-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, IpaMbdRehqT7KyySJaQYfBMQHrY1Ux5GThWqWZubeJpo3HuMsw4n9u/sznjfntbr Xfaw+ukqPezd9dPstKltsg== 0000928385-96-001209.txt : 19960916 0000928385-96-001209.hdr.sgml : 19960916 ACCESSION NUMBER: 0000928385-96-001209 CONFORMED SUBMISSION TYPE: 10-Q/A PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19960630 FILED AS OF DATE: 19960913 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: ROOSEVELT FINANCIAL GROUP INC CENTRAL INDEX KEY: 0000830055 STANDARD INDUSTRIAL CLASSIFICATION: SAVINGS INSTITUTION, FEDERALLY CHARTERED [6035] IRS NUMBER: 431498200 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q/A SEC ACT: 1934 Act SEC FILE NUMBER: 000-17403 FILM NUMBER: 96629417 BUSINESS ADDRESS: STREET 1: 900 ROOSEVELT PKWY CITY: CHESTERFIELD STATE: MO ZIP: 63017 BUSINESS PHONE: 3145326200 MAIL ADDRESS: STREET 1: 900 ROOSEVELT PKWY STREET 2: 900 ROOSEVELT PKWY CITY: CHESTERFIELD STATE: MO ZIP: 63017 10-Q/A 1 ROOSEVELT FINANCIAL GROUP, INC. FORM 10-Q/A 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.
Class Outstanding at August 7, 1996 ---------------------- ------------------------------- Common Stock 42,104,400 Par Value $.01
2 During August 1996, the Staff of the Securities and Exchange Commission (Staff) performed a regular review of the 1995 Form 10-K of Roosevelt Financial Group, Inc. (Company) in conjunction with Registration Statements on Form S-4 filed by the Company related to three pending acquisitions. As a result of this review, the Staff questioned the Company's original accounting treatment surrounding the deferral and recognition of gains and losses on financial futures contracts used to reduce the interest rate risk of certain mortgage-backed securities in the Company's available for sale portfolio. The Company originally recognized a $34.8 million charge to fourth quarter 1995 earnings regarding the cessation of deferral accounting. At issue was the Staff's contention that the financial futures contracts did not meet the "high correlation" criteria of Statement of Financial Accounting Standards No. 80, "Accounting for Futures Contracts", thus not qualifying for deferral accounting from the inception of the hedge in March 1994 and requiring the recognition of subsequent gains and losses in income. The Company originally ceased deferral accounting when management concluded that high correlation measured using the "cumulative dollar approach" was unlikely to be achieved on a consistent basis. Accordingly, at the Staff's request, the Company has restated its 1994 and 1995 consolidated financial statements to reflect the cessation of deferral accounting, from the inception of the hedge, with respect to the aforementioned financial futures contracts. The restatement had the effect of decreasing previously reported 1995 net income for the year ended December 31, 1995 by $18.0 million. This restatement is one of the timing of recognition of gains and losses in the Statement of Operations and has no impact on total stockholders' equity at any date since both the futures contracts and the related mortgage-backed securities have been previously marked to market through stockholders' equity at each reporting period. Other appropriate conforming changes to reflect the statement have been made throughout this document. Subsequent to December 31, 1995, the Company terminated all of its futures positions and maintained its interest rate risk management position by principally redesigning existing interest rate exchange agreements to the available for sale portfolio. Such interest rate exchange agreements were utilized prior to the redesignation to manage the interest rate risk of interest-bearing deposits and other short-term borrowings. INDEX ROOSEVELT FINANCIAL GROUP, INC.
