-----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, FQHP4qUwAReT2qt09LWGKoim1+WaMm4PCkGstJQrtmbg5mQrWmUT2FIvO2R0adEv rhBsUy3P2r3aEdXb0BYzRw== 0000950109-96-005954.txt : 19960916 0000950109-96-005954.hdr.sgml : 19960916 ACCESSION NUMBER: 0000950109-96-005954 CONFORMED SUBMISSION TYPE: 10-Q/A PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19940630 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: 96629452 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 FORM 10-Q/A OF JUNE 30, 1994 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q/A (Mark One) [ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 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 August 12, 1994 ________________ _________________________________ Common Stock 38,941,415 Par Value $.01 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 hedge, with respect to the aforementioned financial futures contracts. The restatement had the effect of decreasing the previously reported net loss for the quarter ended June 30, 1994 by $3.1 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. INDEX ROOSEVELT FINANCIAL GROUP, INC. PART I. FINANCIAL INFORMATION PAGE 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 19 SIGNATURES 20 ROOSEVELT FINANCIAL GROUP, INC. Consolidated Balance Sheets (In thousands)
June 30, December 31, 1994 1993 (Unaudited) Assets ------------ ------------ Cash --------------------------------------------------------------------- $ 68,647 $ 74,316 Interest-bearing deposits ------------------------------------------------ 3,648 53,239 Securities purchased under agreements to resell--------------------------- -- 50,000 Mortgage-backed securities: Held for trading----------------------------------------------------- 503 155,291 Available for sale--------------------------------------------------- 1,773,569 1,538,210 Held to maturity----------------------------------------------------- 2,655,260 2,589,789 Investment securities: Available for sale--------------------------------------------------- 29,894 46,317 Held to maturity----------------------------------------------------- 46,927 53,127 Loans receivable: Held for sale-------------------------------------------------------- 8,795 72,631 Held to maturity----------------------------------------------------- 2,990,399 2,599,179 Stock in Federal Home Loan Bank ------------------------------------------ 109,137 81,352 Office properties and equipment, net ------------------------------------- 54,001 47,796 Accrued income and other assets ------------------------------------------ 278,012 233,914 ---------- ----------- Total Assets $8,018,792 $ 7,595,161 ========== =========== Liabilities and Stockholders' Equity Savings deposits --------------------------------------------------------- $5,092,906 $ 5,081,496 FHLB advances ------------------------------------------------------------ 1,430,338 1,257,000 Mortgage-backed bonds ---------------------------------------------------- 19,658 95,306 Securities sold under agreements to repurchase --------------------------- 849,541 590,401 Subordinated notes ------------------------------------------------------- 27,656 54,565 Accrued expenses and other liabilities ----------------------------------- 186,603 137,931 ---------- ----------- Total Liabilities 7,606,702 7,216,699 ---------- ----------- Commitments and contingencies Stockholders' equity: Preferred stock ($.01 par value): Authorized 3,000,000 shares at June 30, 1994 and 10,000,000 shares at December 31, 1993; issued and outstanding 1,319,000 shares at June 30, 1994 and 2,492,440 shares at December 31, 1993------------------------- 13 25 Common stock ($.01 par value): Authorized 90,000,000 shares at June 30, 1994 and 30,000,000 at December 31, 1993; issued and outstanding 38,929,355 shares at June 30, 1994 and 10,291,922 shares at December 31, 1993 ----------------------- 389 102 Paid-in capital ----------------------------------------------------- 249,954 179,980 Retained earnings - subject to certain restrictions ----------------- 161,112 186,780 ---------- ----------- 411,468 366,887 Unrealized gain on mortgage-backed securities available for sale, net 622 11,575 ---------- ----------- Total Stockholders' Equity ------------------------------------- 412,090 378,462 ---------- ----------- $8,018,792 $ 7,595,161 ========== ===========
See accompanying notes to consolidated financial statements 2 ROOSEVELT FINANCIAL GROUP, INC. Consolidated Statements of Operations (In thousands, except per share data) (Unaudited)
Three Months Ended Six Months Ended June 30, June 30, 1994 1993 1994 1993 Interest income: ---------- -------- --------- ----------- Mortgage-backed securities held to maturity ---------------------- $ 40,431 $ 50,581 $ 78,666 $ 97,133 Loans receivable ------------------------------------------------- 51,559 52,678 98,172 105,783 Investment securities available for sale ------------------------- 366 695 936 1,419 Investment securities held to maturity --------------------------- 1,023 1,100 2,162 2,337 Mortgage-backed securities held for trading ---------------------- 2,785 5,725 6,457 10,404 Mortgage-backed securities available for sale -------------------- 30,587 2,403 57,592 9,879 Mortgage-backed securities held for sale ------------------------- -- 2,788 -- 5,682 Securities purchased under agreements to resell ------------------ -- 394 393 850 Other ------------------------------------------------------------ 3,239 2,349 5,858 4,715 ---------- -------- -------- ----------- Total interest income --------------------------------------- 129,990 118,713 250,236 238,202 Interest expense: ---------- -------- -------- ----------- Savings deposits, net -------------------------------------------- 49,834 46,249 96,308 93,657 Mortgage-backed bonds -------------------------------------------- 1,148 3,363 3,524 7,723 Securities sold under agreements to repurchase ------------------- 9,764 12,187 17,544 21,927 Interest rate exchange agreements -------------------------------- 2,419 9,510 6,088 19,596 Advances from Federal Home Loan Bank ----------------------------- 17,945 6,613 32,581 11,103 Subordinated notes ----------------------------------------------- 1,769 1,769 3,539 3,539 ---------- -------- -------- ----------- Total interest expense -------------------------------------- 82,879 79,691 159,584 157,545 ---------- -------- -------- ----------- Net interest income ----------------------------------------- 47,111 39,022 90,652 80,657 Loan loss provision (recovery) ---------------------------------------- 11,682 (368) 11,832 369 ---------- -------- -------- ----------- Net interest income after provision for losses -------------- 35,429 39,390 78,820 80,288 