<PAGE>
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, 1994
----------------------------
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 10, 1994
______________ ---------------------------
Common Stock 6,964,080
Par Value $.01
<PAGE>
INTRODUCTORY STATEMENT
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
<PAGE>
hedge, with respect to the aforementioned financial futures contracts. The
restatement had the effect of increasing previously reported 1994 net income for
the quarter ended March 31, 1994 by $1.6 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 restatement 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 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.
<PAGE>
INDEX
ROOSEVELT FINANCIAL GROUP, INC.
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION PAGE
<S> <C>
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 8
PART II. OTHER INFORMATION 18
SIGNATURES 21
</TABLE>
<PAGE>
ROOSEVELT FINANCIAL GROUP, INC.
Consolidated Balance Sheets
(In thousands)
<TABLE>
<CAPTION>
March 30, December 31,
1994 1993
(Unaudited)
----------- ----------
<S> <C> <C>
Assets
Cash --------------------------------------------------------------------- $ 28,020 $ 30,938
Interest-bearing deposits ------------------------------------------------ 105 46,305
Securities purchased under agreements to resell--------------------------- -- 50,000
Mortgage-backed securities:
Held for trading----------------------------------------------------- 42,184 76,732
Available for sale--------------------------------------------------- 1,427,331 1,026,535
Held to maturity----------------------------------------------------- 2,068,086 1,852,097
Investment securities held to maturity------------------------------------ 48,811 53,121
Loans receivable, net----------------------------------------------------- 663,172 699,705
Stock in Federal Home Loan Bank ------------------------------------------ 60,450 47,500
Office properties and equipment, net ------------------------------------- 27,503 26,908
Accrued income and other assets ------------------------------------------ 106,276 106,111
----------- ----------
Total Assets $4,471,938 $4,015,952
=========== ==========
Liabilities and Stockholders' Equity
Savings deposits --------------------------------------------------------- $2,511,155 $2,600,000
FHLB advances ------------------------------------------------------------ 1,206,000 795,000
Mortgage-backed bonds ---------------------------------------------------- 73,699 73,695
Securities sold under agreements to repurchase --------------------------- 407,785 273,884
Subordinated notes ------------------------------------------------------- 27,622 27,589
Accrued expenses and other liabilities ----------------------------------- 59,244 56,331
----------- ----------
Total Liabilities 4,285,505 3,826,499
----------- ----------
Commitments and contingencies
Stockholders' equity:
Preferred stock ($.01 par value): Authorized 1,000,000 shares;
6.5% Non-Cumulative Convertible, issued and outstanding
1,000,000 shares at March 31, 1994 and December 31, 1993---------- 10 10
Common stock ($.01 par value): Authorized 10,000,000 shares;
issued and outstanding 5,842,438 shares at March 31, 1994
and 5,836,336 at December 31, 1993 ------------------------------- 58 58
Paid-in capital ----------------------------------------------------- 98,314 98,198
Retained earnings - subject to certain restrictions ----------------- 97,051 89,015
----------- ----------
195,433 187,281
Unrealized gain (loss) on mortgage-backed securities available
for sale, net------------------------------------------------------ (9,000) 2,172
----------- ----------
Total Stockholders' Equity ------------------------------------- 186,433 189,453
----------- ----------
$4,471,938 $4,015,952
=========== ==========
</TABLE>
See accompanying notes to consolidated financial statements
2
<PAGE>
<TABLE>
<CAPTION>
ROOSEVELT FINANCIAL GROUP, INC.
Consolidated Statements of Income
(In thousands, except per share data) (Unaudited)
Three Months Ended
March 31,
1994 1993
-----------------------------
<S> <C> <C>
Interest income:
Mortgage-backed securities held to maturity--------------------------- $ 27,615 $ 31,068
Loans receivable ----------------------------------------------------- 12,512 13,293
Investment securities held to maturity-------------------------------- 1,139 1,237
Mortgage-backed securities held for trading--------------------------- 2,447 3,512
Mortgage-backed securities available for sale------------------------- 17,581 --
Mortgage-backed securities held for sale------------------------------ -- 2,894
Securities purchased under agreements to resell----------------------- 91 92
Other ---------------------------------------------------------------- 1,181 813
------------ -------------
Total interest income ------------------------------------------- 62,566 52,909
------------ -------------
Interest expense:
Savings deposits, net ------------------------------------------------ 24,159 17,386
Mortgage-backed bonds ------------------------------------------------ 1,885 3,660
Securities sold under agreements to repurchase ----------------------- 3,997 7,181
Interest rate exchange agreements ------------------------------------ 600 3,247
Advances from Federal Home Loan Bank --------------------------------- 7,568 1,634
Subordinated notes---------------------------------------------------- 717 717
------------ -------------
Total interest expense ------------------------------------------ 38,926 33,825
------------ -------------
Net interest income --------------------------------------------- 23,640 19,084
Provision for losses on loans --------------------------------------------- 150 150
------------ -------------
Net interest income after provision for losses ------------------ 23,490 18,934
------------ -------------
Noninterest income:
Net gain from financial instruments----------------------------------- 2,181 1,379
Gross profit-insurance agency ---------------------------------------- 936 512
Retail banking fees -------------------------------------------------- 1,233 660
Other ---------------------------------------------------------------- 227 279
------------ -------------
Total noninterest income ---------------------------------------- 4,577 2,830
------------ -------------
Noninterest expense:
General and administrative:
Compensation and employee benefits --------------------------------- 4,284 3,231
Occupancy ---------------------------------------------------------- 2,608 1,663
Advertising -------------------------------------------------------- 105 120
Federal insurance premiums ----------------------------------------- 1,512 743
Other -------------------------------------------------------------- 2,115 1,579
------------ -------------
Total general and administrative -------------------------------- 10,624 7,336
------------ -------------
Income before income tax expense and extraordinary item 17,443 14,428
Income tax expense -------------------------------------------------------- 6,030 5,223
------------ -------------
Income before extraordinary item--------------------------------- 11,413 9,205
Extraordinary item - repurchase of mortgage-backed bonds------------------- -- (1,483)
------------ -------------
Net income------------------------------------------------------- $ 11,413 $ 7,722
============ =============
Net income attributable to common stock-------------------------- $ 10,600 $ 7,472
============ =============
Primary earnings per share:
Income before extraordinary item-------------------------------------- $ 1.77 $ 1.49
Extraordinary item---------------------------------------------------- -- (0.25)
------------ -------------
Net income------------------------------------------------------- $ 1.77 1.24
============ =============
Fully-diluted earnings per share:
Income before extraordinary item-------------------------------------- $ 1.58 $ 1.43
Extraordinary item---------------------------------------------------- -- (0.23)
------------ -------------
Net income------------------------------------------------------- $ 1.58 $ 1.20
============ =============
Dividends Paid ------------------------------------------------------------ $ 0.30 $ 0.20
============ =============
</TABLE>
See accompanying notes to consolidated financial statements
3
<PAGE>
<TABLE>
<CAPTION>
ROOSEVELT FINANCIAL GROUP, INC.