PAGE 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
3 ROOSEVELT FINANCIAL GROUP, INC. Consolidated Balance Sheets (dollars in thousands, except share data) (Unaudited)
June 30, December 31, 1996 1995 ---------- ------------ 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
4 ROOSEVELT FINANCIAL GROUP, INC. Consolidated Statements of Operations (dollars in thousands, except per share information) (Unaudited)
Three Months Ended Six Months Ended June 30, June 30, 1996 1995 1996 1995 -------- -------- -------- -------- Interest income: Loans $ 73,297 $ 61,822 $145,307 $120,762 Securities available for sale 25,597 34,931 54,945 72,155 Securities held to maturity 63,048 65,569 127,525 125,583 Other 338 254 646 512 -------- -------- -------- -------- Total interest income 162,280 162,576 328,423 319,012 -------- -------- -------- -------- 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 45,683 89,670 93,996 Provision for losses on loans 300 300 600 600 -------- -------- -------- -------- Net interest income after provision for losses on loans 42,996 45,383 89,070 93,396 -------- -------- -------- -------- 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 (loss) from financial instruments 521 (22,935) 862 (55,739) 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 (15,492) 18,794 (67,776) -------- -------- -------- -------- 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 (loss) before income tax expense 29,844 8,151 62,718 (17,613) Income tax expense 10,116 2,291 21,425 (7,298) -------- -------- -------- -------- Net income (loss) $ 19,728 $ 5,860 $ 41,293 $(10,315) ======== ======== ======== ======== Net income (loss) attributable to common stock $ 18,671 $ 4,803 $ 39,179 $(12,444) ======== ======== ======== ======== Earnings per share: (loss) Primary $ 0.44 $ 0.12 $ 0.92 $ (0.31) ======== ======== ======== ======== Fully-diluted $ 0.42 $ 0.12 $ 0.88 $ (0.31) ======== ======== ======== ======== Dividends Paid $ 0.155 $ 0.14 $ 0.31 $ 0.28 ======== ======== ======== ======== See accompanying notes to consolidated financial statements
5 ROOSEVELT FINANCIAL GROUP, INC. AND SUBSIDIARIES Consolidated Statements of Stockholders' Equity (Dollars in thousands) (Unaudited)
Preferred Stock Common Stock ---------------------- ---------------------- Paid-in Retained Shares Amount Shares Amount Capital Earnings ---------- -------- ---------- -------- --------- ---------- Balance, December 31, 1994 1,319,000 $ 13 40,173,527 $ 402 $ 255,655 $ 209,379 Net income -- -- -- -- -- 27,098 Purchase of common stock for treasury -- -- -- -- -- -- Issuance of common stock through stock options and employee stock plans -- -- 243,763 3 1,531 (1,572) Issuance of common stock in the acquisition of Kirksville Bancshares, Inc. -- -- 1,521,435 15 5,426 15,475 Exchange of preferred stock for common stock (18,000) -- 52,976 -- (231) -- Amortization of restricted stock awards -- -- -- -- -- -- Cash dividends declared: Common stock -- -- -- -- -- (22,531) Preferred stock -- -- -- -- -- (4,243) Unrealized gains on securities available for sale, net -- -- -- -- -- -- --------- -------- ---------- -------- --------- ---------- Balance, December 31, 1995 1,301,000 13 41,991,701 420 262,381 223,606 Net income -- -- -- -- -- 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 ========= ======== ========== ======== ========= ========== Unrealized gain (loss) on securities Treasury Stock available for Unamortized Total ---------------------- sale, net Restricted Stockholders' Shares Amount of taxes Stock Awards Equity -------- -------- -------------- ------------ ------------- Balance, December 31, 1994 (10,000) $ (150) $ (23,673) $ -- $ 441,626 Net income -- -- -- -- 27,098 Purchase of common stock for treasury (214,500) (3,426) -- -- (3,426) Issuance of common stock through stock options and employee stock plans 209,976 3,345 -- (1,621) 1,686 Issuance of common stock in the acquisition of Kirksville Bancshares, Inc. -- -- -- -- 20,916 Exchange of preferred stock for common stock 14,524 231 -- -- -- Amortization of restricted stock awards -- -- -- 88 88 Cash dividends declared: Common stock -- -- -- -- (22,531) Preferred stock -- -- -- -- (4,243) Unrealized gains on securities available for sale, net -- -- 35,692 -- 35,692 -------- -------- ------------- ------------ ------------- Balance, December 31, 1995 -- -- 12,019 (1,533) 496,906 Net income -- -- -- -- 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
6 ROOSEVELT FINANCIAL GROUP, INC. Consolidated Statements of Cash Flows (dollars in thousands) (Unaudited)
Six Months Ended June 30, 1996 1995 ----------- ----------- Cash flows from operating activities: Net income $ 41,293 $ (10,315) 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 1,815 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) (29,459) ----------- ----------- Net cash provided by operating activities 45,680 (13,727) ----------- ----------- 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) 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) (470,922) ----------- ----------- 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
