------- -------- ----------
3,461,875 27,969 (33,139) 3,456,705
---------- ------- -------- ----------
$ 3,577,014 $ 29,643 $ (33,139) $ 3,573,518
========== ======= ======== ==========
</TABLE>
NOTE 5 - COMMON STOCK DIVIDENDS AND PREFERRED STOCK DIVIDENDS
On April 25, 1996, the Board of Directors declared the Company's thirty
third common stock cash dividend in the amount of 15.5 cents per share
payable May 31, 1996 to stockholders of record on May 15, 1996. On March 6,
1996, the Board of Directors declared the regular quarterly cash dividend on
the Company's Series A and Series F 6.5% non-cumulative perpetual convertible
preferred stock in the amount of 81.25 cents per share payable May 15, 1996
to stockholders of record on May 3, 1996.
NOTE 6 - STOCK REPURCHASE PROGRAM
On December 15, 1994, the Board of Directors of Roosevelt Financial Group,
Inc. authorized the Company to acquire up to 1,750,000 shares of its own
common stock or common equivalents, subject to market conditions, prior to
December 31, 1997. The stock repurchased is to be held in treasury in order
to fund, from time to time, the Company's benefit programs. Shares of stock
repurchased may also be retired, from time to time, if not needed for other
corporate purposes. Through March 31, 1996, 224,500 shares of common stock
of the Company have been repurchased at market prices pursuant to the stock
repurchase program.
NOTE 7 - IMPAIRMENT OF MORTGAGE-BACKED SECURITIES HELD TO MATURITY
At March 31, 1995, certain private issuer mortgage-backed securities held
by the Company were determined to be other than temporarily impaired, as
defined in Statement of Financial Accounting Standards No. 115. As a result,
the Company recorded a $27.1 million pre-tax write-down ($17.8 million after
tax or $0.40 per share) for the three months ended March 31, 1995, to reflect
the impairment of such securities. The amount of the write-down was based on
discounted cash flow analyses performed by management (based upon assumptions
regarding delinquency levels, foreclosure rates and loss ratios on REO
disposition in the underlying portfolio). Discounted cash flow analyses were
utilized to estimate fair value due to the absence of a ready market for the
securities. Each of the securities deemed to be impaired were rated CCC by
Standard & Poors and Ba1, Ba2 or Ba3 by Moodys at March 31, 1995. Refer to
the caption entitled "Unrealized Losses on Impairment of Mortgage-Backed
Securities Held to Maturity" under the heading "Management's Discussion and
Analysis of Financial Condition and Results of Operations" for further
information regarding the affected mortgage-backed securities and related
write-down.
<PAGE> 10
NOTE 8 - EARNINGS PER SHARE
Net income for primary earnings per share is adjusted for the dividends on
convertible preferred stock. Primary earnings per share have been computed
based on the weighted average number of common shares outstanding and common
stock equivalents arising from the assumed exercise of outstanding stock
options unless their effect would be anti-dilutive. Common stock equivalents
are computed under the treasury stock method. Average common and common
stock equivalents outstanding for the three month periods ended March 31,
1996 and 1995 were 42,373,404 and 40,572,869, respectively.
Fully-diluted earnings per share have been computed using the weighted
average number of common shares and common stock equivalents, which include
the effect of the assumed conversion of the 6.5% non-cumulative convertible
preferred stock into common stock. Net income has not been adjusted for the
preferred stock dividend for the purposes of the fully-diluted earnings per
share calculation. Average common and common stock equivalents outstanding,
for the purpose of calculating fully-diluted earnings per share, for the
three month periods ended March 31, 1996 and 1995 were 47,258,439 and
45,512,729, respectively.
NOTE 9 - ACCOUNTING PRONOUNCEMENTS
The Company accounts for stock-based compensation in accordance with
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees" and, accordingly, recognizes no compensation expense as the
exercise price of the Company's employee stock options equal the market price
of the underlying stock on the date of grant. In October 1995, the Financial
Accounting Standards Board issued Statement of Financial Accounting Standards
No. 123, "Accounting for Stock-Based Compensation" (SFAS 123). Upon adoption
in 1996, the Company elected the pro forma disclosure alternative provided in
SFAS 123. Such adoption did not have any impact on the Company's financial
statements.
During May 1995, the FASB issued Statement of Financial Accounting
Standards No. 122, "Accounting for Mortgage Servicing Rights" (SFAS 122).
SFAS 122 requires that an institution which sells or securitizes loans it has
originated or purchased and maintains the servicing rights to capitalize the
cost of the rights to service such loans. As the Company has not retained
servicing on any loans that have been originated and subsequently sold, the
aforementioned provision of SFAS 122 does not have any impact on the Company's
financial statements. SFAS 122 also requires that an enterprise assess its
capitalized mortgage servicing rights for impairment based on the fair value
of those rights. SFAS 122 should be applied prospectively for fiscal years
beginning after December 15, 1995. The Company's adoption of SFAS 122,
effective January 1, 1996, did not have a significant impact on the Company's
financial statements.
During March 1995, the FASB issued Statement of Financial Accounting
Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets to be Disposed Of" (SFAS 121). SFAS 121 provides
guidance for the recognition and measurement of impairment of long-lived
assets, certain identifiable intangibles, and goodwill related both to assets
to be held and used and assets to be disposed of. SFAS 121 requires entities
to perform separate calculations for assets to be held and used to determine
whether recognition of an impairment loss is required and, if so, to measure
the impairment. SFAS 121 requires long-lived assets and certain identifiable
intangibles to be disposed of to be reported at the lower of carrying amount
or fair value less costs to sell, except for assets covered by the provisions
of APB Opinion No. 30. SFAS 121 is effective for financial statements issued
for fiscal years beginning after December 15, 1995, although earlier
application is encouraged. The Company's adoption of SFAS 121, effective
January 1, 1996, did not have a significant impact on the Company's financial
statements.