AND SUBSIDIARY
Consolidated Statements of Stockholders' Equity
(In thousands) (Unaudited)
Preferred stock Common stock Paid-in Retained
--------------- ----------------
Shares Amount Shares Amount Capital Earnings
------ ------ ------ ------ ------- --------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1992 ------------------------ -- $ -- 5,883 $ 59 $ 53,400 $60,583
Net income ---------------------------------------- -- -- -- -- -- 36,190
Issuance of 920,000 shares of 6.5% non-
cumulative perpetual convertible preferred
stock-------------------------------------------- 920 9 -- -- 44,176 --
Exchange 119,025 shares of common stock
for 80,000 shares of 6.5% non-cumulative
perpetual convertible preferred stock------------ 80 1 (119) (1) (27) --
Exercise of incentive stock options and non-
qualified stock options-------------------------- -- -- 73 -- 649 --
Amortization of restricted stock awards------------ -- -- -- -- -- --
Cash dividends paid on common
stock ($.95 per share) -------------------------- -- -- -- -- -- (5,592)
Cash dividends paid on preferred
stock ($2.284 per share) ------------------------ -- -- -- -- -- (2,166)
Unrealized gain on mortgage-backed securities
available for sale, net-------------------------- -- -- -- -- -- --
------ ------- ------ --------- -------- -------
Balance December 31, 1993 ------------------------- 1,000 10 5,837 58 98,198 89,015
Net income----------------------------------------- -- -- -- -- -- 11,413
Exercise of incentive stock options---------------- -- -- 5 -- 116 --
Cash dividends paid on common
stock ($.30 per share)--------------------------- -- -- -- -- -- (1,752)
Cash dividends on preferred
stock ($1.624 per share)------------------------- -- -- -- -- -- (1,625)
Unrealized loss on mortgage-backed securities
available for sale, net-------------------------- -- -- -- -- -- --
------ ------- ------ --------- -------- -------
Balance, March 31, 1994---------------------------- 1,000 $ 10 5,842 $ 58 $ 98,314 $97,051
====== ======= ====== ========= ======== =======
<CAPTION>
Unrealized
gain (loss) on
mortgage-
backed
securities Unamortized Total
available Restricted Stockholders'
for sale, net Stock Awards Equity
------------- ------------ --------------
<S> <C> <C> <C>
Balance, December 31, 1992 ------------------------ $ -- $ (66) $ 113,976
Net income ---------------------------------------- -- -- 36,190
Issuance of 920,000 shares of 6.5% non-
cumulative perpetual convertible preferred
stock-------------------------------------------- -- -- 44,185
Exchange 119,025 shares of common stock
for 80,000 shares of 6.5% non-cumulative
perpetual convertible preferred stock------------ -- -- (27)
Exercise of incentive stock options and non-
qualified stock options-------------------------- -- -- 649
Amortization of restricted stock awards------------ -- 66 66
Cash dividends paid on common
stock ($.95 per share) -------------------------- -- -- (5,592)
Cash dividends paid on preferred
stock ($2.284 per share) ------------------------ -- -- (2,166)
Unrealized gain on mortgage-backed securities
available for sale, net-------------------------- 2,172 -- 2,172
---------- ---------- ---------
Balance December 31, 1993 ------------------------- 2,172 -- 189,453
Net income----------------------------------------- -- -- 11,413
Exercise of incentive stock options---------------- -- -- 116
Cash dividends paid on common
stock ($.30 per share)--------------------------- -- -- (1,752)
Cash dividends on preferred
stock ($1.624 per share)------------------------- -- -- (1,625)
Unrealized loss on mortgage-backed securities
available for sale, net-------------------------- 11,172 -- 11,172
---------- ---------- ---------
Balance, March 31, 1994---------------------------- $ (9,000) $ -- $ 186,433
========== ========== =========
</TABLE>
See accompanying notes to consolidated financial statements
4
<PAGE>
<TABLE>
<CAPTION>
ROOSEVELT FINANCIAL GROUP, INC.