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. During August 1996, the Staff of the Securities and Exchange Commission (Staff) performed a regular review of the Company's 1995 Form 10-K in conjunction with Registration Statements on Form S-4 filed by the Company related to three pending acquisitions. As a result of this review, the Staff questioned the Company's original accounting treatment surrounding the deferral and recognition of gains and losses on financial futures contracts used to reduce the interest rate risk of certain mortgage backed securities in the Company's available for sale portfolio. The Company originally recognized a $34.8 million charge to fourth quarter 1995 earnings regarding the cessation of deferral accounting. At issue was the Staff's contention that the financial futures contracts did not meet the "high correlation" criteria of Statement of Financial Accounting Standards No. 80, "Accounting for Futures Contracts", thus not qualifying for deferral accounting from the inception of the hedge in March 1994 and requiring the recognition of subsequent gains and losses in income. The Company originally ceased deferral accounting when management concluded that high correlation measured using the "cumulative dollar approach" was unlikely to be achieved on a consistent basis. Accordingly, at the Staff's request, the Company has restated its 1995 consolidated financial statements to reflect the cessation of deferral accounting, from the inception of the hedge, with respect to the aforementioned financial futures contracts. The restatement had the effect of decreasing previously reported net income for the three and six month periods ended June 30, 1995 by $15.2 million and $37.1 million, respectively. This restatement is one of the timing of recognition of gains and losses in the Statement of Operations and had no impact on total stockholders' equity since both the financial futures contracts and the related mortgage-backed securities had been previously marked to market through stockholders' equity. Subsequent to December 31, 1995, the Company terminated all of its financial futures positions and maintained its interest rate risk management position by principally redesignating existing interest rate exchange agreements to the available for sale portfolio. Such interest rate exchange agreements were utilized prior to the redesignation to manage the interest rate risk of interest-bearing deposits and other short-term borrowings. NOTE 2 - ACQUISITIONS On April 16, 1996, the Company announced the execution of a definitive agreement to acquire Community Charter Corporation (CCC), a commercial bank holding company, in a stock-for-stock transaction. CCC is the parent company of 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 consummation of the respective transactions. 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:
GROSS GROSS AMORTIZED UNREALIZED UNREALIZED MARKET COST GAINS LOSSES VALUE --------- ---------- ---------- ------ (in thousands) 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 ========== ====== ======= =========
Gross realized gains and gross realized losses on sales of securities available for sale are summarized as follows:
SIX MONTHS ENDED JUNE 30, ------------------------------- 1996 1995 ------- ------- Gross realized gains $11,005 $12,573 Gross realized losses (3,573) (1,028) ------ ------ $ 7,432 $11,545 ====== ======
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:
GROSS GROSS AMORTIZED UNREALIZED UNREALIZED MARKET COST GAINS LOSSES VALUE --------- ---------- ---------- ------ (in thousands) 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 ========== ======= ======== ==========
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. 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 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. 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 $5.9 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 $0.12 for the same period in 1995. Net income for the three month period ended June 30, 1995 was impacted by the recognition of losses resulting from the mark to market of the Company's financial futures positions used to reduce the interest rate risk of certain mortgage-backed securities in the available for sale portfolio totaling $27.8 million. The Company recorded net income totaling $41.3 million for the six month period ended June 30, 1996 as compared to a net loss totaling $10.3 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 a loss on a fully diluted per share basis of $0.31. Net income for the six month period ended June 30, 1995 was impacted by the recognition of losses resulting from the mark to market of the Company's financial futures positions used to reduce the interest rate risk of certain mortgage-backed securities in the available for sale portfolio to totaling $61.7 million. Net income for June 30, 1995 was also negatively impacted by $27.1 million of unrealized losses on impairment of certain mortgage-backed securities. For a discussion of the issues relating to financial futures positions see Note 1 - Basis of Presentation to the Notes to Consolidated Financial Statements. For a discussion of the issues relating to the unrealized losses see "Unrealized Losses on Impairment of Mortgage-Backed Securities Held to Maturity". INTEREST INCOME - --------------- Interest income decreased $296,000 to $162.3 million for the three month period ended June 30, 1996 as compared to $162.6 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 $9.3 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 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 $9.4 million to $328.4 million for the six month period ended June 30, 1996 as compared to $319.0 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 $17.2 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 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. 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.