<PAGE> 11
ROOSEVELT FINANCIAL GROUP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Forward-Looking Statements
When used in this Form 10-Q or future filings by the Company with the
Securities and Exchange Commission, in the Company's press releases or other
public or shareholder communications, or in oral statements made with the
approval of an authorized executive officer, the words or phrases "will
likely result", "are expected to", "will continue", "is anticipated",
"estimate", "project" or similar expressions are intended to identify
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995. The Company wishes to caution readers not to
place undue reliance on any such forward-looking statements, which speak only
as of the date made, and to advise readers that various factors- including
regional and national economic conditions, substantial changes in levels of
market interest rates, credit and other risks of lending and investment
activities and competitive and regulatory factors- could affect the Company's
financial performance and could cause the Company's actual results for future
periods to differ materially from those anticipated or projected.
The Company does not undertake- and specifically disclaims any obligation- to
update any forward-looking statements to reflect occurrence of anticipated or
unanticipated events or circumstances after the date of such statements.
Net Income
- - ----------
The Company recorded net income totaling $21.6 million for the three month
period ended March 31, 1996 as compared to a net loss totaling $16.2 million
for the three month period ended March 31, 1995. Net income on a fully
diluted per share basis was $0.46 for the three month period ended March 31,
1996 as compared to a $0.43 loss for the same period in 1995. Net income for
the three month period ended March 31, 1995 was negatively impacted by the
recognition of losses resulting from the mark to market of the Company's
financial futures positions used to reduce the interest rate risk of certain
mortgage-backed securities in the available for sale portfolio totaling $34.0
million. Net income for the three month period ended March 31, 1995 was also
negatively impacted by $27.1 million of unrealized losses on impairment of
certain mortgage-backed securities. For a discussion of the issues relating
to financial futures positions see Note 1 - Basis of Presentation to the Notes
to Consolidated Financial Statements. For a discussion of the issues relating
to the unrealized losses see "Unrealized Losses on Impairment of
Mortgage-Backed Securities Held to Maturity".
Interest Income
- - ---------------
Interest income increased $9.7 million or 6.2% to $166.1 million for the
three month period ended March 31, 1996 as compared to $156.4 million for
the three month period ended March 31, 1995. Interest income on loans
increased $13.1 million primarily as a result of a $578.8 million increase
in the average balance of loans outstanding and an increase in the average
yield on the loan portfolio from 7.48% to 7.72%. The increase in the average
balances of loans is primarily attributable to the Company's continuing
efforts to originate a greater portion of its assets in the form of mortgage
and consumer loans, as well as strong demand for such loans in the Company's
retail markets. The increase in yield is primarily attributable to repricings
of the Company's adjustable rate loan portfolio and an increasing percentage
of higher yielding consumer loans. Interest income on securities available for
sale decreased $7.9 million primarily as a result of a decrease in the average
balance of such securities outstanding by approximately $478.5 million when
comparing the 1996 period to the 1995 period. As the Company increased its
investment in loans, proceeds from the securities available for sale portfolio
funded such growth. Interest income from securities held to maturity increased
$4.5 million when comparing the 1996 period to the 1995 period. The yields
received on such securities increased to 7.17% for the 1996 period from 6.80%
for the 1995 period. Such increase was due primarily to an increase in the
yields received on adjustable-rate securities as a result of repricings.
Interest Expense
- - ----------------
Interest expense increased $11.7 million or 10.8% to $119.8 million for
the three month period ended March 31, 1996 as compared to $108.1 million for
the same period in 1995. Interest expense on deposits increased $6.7 million
when comparing the 1996 period to the 1995 period. Such increase was primarily
the result of an increase in the rates paid on deposits. Despite a general
declining interest rate environment competition for deposits in the Company's
markets required higher rates to be paid on maturing deposits in effort to
maintain the Company's existing deposit base. As a result the average rate
paid on certificates of deposit for the 1996 period was 5.79% as compared to
5.19% for 1995. Interest expense on other borrowings did not change
significantly when comparing the 1996 period to the 1995 period. Interest
expense on other borrowings is mainly comprised of securities sold under
agreements to repurchase and advances from the Federal Home Loan Bank.
Interest expense on securities sold under agreements to repurchase decreased
$6.0 million while interest expense on advances from the Federal Home Loan
Bank increased $6.0 million. During 1996 advances from the Federal Home Loan
Bank were a more desirable form of borrowings for the Company as a result of
the lower borrowing costs that could be achieved. As a result, maturities of
securities sold under agreements to repurchase were replaced with advances
from the Federal Home Loan Bank. Interest expense on interest rate exchange
agreements increased $4.8 million for the 1996 period when compared to the
1995 period. Approximately $2.3 million of such increase was a result of
decreased amortization of deferred gains on interest rate exchange agreements
which had been terminated in prior periods. Such amortization had previously
decreased the expense on interest rate exchange agreements during 1995. The
remaining $2.5 million increase in interest exchange agreement expense for
1996 when compared to 1995 is due primarily to a decrease of approximately
.80% in the rates received on such agreements resulting from the overall
declining interest rate environment.
<PAGE> 12
Average Balances, Interest Rates and Yields
- - -------------------------------------------
The following table presents at the date and for the periods indicated
the Company's average interest-earning assets, average interest-bearing
liabilities, interest income and expense and average rates earned and paid.
Average rates earned and paid are derived by dividing income or expense by
the average balance of assets and liabilities, respectively.
