<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1997 0-28886
----------------------
Commission File Number
ROSLYN BANCORP, INC.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 11-3333218
------------------------------- ------------------------------------
(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
1400 Old Northern Boulevard, Roslyn, New York 11576
------------------------------------------------------
(Address of Principal Executive Offices) (Zip Code)
(516) 621-6000
----------------------------------------------------
(Registrant's telephone number, including area code)
None
----------------------------------------------------------
Securities registered pursuant to Section 12(b) of the Act
Common Stock, $.01 par value
----------------------------------------------------------
Securities registered pursuant to Section 12(g) of the Act
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 Issuer's classes of
common stock, as of the latest practicable date.
The Registrant had 43,642,459 shares of Common Stock outstanding as of July 31,
1997.
<PAGE>
FORM 10-Q
ROSLYN BANCORP, INC.
INDEX
<TABLE>
<CAPTION>
Page
PART I - FINANCIAL INFORMATION Number
- ------------------------------ ------
<S> <C>
ITEM 1. Financial Statements - Unaudited
Consolidated Statements of Financial Condition at
June 30, 1997 and December 31, 1996 2
Consolidated Statements of Income for the three and six
months ended June 30, 1997 and 1996 3
Consolidated Statement of Changes in Stockholders' Equity
for the six months ended June 30, 1997 4
Consolidated Statements of Cash Flows for the
six months ended June 30, 1997 and 1996 5
Notes to Unaudited Consolidated Financial Statements 6-12
ITEM 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 13-23
PART II - OTHER INFORMATION
- ---------------------------
ITEM 1. Legal Proceedings 24
ITEM 2. Changes in Securities 24
ITEM 3. Defaults Upon Senior Securities 24
ITEM 4. Submission of Matters to a Vote of Security Holders 24
ITEM 5. Other Information 25
ITEM 6. Exhibits and Reports on Form 8-K 26
Signature Page 27
</TABLE>
================================================================================
| Statements contained in this Form 10-Q which are not historical facts are |
| forward-looking statements, as that term is defined in the Private |
| Securities Litigation Reform Act of 1995. Such forward-looking statements |
| are subject to risk and uncertainties which could cause actual results to |
| differ materially from those projected. Such risks and uncertainties |
| include potential changes in interest rates, competitive factors in the |
| financial services industry, general economic conditions, the effect of new |
| legislation and other risks detailed in documents filed by the Company with |
| the SEC from time to time. |
================================================================================
1
<PAGE>
ROSLYN BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
June 30, December 31,
1997 1996
------------ ------------
<S> <C> <C>
ASSETS
Cash and cash equivalents:
Cash and cash items.................................................. $ 1,758 $ 2,284
Due from banks....................................................... 9,416 9,786
Money market investments............................................. 27,900 1,114,240
------------ ------------
39,074 1,126,310
Debt and equity securities:
Held-to-maturity, net (estimated fair value of $2,045
and $2067, respectively)............................................ 1,930 1,930
Available-for-sale................................................... 514,267 486,896
Mortgage-backed and mortgage related
securities:
Held-to-maturity, net (estimated fair value of $242,721
and $276,046 respectively).......................................... 243,224 276,632
Available-for-sale................................................... 1,634,079 1,159,411
------------ ------------
2,393,500 1,924,869
Loans held for sale, net................................................ 9,819 14,134
Loans receivable held for investment, net:
Real estate loans, net............................................... 674,546 510,969
Consumer and student................................................. 3,033 1,241
------------ ------------
677,579 512,210
Less allowance for possible loan losses.............................. (23,795) (23,320)
------------ ------------
653,784 488,890
Banking house and equipment, net........................................ 17,006 17,235
Accrued interest receivable............................................. 21,272 18,665
Mortgage servicing rights, net.......................................... 8,818 8,695
Excess of cost over fair value of net assets acquired................... 3,140 3,375
Real estate owned, net.................................................. 841 1,698
Deferred tax asset, net................................................. 6,060 5,022
Other assets............................................................ 5,987 9,060
------------ ------------
Total assets.................................................... $ 3,159,301 $ 3,617,953
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Savings accounts..................................................... $ 395,994 $ 646,650
Certificates of deposit.............................................. 1,214,509 1,128,053
Money market accounts................................................ 51,836 75,157
Demand deposit accounts.............................................. 108,869 105,675
------------ ------------
Total deposits.................................................. 1,771,208 1,955,535
Borrowed funds.......................................................... 692,203 1,829
Accrued dividends and interest on deposits.............................. 11,527 6,636
Mortgagors' escrow and security deposits................................ 15,486 17,725
Accrued taxes payable................................................... 12,797 12,185
Non-depository stock subscriptions...................................... - 1,356,911
Accrued expenses and other liabilities.................................. 19,657 17,783
------------ ------------
Total liabilities............................................... 2,522,878 3,368,604
------------ ------------
Stockholders' equity:
Preferred stock, $. 01 par value, 10,000,000 shares
authorized; none issued........................................... - -
Common stock, $ .01 par value, 100,000,000 shares
authorized; 43,642,459 shares issued and
outstanding at June 30, 1997...................................... 436 -
Additional paid-in-capital........................................... 422,999 -
Retained earnings - substantially restricted......................... 246,075 235,154
Unallocated common stock held by ESOP................................ (52,908) -
Net unrealized gain on securities available-for-sale,
net of tax.......................................................... 19,821 14,195
------------ ------------
Total stockholders' equity...................................... 636,423 249,349
------------ ------------
Total liabilities and stockholders' equity...................... $ 3,159,301 $ 3,617,953
============ ============
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
2
<PAGE>
ROSLYN BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
For the For the
three months ended six months ended
June 30, June 30,