Consolidated Statements of Cash Flows
(In thousands) (Unaudited)
Three Months Ended
March 31,
1994 1993
------------ ----------
<S> <C> <C>
Cash flows from operating activities:
Net income ------------------------------------------------------------------- $ 11,413 $ 7,722
Adjustments to reconcile net income to net cash used in
operating activities:
Extraordinary loss on early extinguishment of debt-------------------------- -- 2,324
Depreciation --------------------------------------------------------------- 599 343
Amortization of discounts and premiums, net--------------------------------- 3,128 (3,031)
Increase in accrued interest receivable ------------------------------------ (1,723) (66)
Increase in accrued interest payable --------------------------------------- 1,891 3,702
Provision for losses on loans ---------------------------------------------- 150 150
Net increase in securities held for trading -------------------------------- (118,164) (109,743)
Net increase in securities held for sale------------------------------------ -- (37,142)
Increase (decrease) in income taxes ---------------------------------------- (1,183) 5,403
Other, net ----------------------------------------------------------------- 5,867 (3,968)
------------ ----------
Net cash used in operating activities ---------------------------------------- (98,022) (134,306)
------------ ----------
Cash flows from investing activities:
Principal payments on mortgage-backed securities held to maturity----------- 175,167 77,263
Principal payments on mortgage-backed securities available for sale--------- 80,154 --
Principal payments on loans receivable ------------------------------------- 56,689 46,478
Proceeds from sales of loans receivable------------------------------------- -- 3,424
Proceeds from sales of mortgage-backed securities available for sale-------- 2,520 --
Proceeds from maturities of investment securities -------------------------- 6,400 13,050
Net proceeds from sales of real estate acquired through foreclosure--------- 593 359
Investment in mortgage-backed securities held to maturity------------------- (394,392) (544,931)
Investment in mortgage-backed securities available for sale----------------- (346,297) --
Originations of loans receivable ------------------------------------------- (16,911) (13,289)
Purchase of loans receivable ----------------------------------------------- (3,501) (93,323)
Purchase of investment securities ------------------------------------------ (1,985) (1,308)
Sales of real estate acquired for development and sale --------------------- 269 209
Purchase of office properties & equipment ---------------------------------- (1,251) (130)
Sale (purchase) of stock in FHLB ------------------------------------------- (12,950) (22)
------------ ----------
Net cash used in investing activities -------------------------------------- (455,495) (512,220)
------------ ----------
Cash flows from financing activities:
Repurchase of mortgage-backed bonds ---------------------------------------- -- (521)
Proceeds from FHLB advances ------------------------------------------------ 4,056,000 312,000
Repayment of FHLB advances ------------------------------------------------- (3,645,000) (262,000)
Excess of savings deposits withdrawals over receipts------------------------ (88,055) (47,693)
Increase in securities sold under agreements to
repurchase, net----------------------------------------------------------- 133,902 588,232
Proceeds from issuance of preferred stock----------------------------------- -- 44,197
Proceeds from issuance of common stock-------------------------------------- 111 96
Proceeds from stock option exercises---------------------------------------- 6
Cash dividends paid -------------------------------------------------------- (2,565) (1,178)
------------ ----------
Net cash provided by financing activities ---------------------------------- 454,399 633,133
------------ ----------
Net decrease in cash and cash equivalents ---------------------------------- (99,118) (13,393)
Cash and cash equivalents at beginning of period ----------------------------- 127,243 34,009
------------ ----------
Cash and cash equivalents at end of period ----------------------------------- $ 28,125 $ 20,616
------------ ----------
Supplemental disclosures of cash flow information:
Interest credited to savings deposits -------------------------------------- $ 19,096 $ 13,534
Payments during the period for:
Interest ---------------------------------------------------------------- 37,035 30,123
Taxes ------------------------------------------------------------------- -- --
Non-cash investing and financing activities:
Non-cash transfers from securities held for trading to securities available
for sale------------------------------------------------------------------ 152,712 --
Unrealized loss on mortgage-backed securities available for sale, net------- 11,172 --
</TABLE>
See accompanying notes to consolidated financial statements
5
<PAGE>
ROOSEVELT FINANCIAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - BASIS OF PRESENTATION
The accompanying consolidated financial statements include the accounts of
Roosevelt Financial Group, Inc. (the Company), its wholly owned subsidiary,
Roosevelt Bank, a Federal Savings Bank (the Bank) and the Bank's wholly owned
subsidiaries as of March 31, 1994 and for the three month periods ended March
31, 1994 and 1993.
In the opinion of management, the preceding unaudited consolidated
financial statements contain all adjustments (consisting of normal recurring
accruals) necessary for a fair presentation of the financial condition of the
Company as of March 31, 1994 and the results of its operations for the three
month periods ended March 31, 1994 and 1993.
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,
1993 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 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 on 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 increasing
previously reported net income for the three month period ended March 31, 1994
by $1.6 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 - NET GAIN FROM FINANCIAL INSTRUMENTS
Net gain (loss) from financial instruments is summarized as follows:
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1994 1993
--------- ---------
<S> <C> <C>
Mortgage-backed securities
held for trading.......... $(1,363) $ 258
Mark to market of financial
futures contracts......... 2,494 ---
Mortgage-backed securities
available for sale........ 2,175 1,858
Options expense............. (1,125) (737)
------- ------
$2,181 $1,379
======= ======
</TABLE>
6
<PAGE>
NOTE 3 - COMMON STOCK SPLIT
On March 29, 1994 the Company declared a three for one common stock split
in the form of a 200% common stock dividend payable on May 18, 1994 to
stockholders of record on May 2, 1994. Under the terms of the stock split
shareholders will receive a dividend of two shares for every one share held on
the record date. The stock split was subject to, and conditioned upon, the
approval of the Company stockholders at the Annual Meeting of Stockholders held
on April 28, 1994. At such meeting the Company shareholders approved an
amendment to the Company's Certificate of Incorporation increasing the number of
authorized shares of common stock from 10,000,000 to 90,000,000. As a result of
the stock split common shares outstanding will be increased to 20,892,240 which
includes shares issued in the Home Federal Bancorp of Missouri, Inc.
acquisition.
NOTE 4 - EARNINGS PER SHARE
Net income for primary earnings per share are adjusted for the dividend on
the 6.5% non-cumulative perpetual convertible preferred stock which was issued
during the first quarter of 1993. 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 on a pre stock split basis for the three month periods
ended March 31, 1994 and 1993 were 5,989,390 and 6,043,439, 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 perpetual
convertible preferred stock into common stock from the date of the issuance of
the preferred 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 on a pre stock split basis, for the
three month periods ended March 31, 1994 and 1993 were 7,237,792 and 6,437,127,
respectively.
NOTE 5 - COMMON STOCK DIVIDENDS
On April 28, 1994 the Board of Directors declared the Company's twenty
fifth common stock cash dividend, in the amount of 11 cents per share payable
May 31, 1994 to stockholders of record May 20, 1994. This dividend will be paid
following the completion of the Company's three for one common stock split. On
a pre stock split basis the dividend represented 33 cents per share. Also, on
March 25, 1994, the Board of Directors declared the Company's regular quarterly
6.5% non-cumulative convertible preferred stock cash dividend, in the amount of
81.25 cents per share payable May 15, 1994 to stockholders of record May 5,
1994.