Noninterest income (loss): Net gain (loss) from financial instruments ----------------------- (33,485) 2,186 (31,858) 8,208 Loan servicing fees, net ----------------------------------------- 1,779 (557) 3,725 (1,933) Gross profit-insurance agency ------------------------------------ 1,457 1,661 3,209 2,801 Retail banking fees ---------------------------------------------- 2,081 1,389 3,870 2,586 Gain on sales of real estate acquired for development and sale --- 1,283 -- 1,151 -- Other ------------------------------------------------------------ 1,012 257 1,647 1,227 ---------- -------- -------- ----------- Total noninterest income (loss) ----------------------------- (25,873) 4,936 (18,256) 12,889 ---------- -------- -------- ----------- Noninterest expense: General and administrative: Compensation and employee benefits ----------------------------- 16,102 9,243 26,567 18,752 Occupancy ------------------------------------------------------ 10,450 4,073 15,208 8,086 Advertising ---------------------------------------------------- 660 561 1,197 1,155 Federal insurance premiums ------------------------------------- 3,155 2,103 6,106 4,308 Other ---------------------------------------------------------- 15,344 5,351 20,698 10,069 ---------- -------- -------- ----------- Total general and administrative ---------------------------- 45,711 21,331 69,776 42,370 Provision for real estate losses --------------------------------- 3,742 1,372 4,581 3,744 ---------- -------- -------- ----------- Total non-interest expense ---------------------------------- 49,453 22,703 74,357 46,114 ---------- -------- -------- ----------- Income (loss) before income tax expense and extraordinary items (39,897) 21,623 (13,793) 47,063 Income tax expense (benefit) ------------------------------------------ (13,165) 7,940 (4,126) 16,947 ---------- -------- -------- ----------- Income (loss) before extraordinary items ---------------------- (26,732) 13,683 (9,667) 30,116 Extraordinary items --------------------------------------------------- (7,849) (425) (7,849) (1,908) ---------- -------- -------- ----------- Net income (loss) ---------------------------------------------- $ (34,581) 13,258 $(17,516) $ 28,208 ---------- -------- -------- ----------- Net income (loss) attributable to common stock ----------------- $ (35,484) 12,099 $(19,618) $ 26,382 ========== ======== ======== =========== Primary earnings per share: Income (loss) before extraordinary items ------------------------- $ (0.71) $ 0.35 $ (0.33) $ 0.88 Extraordinary items ---------------------------------------------- (0.20) (0.01) (0.22) (0.06) ---------- -------- -------- ----------- Net income (loss) ------------------------------------------- $ (0.91) $ 0.34 $ (0.55) $ 0.82 Fully-diluted earnings per share: ========== ======== ========= =========== Income (loss) before extraordinary items ------------------------- $ (0.71) $ 0.34 $ (0.33) $ 0.77 Extraordinary items ---------------------------------------------- (0.20) (0.01) (0.22) (0.05) ---------- -------- -------- ----------- Net income (loss) ------------------------------------------- $ (0.91) $ 0.33 $ (0.55) $ 0.72 ========== ======== ======== =========== Dividends Paid -------------------------------------------------------- $ 0.11 $ 0.08 $ 0.21 $ 0.15 ========== ======== ======== ===========
See accompanying notes to consolidated financial statement 3 ROOSEVELT FINANCIAL GROUP, INC. Consolidated Statements of Stockholders' Equity (In thousands) (Unaudited)
Preferred stock Common stock ---------------- ------------------- Paid-in Retained Shares Amount Shares Amount Capital Earnings ------ ------- ------- --------- -------- --------- Balance, December 31, 1992 ------------------------------ 1,526 $ 15 8,824 $ 88 $135,084 $ 153,424 Net income ---------------------------------------------- -- -- -- -- -- 44,896 Three for two common stock split ------------------------ -- -- 1,480 15 -- (15) Issuance of common stock -------------------------------- -- -- 8 -- 98 -- Issuance of preferred stock ----------------------------- 920 9 -- -- 44,176 -- Exchange 119,025 shares of common stock for 80,000 shares of preferred stock ------------------ 80 1 (119) (1) (27) -- Exercise of Series B preferred stock for common stock ------------------------------------------ (34) -- 26 -- -- -- Exercise of incentive stock options and non- qualified stock options ------------------------------- -- -- 73 -- 649 -- Amortization of restricted stock awards ----------------- -- -- -- -- -- -- Cash dividends paid on common stock --------------------- -- -- -- -- -- (7,710) Cash dividends paid on preferred stock ------------------ -- -- -- -- -- (3,815) Unrealized gain on mortgage-backed securities available for sale, net-------------------------------- -- -- -- -- -- -- ------- ------- ------- ------- ------- ------- Balance December 31, 1993 ------------------------------- 2,492 25 10,292 102 179,980 186,780 Net loss ------------------------------------------------ -- -- -- -- -- (17,516) Three for one common stock split ------------------------ -- -- 25,157 253 (253) -- Issuance of preferred stock ----------------------------- 319 3 -- -- 21,270 -- Exchange of preferred stock for common stock ------------ (1,492) (15) 2,238 22 (7) -- Exercise of incentive stock options --------------------- -- -- 121 1 744 -- Issuance of common stock in the acquisition of Home Federal Bancorp ---------------------------------- -- -- 1,121 11 48,220 -- Cash dividends paid on common stock --------------------- -- -- -- -- -- (5,239) Cash dividends on preferred stock ----------------------- -- -- -- -- -- (2,913) Unrealized loss on mortgage-backed securities available for sale, net-------------------------------- -- -- -- -- -- -- ------- ------- ------- ------- -------- --------- Balance, June 30, 1994----------------------------------- 1,319 $ 13 38,929 $ 389 $249,954 $ 161,112 ======= ======= ======= ======= ======== =========