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
--------------------------------------------------------------------
1996 1995
-------------------------------- ---------------------------------
INTEREST AVERAGE INTEREST AVERAGE
AVERAGE INCOME/ RATE AVERAGE INCOME/ RATE
BALANCE EXPENSE % BALANCE EXPENSE %
------- ------- ------- ------- ------- -------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
Assets:
Cash equivalents $ 24.0 $ 0.3 5.13% $ 18.6 $ 0.3 5.55%
Securities available for sale <F1> 1,563.2 29.3 7.51 2,041.7 37.2 7.29
Securities held to maturity 3,599.3 64.5 7.17 3,527.8 60.0 6.80
Loans <F2> <F3> 3,731.3 72.0 7.72 3,152.5 58.9 7.48
-------- ------ -------- ------
Total interest-earning assets 8,917.8 166.1 7.45% 8,740.6 156.4 7.16%
------ ----- ------ -----
Other assets 383.9 298.6
-------- --------
$9,301.7 $9,039.2
======== ========
Liabilities
Deposits:
NOW and money market accounts <F4> $ 904.9 7.6 3.36% $ 849.0 5.3 2.52%
Passbook savings deposits 321.1 1.8 2.27 380.5 2.2 2.26
Time deposits <F4> 3,643.1 57.0 6.26 3,619.4 47.3 5.23
-------- ------ -------- ------
4,869.1 66.4 5.46 4,848.9 54.8 4.52
Borrowings:
Securities sold under agreements
to repurchase 1,163.7 16.2 5.58 1,530.4 22.2 5.80
Advances from FHLB 2,577.1 35.9 5.57 2,010.3 29.9 5.95
Other borrowings 47.5 1.2 10.26 47.5 1.2 10.29
-------- ------ -------- ------
Total interest-bearing liabilities 8,657.4 119.7 5.53% 8,437.1 108.1 5.13%
------ ----- ------ -----
Other liabilities 142.1 154.3
-------- --------
8,799.5 8,591.4
Stockholders' equity 502.2 447.8
-------- --------
Total liabilities and
stockholders' equity $9,301.7 $9,039.2
======== ========
Net interest income $46.4 $48.3
===== =====
Interest rate spread <F5> 1.92% 2.03%
==== ====
Effective net spread <F6> 2.08% 2.21%
==== ====
<FN>
- - -------------------------
<F1> The securities available for sale are included in the following table
at historical cost with the corresponding average rate calculated upon
historical balances.
<F2> Average balances include non accrual loans. Interest on such loans is
included in interest income upon receipt.
<F3> Interest includes amortization of deferred fees.
<F4> Includes the effect of interest rate exchange agreements.
<F5> Equals average rate earned on all assets minus average rate paid on
all liabilities.
<F6> Net interest income annualized divided by average balance of all
interest-earning assets.
At March 31, 1996, the weighted average yield on interest-earning assets
was 7.41% and the weighted average cost on interest-bearing liabilities was
5.45%.
</TABLE>
<PAGE> 13
The following table presents the dollar amount of changes in interest
income and interest expense for major components of interest-earning assets
and interest-bearing liabilities. It distinguishes between changes related
to volume and those due to changes in interest rates. For each category of
interest income and interest expense, information is provided on changes
attributed to (i) changes in volume (i.e., changes in volume multiplied by
prior year rate) and (ii) changes in rate (i.e., changes in rate multiplied
by prior year volume). For purposes of this table, changes attributable to
both rate and volume, which cannot be segregated, have been allocated to the
change due to rate.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
1996 VS. 1995
---------------------------------------
INCREASE (DECREASE) TOTAL
DUE TO INCREASE
(DOLLARS IN THOUSANDS) VOLUME RATE (DECREASE)
-------- ------ ----------
<S> <C> <C> <C>
Interest income:
Loans $ 10,822 $ 2,248 $ 13,070
Securities available for sale (8,660) 784 (7,876)
Securities held to maturity 1,251 3,212 4,463
Other earning assets 75 (25) 50
-------- ---------- ---------
Total interest income $ 3,488 $ 6,219 $ 9,707
-------- ---------- ---------
Interest expense:
Deposits $ 226 $ 6,547 $ 6,773
Securities sold under agreements to
repurchase (5,316) (642) (5,958)
Advances from Federal Home Loan Bank 8,424 (2,412) 6,012
Interest rate exchange agreements (111) 4,930 4,819
-------- ---------- ---------
Total interest expense $ 3,223 $ 8,423 $ 11,646
-------- ---------- ---------
Change in net interest income $ 265 $ (2,204) $ (1,939)
======== ========== =========
</TABLE>
Provision for Losses on Loans
- - -----------------------------
The provision for losses on loans recorded for the three month period ended
March 31, 1996 remained unchanged from the three month period ended March 31,
1995 in the amount of $300,000. The provision for losses on loans
represents a charge against current net income to maintain a level of the
allowance for losses on loans that has been determined necessary to absorb
losses inherent in the Company's loan portfolio.
Noninterest Income (Loss)
- - -------------------------
Retail Banking Fees
Retail banking fees increased $600,000 to $3.1 million for the three month
period ended March 31, 1996 compared to $2.5 million for the three month
period ended March 31, 1995. The increase resulted from increased levels of
transaction account activities, primarily ATM fees, returned check fees and
telephone banking fees.
Insurance and Brokerage Sales Commissions
Insurance and brokerage sales commissions decreased to $1.7 million for the
three month period ended March 31, 1996 when compared to $2.0 million for the
three month period ended March 31, 1995. The decrease resulted from a
decline in the sales of fixed annuities and a resultant change in the mix of
sales from principally fixed annuities to a more equal blend of mutual funds
and fixed annuities. While overall investment product sales volumes are
comparable on a year over year basis, the change in mix, driven by market
conditions to mutual funds with lower resulting commissions, away from fixed
annuity sales caused overall commissions to decline.
Loan Servicing Fees, Net
Loan servicing fees, net of $2.0 million, did not materially change for the
three month period ended March 31, 1996 when compared to the same period in
1995 as the size of the Company's servicing portfolio was substantially the
same during the respective periods. During the first quarter of 1996 the
Company announced the acquisition of approximately $2.2 billion of GNMA
mortgage servicing. The purchase will increase the total size of Roosevelt's
servicing portfolio by greater than
<PAGE> 14
40% to approximately $7.5 billion, or in excess of 100,000 loans. This
acquisition is expected to fully settle prior to the end of the second
quarter of 1996.
<PAGE> 15
Net Gain (Loss) from Financial Instruments
In the conduct of its business operations, the Company has determined the
need to sell or terminate certain assets, liabilities, or off-balance sheet
positions due to various unforeseen events. Fundamental to the conduct of
such sale or termination activities is the effect such transactions will have
on the future volatility of the net market value of the Company.
Consequently, in pursuing these sale or termination of activities, the
Company does not seek net gains in a reporting period to the detriment of
earnings in future periods.