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) Cash equivalents $ 27.0 $ 0.3 5.01% $ 17.6 $ 0.3 5.79% Securities available for sale 1,424.0 25.6 7.19 1,901.0 34.9 7.34 Securities held to maturity 3,647.1 63.1 6.91 3,685.1 65.6 7.12 Loans 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 $162.6 7.37% ------ ------ ----- Other assets 427.2 313.1 -------- -------- $9,411.7 $9,135.9 ======== ======== Liabilities Deposits: NOW and money market accounts $ 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 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 $ 45.7 ====== ====== Interest rate spread 1.77% 1.88% ===== ===== Effective net spread 1.93% 2.07% ===== ===== 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) Cash equivalents $ 25.5 $ 0.6 5.07% $ 18.1 $ 0.5 5.66% Securities available for sale 1,493.6 55.0 7.36 1,971.3 72.1 7.31 Securities held to maturity 3,623.2 127.5 7.04 3,606.5 125.6 6.96 Loans 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 $319.0 7.27% ------ ----- ----- Other assets 405.5 305.9 -------- -------- $9,356.7 $9,087.6 ======== ======== Liabilities Deposits: NOW and money market accounts $ 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 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 $ 94.0 ====== ====== Interest rate spread 1.85% 1.96% ===== ===== Effective net spread 2.00% 2.14% ===== ===== - ----------------------------- The securities available for sale are included in the following table at historical cost with the corresponding average rate calculated upon historical balances. Average balances include non accrual loans. Interest on such loans is included in interest income upon receipt. Interest includes amortization of deferred loan fees. Includes the effect of interest rate exchange agreements. Equals average rate earned on all assets minus average rate paid on all liabilities. Net interest income annualized divided by average balances of all interest earning assets.
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%. 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.
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) -------- -------- ---------- --------- -------- ---------- Interest income: Loans $ 12,816 $ (1,341) $ 11,475 $ 23,618 $ 927 $ 24,545 Securities available for sale (8,747) (587) (9,334) (17,404) 194 (17,210) 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 $ (3,838) $ (296) $ 7,055 $ 2,356 $ 9,411 -------- -------- --------- --------- -------- --------- 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 $ (3,404) $ (2,387) $ 1,422 $ (5,748) $ (4,326) ======== ======== ========= ========= ======== =========
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 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. 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:
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, 1996 1995 1996 1995 -------- -------- ------- -------- (IN THOUSANDS) Mark to market of financial futures contracts $ --- $(27,752) $ --- $(61,704) Mortgage-backed securities available for sale 4,342 7,567 7,432 11,545 Options expense (3,821) (2,750) (6,570) (5,580) -------- -------- ------- -------- $ 521 $(22,935) $ 862 $ 55,739 ======== ======== ======= ========
Mark to market of financial futures contracts - --------------------------------------------- During the three month and six month periods ended June 30, 1995 losses of $27.8 million and $61.7 million, respectively resulted from the mark to market of the Company's financial futures positions used to reduce the interest rate risk of certain mortgage-backed securities in the available for sale portfolio. For further discussion see Note 1 - Basis of Presentation to the Notes to Consolidated Financial Statements. Unrealized Losses on Impairment of Mortgage-Backed Securities Held To Maturity The Company purchased ownership interests in ten pools of privately issued adjustable rate mortgage-backed securities issued in 1989 through 1991 by Guardian Savings and Loan Association ("Guardian"). All of such Guardian pools in which the Company purchased and currently holds an ownership interest were rated AA or AAA by Standard & Poors and Aa2 or Aaa by Moodys, at the date of issuance of the securities. Guardian issued their securities with several classes available for purchase. Certain classes are subordinate to the position of senior classes in that such subordinate classes absorb all credit losses and must be completely eliminated before any losses flow to senior position holders. The