Unrealized gain (loss) on mortgage- backed securities Unamortized Total available Restricted Stockholders' for sale, net Stock Awards Equity -------------- ------------ ------------- Balance, December 31, 1992 ------------------------------ $ -- $ (66) $ 288,545 Net income ---------------------------------------------- -- -- 44,896 Three for two common stock split ------------------------ -- -- -- Issuance of common stock -------------------------------- -- -- 98 Issuance of preferred stock ----------------------------- -- -- 44,185 Exchange 119,025 shares of common stock for 80,000 shares of preferred stock ------------------ -- -- (27) Exercise of Series B preferred stock for common stock ------------------------------------------ -- -- -- Exercise of incentive stock options and non- qualified stock options ------------------------------- -- -- 649 Amortization of restricted stock awards ----------------- -- 66 66 Cash dividends paid on common stock --------------------- -- -- (7,710) Cash dividends paid on preferred stock ------------------ -- -- (3,815) Unrealized gain on mortgage-backed securities available for sale, net-------------------------------- 11,575 -- 11,575 ---------- --------- --------- Balance December 31, 1993 ------------------------------- 11,575 -- 378,462 Net loss ------------------------------------------------ -- -- (17,516) Three for one common stock split ------------------------ -- -- -- Issuance of preferred stock ----------------------------- -- -- 21,273 Exchange of preferred stock for common stock ------------ -- -- -- Exercise of incentive stock options --------------------- -- -- 745 Issuance of common stock in the acquisition of Home Federal Bancorp ---------------------------------- -- -- 48,231 Cash dividends paid on common stock --------------------- -- -- (5,239) Cash dividends on preferred stock ----------------------- -- -- (2,913) Unrealized loss on mortgage-backed securities available for sale, net-------------------------------- (10,953) -- (10,953) ---------- --------- --------- Balance, June 30, 1994----------------------------------- $ 622 $ -- $ 412,090 ========== ========= =========
See accompanying notes to consolidated financial statements 4 ROOSEVELT FINANCIAL GROUP, INC. Consolidated Statements of Cash Flows (In thousands) (Unaudited)
Six Months Ended June 30, 1994 1993 ------------ ------------ Cash flows from operating activities: Net income ------------------------------------------------------------------- $ (17,516) $ 28,208 Adjustments to reconcile net income to net cash used in operating activities: Extraordinary loss on early extinguishment of debt ------------------------- 12,134 2,993 Depreciation --------------------------------------------------------------- 2,535 1,826 Amortization of discounts and premiums, net -------------------------------- 29,811 6,503 Decrease in accrued interest receivable ------------------------------------ 3,298 3,038 Decrease in accrued interest payable --------------------------------------- (819) (1,138) Provision for losses on loans and real estate ------------------------------ 16,413 4,113 Net (increase) decrease in securities held for trading --------------------- 929 (72,536) Net (increase) decrease in securities held for sale ------------------------ -- (121,066) Net (increase) decrease in loans held for sale ----------------------------- 63,835 (55,581) Increase (decrease) in income taxes ---------------------------------------- (18,405) 21 Other, net ----------------------------------------------------------------- 4,919 8,116 ------------ ------------- Net cash provided by (used in) operating activities -------------------------- 97,134 (195,503) ------------ ------------- Cash flows from investing activities: Principal payments on mortgage-backed securities held to maturity ---------- 463,622 308,962 Principal payments on mortgage-backed securities available for sale -------- 219,814 -- Principal payments on loans receivable ------------------------------------- 514,546 413,442 Proceeds from sales of loans receivable ------------------------------------ 3,896 198,027 Proceeds from sales of mortgage-backed securities available for sale ------- 1,380,023 -- Proceeds from sales of investment securities available for sale ------------ 11,833 -- Proceeds from maturities of investment securities -------------------------- 24,764 332,179 Net proceeds from sales of real estate acquired through foreclosure -------- 1,964 783 Investment in mortgage-backed securities held to maturity ------------------ (550,154) (1,125,612) Investment in mortgage-backed securities available for sale ---------------- (1,676,745) -- Originations of loans receivable ------------------------------------------- (475,004) (261,323) Purchase of loans receivable ----------------------------------------------- (13,735) (468,305) Purchase of investment securities ------------------------------------------ (14,479) (367,694) Sales of real estate acquired for development and sale --------------------- 1,869 364 Purchase of office properties & equipment ---------------------------------- (5,953) (9,575) Sale (purchase) of stock in FHLB ------------------------------------------- (23,036) (13,331) Cash acquired from acquisition --------------------------------------------- 48,091 -- Acquisition of Home Federal Bancorp ---------------------------------------- (17,004) -- ------------ ------------- Net cash used in investing activities ---------------------------------------- (105,688) (992,083) ------------ ------------- Cash flows from financing activities: Repurchase of mortgage-backed bonds ---------------------------------------- (60,820) (500) Proceeds from FHLB advances ------------------------------------------------ 6,871,756 1,540,700 Repayment of FHLB advances ------------------------------------------------- (6,713,000) (1,153,700) Savings deposits acquired in branch purchase ------------------------------- -- 591,075 Excess of savings deposits withdrawals over receipts ----------------------- (445,933) (167,067) Increase in securities sold under agreements to repurchase, net ------------ 237,425 235,842 Proceeds from issuance of preferred stock ---------------------------------- 21,273 44,197 Proceeds from stock option exercises --------------------------------------- 745 332 Cash dividends paid -------------------------------------------------------- (8,152) (5,148) ------------ ------------- Net cash provided by (used in) financing activities -------------------------- (96,706) 1,085,731 ------------ ------------- Net decrease in cash and cash equivalents ------------------------------------ (105,260) (101,855) Cash and cash equivalents at beginning of period ----------------------------- 177,555 214,460 ------------- -------------- Cash and cash equivalents at end of period ----------------------------------- $ 72,295 $ 112,605 ============= =============== Supplemental disclosures of cash flow information: Interest credited to savings deposits -------------------------------------- $ 76,899 $ 72,070 Payments during the period for: Interest ---------------------------------------------------------------- 158,765 158,246 Taxes ------------------------------------------------------------------- 6,542 15,411 Non-cash investing and financing activities: Non-cash transfers from securities held for trading to securities avail----- 153,860 -- Unrealized loss on mortgage-backed securities available for sale, net ------ 10,953 -- Defeasance of mortgage-backed bonds ---------------------------------------- -- 72,350 Assets acquired, net of cash and cash equivalents -------------------------- 483,886 -- Liabilities assumed -------------------------------------------------------- 491,755 -- Common stock issued for Home Federal Bancorp ------------------------------- 48,231 --
