<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 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.
<TABLE>
<CAPTION>
Class Outstanding at August 7, 1996
---------------------- -------------------------------
<S> <C>
Common Stock 42,104,400
Par Value $.01
</TABLE>
<PAGE> 2
<TABLE>
INDEX
ROOSEVELT FINANCIAL GROUP, INC.
<CAPTION>
PAGE
<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 11
PART II. OTHER INFORMATION
SIGNATURES
</TABLE>
<PAGE> 3
<TABLE>
ROOSEVELT FINANCIAL GROUP, INC.
Consolidated Balance Sheets
(dollars in thousands, except share data) (Unaudited)
<CAPTION>
June 30, December 31,
1996 1995
---------- ------------
<S> <C> <C>
Assets:
Cash and cash equivalents $ 64,253 $ 15,433
Securities available for sale:
Investment securities 159,783 159,857
Mortgage-backed securities 1,193,977 1,446,604
Securities held to maturity:
Investment securities 113,570 119,186
Mortgage-backed securities 3,420,771 3,430,954
Loans 4,016,699 3,577,892
Real estate owned 14,920 15,433
Office properties and equipment, net 51,732 52,466
Other assets 292,067 195,236
---------- ----------
$9,327,772 $9,013,061
========== ==========
Liabilities and Stockholders' Equity:
Deposits $4,995,371 $4,907,497
Securities sold under agreements to repurchase 994,852 1,082,814
Advances from Federal Home Loan Bank 2,610,738 2,377,138
Other borrowings 47,593 47,523
Other liabilities 162,901 101,183
---------- ----------
Total Liabilities 8,811,455 8,516,155
---------- ----------
Stockholders' equity:
Preferred stock -- $.01 par value; $50 preference value; 6.5%
noncumulative perpetual convertible; aggregate preference value of
$65,050; 3,000,000 shares authorized and 1,301,000 issued and
outstanding 13 13
Common stock -- $.01 par value; 90,000,000 shares authorized;
42,145,561 and 41,991,701 shares issued and outstanding at June 30,
1996 and December 31, 1995, respectively 421 420
Paid-in capital 264,216 262,381
Retained earnings -- subject to certain restrictions 249,730 223,606
Unrealized gain on securities available for sale, net of taxes 3,389 12,019
Unamortized restricted stock awards (1,452) (1,533)
---------- ----------
Total Stockholders' Equity 516,317 496,906
---------- ----------
$9,327,772 $9,013,061
========== ==========
See accompanying notes to consolidated financial statements
</TABLE>
2
<PAGE> 4
<TABLE>
ROOSEVELT FINANCIAL GROUP, INC.
Consolidated Statements of Operations
(dollars in thousands, except per share information) (Unaudited)
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
1996 1995 1996 1995
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Interest income:
Loans $ 73,297 $ 61,822 $145,307 $120,762
Securities available for sale 25,597 35,020 54,945 72,361
Securities held to maturity 63,048 65,569 127,525 125,583
Other 338 254 646 512
-------- -------- -------- --------
Total interest income 162,280 162,665 328,423 319,218
-------- -------- -------- --------
Interest expense:
Deposits 60,955 58,240 122,119 112,631
Other borrowings 52,514 56,304 105,860 109,596
Interest rate exchange agreements, net 5,515 2,349 10,774 2,789
-------- -------- -------- --------
Total interest expense 118,984 116,893 238,753 225,016
-------- -------- -------- --------
Net interest income 43,296 45,772 89,670 94,202
Provision for losses on loans 300 300 600 600
-------- -------- -------- --------
Net interest income after provision
for losses on loans 42,996 45,472 89,070 93,602
-------- -------- -------- --------
Noninterest income (loss):
Retail banking fees 3,455 2,696 6,587 5,228
Insurance and brokerage sales commissions 2,020 2,105 3,718 4,116
Loan servicing fees, net 2,714 2,102 4,733 4,144
Net gain from financial instruments 521 911 862 2,419
Unrealized losses on impairment of mortgage-
backed securities held to maturity -- -- -- (27,063)
Other 1,566 540 2,894 1,538
-------- -------- -------- --------
Total noninterest income (loss) 10,276 8,354 18,794 (9,618)
-------- -------- -------- --------
Noninterest expense:
Compensation and employee benefits 10,637 8,578 20,519 17,211
Occupancy 4,469 4,376 8,391 8,657
Federal insurance premiums 2,267 3,212 4,606 6,423
Other 6,055 5,574 11,630 10,942
-------- -------- -------- --------
Total noninterest expense 23,428 21,740 45,146 43,233
-------- -------- -------- --------
Income before income tax expense 29,844 32,086 62,718 40,751
Income tax expense 10,116 11,027 21,425 14,005
-------- -------- -------- --------
Net income $ 19,728 $ 21,059 $ 41,293 $ 26,746
======== ======== ======== ========
Net income attributable to common stock $ 18,671 $ 20,002 $ 39,179 $ 24,617
======== ======== ======== ========
Earnings per share:
Primary $ 0.44 $ 0.49 $ 0.92 $ 0.61
======== ======== ======== ========
Fully-diluted $ 0.42 $ 0.46 $ 0.88 $ 0.58
======== ======== ======== ========
Dividends Paid $ 0.155 $ 0.14 $ 0.31 $ 0.28
======== ======== ======== ========
See accompanying notes to consolidated financial statements
</TABLE>
3
<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 $ 191,359
Net income -- -- -- -- -- 45,118
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 -- -- -- -- -- 41,293
Issuance of common stock through stock options
and employee stock plans -- -- 153,860 1 1,835 --
Amortization of restricted stock awards -- -- -- -- -- --
Cash dividends declared:
Common stock -- -- -- -- -- (13,055)
Preferred stock -- -- -- -- -- (2,114)
Unrealized losses on securities available for
sale, net -- -- -- -- -- --
--------- -------- ---------- -------- --------- ----------
Balance, June 30, 1996 1,301,000 $ 13 42,145,561 $ 421 $ 264,216 $ 249,730
========= ======== ========== ======== ========= ==========
<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) $ (5,653) $ -- $ 441,626
Net income -- -- -- -- 45,118
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 -- -- 17,672 -- 17,672
-------- -------- ------------- ------------ -------------
Balance, December 31, 1995 -- -- 12,019 (1,533) 496,906
Net income -- -- -- -- 41,293
Issuance of common stock through stock options
and employee stock plans -- -- -- -- 1,836
Amortization of restricted stock awards -- -- -- 81 81
Cash dividends declared:
Common stock -- -- -- -- (13,055)
Preferred stock -- -- -- -- (2,114)
Unrealized losses on securities available for
sale, net -- -- (8,630) -- (8,630)
-------- -------- ------------- ------------ -------------
Balance, June 30, 1996 -- $ -- $ 3,389 $ (1,452) $ 516,317
======== ======== ============= ============ =============
See accompanying notes to consolidated financial statements
</TABLE>
4
<PAGE> 6
<TABLE>
ROOSEVELT FINANCIAL GROUP, INC.