Guardian securities purchased by the Company (the "Guardian Securities") were purchases of the most senior positions, thus intended to be protected by the subordination credit enhancement feature. Guardian was placed in conservatorship on June 21, 1991 by the Office of Thrift Supervision, which appointed the Resolution Trust Corporation ("RTC") as conservator. Subsequent to the conservatorship, the RTC replaced Guardian as the servicer for the loans underlying the securities. Effective November 1994, Bank of America assumed servicing responsibilities from the RTC. Guardian was a niche player in the California mortgage market whose lending decisions relied more on the value of the mortgaged property and the borrower's equity in the property and less on the borrower's income and credit standing. All collateral underlying the Guardian Securities have the following loan pool characteristics: * First lien, 30 year, six month adjustable rate loans tied to either the cost of funds index, one year constant maturity treasury rate, or LIBOR. * 100% of the loans were originated in California. * The weighted average loan to value ratio at origination was approximately 66%. Beginning in mid-1993 and continuing currently, the loan pools backing the securities have been affected by high delinquency and foreclosure rates, and higher than anticipated losses on the ultimate disposition of real estate acquired through foreclosure ("REO"). This has resulted in rating agency downgrades, principally in 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 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:
(in millions) 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 =======
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. 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. POOLS DETERMINED TO BE OTHER THAN TEMPORARILY IMPAIRED ------------------------------------------------------ June 30, 1996 (dollars in thousands)
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 - ------ ----- ------ -------- ------- -------- ------- -------- --- ---------- -------------------- 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 ==================================
GUARDIAN POOLS DETERMINED TO BE ADEQUATELY PROTECTED BY REMAINING CREDIT ENHANCEMENT ------------------------------------------------------------------------------------ June 30, 1996 (dollars in thousands)
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 - ------ ----- ------ -------- ------- -------- ------- -------- --- ---------- -------------------- 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 =================================
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. 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.
NONPERFORMING ASSETS JUNE 30, DECEMBER 31, (in thousands) 1996 1995 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% ======= =======
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. 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.
in millions ----------- 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 =====
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. 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.
(unaudited) --------------------------------------- (dollars in thousands) 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)
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. 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):
REQUIREMENT ACTUAL EXCESS CAPITAL ---------------------- ---------------------- -------------------- CAPITAL STANDARD AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT ---------------- ------ ------- ------ ------- ------ ------- 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%
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. 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 28 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. ROOSEVELT FINANCIAL GROUP, INC. DATE: SEPTEMBER 12, 1996 BY: /s/GARY W. DOUGLASS --------------------------------------- GARY W. DOUGLASS EXECUTIVE VICE PRESIDENT AND CHIEF FINANCIAL OFFICER 27 EX-27 2 ARTICLE 9 FINANCIAL DATA SCHEDULE
9 1,000 6-MOS DEC-31-1996 JAN-01-1996 JUN-30-1996 19,228 45,025 0 0 1,353,760 3,534,341 3,525,049 4,038,456 21,757 9,327,772 4,995,371 2,745,108 162,901 908,075 0 65,050 199,600 251,667 9,327,772 145,307 182,470 646 328,423 122,119 238,753 89,670 600 7,432 45,146 62,718 41,293 0 0 41,293 0.92 0.88 1.93 9,800 10,160 58 0 21,855 1,122 350 21,757 0 0 19,085
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