-------------------- --------------------
1997 1996 1997 1996
-------- --------- -------- ---------
<S> <C> <C> <C> <C>
Interest income:
Federal funds sold and short-term deposits................... $ 390 $ 374 $ 3,308 $ 687
Debt and equity securities................................... 8,149 7,339 16,412 14,137
Mortgage-backed and mortgage related securities.............. 30,620 14,257 57,747 27,770
Real estate loans............................................ 13,975 9,175 25,643 18,190
Consumer and student loans................................... 69 76 142 244
-------- --------- -------- ---------
Total interest income................................... 53,203 31,221 103,252 61,028
-------- --------- -------- ---------
Interest expense:
Deposits..................................................... 21,065 16,131 42,755 31,560
Borrowed funds............................................... 7,803 982 11,528 1,306
-------- --------- -------- ---------
Total interest expense.................................. 28,868 17,113 54,283 32,866
-------- --------- -------- ---------
Net interest income before provision
for possible loans losses...................................... 24,335 14,108 48,969 28,162
Provision for possible loan losses.............................. 150 300 300 400
-------- --------- -------- ---------
Net interest income after provision for
possible loan losses........................................... 24,185 13,808 48,669 27,762
-------- --------- -------- ---------
Non-interest income:
Loan servicing and fee income................................ 1,532 1,525 3,259 2,707
Net gains on sales of loans.................................. 524 1,258 1,196 1,968
Net (losses) gains on securities............................. (6) 20 343 55
Net losses on real estate operations......................... (93) (256) (37) (331)
Other non-interest income.................................... 89 37 131 277
-------- --------- -------- ---------
Total non-interest income............................... 2,046 2,584 4,892 4,676
-------- --------- -------- ---------
Non-interest expense:
General and administrative expenses:
Compensation and employee benefits......................... 6,100 4,319 12,910 9,308
Occupancy and equipment.................................... 996 875 1,824 1,739
Deposit insurance premiums................................. 55 - 213 1
Advertising and promotion.................................. 600 493 1,198 970
Other non-interest expenses................................ 2,556 2,295 5,668 4,200
-------- --------- -------- ---------
Total general and administrative expenses............... 10,307 7,982 21,813 16,218
Amortization of excess of cost over
fair value of net assets acquired........................... 117 117 235 235
Charitable contribution to The Roslyn Savings Foundation..... - - 12,711 -
-------- --------- -------- ---------
Total non-interest expense.............................. 10,424 8,099 34,759 16,453
-------- --------- -------- ---------
Income before income taxes...................................... 15,807 8,293 18,802 15,985
Provision for income taxes...................................... 5,340 2,818 5,871 5,065
-------- --------- -------- ---------
Net income...................................................... $ 10,467 $ 5,475 $ 12,931 $ 10,920
======== ========= ======== =========
Net income per common share..................................... $ 0.26 $ - $ 0.32 $ -
======== ========= ======== =========
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
3
<PAGE>
ROSLYN BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
(UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
For the
six months ended
June 30, 1997
----------------
<S> <C>
Common Stock (Par Value)
- ------------------------
Issuance of 42,371,359 shares of $.01 par value common stock
in initial public offering......................................................... $ 423
Issuance of 1,271,100 shares of $.01 par value common stock
to The Roslyn Savings Foundation................................................... 13
----------------
Balance at end of period.............................................................. 436
----------------
Additional Paid-in-Capital
- --------------------------
Issuance of 42,371,359 shares of common stock in initial public
offering at $10.00 per share, net of conversion related expenses................... 410,227
Issuance of 1,271,100 shares of common stock at $10.00 per share
to The Roslyn Savings Foundation.................................................. 12,699
Excess of ESOP compensation cost measured using fair value
of stock over its related cost.................................................... 73
----------------
Balance at end of period.............................................................. 422,999
----------------
Retained Earnings-Substantially Restricted
- ------------------------------------------
Balance at beginning of period........................................................ 235,154
Net income............................................................................ 12,931
Cash dividends declared on common stock ($.05 per share).............................. (2,010)
----------------
Balance at end of period.............................................................. 246,075
----------------
Unallocated Common Stock Held by ESOP
- -------------------------------------
Open market purchases of Roslyn Bancorp, Inc. common stock
by ESOP trustee................................................................... (54,805)
Allocation from shares purchased with 1996 contribution............................... 1,000
Allocation from shares purchased with loan from Roslyn Bancorp, Inc................... 897
----------------
Balance at end of period.............................................................. (52,908)
----------------
Unrealized Gain on Securities Available-For-Sale, Net of Tax
- ------------------------------------------------------------
Balance at beginning of period........................................................ 14,195
Change in unrealized gain on securities available-for-sale, net of tax................ 5,626
----------------
Balance at end of period.............................................................. 19,821
----------------
Total stockholders' equity............................................................ $ 636,423
================
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
4
<PAGE>
ROSLYN BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE
SIX MONTHS ENDED
JUNE 30,
-----------------------------
1997 1996
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income.................................................................. $ 12,931 $ 10,920
Adjustments to reconcile net income to
net cash provided by operating activities:
Charitable contribution of Roslyn Bancorp, Inc. common
stock to The Roslyn Savings Foundation................................ 12,711 -
Provision for possible loan losses..................................... 300 400
Provision for possible losses on real estate owned..................... - 200
Originated mortgage servicing rights, net of amortization.............. (123) (348)
Amortization of excess of cost over fair value of net
assets acquired....................................................... 235 235
Depreciation........................................................... 765 624