Consolidated Statements of Cash Flows
(dollars in thousands) (Unaudited)
<CAPTION>
Six Months Ended
June 30,
1996 1995
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 41,293 $ 26,746
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 2,201 2,069
Amortization of discounts and premiums, net 15,921 1,609
Increase in accrued interest receivable (3,281) (5,299)
Decrease in accrued interest payable (7,422) (201)
Provision for losses on loans 600 600
Unrealized losses on impairment of mortgage-backed securities held to maturity -- 27,063
Other, net (3,632) (4,816)
----------- -----------
Net cash provided by operating activities 45,680 47,771
----------- -----------
Cash flows from investing activities:
Principal payments and maturities of securities available for sale 106,606 49,163
Principal payments and maturities of securities held to maturity 581,993 315,337
Principal payments on loans 485,980 227,485
Proceeds from sales of securities available for sale 561,202 738,622
Purchase of securities available for sale (432,202) (688,704)
Purchase of securities held to maturity (573,971) (746,243)
Purchase of loans (273,006) (171,623)
Originations of loans (661,037) (198,877)
Settlements of financial futures available for sale -- (61,498)
Net proceeds from sales of real estate 5,231 4,917
Purchase of mortgage servicing rights (36,069) --
Purchase of office properties and equipment (1,521) (999)
----------- -----------
Net cash used in investing activities (236,794) (532,420)
----------- -----------
Cash flows from financing activities:
Proceeds from FHLB advances 9,622,500 8,718,000
Principal payments on FHLB advances (9,389,000) (8,263,000)
Proceeds received from termination of interest rate exchange agreements 14,185 --
Fees paid for interest rate cap agreements (49,290) --
Excess of deposit receipts over withdrawals (withdrawals over receipts) 87,634 (113,726)
(Decrease) increase in securities sold under agreements to repurchase, net (87,962) 147,243
Proceeds from exercise of stock options 1,070 427
Purchase of treasury stock -- (2,653)
Cash dividends paid (15,169) (13,389)
Net increase in advances from borrowers for taxes and insurance 55,966 40,755
----------- -----------
Net cash provided by financing activities 239,934 513,657
----------- -----------
Net increase in cash and cash equivalents 48,820 29,008
Cash and cash equivalents at beginning of period 15,433 22,106
----------- -----------
Cash and cash equivalents at end of period $ 64,253 $ 51,114
=========== ===========
Supplemental disclosures of cash flow information:
Payments during the period for:
Interest $ 246,175 $ 225,217
Income taxes 17,678 23,850
Noncash investing and financing activities:
Desecuritization resulting in transfer of mortgage-backed securities held to
maturity to loans receivable held to maturity and real estate owned -- 33,603
Redesignation of interest rate exchange and cap agreements to securities
available for sale 3,235 --
See accompanying notes to consolidated financial statements
</TABLE>
5
<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 June 30, 1996 and December 31, 1995 and for the three month
and six month periods ended June 30, 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 June 30, 1996 and December 31,
1995 and the results of its operations for the three month and six month
periods ended June 30, 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 consolidated 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.
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 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 common stock for
each share of CCC. The transaction is subject to the approval of the
stockholders of CCC and federal banking regulators. It is currently anticipated
that 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 with Roosevelt Bank. At March 31, 1996, Mutual had total assets
of approximately $53 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; however, it has not been determined whether the transaction
will be accounted for under the pooling of interests method or the purchase
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 March 31, 1996, Sentinel had total assets of
approximately $149 million. In the transaction each holder of the common
stock of Sentinel will receive 1.4231 shares of common stock of the Company
(subject to adjustment) 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; however,
it has not been determined whether the transaction will be accounted for under
the pooling of interests method or purchase method of accounting.
In order to apply pooling of interests accounting to any of the above
described transactions, the Company would be required to rescind its existing
stock repurchase plan described in Note 6 prior to consumation of the
respective transactions.