Net gain from financial instruments is summarized as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
1996 1995
---- ----
(IN MILLIONS)
<S> <C> <C>
Mark to market of financial
futures contracts --- (33,952)
Mortgage-backed securities
available for sale $ 3,090 $ 3,978
Options expense (2,749) (2,830)
------- --------
$ 341 $(32,804)
======= ========
</TABLE>
Mark to Market of financial futures contracts
During the three month period ended March 31, 1995 losses of $34.0 million
resulted from the mark to market of the Company's
financial futures positions used to reduce the interest rate risk of certain
mortgage-backed securities in the available for sale
portfolio. For further discussion see Note 1 - Basis of Presentation to the
Notes to Consolidated Financial Statements.
Unrealized Losses on Impairment of Mortgage-Backed Securities Held To
Maturity
The Company purchased ownership interests in ten pools of privately issued
adjustable rate mortgage-backed securities issued in 1989 through 1991 by
Guardian Savings and Loan Association ("Guardian"). All of such Guardian
pools in which the Company purchased and currently holds an ownership
interest were rated AA or AAA by Standard & Poors and Aa2 or Aaa by Moodys,
at the date of issuance of the securities.
Guardian issued their securities with several classes available for
purchase. Certain classes are subordinate to the position of senior classes
in that such subordinate classes absorb all credit losses and must be
completely eliminated before any losses flow to senior position holders. The
Guardian securities purchased by the Company (the "Guardian Securities") were
purchases of the most senior positions, thus intended to be protected by the
subordination credit enhancement feature.
Guardian was placed in conservatorship on June 21, 1991 by the Office of
Thrift Supervision, which appointed the Resolution Trust Corporation ("RTC")
as conservator. Subsequent to the conservatorship, the RTC replaced Guardian
as the servicer for the loans underlying the securities. Effective November
1994, Bank of America assumed servicing responsibilities from the RTC.
Guardian was a niche player in the California mortgage market whose lending
decisions relied more on the value of the mortgaged property and the
borrower's equity in the property and less on the borrower's income and
credit standing. All collateral underlying the Guardian Securities have the
following loan pool characteristics:
* First lien, 30 year, six month adjustable rate loans tied to either the
cost of funds index, one year constant maturity treasury rate, or LIBOR.
* 100% of the loans were originated in California.
* The weighted average loan to value ratio at origination was approximately
66%.
Beginning in mid-1993 and continuing currently, the loan pools backing the
securities have been affected by high delinquency and foreclosure rates, and
higher than anticipated losses on the ultimate disposition of real estate
acquired through foreclosure ("REO"). This has resulted in rating agency
downgrades, principally in April and May, 1994 and again in July and
September, 1995 to the current ratings reflected in the tables on page 16 and
substantial deterioration in the amount of the loss absorption capacity
provided by the subordinated classes.
<PAGE> 16
At December 31, 1994 and March 31, 1995, the Guardian securities owned by
the Company were performing according to their contractual terms, and all
realized losses from the disposition of REO were being absorbed by the
subordinate classes (or in the case of Pool 1990-7 at March 31, 1995, by
unamortized purchase discounts). However, to the extent that subsequent to
March 31, 1995, the pools continue to realize losses on the disposition of
REO at levels comparable to the then current rate, the remaining balances of
the subordinate classes may not be adequate to protect the Company from
incurring some credit losses on certain of its ten pools. As a result of
this deterioration and the continuing receipt of subsequent information, the
Company determined that the underlying investments represented by seven pools
in which, subsequent to March 31, 1995, the subordination protection has been
either totally eliminated or has become potentially inadequate should be
considered "other than temporarily" impaired under the provisions of
Statement of Financial Accounting Standards No. 115. As a result of this
determination, the Company recorded a $22.0 million pre-tax write-down ($14.4
million after tax or approximately $0.32 per share) for the three months
ended March 31, 1995 to reflect the impairment of these seven pools. The
amount of the write-down was based on discounted cash flow analyses performed
by management (based upon assumptions regarding delinquency levels,
foreclosure rates and loss ratios on REO disposition in the underlying
portfolio). Discounted cash flow analyses were utilized to estimate fair
value due to the absence of a ready market for the Guardian Securities.
In addition to the Guardian Securities discussed above, the Company has an
investment of approximately $5.3 million at March 31, 1996 after the
write-down discussed below, in another private issuer mortgage-backed
security, LB Multifamily Mortgage Trust Series 1991-4 ("Lehman 91-4"),
possessing similar performance characteristics to the Guardian Securities that
has also been determined to be other than temporarily impaired. Accordingly,
the Company recorded a $5.1 million pre-tax write-down ($3.4 million after tax
or approximately $0.08 per share) to reflect the impairment of this security
at March 31, 1995.
Management believes that these write-downs are adequate based upon its
evaluation.
<PAGE> 17
As reflected in the following table, the Company's remaining investment at
March 31, 1996 in the Guardian Securities is approximately $67.0 million,
after the desecuritization of Guardian Pool 1990-9 discussed below:
<TABLE>
<CAPTION>
(in millions)
<S> <C>
Investment in Guardian Securities, March 31, 1995 $ 118.9
Purchase of remaining senior position of Pool 1990-9 .6
Net principal payments received (18.9)
Desecuritization of Guardian Pool 1990-9 (see discussion below) (33.6)
-------
Investment in Guardian Securities, March 31, 1996 $ 67.0
=======
</TABLE>
Subsequent to March 31, 1995, the date of the impairment charge, through
March 31, 1996 the following events have occurred with respect to the
Guardian Securities and Lehman 91-4.
* During the quarter ended June 30, 1995, the Company completed its
planned desecuritization of Guardian Pool 1990-9 and has assumed
servicing of the underlying whole loans and REO properties received
through the desecuritization. As a result of this process, $1.1 million
representing principal, interest and servicing related funds advanced by
previous servicers to certificate holders on properties which were in
REO at the time of the desecuritization was reimbursed to the servicer,
$28.8 million was transferred to mortgage loans and $2.7 million (net of
$4.9 million of charge-offs discussed below) was transferred to
residential REO. REO properties and properties in foreclosure were
written down $4.9 million to their estimated fair values by charges to
existing unallocated REO reserves ($1.4 million) and loan loss reserves
($1.8 million) and to existing unamortized purchase discounts ($1.7
million).