Accretion of discounts, in excess of amortization of premiums.......... (1,084) (538)
Amortization of premium on callable preferred stock.................... 332 375
Allocation of ESOP stock............................................... 970 -
Proceeds from sales of loans held for sale, net of
originations and purchases............................................ 5,617 2,501
Gains on sales of loans................................................ (1,196) (1,968)
Net gains on sales of securities....................................... (343) (55)
Net gains on sales of real estate owned................................ (134) (9)
(Increase) decrease in deferred income taxes............................ (5,234) 94
Changes in assets and liabilities:
Increase in accrued interest receivable.............................. (2,607) (1,536)
Decrease (increase) in other assets.................................. 3,061 (7,002)
Increase in accrued dividends and interest on deposits............... 4,891 2,152
Increase in accrued taxes payable.................................... 612 117
Increase in accrued expense and other liabilities.................... 1,921 3,194
Net increase in unearned income...................................... 1,113 166
----------- -----------
Net cash provided by operating activities............................. 34,738 9,522
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sales and repayments of mortgage-backed
and mortgage related securities held-to-maturity........................... 33,674 41,999
Proceeds from sales and repayments of debt, equity,
mortgage-backed and mortgage related securities
available-for-sale......................................................... 212,080 142,056
Purchases of debt, equity, mortgage-backed and
mortgage related securities available-for-sale (703,469) (361,990)
Loan originations and purchases, net of principal
repayments................................................................. (166,459) (43,444)
Purchases of banking house and equipment, net............................... (535) (3,005)
Proceeds from sales of real estate owned.................................... 1,003 970
----------- -----------
Net cash used in investing activities.................................. (623,706) (223,414)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Decrease in demand deposit, money market, and
savings accounts........................................................... (270,783) (10,936)
Increase in certificates of deposit......................................... 86,456 140,436
Increase in borrowed funds.................................................. 690,374 100,012
Decrease in mortgagors' escrow and security deposits........................ (2,239) (71)
Net proceeds of common stock issuance....................................... 410,650 -
Loan to ESOP for open market purchases of common stock...................... (53,805) -
Cash dividends paid on common stock......................................... (2,010) -
Decrease in non-depository stock subscriptions.............................. (1,356,911) -
----------- -----------
Net cash (used) provided by financing activities....................... (498,268) 229,441
----------- -----------
Net (decrease) increase in cash and cash equivalents........................ (1,087,236) 15,549
Cash and cash equivalents at beginning of period............................ 1,126,310 21,271
----------- -----------
Cash and cash equivalents at end of period.................................. $ 39,074 $ 36,820
=========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Cash paid during the period for:
Interest on deposits and borrowed funds.................................. $ 49,392 $ 30,713
=========== ===========
Income taxes............................................................. $ 9,905 $ 4,847
=========== ===========
Non-cash investing activities:
Additions to real estate owned, net...................................... $ 12 $ 288
=========== ===========
</TABLE>
See accompanying notes to unaudited consolidated financial statements
5
<PAGE>
ROSLYN BANCORP, INC. AND SUBSIDIARY
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements include the
accounts of Roslyn Bancorp, Inc. (the "Company"), its direct wholly-owned
subsidiary The Roslyn Savings Bank (the "Bank"), and the subsidiaries of the
Bank.
The unaudited consolidated financial statements included herein reflect all
normal recurring adjustments which are, in the opinion of management, necessary
to present a fair statement of the results for the interim periods presented.
The results of operations for the three and six months ended June 30, 1997 are
not necessarily indicative of the results of operations that may be expected for
the entire year. Certain information and note disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to the rules and regulations
of the Securities and Exchange Commission ("SEC").
The unaudited consolidated financial statements should be read in conjunction
with the audited consolidated financial statements and notes thereto included in
the Company's 1996 Annual Report on Form 10-K.
2. EARNINGS PER SHARE
Earnings per common share is calculated by dividing net income by the weighted
average number of shares of common stock outstanding. For the three and six
months ended June 30, 1997, the weighted average number of shares of common
stock outstanding was 40,253,165 and 40,463,404, respectively. For the three
and six months ended June 30, 1997, such shares have been reduced, in accordance
with the provisions of AICPA Statement of Position 93-6, "Employers' Accounting
for Employee Stock Ownership Plans," by the weighted average number of
unallocated shares of common stock held by the Bank's Employee Stock Ownership
Plan.
3. CONVERSION TO STOCK FORM OF OWNERSHIP
On May 29, 1996, the Board of Trustees of the Bank adopted a Plan of Conversion,
which was subsequently amended on July 30, 1996 and September 30, 1996, to
convert the Bank from a New York State chartered mutual savings bank to a New
York State chartered stock savings bank with the concurrent formation of a
holding company, Roslyn Bancorp, Inc. (the "Conversion").
The Conversion was completed on January 10, 1997, with the issuance by the
Company of 42,371,359 shares of its common stock, at a price of $10.00 per
share, in an initial public offering to the Bank's eligible depositors. The
Company received gross proceeds from the Conversion of $423.7 million, before
the reduction from gross proceeds of $13.1 million for estimated Conversion
related expenses. On the date of the Conversion, $145.3 million of deposits and
$278.4 million of non-depository stock subscriptions funds were transferred to
stockholders' equity, and $1.08 billion of non-depository stock subscriptions
funds were subsequently returned to subscribers.
Concurrent with the close of the stock offering, an additional 1,271,100 shares
of authorized but unissued shares of common stock were donated by the Company to
The Roslyn Savings Foundation (the "Foundation"), a private foundation dedicated
to charitable purposes within the Bank's local community.
The Company recognized a one-time charge of $12.7 million, the full amount of
the contribution made to the
6
<PAGE>
Foundation, in the first quarter of 1997. The contribution to the Foundation
will be fully tax deductible, subject to an annual limitation based upon the
Company's annual taxable income.