6
<PAGE> 8
NOTE 3 -SECURITIES AVAILABLE FOR SALE
The amortized cost and market value of securities available for sale at
June 30, 1996 are summarized as follows:
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
--------- ---------- ---------- ------
(in thousands)
<S> <C> <C> <C> <C>
Investment Securities:
U.S. Government and agency obligations $ 1,204 $ 273 $ -- $ 1,477
Corporate securities 12,979 1,201 (12) 14,168
---------- ------ ------- ---------
14,183 1,474 (12) 15,645
FHLB stock 144,138 -- -- 144,138
---------- ------ ------- ---------
158,321 1,474 (12) 159,783
---------- ------ ------- ---------
Mortgage-backed Securities:
Mortgage-backed certificates:
GNMA 667,178 6,300 (2,167) 671,311
FNMA 212,438 540 (4,117) 208,861
FHLMC 234,671 738 (4,440) 230,969
Other 53,051 2,084 (1,526) 53,609
Derivative financial instruments:
Interest rate exchange agreements (13,393) 16,201 (149) 2,659
Interest rate cap agreements 31,643 1,595 (9,325) 23,913
Interest rate floor agreements 3,811 180 (1,336) 2,655
---------- ------ ------- ---------
1,189,399 27,638 (23,060) 1,193,977
---------- ------ ------- ---------
$ 1,347,720 $29,112 $(23,072) $1,353,760
========== ====== ======= =========
</TABLE>
Gross realized gains and gross realized losses on sales of securities
available for sale are summarized as follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
-------------------------------
1996 1995
------- -------
<S> <C> <C>
Gross realized gains $11,005 $13,142
Gross realized losses (3,573) (5,143)
------ ------
$ 7,432 $ 7,999
====== ======
</TABLE>
7
<PAGE> 9
NOTE 4 - SECURITIES HELD TO MATURITY
The amortized cost and market value of securities held to maturity at
June 30, 1996 are summarized as follows:
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
--------- ---------- ---------- ------
(in thousands)
<S> <C> <C> <C> <C>
Investment Securities:
U.S. Government and agency obligations $ 109,902 $ 962 $ -- $ 110,864
Corporate securities 3,668 28 -- 3,696
---------- ------- -------- ----------
113,570 990 -- 114,560
---------- ------- -------- ----------
Mortgage-backed Securities:
Mortgage-backed certificates:
GNMA 11,819 123 (190) 11,752
FNMA 73,879 1,280 (261) 74,898
FHLMC 84,481 2,306 (363) 86,424
Private pass-throughs 2,771,936 18,190 (27,898) 2,762,228
Collateralized mortgage obligations 478,656 3,630 (7,099) 475,187
---------- ------- -------- ----------
3,420,771 25,529 (35,811) 3,410,489
---------- ------- -------- ----------
$ 3,534,341 $ 26,519 $ (35,811) $ 3,525,049
========== ======= ======== ==========
</TABLE>
NOTE 5 - COMMON STOCK DIVIDENDS AND PREFERRED STOCK DIVIDENDS
On July 17, 1996, the Board of Directors declared the Company's thirty
fourth common stock cash dividend in the amount of 15.5 cents per share
payable August 30, 1996 to stockholders of record on August 15, 1996. On
June 27, 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
August 15, 1996 to stockholders of record on August 5, 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 June 30, 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 (SFAS) No. 115
"Accounting for Certain Investments in Debt and Equity Securities". 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.
8
<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 June
30, 1996 and 1995 were 42,447,558 and 40,571,773, respectively. Average
common and common stock equivalents outstanding, for the six month periods
ended June 30, 1996 and 1995 were 42,410,480 and 40,572,321, 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 June 30, 1996 and 1995 were 47,347,319 and
45,444,773, respectively. Average common and common stock equivalents
outstanding, for the purpose of calculating fully-diluted earnings per share,
for the six month periods ended June 30, 1996 and 1995 were 47,302,878 and
45,478,751.
NOTE 9 - ACCOUNTING PRONOUNCEMENTS
During June 1996, the Financial Accounting Standards Board (FASB)
issued Statement of Financial Accounting Standards No. 125, "Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of
Liabilities" (SFAS 125). SFAS 125 provides accounting and reporting
standards for transfers and servicing of financial assets and extinguishments
of liabilities based on consistent application of a financial components
approach that focuses on control. It distinguishes transfers of financial
assets that are sales from transfers that are secured borrowings. Under the
financial components approach, after a transfer of financial assets, an
entity recognizes all financial and servicing assets it controls and
liabilities it has incurred and derecognizes financial assets it no longer
controls and liabilities that have been extinguished. The financial
components approach focuses on the assets and liabilities that exist after
the transfer. Many of these assets and liabilities are components of
financial assets that existed prior to the transfer. If a transfer does not
meet the criteria for a sale, the transfer is accounted for as a secured
borrowing with pledge of collateral.
SFAS 125 extends the "available-for-sale" or "trading" approach in
Statement of Financial Accounting Standards No. 115 (SFAS 115) to nonsecurity
financial assets that can contractually be prepaid or otherwise settled in
such a way that the holder of the asset would not recover substantially all
of its recorded investment. Thus, nonsecurity financial assets (no matter
how acquired) such as loans, other receivables, interest-only strips or
residual interests in securitization trusts that are subject to prepayment
risk that could prevent recovery of substantially all of the recorded amount
are to be reported at fair value with the change in fair value accounted for
depending on the asset's classification as "available-for-sale" or "trading".
SFAS 125 also amends SFAS 115 to prevent a security from being classified as
held-to-maturity if the security can be prepaid or otherwise settled in such
a way that the holder of the security would not recover substantially all of
its recorded investment.
SFAS 125 is effective for transfers and servicing of financial assets
and extinguishments of liabilities occurring after December 31, 1996, and is
to be applied prospectively. Earlier or retroactive application is not
permitted. Also, the extension of the SFAS 115 approach to certain nonsecurity
financial assets and the amendment to SFAS 115 is effective for financial
assets held on or acquired after January 1, 1997. Reclassifications that are
necessary because of the amendment do not call into question an entity's intent
to hold other debt securities to maturity in the future. Due to the timing of
the issuance of this pronouncement, management is currently reviewing SFAS 125
to determine the effect, if any, it will have on the financial statements of
Roosevelt.
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 FASB
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
9
<PAGE> 11
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 "Reporting the Results of Operations - Reporting the
Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual
and Infrequently Occurring Events and Transactions". 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.
10
<PAGE> 12
ROOSEVELT FINANCIAL GROUP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND 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.