7
<PAGE>
ROOSEVELT FINANCIAL GROUP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FINANCIAL CONDITION
CAPITAL RATIOS
- --------------
With the passage in 1989 of the Financial Institutions Reform, Recovery and
Enforcement Act ("FIRREA") the capital requirements for savings institutions
were significantly increased. FIRREA established three capital standards with
the intended purpose of implementing capital requirements that are no less
stringent than requirements applicable to national banks. The capital
regulations require institutions to maintain tangible capital equal to 1.5% of
total adjusted assets, and to maintain core capital equal to 3% of adjusted
total assets. Additionally, institutions are required to maintain total capital
(core capital plus supplementary capital) of at least 8% of risk-weighted
assets. For purposes of determining total capital, a savings institution's
investment in and extensions of credit to any subsidiary engaged in activities
not permissible for a national bank are deducted from the savings institution's
capital, subject to a phase-in through June 30, 1994. As of March 31, 1994
approximately $486,000 (40% of the Bank's investment in and extensions of credit
to such subsidiaries) was included in regulatory capital. In addition, certain
intangible assets must be deducted from capital. As of March 31, 1994
approximately $4.1 million of net intangibles was deducted from capital.
General loan loss reserves totaling approximately $4.7 million are included as
capital for purposes of meeting the risk-based capital requirements. The Bank's
compliance at March 31, 1994 with the transition requirements is illustrated as
follows:
<TABLE>
<CAPTION>
REGULATORY
REQUIREMENT BANK'S CAPITAL EXCESS CAPITAL
---------------- ---------------- ----------------
CAPITAL STANDARD AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT
---------------- ------ -------- ------ -------- ------ --------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
Tangible Capital.... $ 67 1.50% $210 4.73% $143 3.23%
Core Capital........ $134 3.00% $210 4.73% $ 76 1.73%
Risk-based Capital.. $121 8.00% $214 14.12% $ 93 6.12%
</TABLE>
However, savings institutions must comply with the fully phased-in, or more
stringent, requirements by December 31, 1994. The Bank's compliance at March
31, 1994 with the fully phased-in requirements of December 31, 1994 is
illustrated as follows:
<TABLE>
<CAPTION>
REGULATORY
REQUIREMENT BANK'S CAPITAL EXCESS CAPITAL
---------------- ---------------- ----------------
CAPITAL STANDARD AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT
---------------- ------ ------- ------ ------- ------ --------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
Tangible Capital.... $ 67 1.50% $209 4.72% $142 3.22%
Core Capital........ $134 3.00% $209 4.72% $ 75 1.72%
Risk-based Capital.. $121 8.00% $214 14.08% $ 93 6.08%
</TABLE>
8
<PAGE>
ACQUISITIONS
- ------------
On April 28, 1994 the Company's stockholders approved the proposed
acquisition by the Company of Farm & Home Financial Corporation ("Farm & Home")
at the Annual Meeting of Shareholders. Farm & Home Financial Corporation also
approved the acquisition at their Annual Meeting of Shareholders on this date.
On May 13, 1994 the Company received approval from the Office of Thrift
Supervision to complete the acquisition of Farm & Home. The transaction is
expected to be completed by June 30, 1994. This transaction is structured such
that each share of Farm & Home common stock will be exchanged for 0.67 shares
of the Company's common stock and each share of Farm & Home preferred stock will
be exchanged, unless previously redeemed by Farm & Home or converted into Farm &
Home common stock, into a like kind share of the Company's preferred stock. This
transaction as previously disclosed is structured to be a tax-free
reorganization and will qualify for the pooling of interests method of
accounting. At March 31, 1994 Farm & Home had total assets amounting to
approximately $3.4 billion and total savings deposits of approximately $2.4
billion.
On April 22, 1994 the Company completed the acquisition of Home Federal
Bancorp of Missouri, Inc. ("Home Bancorp"). Pursuant to the Merger Agreement
each holder of the common stock of Home Bancorp received 0.4945 of a share of
common stock of the Company and $7.50 in cash for each share of Home Bancorp
common stock held for a total consideration of $68 million. Home Bancorp's
total consolidated assets were $532.7 million and saving deposits were $466.5
million. The transaction was structured to qualify as a tax free
reorganization and was accounted for under the purchase method of accounting.
The transaction resulted in a core deposit intangible totalling approximately
$13.8 million.
Following are the intangible assets, on an after tax basis, recorded from
acquisitions accounted for under the purchase method of accounting. The amounts
are as of March 31, 1994 except for Home Federal Bancorp of Missouri, Inc.,
which is as of April 22, 1994.
<TABLE>
<CAPTION>
Acquisition Intangible Type After Tax Amount
- ----------------------------- ----------------------- -----------------
(In Thousands)
<S> <C> <C>
First Granite City S & L Negative Goodwill $(4,425)
Conservative Bank, FSB Negative Goodwill (1,360)
Brookside Savings Bank, FSB Goodwill 389
-------
Net Negative Goodwill (5,396)
-------
Brookside Savings Bank Core Deposit Intangible 1,196
First Nationwide Bank (1) Core Deposit Intangible 44
Home Savings of America (1) Core Deposit Intangible 4,837
Home Federal Bancorp Core Deposit Intangible 8,747
-------
Total Core Deposit Intangible 14,824
-------
Combined Net Intangible Asset $ 9,428
=======
</TABLE>
(1) Retail banking branch purchase
9
<PAGE>
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.
<TABLE>
<CAPTION>
NON-PERFORMING ASSETS MARCH 31, DECEMBER 31,
(in thousands) 1994 1993
---------- -------------
<S> <C> <C>
NON-ACCRUING LOANS:
Residential................................. $1,406 $1,526
Commercial real estate...................... 1,729 985
Consumer.................................... 106 114
------ ------
Total..................................... $3,241 $2,625
------ ------
ACCRUING LOANS DELINQUENT MORE THAN 90 DAYS:
Residential................................. $3,462 $3,084
------ ------
Total.................................... $3,462 $3,084
------ ------
TROUBLED DEBT RESTRUCTURINGS:
Commercial real estate...................... $ 82 $ 634
------ ------
Total..................................... $ 82 $ 634
------ ------
FORECLOSED ASSETS:
Residential.................................