4. EMPLOYEE STOCK OWNERSHIP PLAN
In connection with the Conversion, the Bank established an Employee Stock
Ownership Plan (the "ESOP"). The ESOP is a tax qualified retirement plan
designed to invest primarily in the Company's common stock. All full-time
employees of the Bank who have completed one year of service with the Bank will
be able to participate in the ESOP. Subsequent to the Conversion, the ESOP
purchased, primarily through a $53.8 million loan from the Company and an
initial $1.0 million contribution from the Bank, 8% of the outstanding shares of
common stock or 3,491,397 shares of common stock on the open market. The loan
to the ESOP will be primarily repaid with contributions from the Bank to the
ESOP over a period not to exceed 30 years. The Company recognizes compensation
expense attributable to its ESOP, other than the initial $1.0 million
contribution which was charged to compensation expense in 1996, ratably over the
year based upon the estimated number of ESOP shares to be allocated each
December 31st. The amount of compensation expense recorded is equal to the
estimate of shares to be allocated by the ESOP multiplied by the average fair
value of the underlying shares during the period. For the six months ended June
30, 1997, compensation expense attributable to the ESOP was approximately
$970,000.
5. RECENT ACCOUNTING PRONOUNCEMENTS
In February 1997, the Financial Accounting Standards Board (the "FASB") issued
Statement of Financial Accounting Standards ("SFAS") SFAS No. 128, "Earnings per
Share." The statement is effective for periods ending after December 15, 1997,
and will require restatement of all prior-period earnings per share ("EPS") data
presented. The statement establishes standards for computing and presenting EPS.
It replaces the presentation of primary EPS with basic EPS, and requires dual
presentation of basic and diluted EPS on the face of the income statement. Basic
EPS is computed by dividing income available to common stockholders by the
weighted-average number of common shares outstanding for the period. Diluted EPS
reflects the potential dilution that could occur if securities or other
contracts to issue common stock were exercised or converted into common stock.
Adoption of this statement is not expected to have a material effect on the
Company's consolidated financial statements.
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive Income."
This statement establishes standards for the reporting and display of
comprehensive income and its components in a full set of general purpose
financial statements. All items that are required to be recognized under SFAS
No. 130 as components of comprehensive income must be reported in a financial
statement that is displayed with the same prominence as other financial
statements. This statement does not require a specific format for that financial
statement but requires that an institution display an amount representing total
comprehensive income for the period in that financial statement.
SFAS No. 130 requires that an institution (i) classify items of other
comprehensive income by their nature in a financial statement and (ii) display
the accumulated balance of other comprehensive income separately from retained
earnings and additional paid-in capital in the equity section of a statement of
financial position.
This statement is effective for fiscal years beginning after December 15, 1997.
Reclassification of financial statements for earlier periods provided for
comparative purposes is required. Adoption of this statement is not expected to
have a material effect on the Company's consolidated financial statements
In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information." This statement establishes standards for
the way that public business enterprises report information about operating
segments in annual financial statements and requires those enterprises report
selected information about operating segments in interim financial reports
issued to shareholders. Additionally, it establishes standards
7
<PAGE>
for related disclosures about products and services, geographic areas, and major
customers.
The statement supersedes SFAS No. 14, "Financial Reporting for Segments of a
Business Enterprise", No. 18, "Financial Reporting for Segments of a Business
Enterprise - Interim Financial Statements", No. 24, "Reporting Segment
Information in Financial Statements That Are Presented in Another Enterprise's
Financial Report" and SFAS No. 30, "Disclosure of Information about Major
Customers". SFAS No. 131 amends SFAS No. 94, "Consolidation of All Majority-
Owned Subsidiaries", to eliminate the requirement to disclose additional
information about subsidiaries that were not consolidated prior to the effective
date of SFAS No. 94. The statement also amends APB Opinion No. 28, "Interim
Financial Reporting", to require disclosure of selected information about
operating segments in interim reports to shareholders.
This statement requires that a public business enterprise report financial and
descriptive information about its reportable operating segments. Operating
segments are components of an enterprise about which separate financial
information is available that is evaluated regularly by the chief operating
decision maker in deciding how to allocate resources and in assessing
performance.
SFAS No. 131 requires that a public business enterprise report a measure of
segment profit or loss, certain revenue and expense items, and segment assets.
It requires reconciliations of total segment revenues, total segment profit or
loss, total segment assets, and other amounts disclosed for segments to
corresponding amounts in the enterprise's general purpose financial statements.
It requires that all public business enterprises report information about
revenues derived from enterprise's products or services, about the countries in
which the enterprise earns revenues and holds assets, and about major customers
regardless of whether that information is used in making operating decisions.
The statement requires that a public business enterprise report descriptive
information about the way that the operating segments were determined, the
products and services provided by operating segments, differences between the
measurements used in reporting segment information and those used in the
enterprise's general purpose financial statements, and changes in the
measurement of segment amounts from period to period.
The statement is effective for financial statements for fiscal years beginning
after December 15, 1997. In the initial year of application, comparative
information for the earlier years is to be restated. This statement need not be
applied to interim financial statements in the initial year of its application,
but comparative information for interim periods in the initial year of
application is to be reported in the financial statements for the interim period
in the second year of application. Adoption of this statement is not expected
to have a material effect on the Company's consolidated financial statements.
6. RECENT DEVELOPMENTS
On May 21, 1997, the Company announced that its Board of Directors adopted a
quarterly dividend policy and declared its first cash dividend of five cents
($0.05) per common share. The dividend was paid on June 12, 1997 to
shareholders of record as of June 2, 1997.
7. DEBT AND EQUITY AND MORTGAGE-BACKED AND MORTGAGE RELATED SECURITIES
The following table sets forth certain information regarding amortized cost, and
estimated fair values of debt and equity and mortgage-backed and mortgage
related securities of the Company at June 30, 1997 and December 31, 1996,
respectively.