RESULTS OF OPERATIONS
NET INCOME
- ----------
The Company recorded net income totaling $19.7 million for the three
month period ended June 30, 1996 as compared to $21.1 million for the three
month period ended June 30, 1995. Net income on a fully diluted per share
basis was $0.42 for the three month period ended June 30, 1996 as compared to
$0.46 for the same period in 1995. A decrease in net interest income and an
increase in general and administrative expenses, as more fully discussed
below, were the primary causes for the decrease in net income.
The Company recorded net income totaling $41.3 million for the six month
period ended June 30, 1996 as compared to $26.7 million for the six month
period ended June 30, 1995. Net income on a fully diluted per share basis
was $0.88 for the six month period ended June 30, 1996 as compared to $0.58
for the same period in 1995. Net income for the six month period ended June
30, 1995 was negatively impacted by $27.1 million of unrealized losses on
impairment of certain mortgage-backed securities. 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 decreased $385,000 to $162.3 million for the three month
period ended June 30, 1996 as compared to $162.7 million for the three month
period ended June 30, 1995. Interest income on loans increased $11.5 million
primarily as a result of an increase in the average balance of loans from
$3.2 billion for the three months ended June 30, 1995 to $3.9 billion for the
three months ended June 30, 1996 which was partially offset by a decline in
the average yield on such loans from 7.68% for the three months ended June
30, 1995 to 7.54% for the three months ended June 30, 1996. The increase in
the average balance 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 slight decrease in the average yield of
the Company's loan portfolio resulted from continuing prepayments of higher
yielding loans with such loans being replaced with loans carrying low
introductory rates, which until they adjust provide a relatively low spread
to the marginal cost of funds. Interest income on securities available for
sale decreased $9.4 million primarily as a result of a decrease in the
average balance of such securities outstanding by approximately $477.0
million when comparing the 1996 period to the 1995 period. The decrease of the
11
<PAGE> 13
Company's available for sale portfolio to partially fund the above mentioned
loan growth is consistent with the Company's retail strategy. Interest income
from securities held to maturity decreased $2.5 million when comparing the
three month period ended June 30, 1996 period to the same 1995 period primarily
due to declining yields received on such securities to 6.91% for the 1996
period from 7.12% for the 1995 period. The decrease in yields received on the
Company's held to maturity portfolio was primarily attributable to heavy
prepayments which not only claimed some of the portfolios higher yielding
assets but also resulted in accelerated premium amortization.
Interest income increased $9.2 million to $328.4 million for the six
month period ended June 30, 1996 as compared to $319.2 million for the six
month period ended June 30, 1995. Interest income on loans increased $24.5
million primarily as a result of an increase in the average balances of loans
from $3.2 billion for the six months ended June 30, 1995 to $3.8 billion for
the six months ended June 30, 1996 and to a lesser extent because of a slight
increase in the average yields received on such loans from 7.58% to 7.63%.
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. Interest income on securities
available for sale decreased $17.4 million primarily as a result of a
decrease in the average balance of such securities outstanding by
approximately $477.7 million when comparing the six month period ended June
30, 1996 to the same period in 1995. The decrease of the Company's available
for sale portfolio to partially fund the above mentioned loan growth is
consistent with the Company's retail strategy. Interest income from
securities held to maturity increased $1.9 million when comparing the six
month period ended June 30, 1996 to the same period in 1995. Such increase
was due primarily to an increase in the yields received on such securities
from 6.96% to 7.04%.
INTEREST EXPENSE
- ----------------
Interest expense increased $2.1 million to $119.0 million for the three
month period ended June 30, 1996 as compared to $116.9 million for the same
period in 1995. Interest expense on deposits increased $2.7 million when
comparing the three month period ended June 30, 1996 to the same 1995 period.
Such increase was a result of an increase in the average balance of deposits
from $4.8 billion for the three months ended June 30, 1995 to $4.9 billion
for the three months ended June 30, 1996 and an increase in the average rates
paid on those deposits for the same time periods from 5.03% to 5.39%. The
increase in the average balance of deposits is consistent with and results
from the Company's retail strategy, while the increase in the average rates
paid on such deposits is necessitated by intense competition in the Company's
market areas. Despite this intense competition, retail deposits remain an
attractively priced source of funds compared to non-retail alternatives.
Interest expense on other borrowings, which is mainly comprised of securities
sold under agreements to repurchase and advances from the Federal Home Loan
Bank, decreased overall $3.8 million when comparing the three month period
ended June 30, 1996 to the same period in 1995. Such decrease resulted from
a decrease in the average rates paid on these borrowings from 6.04% to 5.48%
and was partially offset by a slight increase in the average balances of
these borrowings of $98.1 million during the period. The decrease in the
average rates paid on the Company's other short-term borrowings is primarily
attributable to the Federal Reserve Board's reduction of short-term interest
rates in December 1995 and January 1996. Interest expense on interest rate
exchange agreements increased $3.2 million for the 1996 period when compared
to the 1995 period. Approximately $1.7 million of such increase was the
result of decreased amortization in the current period of deferred gains on
terminated interest rate exchange agreements. Such deferred gains which were
being amortized in the three month period ended June 30, 1995, thus reducing
interest expense, were fully amortized prior to the current three month
period, thereby causing interest expense on a comparative quarter over
quarter basis to increase. The remaining $1.5 million increase in interest
rate exchange agreement expense for 1996 when compared to 1995 is due
primarily to a decrease of approximately 40 basis points in the variable
rates received on such agreements resulting principally from the Federal
Reserve Board's decision to reduce short-term interest rates in December 1995
and January 1996.
Interest expense increased $13.7 million to $238.8 million for the six
month period ended June 30, 1996 as compared to $225.0 million for the same
period in 1995. Interest expense on deposits increased $9.5 million when
comparing the six month period ended June 30, 1996 to the same 1995 period.