* As expected, there were several additional rating agency downgrades,
principally related to those Guardian pools that are no longer protected
by remaining credit enhancement and which had been determined to be
other than temporarily impaired and written down to estimated fair value
by the Company during the quarter ended March 31, 1995.
* As expected, based on the low levels remaining at March 31, 1995, the
subordination protection related to Guardian Pools 1990-2, 1990-4 and
1990-5 was fully absorbed.
* The remaining four pools (Guardian 89-11, 90-1, 90-8 and Lehman 91-4),
determined at March 31, 1995 to be other than temporarily impaired and
written down to estimated fair value, continue to perform according to
their contractual terms and are protected by remaining subordination
ranging from 0.71% to 11.18% of the remaining unpaid principal balances
of the pools. Such remaining subordination percentages compare to
original subordination percentages ranging from 8.50% to 23.00%.
* The two remaining Guardian pools (89-10 and 91-2), which are not
considered to be other than temporarily impaired, continue to
perform according to their contractual terms and are protected by
remaining subordination of 13.53% and 22.03%, respectively. These
remaining subordination levels compare to 8.50% and 17.00%,
respectively, at the date of issuance of the securities.
* $18.9 million in net principal payments have been received since
March 31, 1995.
Accordingly, at March 31, 1996, management continues to believe that the
recorded investment in the above mentioned Guardian and Lehman pools is
recoverable.
<PAGE> 18
Presented below is information at March 31, 1996 relating to Roosevelt's
investment in the Guardian pools, segregated between the seven pools
determined to be other than temporarily impaired and the two pools which, in
the opinion of management, continue to be adequately protected from loss
through substantial remaining subordination. The immediately succeeding table
also includes information related to Lehman 91-4 which has been determined to
be other than temporarily impaired.
<TABLE>
<CAPTION>
POOLS DETERMINED TO BE OTHER THAN TEMPORARILY IMPAIRED
------------------------------------------------------
March 31, 1996
(dollars in thousands)
Subordination As a
Rating Percent of Pool Balance
Pool Issue --------------------------------- -----------------------
Number Date Agency At Issue Current At Issue Current
- - ------ ---- ------ -------- ------- -------- -------
GUARDIAN POOLS
- - --------------
<S> <C> <C> <C> <C> <C> <C>
89-11 11/30/89 S & P AA CCC 8.50% 11.18%
Moody Aa2 B1
90-1 1/30/90 S & P AA CC 8.50% 2.06%
Moody Aa2 B3
90-2 2/27/90 S & P AA D 8.50% --
Moody Aa2 Caa
90-4 4/30/90 S & P AA D 8.75% --
Moody Aa2 Caa
90-5 5/31/90 S & P AA D 8.75% --
Moody Aa2 Caa
90-7 7/25/90 S & P AA D 8.75% --
Moody Aa2 Caa
90-8 9/21/90 S & P AAA CCC 14.00% 9.85%
Moody Aaa B3
Total
Guardian
<CAPTION>
LEHMAN POOL
- - -----------
<S> <C> <C> <C> <C> <C> <C>
91-4 7/30/91 S & P AA CCC- 23.00% 0.71%
Moody Aa3 Caa
<CAPTION>
GUARDIAN POOLS DETERMINED TO BE ADEQUATELY PROTECTED BY REMAINING CREDIT ENHANCEMENT
------------------------------------------------------------------------------------
March 31, 1996
(dollars in thousands)
Subordination As a
Rating Percent of Pool Balance
Pool Issue --------------------------------- -----------------------
Number Date Agency At Issue Current At Issue Current
- - ------ ---- ------ -------- ------- -------- -------
<S> <C> <C> <C> <C> <C> <C>
89-10 10/27/89 S & P AA BBB- 8.50% 13.53%
Moody Aa2 Ba3
91-2 3/28/91 S & P AA BBB 17.00% 22.03%
Moody Aaa Baa3
Totals
<CAPTION>
Regarding Roosevelt's Interests
------------------------------------- Percent of Pools
Pool Issue Original Par Remaining Remaining Current or Less than
Number Date At Issue Par Investment 90 Days Delinquent
- - ------ ---- ------------ --------- ---------- --------------------
GUARDIAN POOLS
- - --------------
<S> <C> <C> <C> <C> <C>
89-11 11/30/89 $ 33,750 $ 7,977 $ 6,025 73%
90-1 1/30/90 3,000 786 578 73%
90-2 2/27/90 27,500 6,928 4,872 73%
90-4 4/30/90 46,428 13,291 9,927 65%
90-5 5/31/90 45,000 14,541 11,441 73%
90-7 7/25/90 68,025 20,209 14,839 73%
90-8 9/21/90 15,000 4,895 3,728 66%
---------------------------------
Total
Guardian $238,703 $68,627 $51,410
===================================
<CAPTION>
LEHMAN POOL
- - -----------
<S> <C> <C> <C> <C> <C>
91-4 7/30/91 $ 14,000 $10,177 $5,316 76%
===================================
<CAPTION>
Regarding Roosevelt's Interests
------------------------------------- Percent of Pools
Pool Issue Original Par Remaining Remaining Current or Less than
Number Date At Issue Par Investment 90 Days Delinquent
- - ------ ---- ------------ --------- ---------- --------------------
<S> <C> <C> <C> <C> <C>
89-10 10/27/89 $ 9,000 $ 1,737 $ 1,755 65%
91-2 3/28/91 39,831 $13,765 $13,765 71%
---------------------------------
Totals $ 48,831 $15,502 $15,520
===================================
</TABLE>
<PAGE> 19
Noninterest Expense
- - -------------------
General and Administrative Expense
General and administrative expense increased $225,000 to $21.7 million for
the three month period ended March 31, 1996 when compared to $21.5 million
for the three month period ended March 31,1995. Such increase was due
primarily to an increase in compensation and employee benefits partially
offset by a decrease in federal insurance premiums. Compensation and
employee benefits increased approximately $1.2 million as a result of normal
wage increases, additions to staff, and an increase in the costs related to
other employee benefits expense. Federal insurance premiums decreased
approximately $872,000 as a result of a decrease in the insurance premium rate
paid by the Company on its deposits.