See accompanying notes to consolidated financial statements 5 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 June 30, 1994 and for the three and six month periods ended June 30, 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 June 30, 1994 and the results of its operations for the three month and six month periods ended June 30, 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 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 the previously reported net loss for the three month and six month periods ended June 30, 1994 by $3.1 million and $4.7 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 June 30, 1994, the merger of Farm & Home Financial Corporation, a Delaware corporation ("Farm & Home") with and into Roosevelt Financial Group, Inc. was completed. In addition as of such date, Farm & Home Savings Association, a Missouri chartered stock savings and loan association and wholly owned subsidiary of Farm & Home, merged with and into Roosevelt Bank, a federal savings bank. Pursuant to the Merger Agreement, each holder of the common stock of Farm & Home, par value $.01 per share received 2.01 shares of common stock of the Company, par value $.01 per share. As a result of this transaction the Company issued 17,993,838 shares. The transaction was accounted for as a pooling of interests and, accordingly the financial statements of the Company have been restated to include the results of Farm & Home for the periods presented. On April 22, 1994, the Company completed the acquisition of the 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 $68.3 million. Home Bancorp's total consolidated assets were $532.7 million and savings 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 totaling approximately $8.7 million on an after tax basis. 6 Total Income and Total Net Income for the period prior to the merger of Farm & Home with the Company is as follows:
Total Income Total Net Income -------------------------------------- ------------------------------ Three Months Ended Three Months Ended March 31, March 31, 1994 1993 1994 1993 ------------------ ------------------ ------------ ---------------- Company $ 64,962 $ 55,739 $ 9,829 $ 7,722 Farm & Home 63,054 78,658 5,652 7,228 -------- -------- ------- ------- Total $128,016 $134,397 $15,481 $14,950 ======== ======== ======= =======
NOTE 3 - 6.5% NON-CUMULATIVE CONVERTIBLE PREFERRED STOCK On June 30, 1994, the Company completed the offering of 319,000 shares of 6.5% non-cumulative convertible preferred stock, Series F with a liquidation preference of $50.00 per share. The net proceeds from the issuance totaled $21.2 million. The net proceeds from the offering, together with other cash reserves were used for the early retirement of 13% Subordinated Debentures which had been previously issued by Farm & Home. NOTE 4 - 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 Certficate of Incorporation increasing the number of authorized shares of common stock from 10,000,000 to 90,000,000. Common shares outstanding for the periods presented and average shares utilized in computing earnings per share have been adjusted to reflect the split. NOTE 5 - EARNINGS PER SHARE Net income for primary earnings per share are adjusted for the dividends on 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, 1994 and 1993 were 39,005,013 and 32,216,924, respectively. Average common and common stock equivalents outstanding for the six month periods ended June 30, 1994 and 1993 were 35,577,324 and 32,134,542, 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, 1994 and 1993 were 42,741,183 and 40,270,044 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, 1994 and 1993 were 41,444,767 and 39,102,531, respectively. NOTE 6 - COMMON STOCK DIVIDENDS AND PREFERRED STOCK DIVIDENDS On July 28, 1994, the Board of Directors declared the Company's twenty sixth common stock cash dividend, in the amount of 11 cents per share payable August 31, 1994 to stockholders of record on August 15, 1994. This dividend would have represented 33 cents per share on a pre split basis. On June 23, 1994, the Board of Directors declared regular quarterly cash dividend on the Company's Series A and Series F 6.5% non-cumulative convertible preferred stock, in the amount of 81.25 cents per share payable August 15, 1994 to stockholders of record August 4, 1994. 7 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. General loan loss reserves totaling approximately $17.9 million are included as capital for purposes of meeting the risk-based capital requirements. The Bank's full compliance at June 30, 1994 with the fully phased-in requirements of December 31, 1994 is illustrated as follows:
REGULATORY REQUIREMENT BANK'S CAPITAL EXCESS CAPITAL ---------------- ---------------- ---------------- CAPITAL STANDARD AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT - ---------------- ------ -------- ------ -------- ------ -------- (DOLLARS IN MILLIONS) Tangible Capital.... $120 1.50% $412 5.16% $292 3.66% Core Capital........ $240 3.00% $415 5.20% $175 2.20% Risk-based Capital.. $281 8.00% $430 12.24% $149 4.24%
ACQUISITIONS - ------------ On June 30, 1994, the Company completed the acquisition of Farm & Home Financial Corporation ("Farm & Home"). As a result of this transaction Farm & Home Savings Association, a wholly owned subsidiary of Farm & Home ("Farm & Home Savings") was merged with and into Roosevelt Bank, a wholly owned subsidiary of the Company. The transaction was structured such that each share of Farm & Home common stock was exchanged for 2.01 shares of the Company's common stock. At the date of the acquisition all Farm & Home preferred stock had been converted into common shares. The Company issued 17,993,838 shares of common stock in exchange for the common shares of Farm & Home. Total consideration paid (based on the $16.00 per share closing price of Roosevelt Common Stock on the Nasdaq National Market on June 30, 1994) was $287.9 million. The transaction was accounted for as a pooling of interests and, accordingly the financial statements of the Company have been restated to include the results of Farm & Home for the periods presented. 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 totaling approximately $8.7 million on an after tax basis. 8 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.