Such increase was primarily the result of an increase in the average rates
paid on deposits from 4.78% for the six moths ended June 30, 1995 to 5.42%
for the six months ended June 30, 1996 and to a lesser extent an increase in
the average balances of such deposits for the same time periods from $4.8
billion to $4.9 billion. The explanations of the increases in both average
rates paid and average balances for the six month periods are the same as
those described above for the three month periods. Interest expense on other
borrowings, which is mainly comprised of securities sold under agreements to
repurchase and advances from the Federal Home Loan Bank, decreased overall
$3.7 million when comparing the six month period
12
<PAGE> 14
ended June 30, 1996 to the same period in 1995. Such decrease resulted from a
decrease in the average rates paid on such borrowings from 5.96% to 5.52%,
partially offset by a slight increase in the average balances of these
borrowings of $149.1 million during the period. The decrease in the average
rates paid on the Company's other short-term borrowings is primarily
attributable to the Federal Reserve Board's reduction of short-term interest
rates in December 1995 and January 1996. Interest expense on interest rate
exchange agreements increased $8.0 million for the 1996 period when compared to
the 1995 period. Approximately $4.0 million of such increase was a result of
decreased amortization of deferred gains in the current period on terminated
interest rate exchange agreements. Such deferred gains which were being
amortized in the six month period ended June 30, 1995, thus reducing interest
expense, were fully amortized prior to the current six month period, thereby
causing interest expense on a comparative six month period to increase. The
remaining $4.0 million increase in interest rate exchange agreement expense for
1996 when compared to 1995 is due primarily to a decrease of approximately 60
basis points in the variable rates received on such agreements resulting
principally from the Federal Reserve Board's reduction in short-term interest
rates in December 1995 and January 1996.
13
<PAGE> 15
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 June 30,
--------------------------------------------------------------------
1996 1995
------------------------------- -------------------------------
Interest Average Interest Average
Average Income/ Rate Average Income/ Rate
Balance Expense % Balance Expense %
------- -------- ------- ------- -------- -------
Assets: (dollars in millions)
<S> <C> <C> <C> <C> <C> <C>
Cash equivalents $ 27.0 $ 0.3 5.01% $ 17.6 $ 0.3 5.79%
Securities available for sale<F1> 1,424.0 25.6 7.19 1,901.0 35.0 7.37
Securities held to maturity 3,647.1 63.1 6.91 3,685.1 65.6 7.12
Loans<F2><F3> 3,886.4 73.3 7.54 3,219.1 61.8 7.68
-------- ------ -------- ------
Total interest-earning assets 8,984.5 $162.3 7.22% 8,822.8 $162.7 7.38%
------ ------ -----
Other assets 427.2 313.1
-------- --------
$9,411.7 $9,135.9
======== ========
Liabilities
Deposits:
NOW and money market accounts<F4> $ 984.1 $ 8.4 3.40% $ 828.3 $ 5.9 2.86%
Passbook savings deposits 309.4 1.8 2.30 355.5 2.0 2.29
Time deposits<F4> 3,640.2 56.3 6.19 3,636.4 52.7 5.79
-------- ------ -------- ------
4,933.7 66.5 5.39 4,820.2 60.6 5.03
Borrowings:
Securities sold under
agreement to repurchase 1,055.3 14.2 5.39 1,523.4 23.0 6.03
Advances from FHLB 2,691.9 37.1 5.51 2,125.7 32.1 6.05
Other borrowings 47.6 1.2 10.25 47.5 1.2 10.28
-------- ------ -------- ------
Total interest-bearing liabilities 8,728.5 $119.0 5.45% 8,516.8 $116.9 5.49%
------ ----- ------ -----
Other liabilities 170.5 174.1
-------- --------
8,899.0 8,690.9
Stockholders' equity: 512.7 445.0
-------- --------
Total liabilities and
stockholders' equity $9,411.7 $9,135.9
======== ========
Net interest income $ 43.3 $ 45.8
====== ======
Interest rate spread<F5> 1.77% 1.89%
===== =====
Effective net spread<F6> 1.93% 2.08%
===== =====
<CAPTION>
Six Months Ended June 30,
--------------------------------------------------------------------
1996 1995
------------------------------- -------------------------------
Interest Average Interest Average
Average Income/ Rate Average Income/ Rate
Balance Expense % Balance Expense %
------- -------- ------- ------- -------- -------
Assets: (dollars in millions)
<S> <C> <C> <C> <C> <C> <C>
Cash equivalents $ 25.5 $ 0.6 5.07% $ 18.1 $ 0.5 5.66%
Securities available for sale<F1> 1,493.6 55.0 7.36 1,971.3 72.3 7.34
Securities held to maturity 3,623.2 127.5 7.04 3,606.5 125.6 6.96
Loans<F2><F3> 3,808.9 145.3 7.63 3,185.8 120.8 7.58
-------- ------ -------- ------
Total interest-earning assets 8,951.2 $328.4 7.34% 8,781.7 $319.2 7.27%
------ ----- -----
Other assets 405.5 305.9
-------- --------
$9,356.7 $9,087.6
======== ========
Liabilities
Deposits:
NOW and money market accounts<F4> $ 944.5 $ 16.0 3.38% $ 838.6 $ 11.3 2.69%
Passbook savings deposits 315.2 3.6 2.28 368.0 4.2 2.28
Time deposits<F4> 3,641.7 113.3 6.22 3,627.9 100.0 5.51
-------- ------ -------- ------
4,901.4 132.9 5.42 4,834.5 115.5 4.78
Borrowings:
Securities sold under
agreement to repurchase 1,109.5 30.4 5.49 1,526.9 45.1 5.91
Advances from FHLB 2,634.5 73.0 5.54 2,068.0 62.0 6.00
Other borrowings 47.6 2.4 10.26 47.5 2.4 10.29
-------- ------ -------- ------
Total interest-bearing liabilities 8,693.0 $238.7 5.49% 8,476.9 $225.0 5.31%
------ ----- ------ -----
Other liabilities 156.3 164.2
-------- --------
8,849.3 8,641.1
Stockholders' equity: 507.4 446.5
-------- --------
Total liabilities and
stockholders' equity $9,356.7 $9,087.6
======== ========
Net interest income $ 89.7 $ 94.2
====== ======
Interest rate spread<F5> 1.85% 1.96%
===== =====
Effective net spread<F6> 2.00% 2.15%
===== =====
<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 loan 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 balances of all
interest earning assets.