Financial Condition
- - -------------------
Total assets increased $121.6 million or 1.4% to $9.1 billion at March 31,
1996 from $9.0 billion at December 31, 1995. As a result of the Company's
focus on retail asset generation loans increased $199.3 million. During the
three month period ended March 31, 1996 the Bank originated $288.9 million in
loans and purchased $170.8 million in loans. These increases were offset by
principal repayments totaling $256.4 million. Securities available for sale
decreased $146.7 million primarily as a result of principal repayments and
sales of such securities totaling $414.0 million exceeding purchases which
totaled $274.7 million. Securities held to maturity increased approximately
$26.9 million as a result of purchases exceeding principal repayments. Other
assets increased primarily as a result of initial payment amounts totaling
$8.0 million related to the $2.2 billion of GNMA mortgage servicing which is
expected to settle prior to the end of 1996.
Total liabilities increased $109.4 million or 1.3% to $8.6 billion at March
31, 1996 from $8.5 billion at December 31, 1995. Federal Home Loan Bank
advances and retail deposits increased $78.6 million and $13.6 million
respectively, accounting for substantially all of the liability growth.
<PAGE> 20
ASSET QUALITY
The following table sets forth the amounts and categories of non-performing
assets. Loans are placed on non-accrual status when the collection of
principal and/or interest becomes doubtful. Troubled debt restructurings
involve forgiving a portion of interest or principal on any loans or making
loans at a rate materially less than that of market rates. Foreclosed assets
include assets acquired in settlement of loans. "Other than temporarily
impaired" mortgage-backed securities represent private issuer mortgage-backed
securities that have been determined to be "other than temporarily impaired"
under the provisions of Statement of Financial Accounting Standards No. 115
and for which the previously existing credit enhancement support, in the form
of subordination, has been totally absorbed and therefore any future losses
will flow directly to the Company as a senior position holder. These
securities were issued with several classes available for purchase. Certain
classes are subordinate to the position of senior classes in that such
subordinate classes absorb all credit losses and must be completely
eliminated before any losses flow to senior position holders. The securities
purchased by the Company were purchases of the most senior positions, thus
intended to be protected by the subordination credit enhancement feature. In
an attempt toward a conservative presentation, the Company includes the
entire estimated fair value of these securities (approximately 75% of the
unpaid principal balances at March 31, 1996) in this table when the credit
enhancement, in the form of subordination, is exhausted even though a
substantial portion of the underlying loans (approximately 71% at September
30, 1995) are either current or less than 90 days delinquent. In addition,
the remaining amount of "other than temporarily impaired" mortgage-backed
securities that continue to be protected by remaining credit enhancement, but
for which the Company has concluded it is probable that such credit
enhancement will be absorbed before the duration of the underlying security,
are disclosed in the paragraphs following the table as other potential
problem assets. See the caption entitled "Unrealized Losses on Impairment of
Mortgage-Backed Securities Held to Maturity" under the heading "Management's
Discussion and Analysis of Financial Condition and Results of Operations" for
further details.
<TABLE>
<CAPTION>
NONPERFORMING ASSETS MARCH 31, DECEMBER 31,
(in thousands) 1996 1995
--------- ------------
<S> <C> <C>
NONACCRUING LOANS:
Residential $ 8,523 $ 7,895
Commercial real estate 1,602 1,415
Consumer 182 193
----------- ------------
Total 10,307 9,503
----------- ------------
ACCRUING LOANS DELINQUENT MORE THAN 90 DAYS:
Residential 11,144 10,500
----------- ------------
TROUBLED-DEBT RESTRUCTURINGS:
Commercial real estate 58 661
----------- ------------
FORECLOSED ASSETS:
Residential 4,060 5,340
Commercial real estate 11,142 11,483
Consumer 29 11
----------- ------------
Total 15,231 16,834
----------- ------------
Sub-total 36,740 37,498
----------- ------------
SUB-TOTAL NONPERFORMING ASSETS
AS A PERCENTAGE OF TOTAL ASSETS .40% .42%
=========== ============
"OTHER THAN TEMPORARILY IMPAIRED" MORTGAGE-BACKED
SECURITIES WITH APPROXIMATELY 71% OF THE UNDERLYING
LOANS EITHER CURRENT OR LESS THAN 90 DAYS DELINQUENT 41,079 43,429
----------- ------------
Total non-performing assets $ 77,819 $ 80,927
=========== ============
TOTAL AS A PERCENTAGE OF TOTAL
ASSETS .85% .90%
=========== ============
</TABLE>
<PAGE> 21
Not included in the preceding table are certain pools of private issuer
mortgage-backed securities with a carrying value of $15.6 million which were
performing according to their contractual terms at March 31, 1996. However,
these securities were determined by the Company to be "other than temporarily
impaired" and written down to fair value, since at March 31, 1995, the
subordination protection had been substantially reduced to the point where
the Company concluded it was probable that the securities would not continue
to perform to 100% of their contractual terms over the course of their
remaining lives. These securities will be included in the preceding
non-performing asset table in future periods when, and if, the remaining
subordination is exhausted. The following table is a reconciliation of the
amount of currently performing, other than temporarily impaired
mortgage-backed securities at March 31, 1995 to such amount at March 31,
1996.
<TABLE>
<CAPTION>
in millions
-----------
<S> <C>
Amount of currently performing, other than temporarily impaired
mortgage-backed securities at March 31, 1995 $ 52.4
Principal payments received (7.4)
Addition of Guardian Pools 1990-2, 1990-4 and 1990-5 to the
non-performing asset table as subordination protection was absorbed
during the quarter ended March 31, 1996 (29.4)
------
Amount of currently performing, other than temporarily impaired
mortgage-backed securities at March 31, 1996 $ 15.6
======
</TABLE>
<PAGE> 22
ASSET/LIABILITY MANAGEMENT
The Company's primary objective regarding asset/liability management is to
position the Company such that changes in interest rates do not have a
material adverse impact upon net interest income or the net market value of
the Company. The Company's primary strategy for accomplishing its asset/
liability management objective is achieved by matching the weighted
average maturities of assets, liabilities, and off-balance sheet items
(duration matching). Integral to the duration matching strategy is the use
of derivative financial instruments such as interest rate exchange agreements
and interest rate cap and floor agreements. The Company uses derivative
financial instruments solely for risk management purposes. None of the
Company's derivative instruments are what are termed leveraged instruments.