Total..................................... $ 397 $ 706
------ ------
Total non-performing assets................... $7,182 $7,049
====== ======
TOTAL AS A PERCENTAGE OF TOTAL
ASSETS....................................... .16% .18%
====== ======
</TABLE>
Non-performing assets increased $133 thousand to $7.2 million at March 31,
1994 as compared to $7.0 million at December 31, 1993. The net increase in
commercial real estate non-accruing loans totaling $744 thousand is due
primarily to one loan totaling net $1.3 million secured by a shopping center
being placed on non-accrual and the repayment of three commercial loans totaling
$708 thousand during the three month period ended March 31, 1994. Accruing loans
delinquent more than 90 days increased, net $378 thousand. This increase was
due primarily to two residential loans totaling $345 thousand purchased and
serviced by others which were not delinquent at December 31, 1993. Commercial
real estate troubled debt restructurings decreased $552 thousand due primarily
to the cash pay-off of one loan during the quarter. Foreclosed assets decreased
$309 thousand as a result of the sale of one foreclosed single family real
estate property during the three month period ended March 31, 1994. As of March
31, 1994, the unallocated allowance for loss for the various loan portfolios was
approximately $3.7 million and specific allowances for loss for various non-
performing assets was approximately $358 thousand. For the three months ended
March 31, 1994, gross interest income which would have been recorded had the
non-accruing loans been current in accordance with their original terms amounted
to approximately $308 thousand. Approximately $12 thousand in interest income
was received on such loans for the same period. Interest on loans involved in
troubled debt restructurings that would have been recorded as income for the
three months ended March 31, 1994, had the loans been current in accordance with
their original terms, totaled approximately $11 thousand. Interest on such
loans that was actually recorded as income for the three months ended March 31,
1994 was approximately $8 thousand. Not included in the preceding data are
loans where information about possible credit problems causes the Company to be
less certain as to the ability of borrowers to comply with the present loan
repayment terms. Such loans totalled $35.1 million at March 31, 1994.
10
<PAGE>
AMOUNT OF ASSETS AND LIABILITIES
- --------------------------------
The total assets of the Company increased $456 million to $4.472 billion at
March 31, 1994 from $4.016 billion at December 31, 1993. Such growth in total
assets occurred primarily through net purchases in the mortgage-backed
securities available for sale portfolio and the held to maturity portfolio. The
increases in these portfolios were primarily in the form of adjustable rate
mortgage-backed securities. Total liabilities increased $460 million to $4.286
billion from $3.826 billion for the same period. Such liability increase
occurred through FHLB advances and securities sold under agreements to
repurchase.
RESULTS OF OPERATIONS
Net income increased $3.7 million to $11.4 million for the three month
period ended March 31, 1994 when compared to $7.7 million for the three month
period ended March 31, 1993. This increase was due primarily to a $4.6 million
increase in net interest income and a $1.7 million increase in noninterest
income which was partially offset by a $3.3 million increase in noninterest
expense. Also during the three month period ended March 31, 1993 the Company
recorded a $1.5 million loss, net of applicable income taxes, on the repurchase
of mortgage-backed bonds. Such loss was reported as an extraordinary item.
NET INTEREST INCOME
- -------------------
Net interest income increased approximately $4.6 million to $23.6 million
for the three month period ended March 31, 1994 as compared to $19.1 million for
the three month period ended March 31, 1993. Net interest income increased
$10.3 million as a result of approximately a 41% increase in interest-earning
assets and approximately a 45% increase in interest-bearing liabilities of the
Company (volume). The factor of rate resulted in a decrease in net interest
income of $5.7 million. Such decrease is attributable to the decrease in the
general level of market interest rates and the effect of a narrower effective
net spread on the Company's growth in interest bearing assets and liabilities.
11
<PAGE>
ANALYSIS OF CHANGES IN NET INTEREST INCOME (VOLUME/RATE)
- --------------------------------------------------------
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,
1994 VS. 1993
-------------------------------------
INCREASE (DECREASE) TOTAL
DUE TO INCREASE
(DOLLARS IN THOUSANDS) VOLUME RATE (DECREASE)
--------- ---------- --------------
<S> <C> <C> <C>
Interest income:
Mortgage-backed securities
held to maturity......................... $ 6,204 $ (9,657) $(3,453)
Loans receivable.......................... 1,407 (2,188) (781)
Mortgage-backed securities
held for trading........................ (1,106) 41 (1,065)
Investment securities held to maturity.... (195) 97 (98)
Mortgage-backed securities available
for sale.............................. 17,581 0 17,581
Mortgage-backed securities held for sale.. (2,894) 0 (2,894)
Securities purchased under agreements
to resell............................. 45 (46) (1)
Other earning assets...................... 57 311 368
------- -------- -------
Total interest income................. $21,099 $(11,442) $ 9,657
------- -------- -------
Interest expense:
Savings deposits, net..................... $11,074 $ (4,301) $ 6,773
Mortgage-backed bonds..................... (1,815) 40 (1,775)
Securities sold under agreements to
repurchase............................ (3,375) 191 (3,184)
Interest rate exchange agreements......... (492) (2,155) (2,647)
Advances from Federal Home Loan Bank...... 5,425 509 5,934
Subordinated notes........................ 0 0 0
------- -------- -------
Total interest expense................ $10,817 $ (5,716) $ 5,101
------- -------- -------
Change in net interest income $10,282 $ (5,726) $ 4,556
======= ======== =======
</TABLE>
12
<PAGE>
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,
-------------------------------------------------------
1994 1993
--------------------------- -------------------------
INTEREST AVERAGE INTEREST AVERAGE
AVERAGE INCOME/ RATE AVERAGE INCOME/ RATE
BALANCE EXPENSE % BALANCE EXPENSE %
-------- ------- --------- -------- ------- ------
<S> <C> <C> <C> <C> <C> <C>
Assets:
Interest earning assets:
Mortgage-backed securities
held to maturity .......................... $1,905.5 $27.6 5.80% $1,588.4 $31.1 7.82%
Loans receivable (1) (2).................... 687.6 12.5 7.28 621.9 13.3 8.55
Mortgage-backed securities