</TABLE>
At June 30, 1996, the weighted average yield on interest-earning assets
was 7.26% and the weighted average cost on interest-bearing liabilities was
5.40%.
14
<PAGE> 16
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 SIX MONTHS ENDED
JUNE 30, JUNE 30,
1996 VS. 1995 1996 VS. 1995
--------------------------------- -----------------------------------
INCREASE (DECREASE) TOTAL INCREASE (DECREASE) TOTAL
DUE TO INCREASE DUE TO INCREASE
(DOLLARS IN THOUSANDS) VOLUME RATE (DECREASE) VOLUME RATE (DECREASE)
-------- -------- ---------- --------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
Interest income:
Loans $ 12,816 $ (1,341) $ 11,475 $ 23,618 $ 927 $ 24,545
Securities available for sale (8,747) (676) (9,423) (17,404) (12) (17,416)
Securities held to maturity (663) (1,858) (2,521) 631 1,311 1,942
Other earning assets 136 (52) 84 210 (76) 134
-------- -------- --------- --------- --------- ---------
Total interest income $ 3,542 $ (3,927) $ (385) $ 7,055 $ 2,150 $ 9,205
-------- -------- --------- --------- -------- ---------
Interest expense:
Deposits $ 1,372 $ 1,343 $ 2,715 $ 1,557 $ 7,931 $ 9,488
Securities sold under agreements to
repurchase (7,053) (1,672) (8,725) (12,341) (2,342) (14,683)
Advances from Federal Home Loan Bank 8,560 (3,625) 4,935 16,988 (6,041) 10,947
Interest rate exchange agreements (354) 3,520 3,166 (571) 8,556 7,985
-------- --------- --------- --------- -------- ---------
Total interest expense $ 2,525 $ (434) $ 2,091 $ 5,633 $ 8,104 $ 13,737
-------- -------- --------- --------- -------- ---------
Change in net interest income $ 1,017 $ (3,493) $ (2,476) $ 1,422 $ (5,954) $ (4,532)
======== ======== ========= ========= ======== =========
</TABLE>
PROVISION FOR LOSSES ON LOANS
The provision for losses on loans charged to earnings is based upon
management's judgement of the amount necessary to maintain the allowance for
loan losses at a level adequate to absorb probable losses. As part of the
process for determining the adequacy of the allowance for loan losses,
management performs quarterly detailed reviews to identify risks inherent in
the loan portfolio and to assess the overall quality of the portfolio as well
as to determine the amounts of allowances and provisions to be reported.
Based on the above mentioned analysis, the provision for losses on loans
recorded for the three and six month periods ended June 30, 1996 remained
unchanged from the same 1995 periods in the amounts of $300,000 and $600,000,
respectively.
NONINTEREST INCOME (LOSS)
- -------------------------
Retail Banking Fees
Retail banking fees increased $759,000 to $3.5 million for the three month
period ended June 30, 1996 compared to $2.7 million for the three month
period ended June 30, 1995. Retail banking fees increased $1.4 million to
$6.6 million for the six month period ended June 30, 1996 compared to $5.2
million for the six month period ended June 30, 1995. The increases 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 $2.0 million for the
three month period ended June 30, 1996 when compared to $2.1 million for the
three month period ended June 30, 1995. Insurance and brokerage sales
commissions decreased to $3.7 million for the six month period ended June 30,
1996 when compared to $4.1 million for the six month period ended June 30,
1995. The decreases 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 increased to $2.7 million for the three month
period ended June 30, 1996 compared to $2.1 million for the three month
period ended June 30, 1995. Loan servicing fees, net increased to $4.7
million for the six month
15
<PAGE> 17
period ended June 30, 1996 compared to $4.1 million for the six month period
ended June 30, 1995. Such increases were primarily the result of the
acquisition of approximately $2.2 billion of GNMA mortgage servicing during the
second quarter of 1996. This purchase increased the total size of Roosevelt's
servicing portfolio by greater than 40% to approximately $7.5 billion, or
approximately 110,000 loans.
16
<PAGE> 18
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 SIX MONTHS ENDED
JUNE 30, JUNE 30,
1996 1995 1996 1995
-------- -------- ------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Mortgage-backed securities
available for sale $ 4,342 $ 3,661 $ 7,432 $ 7,999
Options expense (3,821) (2,750) (6,570) (5,580)
-------- -------- ------- --------
$ 521 $ 911 $ 862 $ 2,419
======== ======== ======= ========
</TABLE>
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 1994 and again in 1995 and 1996 to the current
ratings reflected in the tables on page 20 and substantial deterioration in
the amount of the loss absorption capacity provided by the subordinated
classes.
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
17
<PAGE> 19
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 $4.9 million at June 30, 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.
As reflected in the following table, the Company's remaining investment at
June 30, 1996 in the Guardian Securities is approximately $62.3 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 (23.6)
Desecuritization of Guardian Pool 1990-9 (see discussion on following page) (33.6)
-------
Investment in Guardian Securities, June 30, 1996 $ 62.3
=======
</TABLE>
18
<PAGE> 20
Subsequent to March 31, 1995, the date of the impairment charge, through June
30, 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 1990-1,
1990-2, 1990-4, 1990-5 and Lehman 1991-4 was fully absorbed.
* The remaining two pools Guardian 89-11, and 90-8, 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 of 10.44% and 5.62%, respectively, of the remaining
unpaid principal balances of the pools. Such remaining
subordination percentages compare to original subordination
percentages of 8.50% and 14.00%, respectively.
* 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 11.70% and 20.89%, respectively.