8
<PAGE>
<TABLE>
<CAPTION>
June 30, 1997 December 31, 1996
------------------------- -------------------------
(In thousands)
Estimated Estimated
Amortized fair Amortized fair
cost value cost value
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Available-for-sale:
Debt securities:
United States Government - direct and
guaranteed.............................. $ 125,248 $ 127,777 $ 175,440 $ 179,259
United States Government agencies......... 158,103 157,355 124,709 124,377
Other..................................... 12,573 12,717 14,207 14,398
----------- ----------- ----------- -----------
Total debt securities................... 295,924 297,849 314,356 318,034
----------- ----------- ----------- -----------
Equity securities:
Common.................................... 18,753 32,332 12,110 19,116
Preferred................................. 177,301 183,591 143,174 149,248
Other..................................... 488 495 488 498
----------- ----------- ----------- -----------
Total equity securities................. 196,542 216,418 155,772 168,862
----------- ----------- ----------- -----------
Mortgaged-backed and mortgage related
securities, net:
GNMA pass-through securities.............. 16,780 18,322 18,737 20,504
FNMA pass-through securities.............. 5,812 5,662 6,443 6,263
FHLMC pass-through securities............. 243,188 243,120 220,800 220,264
GNMA adjustable rate mortgage pass-
through securities...................... 392,714 398,443 268,801 272,432
Whole loan private collateralized
mortgage obligations..................... 391,548 394,011 276,500 278,033
Agency collateralized mortgage
obligations............................. 571,233 574,521 360,115 361,915
----------- ----------- ----------- -----------
Total mortgage-backed and mortgage
related securities, net............... 1,621,275 1,634,079 1,151,396 1,159,411
----------- ----------- ----------- -----------
Total securities available-for-sale..... $ 2,113,741 $ 2,148,346 $ 1,621,524 $ 1,646,307
=========== =========== =========== ===========
Held-to-maturity, net:
Debt securities:
State, county and municipal............... $ 1,930 $ 2,045 $ 1,930 $ 2,067
Mortgaged-backed and mortgage related
securities:
Whole loan private collateralized
mortgage obligations..................... 243,224 242,721 276,632 276,046
----------- ----------- ----------- -----------
Total securities held-to-maturity,
net.................................... $ 245,154 $ 244,766 $ 278,562 $ 278,113
=========== =========== =========== ===========
</TABLE>
9
<PAGE>
8. LOANS RECEIVABLE, NET
Loans receivable, net at June 30, 1997 and December 31, 1996 consist of the
following:
<TABLE>
<CAPTION>
June 30, 1997 December 31, 1996
------------- -----------------
(In thousands)
<S> <C> <C>
Real estate loans:
One- to four-family................. $ 377,946 $ 263,337
Multi-family........................ 40,302 46,576
Commercial real estate.............. 209,707 168,797
Construction and development........ 47,490 37,459
Home equity and second mortgage..... 11,943 9,506
Consumer.............................. 3,033 1,241
Student............................... 69 1,576
--------- ---------
Gross loans.................. 690,490 528,492
Less:
Unamortized discounts, net.......... 1,189 701
Deferred loan fees.................. 1,200 881
Deferred mortgage interest.......... 703 566
Allowance for possible loan losses.. 23,795 23,320
--------- ---------
Total loans, net............. 663,602 503,024
Less:
Loans held for sale, net:
One- to four-family, net....... 9,750 12,558
Student........................ 69 1,576
--------- ---------
Loans receivable held for
investment, net............. $ 653,784 $ 488,890
========= =========
</TABLE>
9. ASSET QUALITY
The following table sets forth information regarding non-accrual loans, loans
delinquent 90 days or more and still accruing interest at the dates indicated
and real estate owned. It is the Bank's general policy to discontinue accruing
interest on all loans which are past due 90 days or when, in the opinion of
management, such suspension is warranted. When a loan is placed on non-accrual
status, the Bank ceases the accrual of interest owed and previously accrued
interest is charged against interest income. Loans are generally returned to
accrual status when principal and interest payments are current, there is
reasonable assurance that the loan will be fully collectible and a consistent
record of performance has been demonstrated.
10
<PAGE>
<TABLE>
<CAPTION>
June 30, December 31,
1997 1996
------- -------
(In thousands)
<S> <C> <C>
Non-accrual loans:
One-to four-family................... $ 3,491 $ 2,764
Home equity.......................... 59 -
Multi-family......................... - -
Commercial real estate............... 3,534 5,374
Construction and development......... 602 602
Consumer loans....................... 22 -
------- -------
Total non-accrual loans........... 7,708 8,740
Loans contractually past due 90
days or more, other than non-accruing 4 -
------- -------
Total non-performing loans........ 7,712 8,740
Real estate owned, net (1).............. 841 1,698
------- -------
Total non-performing assets.......... $ 8,553 $10,438
======= =======
Allowance for possible loan losses
as a percent of loans (2) ........... 3.51% 4.55%
Allowance for possible loan losses
as a percent of total non performing
loans ............................... 308.55% 266.82%
Non-performing loans as a percent of
loans (2) ........................... 1.14% 1.71%
Non-performing assets as a percent of
total assets......................... 0.27% 0.29%
</TABLE>
(1) Real estate owned balances are shown net of related loss
allowances.
(2) Loans include loans receivable held for investment, net, excluding
the allowance for possible loan losses.
10. SUBSEQUENT EVENT
The Company held its first annual shareholder meeting on July 22, 1997. At the
meeting, the shareholders approved The Roslyn Bancorp, Inc. 1997 Stock-Based
Incentive Plan ("Incentive Plan"). The Incentive Plan authorizes the granting of
options to purchase common stock, option-related awards and awards of common
stock (collectively, "Awards"). Subject to certain adjustments to prevent
dilution of Awards to participants, the maximum number of shares reserved for
Awards denominated in common stock under the Incentive Plan is 6,109,944 shares,
provided such number is not in excess of 14% of the outstanding shares of the
common stock as of the effective date of the Incentive Plan. The maximum number
of shares reserved for purchase pursuant to the exercise of options and option-
related Awards which may be granted under the Incentive Plan is 4,364,246
shares, provided such number is not in excess of 10% of the outstanding shares
of common stock, as of the effective date of the Incentive Plan. The maximum
number of the shares reserved for the award of shares of common stock is
1,745,698 shares, provided such number is not in excess of 4% of the outstanding
shares of common stock as of the effective date of the Incentive Plan. All
officers, other employees and outside directors of the Company and its
affiliates, including the Bank and its subsidiaries, are eligible to receive
Awards under the Incentive Plan. The Incentive Plan will be administered by a
committee of non-employee directors of the Company (the "Committee").