NON-PERFORMING ASSETS JUNE 30, DECEMBER 31, (in thousands) 1994 1993 --------- ------------- NON-ACCRUING LOANS: Residential................................. $ 8,630 $ 9,524 Commercial real estate...................... 1,961 1,088 Consumer.................................... 220 114 ------- ------- Total..................................... $10,811 $10,726 ------- ------- ACCRUING LOANS DELINQUENT MORE THAN 90 DAYS: Residential................................. $ 6,830 $ 4,416 Commercial.................................. 1,986 -- ------- ------- Total..................................... $ 8,816 $ 4,416 ------- ------- TROUBLED DEBT RESTRUCTURINGS: Commercial real estate...................... $ 2,795 $ 2,127 ------- ------- Total..................................... $ 2,795 $ 2,127 ------- ------- FORECLOSED ASSETS: Residential................................. $ 1,438 $ 1,375 Commercial real estate and land............. 17,926 15,996 ------- ------- Total..................................... $19,364 $17,371 ------- ------- Total non-performing assets................... $41,786 $34,640 ======= ======= TOTAL AS A PERCENTAGE OF TOTAL ASSETS....................................... .52% .46% ======= =======
Non-performing assets increased $7.1 million to $41.8 million at June 30, 1994 as compared to $34.6 million at December 31, 1993. The overall increase in non-performing assets is due primarily to an increase in accruing loans delinquent more than ninety days and foreclosed assets to a lesser extent. Such increases were impacted by the acquisition of Home Federal during April, 1994. As of June 30, 1994 the unallocated allowance for loss for the various loan portfolios was approximately $18.7 million and specific allowances for loss for various non-performing assets was $3.9 million. For the six months ended June 30, 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 $405 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 six months ended June 30, 1994 had the loans been current in accordance with their original terms, totaled approximately $112 thousand. Interest on such loans that was actually recorded as income for the six months ended June 30, 1994 was approximately $91 thousand. Not included in the preceeding 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 $32.2 million at June 30, 1994. 9 AMOUNT OF ASSETS AND LIABILITIES - -------------------------------- The total assets of the Company increased $424 million to $8.019 billion at June 30, 1994 from $7.595 billion at December 31, 1993. Such growth in total assets occurred primarily through the acquisition of Home Bancorp which was completed on April 22, 1994. Loans receivable increased $453.2 million as a result of this transaction. To a lesser extent mortgage-backed securities increased 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 $391 million to $7.608 billion from $7.217 billion for the same period. Such liability increase occurred through FHLB advances and securities sold under agreements to repurchase. RESULTS OF OPERATIONS The Company recorded a net loss totaling $34.6 million for the three month period ended June 30, 1994 when compared to net income totaling $13.3 million for the three month period ended June 30, 1993. Contributing to the net loss were nonrecurring acquisition charges of $19.8 million, $15.1 million in additions to general valuation allowances on loans and real estate, a net loss from financial instruments of $38.4 million, and extraordinary items of $7.8 million, net of taxes. Nonrecurring acquisition charges related primarily to $9.3 million in transaction costs, $5.2 million in severance expense and $5.3 million in costs to dispense of excess facilities incident to the acquisition of Farm & Home during the period. The Company recorded a net loss totaling $17.5 million for the six month period ended June 30, 1994 when compared to net income totaling $28.2 million for the six month period ended June 30, 1993. The items contributing to the net loss for the three month period ended June 30, 1994 contributed to the six month period ended June 30, 1994 as well. NET INTEREST INCOME - ------------------- Net interest income increased approximately $8.1 million to $47.1 million for the three month period ended June 30, 1994 as compared to $39.0 million for the three month period ended June 30, 1993. Net interest income increased $14.6 million as a result of approximately a 21% increase in interest-earning assets and approximately a 22% increase in interest-bearing liabilities of the Company (volume). The factor of rate resulted in a decrease in net interest income of $6.5 million. Such decrease is attributable to the decrease in the general level of market interest rates until recently and the effect of a narrower effective net spread on the Company's growth in interest bearing assets and liabilities. Net interest income increased approximately $10.0 million to $90.7 million for the six month period ended June 30, 1994 as compared to $80.7 million for the six month period ended June 30, 1993. Net interest income increased $23.2 million as a result of approximately a 22% increase in both interest-earning assets and interest-bearing liabilities of the Company (volume). The factor of rate resulted in a decrease in net interest income of $13.2 million. Such decrease is attributable to the decrease in the general level of market interest rates until recently and the effect of a narrower effective net spread on the Company's growth in interest bearing assets and liabilities. 10 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 segregated, have been allocated to the change due to rate.
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, 1994 VS. 1993 1994 VS. 1993 ------------------------------------------ ------------------------------- INCREASE (DECREASE) TOTAL INCREASE (DECREASE) TOTAL DUE TO INCREASE DUE TO INCREASE (DOLLARS IN THOUSANDS) VOLUME RATE (DECREASE) VOLUME RATE (DECREASE) --------- ------------------- ---------- --------- --------- ---------- Interest income: Mortgage-backed securities held to maturity......................... $ 158 $(10,308) $(10,150) $ 3,516 $(21,983) $(18,467) Loans receivable.......................... 6,678 (7,797) (1,119) 10,900 (18,511) (7,611) Investment securities available for sale.. (232) (97) (329) (344) (139) (483) Investment securities held to maturity.... (52) (25) (77) (248) 73 (175) Mortgage-backed securities held for trading......................... (3,268) 328 (2,940) (4,343) 396 (3,947) Mortgage-backed securities available for sale................................. 30,587 0 30,587 57,592 0 57,592 Mortgage-backed securities held for sale.. (5,191) 0 (5,191) (15,561) 0 (15,561) Securities purchased under agreements to resell................................ (394) 0 (394) (453) (4) (457) Other earning assets...................... 278 612 890 107 1,036 1,143 ------- -------- -------- -------- -------- -------- Total interest income.................... $28,564 $(17,287) $ 11,277 $ 51,166 $(39,132) $ 12,034 ------- -------- -------- -------- -------- -------- Interest expense: Savings deposits, net..................... $10,936 $ (7,351) $ 3,585 $ 19,791 $(17,140) $ 2,651 Mortgage-backed bonds..................... (2,199) (16) (2,215) (4,214) 15 (4,199) Securities sold under agreements to repurchase............................... (3,220) 797 (2,423) (5,493) 1,110 (4,383) Interest rate exchange agreements......... (1,873) (5,218) (7,091) (4,465) (9,043) (13,508) Advances from Federal Home Loan Bank...... 10,285 1,047 11,332 22,362 (884) 21,478 Subordinated Notes........................ 4 (4) 0 8 (8) 0 ------- -------- -------- -------- -------- -------- Total interest expense................... $13,933 $(10,745) $ 3,188 $ 27,989 $(25,950) $ 2,039 ------- -------- -------- -------- -------- -------- Change in net interest income............... $14,631 $ (6,542) $ 8,089 $ 23,177 $(13,182) $ 9,995 ======= ======== ======== ======== ======== ========