These remaining subordination levels compare to 8.50% and 17.00%,
respectively, at the date of issuance of the securities.
* $23.6 million in net principal payments have been received since
March 31, 1995.
Accordingly, at June 30, 1996, management continues to believe that the
recorded investment in the above mentioned Guardian and Lehman pools is
recoverable.
19
<PAGE> 21
Presented below is information at June 30, 1996 relating to the Company'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>
POOLS DETERMINED TO BE OTHER THAN TEMPORARILY IMPAIRED
------------------------------------------------------
June 30, 1996
(dollars in thousands)
<CAPTION>
Subordination As a Regarding Roosevelt's Interests
Rating Percent of Pool Balance ---------------------------------- Percent of Pools
Pool Issue ------------------------- ----------------------- Original Par Remaining Remaining Current or Less Than
Number Date Agency At Issue Current At Issue Current At Issue Par Investment 90 Days Delinquent
- ------ ----- ------ -------- ------- -------- ------- -------- --- ---------- --------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
GUARDIAN POOLS
- --------------
89-11 11/30/89 S & P AA CCC 8.50% 10.44% $ 33,750 $ 7,626 $ 5,670 72%
Moody Aa2 B1
90-1 1/30/90 S & P AA CC 8.50% -- 3,000 725 529 74%
Moody Aa2 B3
90-2 2/27/90 S & P AA D 8.50% -- 27,500 6,271 4,489 78%
Moody Aa2 Caa
90-4 4/30/90 S & P AA D 8.75% -- 46,428 12,173 9,097 69%
Moody Aa2 Caa
90-5 5/31/90 S & P AA D 8.75% -- 45,000 13,623 10,989 75%
Moody Aa2 Caa
90-7 7/25/90 S & P AA D 8.75% -- 68,025 19,042 14,031 71%
Moody Aa2 Caa
90-8 9/21/90 S & P AAA CCC 14.00% 5.62% 15,000 4,436 3,266 71%
Moody Aaa B3 --------------------------------
Total Guardian $238,703 $63,896 $48,071
==================================
LEHMAN POOL
- -----------
91-4 7/30/91 S & P AA CCC- 23.00% -- $ 14,000 $9,483 $4,898 78%
Moody Aa3 Caa ==================================
</TABLE>
<TABLE>
GUARDIAN POOLS DETERMINED TO BE ADEQUATELY PROTECTED BY REMAINING CREDIT ENHANCEMENT
------------------------------------------------------------------------------------
June 30, 1996
(dollars in thousands)
<CAPTION>
Subordination As a Regarding Roosevelt's Interests
Rating Percent of Pool Balance ---------------------------------- Percent of Pools
Pool Issue ------------------------- ----------------------- Original Par Remaining Remaining Current or Less Than
Number Date Agency At Issue Current At Issue Current At Issue Par Investment 90 Days Delinquent
- ------ ----- ------ -------- ------- -------- ------- -------- --- ---------- --------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
89-10 10/27/89 S & P AA BBB- 8.50% 11.70% $ 9,000 $ 1,571 $ 1,587 75%
Moody Aa2 B3
91-2 3/28/91 S & P AA BBB 17.00% 20.89% 39,831 12,675 $ 12,675 73%
Moody Aaa Baa3 ------ ------ --------
Totals $48,831 $14,246 $14,262
=================================
</TABLE>
20
<PAGE> 22
NONINTEREST EXPENSE
- -------------------
General and Administrative Expense
General and administrative expense increased $1.7 million to $23.4
million for the three month period ended June 30, 1996 as compared to $21.7
million for the three month period ended June 30, 1995. Such increase was
due primarily to a $2.1 million increase in compensation and employee
benefits and a $481,000 increase in other noninterest expense which was
partially offset by a $945,000 decrease in federal insurance premiums. The
increases in compensation and employee benefits and other noninterest expense
is primarily attributable to increased costs associated with the mobilization
of the Bank's retail efforts. The decrease in Federal insurance premiums
resulted from reductions in the rates charged by the Federal Deposit
Insurance Corporation on the Company's deposits insured by both the Bank
Insurance Fund and the Savings Association Insurance Fund.
General and administrative expense increased $1.9 million to $45.1
million for the six month period ended June 30, 1996 as compared to $43.2
million for the six month period ended June 30, 1995. Such increase was due
primarily to a $3.3 million increase in compensation and employee benefits
and a $688,000 increase in other noninterest expense which was partially
offset by a $1.8 million decrease in federal insurance premiums. The
explanations of the fluctuations are the same as those described above for
the three month periods.
FINANCIAL CONDITION
Total assets increased $314.7 million or 3.5% to $9.3 billion at June
30, 1996 from $9.0 billion at December 31, 1995. As a result of the Company's
focus on retail asset generation loans increased $438.8 million. During the
six month period ended June 30, 1996 the Bank originated $661.0 million in
loans and purchased $273.0 million in loans. These increases were offset by
principal repayments totaling $486.0 million. Securities available for sale
decreased $252.7 million primarily as a result of principal repayments and
sales of such securities totaling $667.8 million exceeding purchases which
totaled $432.2 million. Securities held to maturity decreased approximately
$15.8 million as a result of principal repayments exceeding purchases. Other
assets increased primarily as a result of payments for purchased mortgage
servicing rights totaling $36.1 million and fees paid for interest rate cap
agreements totaling $49.3 million.
Total liabilities increased $295.3 million or 3.5% to $8.8 billion at
June 30, 1996 from $8.5 billion at December 31, 1995, principally the result
of increases in retail deposits and other short-term borrowings (Federal Home
Loan Bank advances and securities sold under agreements to repurchase) of
$87.9 million and $233.6 million, respectively.