These types of instruments are riskier than the derivatives used by the
Company in that they have embedded options that enhance their performance in
certain circumstances but dramatically reduce their performance in other
circumstances. The Company is not a dealer nor does it make a market in such
instruments. The Company does not trade the instruments and the Board of
Directors' approved policy governing the Company's use of these instruments
strictly forbids speculation of any kind.
Net market value is calculated by adjusting stockholders' equity for
differences between the estimated fair values and the carrying values
(historical cost basis) of the Company's assets, liabilities, and off-balance
sheet items. Net market value, as calculated by the Company and presented
herein, should not be confused with the value of the Company's stock or of
the amounts distributable to stockholders in connection with a sale of the
Company or in the unlikely event of its liquidation. The economic net market
value (including the estimated value of demand deposits) as calculated by the
Company increased to approximately $489.7 million at March 31, 1996 as
compared to approximately $481.5 million at December 31, 1995. To measure
the impact of interest rate changes, the Company recalculates its net market
value on a pro forma basis assuming instantaneous, permanent parallel shifts
in the yield curve, in varying amounts both upward and downward. Larger
increases or decreases in the Company's net market value as a result of these
assumed interest rate changes indicate greater levels of interest rate
sensitivity than do smaller increases or decreases in net market value. The
Company endeavors to maintain a position whereby it experiences no material
change in net market value as a result of assumed 100 and 200 basis point
increases and decreases in general levels of interest rates.
The OTS recently issued a regulation, effective January 1, 1994, which uses
a similar methodology to measure the interest rate risk exposure of thrift
institutions. This exposure is a measure of the potential decline in the net
portfolio value of the institution based upon the effect of an assumed 200
basis point increase or decrease in interest rates. "Net portfolio value" is
the present value of the expected net cash flow from the institution's
assets, liabilities, and off-balance sheet contracts. Under the OTS
regulation, an institution's "normal" level of interest rate risk in the
event of this assumed change in interest rates is a decrease in the
institution's net portfolio value in an amount not exceeding two percent of
the present value of its assets. The regulation provides for a two quarter
lag between calculating interest rate risk and recognizing any deduction from
capital. The amount of that deduction is one-half of the difference between
(a) the institution's actual calculated exposure to the 200 basis point
interest rate increase or decrease (whichever results in the greater pro
forma decrease in net portfolio value) and (b) its "normal" level of exposure
which is two percent of the present value of its assets. The OTS recently
announced that it will delay the effectiveness of the regulation until it
adopts the process by which an association may appeal an interest rate risk
capital deduction determination.
<PAGE> 23
Utilizing this measurement concept, the interest rate risk of the Company
at March 31, 1996 is as follows and reflects that the Company's level of
interest rate risk is far below that which is considered "normal" by the OTS
in its regulation.
<TABLE>
<CAPTION>
(unaudited)
-----------------------------------------------------
(dollars in thousands)
<S> <C> <C> <C> <C>
Basis point changes in interest rates -200 -100 +100 +200
Changes in net market value due to changes in
interest rates (Company methodology) $ (23,407) $(3,000) $(19,385) $ (59,674)
Interest rate exposure deemed "normal" by the OTS $ (182,693) N/A N/A $(182,693)
</TABLE>
The Company's operating strategy is designed to avoid material changes in
net market value as a result of fluctuations in interest rates. As of March
31, 1996, the Company believes it has accomplished its objectives as the pro
forma changes in net market value brought about by changes in interest rates
are not material relative to the Company's net market value. A net loss when
rates increase indicates the duration of the Company's assets is slightly
longer than the duration of the Company's liabilities. A loss when rates
decrease is due primarily to borrowers prepaying their loans resulting in the
Company's assets repricing down more quickly than the Company can reprice its
liabilities.
<PAGE> 24
LIQUIDITY AND CAPITAL RESOURCES
OTS regulations require federally insured savings institutions to maintain
a specified ratio (presently 5.0%) of cash and short-term United States
Government, government agency, and other specified securities to net
withdrawable accounts and borrowings due within one year. The Company has
maintained liquidity in excess of required amounts having had ratios of
5.05%, and 5.64% at March 31, 1996, and December 31, 1995, respectively.
The Company's cash flows are comprised of cash flows from operating,
investing and financing activities. Cash flows provided by operating
activities, consisting primarily of interest received on investments
(principally loans and mortgage-backed securities) less interest paid on
deposits and other short-term borrowings, were $16.3 million for the three
month period ended March 31, 1996. Net cash related to investing activities,
consisting primarily of purchases of mortgage-backed securities held to
maturity and available for sale and originations and purchases of loans,
offset by principal repayments on mortgage-backed securities and loans and
sales of mortgage-backed securities available for sale, utilized $91.4
million for the three month period ended March 31, 1996. Net cash related to
financing activities, consisting of proceeds, net of repayments, from FHLB
advances, proceeds from securities sold under agreements to repurchase and
excess of saving flows provided $104.4 million for the three month period
ended March 31, 1996.
At March 31, 1996, the Company had commitments outstanding to originate
fixed-rate mortgage loans of approximately $78.2 million and adjustable-rate
mortgages of approximately $72.4 million. At March 31, 1996, the Company had
outstanding commitments to purchase fixed-rate mortgage loans of
approximately $19.5 million and adjustable-rate mortgage loans of
approximately $1.4 million. At March 31, 1996, the Company had outstanding
commitments to purchase mortgage-backed securities of approximately $333.3
million. The Company expects to satisfy such commitments through its primary
source of funds.
The Financial Institutions Reform, Recovery and Enforcement Act of 1989
(FIRREA) requires that an institution meet three specific capital
requirements: a leverage ratio of core capital to total adjusted assets, a
tangible capital ratio expressed as a percent of total tangible assets and a
risk-based capital standard expressed as a percent of risk-adjusted assets.