11 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, ------------------------------------------------------------------ 1994 1993 -------------------------------- -------------------------------- INTEREST AVERAGE INTEREST AVERAGE AVERAGE INCOME/ RATE AVERAGE INCOME/ RATE BALANCE EXPENSE % BALANCE EXPENSE % -------- ---------- ---------- ----------- --------- --------- (DOLLARS IN MILLIONS) Assets: Interest earning assets: Mortgage-backed securities held to maturity.......... $2,737.9 $ 40.4 5.91% $2,729.4 $ 50.6 7.41% Loans receivable (1) (2)... 2,949.3 51.6 6.99 2,617.3 52.7 8.05 Mortgage-backed securities held for trading.......... 194.7 2.8 5.72 458.3 5.7 4.96 Investment securities available for sale....... 31.1 0.4 5.14 46.4 0.7 6.03 Investment securities held to maturity.............. 49.7 1.0 8.23 52.2 1.1 8.44 Mortgage-backed securities available for sale........ 1,847.1 30.6 6.63 259.3 2.4 3.70 Mortgage-backed securities held for sale............ -- -- -- 236.0 2.8 4.73 Securities sold under agreements to resell...... -- -- -- 43.8 0.4 3.65 Other earning assets........ 214.0 3.2 6.00 191.5 2.3 4.94 -------- -------- -------- -------- -------- -------- All interest earning assets $8,023.8 $ 130.0 6.48% $6,634.2 $ 118.7 7.16% -------- -------- -------- -------- Non-interest earning assets. 272.9 487.1 -------- -------- Total assets............... $8,296.7 $7,121.3 ======== ======== Liabilities and Stockholders' Equity: Interest bearing liabilities: NOW and money market accounts (3)............. $1,250.9 $ 7.2 2.32% $ 857.8 $ 6.8 3.17% Passbook savings deposits.. 431.4 2.6 2.41 299.3 2.0 2.67 Time deposits (3).......... 3,478.9 42.5 4.89 3,115.5 46.9 6.02 Mortgage-backed bonds...... 46.1 1.1 10.31 135.7 3.4 9.82 Securities sold under agreements to repurchase.. 1,008.7 9.8 3.88 1,369.9 12.2 3.57 FHLB advances.............. 1,596.1 17.9 4.50 626.9 6.6 4.24 Subordinated notes......... 58.7 1.8 12.39 58.5 1.8 11.74 -------- -------- -------- -------- -------- -------- All interest bearing liabilities............... $7,870.8 $ 82.9 4.21% $6,463.6 $ 79.7 4.93% -------- -------- -------- -------- Non-interest bearing liabilities............... 28.2 304.9 -------- -------- Total liabilities.......... $7,899.0 $6,768.5 Stockholders' equity....... 397.7 352.8 -------- -------- Total Liabilities and stockholders' equity...... $8,296.7 $7,121.3 ======== ======== Net interest income........ $ 47.1 $ 39.0 ======== ======== Interest rate spread (4)... 2.27% 2.23% ======== ======== Effective net spread (5)... 2.35% 2.35% ======== ========
SIX MONTHS ENDED JUNE 30, ------------------------------------------------------------------ 1994 1993 ------------------------------- ------------------------------ INTEREST AVERAGE INTEREST AVERAGE AVERAGE INCOME/ RATE AVERAGE INCOME/ RATE BALANCE EXPENSE % BALANCE EXPENSE % -------- -------- -------- -------- -------- -------- (DOLLARS IN MILLIONS) Assets: Interest earning assets: Mortgage-backed securities held to maturity.......... $2,687.7 $ 78.7 5.85% $2,593.7 $ 97.1 7.49% Loans receivable (1) (2)... 2,794.2 98.2 7.02 2,533.3 105.8 8.35 Mortgage-backed securities held for trading.......... 241.3 6.4 5.33 414.4 10.4 5.02 Investment securities available for sale....... 35.6 0.9 5.62 47.2 1.4 5.93 Investment securities held to maturity.............. 50.0 2.2 8.64 56.0 2.3 8.35 Mortgage-backed securities available for sale........ 1,734.0 57.6 6.64 272.3 9.9 7.27 Mortgage-backed securities held for sale............ -- -- -- 226.6 5.7 5.02 Securities sold under agreements to resell...... 22.6 0.4 3.46 46.1 0.9 3.88 Other earning assets........ 201.2 5.8 5.86 196.6 4.7 4.76 -------- -------- ----- -------- ------ ------ All interest earning assets $7,766.6 $ 250.2 6.44% $6,386.2 $238.2 7.46% -------- ----- ------ ------ Non-interest earning assets. 330.1 449.5 -------- -------- Total assets............... $8,096.7 $6,835.7 ======== ======== Liabilities and Stockholders' Equity: Interest bearing liabilities: NOW and money market accounts (3)............. $1,129.5 $ 14.3 2.53% $ 822.3 $ 13.6 3.31% Passbook savings deposits.. 400.0 4.8 2.40 293.5 4.0 2.73 Time deposits (3).......... 3,523.6 83.3 4.73 3,147.2 95.7 6.08 Mortgage-backed bonds...... 70.3 3.5 10.17 155.6 7.7 9.89 Securities sold under agreements to repurchase.. 934.0 17.6 3.76 1,247.0 21.9 3.51 FHLB advances.............. 1,503.8 32.6 4.34 498.5 11.1 4.45 Subordinated notes......... 58.6 3.5 12.06 58.5 3.5 12.09 -------- -------- ----- -------- ------ ----- All interest bearing liabilities............... $7,619.8 $ 159.6 4.19% $6,222.6 $157.5 5.06% -------- ----- ------ ----- Non-interest bearing liabilities............... 89.7 280.0 -------- -------- Total liabilities.......... $7,709.5 $6,502.6 Stockholders' equity....... 387.2 333.1 -------- -------- Total Liabilities and stockholders' equity...... $8,096.7 $6,835.7 ======== ======== Net interest income........ $ 90.6 $ 80.7 ======== ====== Interest rate spread (4)... 2.25% 2.40% ======== ===== Effective net spread (5)... 2.33% 2.53% ======== =====
- ---------------------------- (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 June 30, 1994 the weighted average yield on interest-earning assets was 6.51% and the weighted average cost on interest-bearing liabilities was 4.20%. 12 PROVISION FOR LOSSES ON LOANS - ----------------------------- The provision for losses on loans increased to $11.7 million for the three month period ended June 30, 1994 compared to a recovery totaling $368 thousand for the three month period ended June 30, 1993. The increase in the provision for losses for the quarter is attributable to an increase in the general allowance for loan losses. During the quarter is was determined to increase such allowance for loan losses after discussion with and the concurrence of the Office of Thrift Supervision. Such increase also impacted the six month period ended June 30, 1994. 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:
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, 1994 1993 1994 1993 --------- --------- --------- -------- Mortgage-backed securities held for trading................... $ (1,914) $ 2,004 $ (4,491) $ 1,441 Mark to market of financial futures contracts.................. 7,840 - 10,334 - Mortgage-backed securities available for sale................. (28,554) 4,966 (25,665) 11,760 Cancellation costs of interest rate exchange agreements................ (8,910) (4,496) (8,910) (4,496) Options expense...................... (1,947) (288) (3,126) (497) -------- ------- -------- ------- $(33,485) $ 2,186 $(31,858) $ 8,208 ======== ======= ======== =======
13 Mortgage-Backed Securities Held For Trading During the three month period ended June 30, 1994 the Company recorded a loss on mortgage-backed securities held for trading totaling $1.9 million compared to a gain totaling $2.0 million for the three month period ended June 30, 1993. During the six month period ended June 30, 1994, the Company recorded a loss on mortgage-backed securities held for trading totaling $4.5 million compared to a gain totaling $1.4 million for the six month period ended June 30, 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 and six month periods ending June 30, 1994 and 1993, respectively:
DOLLARS (MILLIONS) ------------------------------------------------- AVERAGE MARKET AVERAGE INVESTMENT INTEREST VALUE TOTAL ONE MONTH VALUE PERIOD (MILLIONS) INCOME CHANGES RETURN LIBOR ADDED ------ ----------- --------- -------- ------- ---------- -------- Three Months Ending June 30, 1994 $194.7 $ 2.8 $ (1.9) $ .9 $ 2.0 $ (1.1) Three Months Ending June 30, 1993 $458.3 $ 5.7 $ 2.0 $ 7.7 $ 3.6 $ 4.1 PERCENT ------------------------------------------------ AVERAGE MARKET AVERAGE INVESTMENT INTEREST VALUE TOTAL ONE MONTH VALUE PERIOD (MILLIONS) INCOME CHANGES RETURN LIBOR ADDED ------ ---------- -------- ------- ------ --------- ------- Three Months Ending June 30, 1994 $194.7 5.72% (3.93)% 1.79% 4.12% (2.33)% Three Months Ending June 30, 1993 $458.3 4.96% 1.75% 6.71% 3.11% 3.60% DOLLARS (MILLIONS) ------------------------------------------------ AVERAGE MARKET AVERAGE INVESTMENT INTEREST VALUE TOTAL ONE MONTH VALUE PERIOD (MILLIONS) INCOME CHANGES RETURN LIBOR ADDED ------ ---------- -------- ------- ------ --------- ------- Six Months Ending June 30, 1994 $241.3 $ 6.5 $ (4.5) $ 2.0 $ 4.5 $ (2.5) Six Months Ending June 30, 1993 $414.4 $10.4 $ 1.4 $11.8 $ 6.5 $ 5.3 PERCENT ------------------------------------------------ AVERAGE MARKET AVERAGE INVESTMENT INTEREST VALUE TOTAL ONE MONTH VALUE PERIOD (MILLIONS) INCOME CHANGES RETURN LIBOR ADDED ------ ---------- -------- ------- ------ --------- ------- Six Months Ending June 30, 1994 $241.3 5.33% (3.72)% 1.61% 3.73% (2.12)% Six Months Ending June 30, 1993 $414.4 5.02% .7% 5.72% 3.12% 2.60%
Mark to Market of Financial Futures Contracts during the three month and six month periods ended June 30, 1994 gains of $7.8 million and $10.3 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. Mortgage-backed Securities Available For Sale During the three month period ended June 30, 1994, the Company recorded a loss on mortgage-backed securities available for sale totaling $28.6 million. As a result of the integration of Roosevelt and Farm & Home it was determined that certain fixed-rate mortgage- backed securities classified available for sale would be sold and their related hedges would be cancelled or redesignated resulting in a net loss. In addition to these transactions, the Company had also sold certain mortgage-backed securities classified available for sale during the three month period ended March 31, 1994, resulting in a gain totaling $2.9 million. 14 Cancellation Costs Of Interest Rate Exchange Agreements During the three month period ended June 30, 1994, Farm & Home prepaid a $100 million Federal Home Loan Bank advance and sold its Corpus Christi branch savings deposits. As a result of a reduction in these liabilities certain interest rate exchange agreements were cancelled. Such cancellations resulted in the recording of a $8.9 million loss. During the three month period ended June 30, 1993, the Company completed the acquisition of the Missouri retail banking franchise of First Nationwide Bank. At the time of this acquisition the Company substantially increased its savings deposits and reduced its short term borrowings. Due to the reduction in such short-term borrowings previously deferred cancellation costs from terminated interest rate exchange agreements totaling $4.5 million were charged to operations. Options Expense Options expense increased to $1.9 million for the three month period ended June 30, 1994 when compared to $288 thousand for the three month period ended June 30, 1993. Options expense increased to $3.1 million for the six month period ended June 30, 1994 when compared to $497 thousand for the six month period ended June 30, 1993. Options expense was positively impacted $457 thousand and $985 thousand for the three month and six month periods ended June 30, 1993, respectively as a result of mark-to-market gains recorded on options that Farm & Home had purchased during these periods. The options expense for the three month and six month periods ended June 30, 1994 was comprised of the amortization of transaction fees paid for interest rate cap, floor and interest rate collar agreements. Quarterly amortization totaling $2.8 million is expected through 1996. GROSS PROFIT INSURANCE AGENCY - ----------------------------- Gross profit insurance agency decreased to $1.5 million for the three month period ended June 30, 1994 when compared to $1.7 million for the three month period ended June 30, 1993. The decrease in the amount of commissions is the result of a lesser amount of sales volume by Farm & Home during the period. Gross profit insurance agency increased to $3.2 million for the six month period ended June 30, 1994 when compared to $2.8 million for the six month period ended June 30, 1993. The increase between the two periods is primarily the result of increased sales volume of commission generating products. RETAIL BANKING FEES - ------------------- Retail banking fees increased $692 thousand to $2.1 million for the three month period ended June 30, 1994 compared to $1.4 million for the three month period ended June 30, 1993. Of this increase approximately $625 thousand is attributable to fees received as a result of savings deposit acquisitions which were integrated in the third and fourth quarter of 1993 and the acquisition of Home Federal in April, 1994. The remaining increase of approximately $67 thousand is attributable to an overall increase in the utilization of the retail banking services offered by the Bank. Retail banking fees increased $1.3 million to $3.9 million for the six month period ended June 30, 1994 compared to $2.6 million for the six month period ended June 30, 1993. Of this increase approximately $1.1 million is attributable to additional fees received as a result of savings deposit acquisitions which were completed during 1993 and the acquisition of Home Federal in April, 1994. The remaining increase of approximately $200 thousand is attributable to an overall increase in the utilization of the retail banking services offered by the Bank. 15 GENERAL AND ADMINISTRATIVE EXPENSE - ---------------------------------- General and administrative expense increased $24.4 million to $45.7 million for