held for trading........................... 195.7 2.5 5.00 285.6 3.5 4.92
Investment securities....................... 50.4 1.1 9.04 59.8 1.2 8.26
Mortgage-backed securities available
for sale................................... 1,097.1 17.6 6.41
Mortgage-backed securities held
for sale................................... 217.2 2.9 5.33
Securities purchased under agreement
to resell.................................. 11.4 0.1 3.19 7.7 0.1 4.81
Other earning assets........................ 66.8 1.2 7.07 62.4 0.8 5.21
-------- ----- ----- -------- ----- -----
All interest earning assets................. 4,014.5 $62.6 6.23% 2,843.0 $52.9 7.44%
----- ----- ----- -----
Non-interest earning assets................. 202.6 75.7
-------- --------
Total assets................................ $4,217.1 $2,918.7
======== ========
Interest-bearing liabilities:
NOW and money market accounts (3)........... $ 583.6 $ 3.5 2.39% $ 306.9 $ 2.6 3.41%
Passbook savings deposits................... 246.7 1.5 2.45 149.8 1.0 2.70
Time deposits (3)........................... 1,708.4 19.8 4.63 1,094.1 17.0 6.22
Mortgage-backed bonds....................... 73.7 1.9 10.23 146.2 3.7 10.02
Securities sold under agreements
to repurchase.............................. 427.6 4.0 3.74 806.8 7.2 3.56
FHLB advances............................... 893.8 7.5 3.39 206.9 1.6 3.16
Subordinated notes.......................... 27.6 0.7 10.38 27.5 0.7 10.44
-------- ----- ----- -------- ----- -----
Total interest-bearing liabilities.......... 3,961.4 $38.9 3.93% 2,738.2 $33.8 4.94%
----- ----- ----- -----
Non-interest bearing liabilities............ 64.3 46.2
-------- --------
Total liabilities........................... 4,025.7 2,784.4
Stockholders' equity........................ 191.4 134.3
-------- --------
Liabilities and stockholders' equity........ $4,217.1 $2,918.7
======== ========
Net interest income.......................... $23.7 $19.1
===== =====
Interest rate spread (4)..................... 2.30% 2.50%
===== =====
Effective net spread (5).................... 2.36% 2.69%
===== =====
- -------------------------
</TABLE>
(1) Average balances include nonaccrual loans. Interest on such loans is
included in interest income upon receipt.
(2) Interest includes amortization of deferred loan fees.
(3) Includes the effect of interest rate exchange agreements.
(4) Equals average rate earned on all assets minus average rate paid on all
liabilities.
(5) Net interest income divided by average balances of all interest earning
assets.
At March 31, 1994 the weighted average yield on interest-earning assets was
6.01% and the weighted average cost on interest-bearing liabilities was 4.10%.
13
<PAGE>
PROVISION FOR LOSSES ON LOANS
- -----------------------------
The provision for losses on loans was $150 thousand for both the three
month period ended March 31, 1994 and the three month period ended March 31,
1993. The provision for 1994 is due partially to an increase in the unallocated
allowance on loans as a result of the one commercial loan entering the non-
accrual status during the three month period ended March 31, 1994 and the
increase in residential loans delinquent more than ninety days to a lesser
extent.
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 of such transactions will have on
the future volatility of the Net Market Value of the Company. Consequently, in
pursuing such sale or termination of activities, the Company does not seek net
gains in a reporting period to the detriment of earnings in future periods. On
December 31, 1993 the Company adopted the provisions of SFAS No. 115. As a
result, prior to December 31, 1993, mortgage-backed securities currently
classified as held to maturity were classified as held for investment,
securities currently classified as held for trading were classified as
securities carried at market value, and mortgage-backed and investment
securities currently classified as available for sale were classified as
securities carried at the lower of cost or market.
Net gain (loss) from financial instruments is summarized as follows:
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1994 1993
--------- ---------
(in thousands)
<S> <C> <C>
Mortgage-backed securities held for trading.... $(1,363) $ 258
Mark to market of financial futures contracts.. 2,494 --
Mortgage-backed securities available for sale.. 2,175 1,858
Options expense................................ (1,125) (737)
------- ------
$ 2,181 $1,379
======= ======
</TABLE>
Mortgage-Backed Securities Held for Trading During the three month period
ended March 31, 1994 the Company recorded a loss on mortgage-backed securities
held for trading totaling $1.4 million compared to a gain totaling $.3 million
for the three month period ended March 31, 1993. In assessing success from
these activities the Company determines a total return from these activities and
compares such return to one month LIBOR rates to measure if the Company received
additional value from the activities. The past performance from these
activities should not be considered an indicator of the future performance from
these activities. The Company believes one month LIBOR rates represent an
alternative yield which is available from a passive investment with comparable
characteristics as to high credit quality and minimal interest rate risk. The
total return determined by the Company is comprised of interest income from the
investments and market value changes from both the investments and the related
hedging instruments. The following tables illustrate this analytical concept in
both dollars and percent on an annualized basis for the three month periods
ending March 31, 1994 and 1993, respectively:
<TABLE>
<CAPTION>
DOLLARS (MILLIONS)
--------------------------------------------------
AVERAGE MARKET AVERAGE
INVESTMENT INTEREST VALUE TOTAL ONE MONTH VALUE
PERIOD (MILLIONS) INCOME CHANGES RETURN LIBOR ADDED
-------- --------- ----------- --------- -------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Three Months Ending
March 31, 1994 $195.7 $ 2.5 $ (1.4) $ 1.1 $ 1.7 $ (0.6)
Three Months Ending
March 31, 1993 $285.6 $ 3.5 $ .3 $ 3.8 $ 2.2 $ 1.6
PERCENT
--------------------------------------------------
AVERAGE MARKET AVERAGE
INVESTMENT INTEREST VALUE TOTAL ONE MONTH VALUE
PERIOD (MILLIONS) INCOME CHANGES RETURN LIBOR ADDED
-------- --------- ----------- --------- -------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Three Months Ending
March 31, 1994 $195.7 5.00% (2.79)% 2.21% 3.34% (1.13)%
Three Months Ending
March 31, 1993 $285.6 4.92% .09 % 5.01% 3.12% 1.89 %
</TABLE>
MARK TO MARKET OF FINANCIAL FUTURES CONTRACTS
- ---------------------------------------------
During the three month period ended March 31, 1994 gains of $2.5 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.