On July 31, 1996, the Company redeemed early, at par, its 9.5%
subordinated debentures in the amount of $28,750,000. The debentures which
were issued in 1992 were otherwise set to mature August 1, 2002. As a result
of such redemption the Company will record an extraordinary charge to net
income, net of taxes, of approximately $500,000 in the three month period
ending September 30, 1996. Such extraordinary loss relates to the write-off
of the remaining unamortized discount attributable to the issuance of the
subordinated debentures.
21
<PAGE> 23
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 77% of the
unpaid principal balances at June 30, 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 72% at June 30,
1996) 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 JUNE 30, DECEMBER 31,
(in thousands) 1996 1995
<S> <C> <C>
NONACCRUING LOANS:
Residential $ 7,563 $ 7,895
Commercial real estate 1,933 1,415
Consumer 304 193
------- -------
Total 9,800 9,503
------- -------
ACCRUING LOANS DELINQUENT MORE THAN 90 DAYS:
Residential 10,160 10,500
------- -------
TROUBLED-DEBT RESTRUCTURINGS:
Commercial real estate 58 661
------- -------
FORECLOSED ASSETS:
Residential 4,403 5,340
Commercial real estate 10,765 11,483
Consumer 119 11
------- -------
Total 15,287 16,834
------- -------
Sub-total 35,305 37,498
------- -------
SUB-TOTAL NONPERFORMING ASSETS
AS A PERCENTAGE OF TOTAL ASSETS .38% .42%
======= =======
"OTHER THAN TEMPORARILY IMPAIRED" MORTGAGE-BACKED
SECURITIES WITH APPROXIMATELY 72% OF THE UNDERLYING
LOANS EITHER CURRENT OR LESS THAN 90 DAYS DELINQUENT 44,033 43,429
------- -------
Total non-performing assets $79,338 $80,927
======= =======
TOTAL AS A PERCENTAGE OF TOTAL
ASSETS .85% .90%
======= =======
</TABLE>
Not included in the preceding table are certain pools of private issuer
mortgage-backed securities with a carrying value of $8.9 million which were
performing according to their contractual terms at June 30, 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.
22
<PAGE> 24
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 June 30, 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 (8.6)
Addition of Guardian Pools 1990-1, 1990-2, 1990-4 and 1990-5 and
Lehman Pool 91-4 to the non-performing asset table as
subordination protection was absorbed since March 31, 1995 (34.9)
Amount of currently performing, other than temporarily impaired
-----
mortgage-backed securities at June 30, 1996 $ 8.9
=====
</TABLE>
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 $504.3 million at June 30, 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 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.
23
<PAGE> 25
Utilizing this measurement concept, the interest rate risk of the Company
at June 30, 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) $ (30,813) $(5,133) $(15,005) $ (47,126)
Interest rate exposure deemed "normal" by the OTS $ (186,555) N/A N/A $(186,555)
</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
June 30, 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.
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 ratios in excess of the required amounts during the six
month period ended June 30, 1996 and during 1995.
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 $45.7 million for the six
month period ended June 30, 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 $236.8
million for the six month period ended June 30, 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 deposit receipts over withdrawals flows provided $239.9 million for
the six month period ended June 30, 1996.
At June 30, 1996, the Company had commitments outstanding to originate
fixed-rate mortgage loans of approximately $39.4 million and adjustable-rate
mortgages of approximately $106.4 million. At June 30, 1996, the Company had
outstanding commitments to purchase adjustable-rate mortgage loans of
approximately $24.7 million. At June 30, 1996, the Company had outstanding
commitments to purchase mortgage-backed securities of approximately $91.6
million. The Company expects to satisfy such commitments through its primary
source of funds.
24
<PAGE> 26
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 June 30, 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 $139.5 1.50% $511.9 5.50% $372.4 4.00%
Core Capital $279.0 3.00% $514.0 5.53% $235.0 2.53%
Risk-based Capital $293.2 8.00% $533.1 14.55% $239.9 6.55%
</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 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.
25
<PAGE> 27
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
---------------------------------------------------
None
Item 5. Other Information
---------------------------------------------------
None
Item 6. Exhibits and Reports on Form 8-K
---------------------------------------------------
None
26
<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.
---------------------------------------------------
REGISTRANT
DATE: AUGUST 14, 1996 BY: /s/STANLEY J. BRADSHAW
---------------------------------------
STANLEY J. BRADSHAW
PRESIDENT AND CHIEF EXECUTIVE OFFICER
DATE: AUGUST 14, 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> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 19,228
<INT-BEARING-DEPOSITS> 45,025
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 1,353,760
<INVESTMENTS-CARRYING> 3,534,341
<INVESTMENTS-MARKET> 3,525,049
<LOANS> 4,038,456
<ALLOWANCE> 21,757
<TOTAL-ASSETS> 9,327,772
<DEPOSITS> 4,995,371
<SHORT-TERM> 2,745,108
<LIABILITIES-OTHER> 162,901
<LONG-TERM> 908,075
0
65,050
<COMMON> 199,600
<OTHER-SE> 251,667
<TOTAL-LIABILITIES-AND-EQUITY> 9,327,772
<INTEREST-LOAN> 145,307
<INTEREST-INVEST> 182,470
<INTEREST-OTHER> 646
<INTEREST-TOTAL> 328,423
<INTEREST-DEPOSIT> 122,119
<INTEREST-EXPENSE> 238,753
<INTEREST-INCOME-NET> 89,670
<LOAN-LOSSES> 600
<SECURITIES-GAINS> 7,432
<EXPENSE-OTHER> 45,146
<INCOME-PRETAX> 62,718
<INCOME-PRE-EXTRAORDINARY> 41,293
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 41,293
<EPS-PRIMARY> 0.92
<EPS-DILUTED> 0.88
<YIELD-ACTUAL> 1.93
<LOANS-NON> 9,800
<LOANS-PAST> 10,160
<LOANS-TROUBLED> 58
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 21,855
<CHARGE-OFFS> 1,122
<RECOVERIES> 350
<ALLOWANCE-CLOSE> 21,757
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 19,085
</TABLE>