Authorized but unissued shares or shares previously issued and reacquired by the
Company may be used to satisfy
11
<PAGE>
the Awards under the Incentive Plan. If authorized but unissued shares are
utilized to fund the grant of stock awards or the exercise of options granted
under the Incentive Plan, it would result in an increase in the number of shares
then outstanding, and will have a dilutive effect on the holdings of existing
stockholders. No determination has been made regarding the granting of Awards or
options under the Incentive Plan.
12
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
Roslyn Bancorp, Inc. is a savings and loan holding company regulated by the
Office of Thrift Supervision. The primary operating subsidiary of Roslyn
Bancorp, Inc. is The Roslyn Savings Bank (the "Bank"), a New York State
chartered stock savings bank. While the following discussion of financial
condition and results of operations includes the collective results of Roslyn
Bancorp, Inc. and the Bank (collectively the "Company"), this discussion
reflects principally the Bank's activities as the Company currently does not
engage in any significant business activities other than the management of the
Bank and the investment of net proceeds from the Bank's mutual to stock
conversion which occurred on January 10, 1997.
FINANCIAL CONDITION
Total assets at June 30, 1997 were $3.16 billion, a decrease of $458.7
million, or 12.7%, from $3.62 billion at December 31, 1996. The decrease was
primarily attributable to the January 10, 1997 consummation of the Bank's
conversion from a New York State chartered mutual savings bank to a New York
State chartered stock savings bank and the return of stock subscription proceeds
for unsatisfied subscriptions of Roslyn Bancorp, Inc. common stock. As a
result, $145.3 million of deposits and $278.4 million of non-depository stock
subscriptions funds were transferred to stockholders' equity of the Company, and
$1.08 billion of non-depository stock subscriptions funds, which were held in
short-term money market investments, were returned to subscribers. The effect
of such resulted in a $1.09 billion decrease in short-term money market
investments from $1.11 billion at December 31, 1996 to $27.9 million at June 30,
1997.
Excluding the effect of the $1.08 billion of non-depository stock
subscriptions funds returned to subscribers, total assets increased by $619.9
million primarily due to a $502.0 million increase in securities available-for-
sale and a $163.5 million increase in real estate loans held for investment,
net. The net conversion proceeds, along with the Company's leveraging strategy,
were utilized to fund the growth in both the securities portfolio and to a
lesser extent, the mortgage loan portfolio. Mortgage-backed and mortgage
related securities available-for-sale increased by $474.7 million, or 40.9%,
from $1.16 billion at December 31, 1996 to $1.63 billion at June 30, 1997. Debt
and equity securities available-for-sale at June 30, 1997 totaled $514.3
million, an increase of $27.4 million, or 5.6%, compared to $486.9 million at
December 31, 1996. Securities held-to-maturity, net decreased $33.4 million, or
12.0%, to $245.2 million at June 30, 1997 from $278.6 million at December 31,
1996. These changes in the securities portfolios reflect the effects of
securities purchases, securities repayments and maturities, and in the case of
the available-for-sale securities portfolio, the effects of securities sales and
changes in the estimated fair values of the securities. At June 30, 1997, the
securities available-for-sale portfolio had net unrealized gains of $34.6
million as compared to $24.8 million at December 31, 1996.
Real estate loans held for investment, net at June 30, 1997 were $674.5
million, an increase of $163.5 million, or 32.0% from $511.0 million at December
31, 1996 primarily due to the origination of $206.1 million in commercial real
estate, construction and development and one- to four-family residential real
estate loans and from the purchase of $89.8 million of one- to four-family
residential real estate loans.
Total liabilities at June 30, 1997 were $2.52 billion, a decrease of $845.7
million, or 25.11% from $3.37 billion at December 31, 1996. Although total
deposits decreased by $184.3 million, or 9.4%, from $1.96 billion at December
31, 1996 to $1.77 billion at June 30, 1997, after giving effect to the $145.3
million of deposits that were transferred to stockholders' equity as part of the
conversion to a stock form of ownership, deposits only decreased by $39.0
million, or 2.2%. The overall decrease in total liabilities and deposits is
primarily attributable to the consummation of the Conversion of the Bank from a
New York state chartered mutual savings bank to a New York state chartered stock
savings bank. The overall decrease in total liabilities was partially offset by
a $690.4 million
13
<PAGE>
increase in borrowed funds principally due to management's decision to utilize
borrowings, primarily in the form of reverse repurchase agreements, to fund
asset growth and, to a lesser extent, fund first quarter deposit outflows.
Total stockholders' equity increased $387.1 million to $636.4 million at
June 30, 1997 from $249.3 million at December 31, 1996. The increase is
primarily due to the transfer of $410.7 million of net conversion proceeds of
the initial public offering that was completed on January 10, 1997, earnings for
the six months ended June 30, 1997 totaling $12.9 million and the increase in
net unrealized gains on securities available-for-sale, net of taxes of $5.6
million. The increase in net unrealized gains on securities available-for-sale
from December 31, 1996 to June 30, 1997 resulted primarily from an increased
demand in spread assets combined with an appreciation in equity securities. This
increase was partially offset by the unallocated shares of common stock held by
the ESOP of $52.9 million and the $2.2 million in dividends paid in the quarter
ended June 30, 1997. Additionally, concurrent with the close of the stock
offering, the Company donated 1,271,100 shares of common stock to the Foundation
which increased stockholders' equity by $12.7 million.