14
<PAGE>
Options Expense Options expense increased to $1.1 million for the three
month period ended March 31, 1994 when compared to $737 thousand for the three
month period ended March 31, 1993. The options expense for the three month
period ended March 31, 1994 was comprised of the amortization of transaction
fees paid for interest rate cap, floor and interest rate collar agreements.
Such quarterly amortization is expected to continue through 1997. Included in
options expense for the three month period ended March 31, 1993 is amortization
of transaction fees paid for interest rate floor and interest rate collar
agreements.
GROSS PROFIT INSURANCE AGENCY
- -----------------------------
Gross profit insurance agency increased to $936 thousand for the three
month period ended March 31, 1994 compared to $512 thousand for the three month
period ended March 31, 1993. The increase is primarily the result of increased
sales volume of commission generating products.
RETAIL BANKING FEES
- -------------------
Retail banking fees increased $573 thousand to $1.2 million for the three
month period ended March 31, 1994 compared to $660 thousand for the three month
period ended March 31, 1993. Of this increase approximately $441 thousand is
attributable to fees received as a result of the savings deposit acquisitions
which were completed during 1993. The remaining increase of approximately $132
thousand is attributable to an overall increase in the utilization of the retail
banking services offered by the Bank.
GENERAL AND ADMINISTRATIVE EXPENSE
- ----------------------------------
General and administrative expense increased $3.3 million to $10.6 million
for the three month period ended March 31, 1994 when compared to $7.3 million
for the three month period ended March 31, 1993. The following is a discussion
of changes in the components of general and administrative expense.
Compensation and employee benefits increased $1.1 million when comparing
the three month period ended March 31, 1994 to the same period in 1993.
Approximately $861 thousand of this increase is attributable to the additions of
staff due to the acquisitions which were completed during 1993. The remaining
increase of $192 thousand is due primarily to normal wage increases at the
beginning of 1994.
Occupancy expense increased $945 thousand when comparing the three month
period ended March 31, 1994 to the same period in 1993. This increase is due
primarily to occupancy costs as a result of the acquisitions which were
completed during 1993.
Federal insurance premiums increased $769 thousand for the three month
period ended March 31, 1994 when compared to the same period in 1993. This
increase is due to the increase in savings deposits as a result of the
acquisitions completed during 1993.
Other general and administrative expense increased approximately $536
thousand for the three month period ended March 31, 1994 when compared to the
same period in 1993. Approximately $312 thousand of this increase is
attributable to acquisitions which were completed in 1993. The remaining amount
is attributable to increases in the general level of expenses when comparing
1994 to 1993.
15
<PAGE>
EXTRAORDINARY ITEM
- ------------------
During the three month period ended March 31, 1993 the Company recorded
losses totaling $1.5 million net of applicable income taxes, relating to
mortgage-backed bonds which the Company issued in prior periods. A portion of
the loss incurred, approximately $16 thousand, related to the repurchase of $500
thousand of mortgage-backed bonds during this period. The remaining loss of
approximately $1.5 million is related to the defeasance of the Company's
remaining outstanding balance of 9.7% mortgage-backed bonds. Pursuant to this
the Company has purchased U.S. Treasury securities to complete this defeasance.
The Company replaced the mortgage-backed bonds with relatively lesser costing
savings deposits which the Company expects will enhance net interest income,
prospectively.
Transactions involving the early retirement of mortgage-backed bonds are
required to be reported as extraordinary items under Generally Accepted
Accounting Principles (GAAP). Under GAAP extraordinary items are considered
both unusual and infrequent. However, the Company believes the early retirement
of mortgage-backed bonds is an integral part of operating activities and should
not be considered either unusual or infrequent. Accordingly, the Company
believes a more reflective presentation of such transactions would be to include
such losses in net gain (loss) from financial instruments.
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 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).
Net market value is calculated by adjusting stockholders' equity for
differences between the estimated fair values and the carrying values
(historical cost basis) for 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. As of March 31, 1994 net market
value as calculated by the Company was $150.4 million and $138.3 million as
calculated pursuant to SFAS 107. The difference in the two amounts is
attributable to the value of deposit liabilities without defined maturities
which is excluded pursuant to SFAS 107 calculations.
To measure the impact of interest rate changes, the Company recalculates
the net market value assuming instantaneous, permanent parallel shifts in the
yield curve of both up and down 100, 200, 300 and 400 basis points, or eight
separate calculations. Larger increases or decreases in the net market value of
the Company as a result of these interest rate changes represents greater
interest rate risk than do smaller increases or decreases in net market value.
The Company endeavors to maintain a position where it experiences no material
change in net market value as a result of assumed 100 and 200 basis point
increases and decreases in interest rates.
The Office of Thrift Supervision ("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
flows 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. Beginning July 1, 1994, thrift
institutions with greater than "normal" interest rate exposure must take a
deduction from their total capital available to meet their risk-based capital
requirement. 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 it two
percent of the present value of its assets.
16
<PAGE>
Utilizing this measurement concept, the interest rate risk of the Company at
March 31, 1994 is as follows:
<TABLE>
<CAPTION>
(dollars in thousands)
(unaudited)
- ----------------------------------------
<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)...... $(11,780) $(4,270) $(1,195) $ (9,348)
OTS "normal" level of interest rate exposure... $(80,940) N/A N/A $(80,940)
</TABLE>
The Company's operating strategy is designed to avoid material negative or
positive changes in net market value. As of March 31, 1994, 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. The slight net loss when rates
increase indicates the duration of the Company's assets is slightly longer than
the duration of the Company's liabilities. The negligible loss when rates
decrease is due 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
Federal 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 7.59% and 6.12% at
March 31, 1994 and December 31, 1993, respectively.