the three month period ended June 30, 1994 when compared to $21.3 million for the three month period ended June 30, 1993. General and administrative expense increased $27.4 million to $69.8 million for the six month period ended June 30, 1994 compared to $42.4 million for the six month period ended June 30, 1993. Both the three month and six month periods ended June 30, 1994 were impacted by $19.8 million of nonrecurring charges for transaction costs, severance expense and costs to dispense of excess facilities incident to the acquisition of Farm & Home during the three month period ended June 30, 1994. Excluding such nonrecurring charges, general and administrative expense increased $3.1 million and $5.3 million for the three month and six month periods ended June 30, 1994, respectively when compared to the same periods in 1993 as a result of acquisitions of savings deposits which were integrated in the third and fourth quarter of 1993 and the completion of the Home Federal acquisition in April, 1994. The remaining increases of $1.6 million and $2.4 million for the three month and six month periods ended June 30, 1994, respectively when compared to the same periods in 1993 is attributable to normal wage increases and increases in the overall level of expenses. PROVISION FOR REAL ESTATE LOSSES - -------------------------------- Provisions for real estate losses amounted to $3.7 million for the three month period ended June 30, 1994 and $4.6 million for the six month period ended June 30, 1994. The $3.7 million provision for the three month period ended June 30, 1994 is the result of an addition to the general valuation allowance for possible future losses on foreclosed real estate established in connection with the acquisition of Farm & Home. Such addition represents a 25% reduction in net carrying value to accommodate a strategy of accelerating the disposition of Farm & Home's real estate owned portfolio. In addition to this provision for the six month period ended June 30, 1994 Farm & Home recorded an $839,000 provision for specific valuation allowances on six non-residential real estate properties. Provisions for real estate losses amounted to $1.4 million for the three month period ended June 30, 1993 and $3.7 million for the six month period ended June 30, 1993. The 1993 provisions include $2.6 million for specific losses on eight non-residential properties located in Texas and $1.1 million to increase the general valuation allowance on certain real estate owned. EXTRAORDINARY ITEMS - ------------------- During the three month period ended June 30, 1994, the Company recorded losses totaling $7.8 million, net of applicable income taxes. Such loss was the result of three transactions. First, the Company recorded a loss totaling $4.6 million relating to the retirement of 10.125% mortgage-backed bonds which the Company had issued in prior periods. Second, the Company recorded a loss totaling $2.6 million relating to the retirement of the 13% subordinated debentures previously issued by Farm & Home. Third, the Company recorded a loss totaling $637 thousand relating to the prepayment of Federal Home Loan Bank advances originally entered into by Farm & Home. During the three month and six month periods ended June 30, 1993 the Company incurred losses, respectively of approximately $425 thousand and $1.9 million, net of applicable income taxes, relating to the defeasance of the Company's 9.7% mortgage-backed bonds. The Company replaced the mortgage-backed bonds with relatively lesser costing savings deposits and as a result expects that net interest income will be enhanced, 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 and subordinated debentures 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. 16 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 June 30, 1994, the net market value as calculated by the Company was $385.9 million and $360.4 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. Utilizing this measurement concept, the interest rate risk of the Company at June 30, 1994 is as follows:
(dollars in thousands) (unaudited) ---------------------------------------- Basis point changes in interest rates.......... -200 -100 +100 +200 Changes in net market value due to changes in interest rates (Company methodology)......... $ (2,889) $6,814 $(18,533) $ (48,513) OTS "normal" level of interest rate exposure... $(104,334) N/A N/A $(104,334)
The Company's operating strategy is designed to avoid material negative or positive changes in net market value. As of June 30, 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 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. 17 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 6.77% and 6.12% at June 30, 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 six month period ended June 30, 1994 the Company experienced a net cash outflow of approximately $105.3 million. The $97.1 million increase in cash flows from operating activities was offset by approximately $105.7 million for net cash used in investing activities and $96.2 million for net cash used in financing activities. Purchases of mortgage-backed securities exceeded principal repayments and sales of such securities by approximately $99.6 million. Withdrawals from savings deposits exceeded the net increase in the amount of Home Federal Loan Bank advances and securities sold under agreements to repurchase by approximately $49.8 million for the six month period ended June 30, 1994. At June 30, 1994, the Company had commitments outstanding to originate fixed- rate mortgage loans of approximately $6.0 million and adjustable-rate mortgages of approximately $25.2 million. The Company expects to satisfy these commitments through its primary sources of funds. 18 PART II OTHER INFORMATION Item 1. Legal Proceedings ___________________________________________ None Item 2. Changes in Securities ___________________________________________ On June 30, 1994 the Company completed the offering of 319,000 shares of 6.5% non-cumulative convertible preferred stock, Series F. 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 ___________________________________________ (a) On May 9, 1994, the Company filed a report on Form 8-K (which was amended on May 10, 1994) concerning the consummation of the merger between Roosevelt Financial and Home Federal Bancorp of Missouri, Inc. on April 22, 1994. (b) On May 19, 1994, the Company filed a report on Form 8-K. Farm & Home's Form 10-Q for the three months ended March 31, 1994 was an exhibit. (c) On July 15, 1994, the Company filed a report on Form 8-K concerning the consummation of the merger between Roosevelt Financial Group, Inc. and Farm & Home Financial Corporation on June 30, 1994. (d) On August 12, 1994, the Company filed a report on Form 8-K concerning the combined earnings for Roosevelt for the month of July 31, 1994 after the consummation of the Farm & Home Financial Corporation merger. 19 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 ---------------------------------- Gary W. Douglass Executive Vice President and Chief Financial Officer -----END PRIVACY-ENHANCED MESSAGE-----