ANALYSIS OF NET INTEREST INCOME
Net interest income represents the difference between income on interest-
earning assets and expense on interest-bearing liabilities. Net interest income
depends upon the volume of interest-earning assets and interest-bearing
liabilities and the interest rates earned or paid on them.
The following table sets forth certain information regarding the Company's
average statements of financial condition and its statements of income for the
three and six months ended June 30, 1997 and 1996, and reflects the average
yield on interest-earning assets and average cost of interest-bearing
liabilities for the periods indicated. Such yields and costs are derived by
dividing income or expense, annualized, by the average balance of interest-
earning assets or interest-bearing liabilities, respectively. Average balances
are derived from daily balances. Average balances and yields include non-
accrual loans.
14
<PAGE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30,
------------------------------------ --------------------------------------
1997 1996
------------------------------------ --------------------------------------
AVERAGE AVERAGE
AVERAGE YIELD/ AVERAGE YIELD/
BALANCE INTEREST COST BALANCE INTEREST COST
------------ ---------- ------- ----------- ------------ -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
ASSETS:
Interest-earning assets:
Federal funds sold and
repurchase agreements $ 28,488 $ 390 5.48% $ 28,956 $ 374 5.17%
Debt and equity securities 496,806 8,149 6.56 428,914 7,339 6.84
Mortgage-backed and mortgage
related securities 1,707,197 30,620 7.17 829,346 14,257 6.88
Real estate loans, net 646,492 13,975 8.65 403,828 9,175 9.09
Consumer and student loans 3,149 69 8.76 3,526 76 8.62
------------ ---------- ----------- ------------
Total interest-earning assets 2,882,132 53,203 7.38 1,694,570 31,221 7.37
---------- ------------
Non-interest-earning assets 71,841 69,681
------------ -----------
Total assets $ 2,953,973 $ 1,764,251
============ ===========
LIABILITIES AND STOCKHOLDERS' EQUITY:
Interest-bearing liabilities:
Money market accounts $ 53,829 356 2.65% $ 62,943 452 2.87%
Savings accounts 417,672 3,079 2.95 458,569 3,590 3.13
NOW and Super NOW accounts 67,178 667 3.97 37,132 238 2.56
Certificates of deposit 1,183,456 16,963 5.73 858,484 11,851 5.52
------------ ---------- ----------- ------------
Total deposits 1,722,135 21,065 4.89 1,417,128 16,131 4.55
Borrowed funds 541,808 7,803 5.76 71,201 982 5.52
------------ ---------- ----------- ------------
Total interest-bearing liabilities 2,263,943 28,868 5.10 1,488,329 17,113 4.60
Non-interest-bearing liabilities 68,500 ---------- 53,109 ------------
------------ -----------
Total liabilities 2,332,443 1,541,438
Stockholders' equity 621,530 222,813
------------ -----------
Total liabilities and stockholders' equity $ 2,953,973 $ 1,764,251
============ ===========
Net interest income/net interest rate spread $ 24,335 2.28% $ 14,108 2.77%
========== ======= ============ =======
Net interest margin 3.38% 3.33%
======= =======
Ratio of interest-earning assets to interest-
bearing liabilities 127.31% 113.86%
======= =======
</TABLE>
15
<PAGE>
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
------------------------------------ --------------------------------------
1997 1996
------------------------------------ --------------------------------------
AVERAGE AVERAGE
AVERAGE YIELD/ AVERAGE YIELD/
BALANCE INTEREST COST BALANCE INTEREST COST
------------ ---------- ------- ----------- ------------ -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
ASSETS:
Interest-earning assets:
Federal funds sold and
repurchase agreements $ 121,715 $ 3,308 5.44% $ 26,561 $ 687 5.17%
Debt and equity securities 493,309 16,412 6.65 409,571 14,137 6.90
Mortgage-backed and mortgage
related securities 1,617,999 57,747 7.14 808,712 27,770 6.87
Real estate loans, net 588,856 25,643 8.71 391,203 18,190 9.30
Consumer and student loans 3,347 142 8.49 3,980 244 12.26
------------ ---------- ----------- -----------
Total interest-earning assets 2,825,226 103,252 7.31 1,640,027 61,028 7.44
---------- -----------
Non-interest-earning assets 96,106 64,994
------------ -----------
Total assets $ 2,921,332 $ 1,705,021
============ ===========
LIABILITIES AND STOCKHOLDERS' EQUITY:
Interest-bearing liabilities:
Money market accounts $ 56,701 $ 763 2.69% $ 63,832 914 2.86%
Savings accounts 441,886 6,624 3.00 461,495 7,248 3.14
NOW and Super NOW accounts 73,717 1,255 3.40 35,974 457 2.54
Certificates of deposit 1,156,647 32,772 5.67 819,607 22,941 5.60
------------ ---------- ----------- -----------
Total deposits 1,728,951 41,414 4.79 1,380,908 31,560 4.57
Borrowed funds 406,261 11,528 5.68 45,647 1,306 5.72
Non-depository stock subscriptions 105,806 1,341 2.53 - - -
------------ ---------- ----------- -----------
Total interest-bearing liabilities 2,241,018 54,283 4.84 1,426,555 32,866 4.61
---------- -----------
Non-interest-bearing liabilities 82,980 53,329
------------ -----------
Total liabilities 2,323,998 1,479,884
Stockholders' equity 597,334 225,137
------------ -----------
Total liabilities and stockholders' equity $ 2,921,332 $ 1,705,021
============ ===========
Net interest income/net interest rate spread $ 48,969 2.47% $ 28,162 2.83%
========== ======= ========== =======
Net interest margin 3.47% 3.43%
======= =======
Ratio of interest-earning assets to interest-
bearing liabilities 126.07% 114.96%
======= =======
</TABLE>
16
<PAGE>
COMPARISON OF OPERATING RESULTS FOR THE THREE MONTHS ENDED JUNE 30, 1997 AND
1996
GENERAL
The Company reported net income of $10.5 million for the quarter ended
June 30, 1997, or $.26 per share as compared to net income of $5.5 million for
the quarter ended June 30, 1996. Due to the Bank's conversion and acquisition by
the Company on January 10, 1997, the Company had no significant assets or
operations prior to such date. Per share data for the quarter ended June 30,
1996 is not applicable. Accordingly, the data presented for the quarter ended
June 30, 1996 reflects the operations of the Bank and its subsidiaries only and
the data presented for the quarter ended June 30, 1997 reflects the operations
of the Company and the Bank and its subsidiaries.