The Company's sources of funds are funds generated from operations and from
investing and financing activities. The Company does not anticipate changing its
pricing policies for deposits whereby from time-to-time it may choose not to pay
rates on deposits as high as certain of its competition. Funds are primarily
used to originate loans, purchase mortgage-backed securities and make other
investments. The Company desires to hold a significant portion of its assets in
securitized form, thereby reducing the Company's exposure to credit losses and
also enabling the Company to use these assets as collateral for both long- and
short-term borrowings. During the three month period ended March 31, 1994 the
Company's major source of cash was provided by financing activities. The
Company generated approximately $454.4 million of cash during this period. The
major components which contributed to this increase were the net increase in
FHLB advances totaling $411 million and an increase of $133.9 million in
securities sold under agreements to repurchase reduced by an $88.1 million net
out-flow in savings deposits. Cash flows of approximately $455.5 million were
used for investing activities. Purchases of mortgage-backed securities held to
maturity and available for sale exceeded principal repayments by approximately
$485.4 million. Principal repayments of loans receivable exceeded loans
receivable originations and purchases of loans by approximately $36.3 million
resulting in a net cash inflow. During the three month period ended March 31,
1994 cash of approximately $118 million was used to increase the Company's
investment in securities held for trading.
At March 31, 1994, the Company had commitments outstanding to originate fixed-
rate mortgage loans of approximately $5.4 million and adjustable-rate mortgages
of approximately $724 thousand. The Company expects to satisfy these commitments
through its primary sources of funds.
17
<PAGE>
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 1994 Annual Meeting of Stockholders was held on April 28, 1994.
(b) Directors Elected: Directors Continuing in Office:
Hiram S. Liggett, Jr. Richard E. Beumer
Clarence M. Turley, Jr. Alvin D. Vitt
Stanley J. Bradshaw Douglas T. Breeden
Robert M. Clayton II
James W. Metcalfe
Sheldon K. Stock
(c) At the 1994 Annual Meeting of Stockholders, the stockholders considered
(i.) the approval and adoption of the Agreement and Plan of Merger, amended
and restated as of March 28, 1994, by and between Roosevelt Financial and
Farm & Home Financial Corporation, (ii.) the approval and adoption of an
amendment to Roosevelt Financial's Certificate of Incorporation to increase
the number of authorized shares of Roosevelt Financial Common Stock and
create a new class of Roosevelt Financial Preferred Stock, (iii.) the
approval and adoption of an amendment to Roosevelt Financial's Amended and
Restated 1986 Stock Option and Incentive Plan, (iv.) the election of three
directors of the Company, (v.) the approval and adoption of the Roosevelt
Financial Group, Inc. 1994 Non-Employee Director Stock Option Plan, and
(vi.) ratification of the appointment of KPMG Peat Marwick as independent
auditors for Roosevelt Financial for the fiscal year ending December 31,
1994.
The vote on the approval and adoption of the Agreement and Plan of Merger
by and between Roosevelt Financial and Farm & Home Financial Corporation at
the Annual Meeting was as follows:
FOR AGAINST ABSTAIN
3,823,534 404,811 66,484
There were 373,440 broker non-votes with respect to the proposal.
18
<PAGE>
The vote on the approval and adoption of an amendment to Roosevelt
Financial's Certificate of Incorporation to increase the number of
authorized shares of Roosevelt Financial Common Stock from 10,000,000 to
90,000,000 and create a new class of Roosevelt Financial Preferred Stock at
the Annual Meeting was as follows:
FOR AGAINST ABSTAIN
3,907,077 308,953 77,799
There were 374,440 broker non-votes with respect to the proposal.
The vote on the approval and adoption of an amendment to Roosevelt
Financial's Amended and Restated 1986 Stock Option and Incentive Plan at
the Annual Meeting was as follows:
FOR AGAINST ABSTAIN
4,033,379 215,944 94,213
There were 324,733 broker non-votes with respect to the proposal.
The vote on the election of the three directors at the Annual Meeting was
as follows:
<TABLE>
<CAPTION>
FOR AGAINST ABSTAIN
<S> <C> <C> <C>
Hiram E. Liggett, Jr. 4,543,769 121,870 2,630
Clarence M. Turley, Jr. 4,543,807 121,832 2,630
Stanley J. Bradshaw 4,543,769 121,870 2,630
</TABLE>
There were no broker non-votes with respect to the proposal.
The vote on the approval and adoption of the Roosevelt Financial Group,
Inc. 1994 Non-Employee Director Stock Option Plan at the Annual Meeting
was as follows:
FOR AGAINST ABSTAIN
4,351,542 181,668 68,562
There were 66,497 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:
FOR AGAINST ABSTAIN
4,619,964 17,575 16,822
There were 13,908 broker non-votes with respect to either proposal.
19
<PAGE>
Item 5. Other Information
___________________________________________
None
Item 6. Exhibits and Reports on Form 8-K
___________________________________________
(a) On January 13, 1994 the Company filed a report on Form 8-K concerning
the Farm & Home Financial Corporation agreement and Plan of Merger with
Roosevelt Financial Group, Inc. Exhibits were filed with this report.
Such exhibits were: Farm & Home's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1993; Farm & Home's Quarterly Report on
Form 10-Q for the quarter ended June 30, 1993; Farm & Home's Quarterly
Report on Form 10-Q for the quarter ended March 31, 1993; Farm & Home's
Current Report on Form 8-K dated April 29, 1993; the Proxy Statement,
Notice of Annual Meeting and Letter to Stockholders for Farm & Home's
1993 Annual Meeting of Stockholders; and Farm & Home's Annual Report on
Form 10-K for the fiscal year ended December 31, 1992.
(b) On February 11, 1994 the Company filed a report on Form 8-K whereby
preliminary copies of Roosevelt's and Farm & Home's respective letters
to stockholders, Notices of Special Meeting, forms of proxy and their
Joint Proxy Statement and a preliminary copy of a letter of Transmittal
were filed.
(c) On March 10, 1994 the Company filed a report of Form 8-K concerning
the Farm & Home Financial Corporation agreement and Plan of Merger with
Roosevelt Financial Group, Inc. Farm & Home's Annual Report on Form
10-K for the fiscal year ended December 31, 1993 was filed as an
exhibit.
(d) On March 18, 1994 the Company filed a report on Form 8-K. Home
Bancorp's Form 10-Q for the three month period ended December 31, 1993
was filed as an exhibit.
20
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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 hereunto duly authorized.
ROOSEVELT FINANCIAL GROUP, INC.
Date: September 12, 1996 By: /s/ Gary W. Douglass
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Gary W. Douglass
Executive Vice President and
Chief Financial Officer