As of March 31, 1996, the Bank exceeded all regulatory capital standards as
follows (dollars in millions):
<TABLE>
<CAPTION>
REQUIREMENT
---------------- ACTUAL EXCESS CAPITAL
CAPITAL STANDARD AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT
---------------- ------ ------- ------ ------- ------ -------
<S> <C> <C> <C> <C> <C> <C>
Tangible Capital $136.4 1.50% $493.0 5.42% $356.6 3.92%
Core Capital $272.9 3.00% $495.3 5.45% $222.4 2.45%
Risk-based Capital $277.9 8.00% $513.4 14.78% $235.5 6.78%
</TABLE>
Recent Developments
- - -------------------
The deposits of the Bank are presently insured by the Savings Association
Insurance Fund (SAIF) and the Bank Insurance Fund (BIF), which are the two
insurance funds administered by the Federal Deposit Insurance Corporation
(FDIC). Effective January, 1996, the FDIC premium schedule for BIF insured
banks ranges from 0% to .27% of deposits (as compared to a range of .23% to
.31% for SAIF insured deposits), with a minimum annual assessment of $2,000.
BIF members therefore, pay lower premiums than the SAIF members. It is
anticipated that the SAIF will not be adequately recapitalized until 2002,
absent a substantial increase in premium rates or the imposition of special
assessments or other significant developments, such as a merger of the SAIF
and the BIF. As a result of this disparity, SAIF members could be placed at
a significant competitive disadvantage to BIF members due to higher costs for
deposit insurance. Proposed legislation
<PAGE> 25
under consideration by the United States Congress provides for a one-time
assessment to be imposed on all deposits assessed at the SAIF rates, as of
March 31, 1995, in order to recapitalize the SAIF and eliminate the disparity.
The special assessment rate is anticipated to range from .80% to .90%. Based
on the Bank's level of SAIF deposits at March 31, 1995 and assuming a special
assessment of .90%, the Bank's assessment would be approximately $37.2 million
on a pre-tax basis. If the legislation is enacted, this special assessment
would significantly increase non-interest expense and adversely effect
Roosevelt Bank's results of operations for that period. Conversely, depending
upon the Bank's capital level and supervisory rating, and assuming, although
there can be no assurance, that the insurance premium levels for BIF and SAIF
members are again equalized, deposit insurance premiums could decrease
significantly for future periods. At this time it is not known when such
legislation will be enacted.
<PAGE> 26
PART II OTHER INFORMATION
Item 1. Legal Proceedings
-------------------------------------------
None
Item 2. Changes in Securities
-------------------------------------------
None
Item 3. Defaults Upon Senior Securities
-------------------------------------------
None
Item 4. Submission of Matters to a Vote of Security Holders
-------------------------------------------
(a) The 1996 Annual Meeting of Stockholders was held on
April 25, 1996.
(b) Directors Elected: Directors Continuing in Office:
Richard E. Beumer Robert M. Clayton II
Alvin D. Vitt Stanley J. Bradshaw
Douglas T. Breeden Patricia M. Gammon
Bradbury Dyer III Hiram S. Liggett, Jr.
Clarence M. Turley, Jr.
Anat Bird
(c) At the 1996 Annual Meeting of Stockholders, the stockholders
considered (i.) the election of four directors of the Company,
(ii.) ratification of the appointment of KPMG Peat Marwick,
LLP as independent auditors for Roosevelt Financial for the
fiscal year ending December 31, 1996.
<PAGE> 27
The vote on the election of four directors at the Annual Meeting was as
follows:
<TABLE>
<CAPTION>
FOR WITHHELD
<S> <C> <C>
Richard E. Buemer 34,564,797 143,903
Alvin D. Vitt 34,561,925 146,775
Douglas T. Breeden 34,522,162 186,538
Bradbury Dyer III 34,520,229 188,471
</TABLE>
There were no broker non-votes with respect to the proposal.
The vote on the ratification of the appointment of the auditors at the
Annual Meeting was as follows:
<TABLE>
<CAPTION>
FOR AGAINST
ABSTAIN
<S> <C> <C> <C>
34,282,873 83,695
342,132
</TABLE>
There were no broker non-votes with respect to the proposal.
Item 5. Other Information
-------------------------------------------
None
Item 6. Exhibits and Reports on Form 8-K
-------------------------------------------
None
<PAGE> 28
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
ROOSEVELT FINANCIAL GROUP, INC.
DATE: SEPTEMBER 12, 1996 BY: /S/GARY W. DOUGLASS
-------------------------------------
GARY W. DOUGLASS
EXECUTIVE VICE PRESIDENT AND
CHIEF FINANCIAL OFFICER
27
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 23,105
<INT-BEARING-DEPOSITS> 21,641
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 1,459,784
<INVESTMENTS-CARRYING> 3,577,014
<INVESTMENTS-MARKET> 3,573,518
<LOANS> 3,798,871
<ALLOWANCE> 21,711
<TOTAL-ASSETS> 9,134,660
<DEPOSITS> 4,921,047
<SHORT-TERM> 2,744,480
<LIABILITIES-OTHER> 132,538
<LONG-TERM> 827,490
0
65,050
<COMMON> 199,271
<OTHER-SE> 244,784
<TOTAL-LIABILITIES-AND-EQUITY> 9,134,660
<INTEREST-LOAN> 72,010
<INTEREST-INVEST> 93,825
<INTEREST-OTHER> 308
<INTEREST-TOTAL> 166,143
<INTEREST-DEPOSIT> 61,164
<INTEREST-EXPENSE> 119,769
<INTEREST-INCOME-NET> 46,374
<LOAN-LOSSES> 300
<SECURITIES-GAINS> 3,090
<EXPENSE-OTHER> 21,718
<INCOME-PRETAX> 32,874
<INCOME-PRE-EXTRAORDINARY> 21,565
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 21,565
<EPS-PRIMARY> 0.48
<EPS-DILUTED> 0.46
<YIELD-ACTUAL> 2.08
<LOANS-NON> 10,307
<LOANS-PAST> 11,144
<LOANS-TROUBLED> 58
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 21,855
<CHARGE-OFFS> 540
<RECOVERIES> 96
<ALLOWANCE-CLOSE> 21,711
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 18,105
</TABLE>