INTEREST INCOME
Interest income amounted to $53.2 million for the three months ended
June 30, 1997, representing an increase of $22.0 million, or 70.4% from the same
period in 1996. The increase was primarily the result of a $1.19 billion
increase in average interest-earning assets. The increase in average interest-
earning assets was principally attributable to growth of $877.9 million in
mortgage-backed and mortgage related securities, $242.7 million in real estate
loans, net and $67.9 million in debt and equity securities. These increases were
principally due to the deployment of the January 10, 1997 conversion proceeds,
deposit growth and the Company's leveraging strategy. Interest income on
mortgage-backed and mortgage related securities increased $16.3 million, from
$14.3 million for the three months ended June 30, 1996 to $30.6 million for the
same period in 1997. The increase was due to the increased average balance of
these securities and the increase in the average yield on these securities of 29
basis points from 6.88% for the three months ended June 30, 1996 to 7.17% for
the three months ended June 30, 1997. These yield increases were due to
increases in maturity terms for new purchases and the upward repricing of
securities purchased in prior periods.
Interest income on real estate loans increased $4.8 million, or 52.3%,
to $14.0 million for the three months ended June 30, 1997, from $9.2 million for
the same period in 1996. The increase was a result of the growth in the average
balance of loans outstanding primarily due to increased originations of one- to
four-family, commercial real estate and construction and development loans and
the purchase of $89.8 million of one- to four-family real estate loans. The
increase was partially offset by a 44 basis point decrease in the average yield
on real estate loans from 9.09% for the three months ended June 30, 1996 to
8.65% for the same period in 1997 principally due to an increased concentration
of one- to four-family real estate loans within the loan portfolio mix.
INTEREST EXPENSE
Interest expense for the three months ended June 30, 1997, was $28.9
million, compared to $17.1 million for the three months ended June 30, 1996, an
increase of $11.8 million, or 68.7%. The increase in interest expense is related
to an $775.6 million, or 52.1%, increase in the average balance of interest-
bearing liabilities from $1.49 billion in 1996 to $2.26 billion in 1997. This
increase reflects a $305.0 million increase in the average balance of interest-
bearing deposits and a $470.6 million increase in the average balance of
borrowed funds for the quarter ended June 30, 1997, as compared to the prior
year quarter. The increase in total deposits is due to a increase in the average
balance of certificates of deposit due to management's strategy of funding asset
growth by offering competitive rates, and through the acquisition of $100.0
million of brokered deposits during the third and fourth quarters of 1996 of
which $99.8 million remains outstanding at June 30, 1997. The effect of the
higher certificates of deposit average balance in addition to a 21 basis point
increase in the average cost resulted in an increase of $5.1 million in interest
expense on certificates of deposit for the quarter ended June 30, 1997 as
compared to the same quarter in 1996.
The average balance of borrowed funds increased $470.6 million from
$71.2 million for the three months ended June 30, 1996 to $541.8 million for the
three months ended June 30, 1997. This increase in addition to a 24
17
<PAGE>
basis point increase in the average cost resulted in a $6.8 million increase in
interest expense on borrowed funds, from $982,000 for the quarter ended June 30,
1996 to $7.8 million for the quarter ended June 30, 1997. The increased
borrowings, principally reverse repurchase agreements, have been reinvested in
investment securities and real estate loans as part of a strategy to leverage
the Company's capital position and improve its return on equity.
NET INTEREST INCOME
Net interest income was $24.3 million for the three months ended June
30, 1997 as compared to $14.1 million for the three months ended June 30, 1996,
an increase of $10.2 million, or 72.5%. The increase in net interest income was
attributable to a $1.19 billion, or 70.1%, increase in average interest-earning
assets to $2.88 billion for the quarter ended June 30, 1997 from $1.69 billion
for the quarter ended June 30, 1996. The growth in interest-earning assets was
principally the result of utilizing the conversion proceeds, deposit growth and
the Company's leveraging position to increase both the investment and real
estate loan portfolios. Interest-bearing liabilities increased $775.6 million,
or 52.1% to $2.26 billion for the 1997 period from $1.49 billion for the 1996
period. The net interest margin for the quarter ended June 30, 1997, improved to
3.38% from 3.33% in the prior year quarter and the ratio of interest-earning
assets to interest-bearing liabilities increased to 127.31% as compared to
113.86%. However, the net interest rate spread declined to 2.28% from 2.77% for
the quarter ended June 30, 1997 and 1996, respectively, primarily as a result of
a 44 basis point decrease in real estate loan yields, a 34 basis point increase
in total deposit costs and the Company's increased leverage position.
PROVISION FOR POSSIBLE LOAN LOSSES
The provision for possible loan losses totaled $150,000 for the three
months ended June 30, 1997 as compared to $300,000 for the three months ended
June 30, 1996. The provision for possible loan losses for the three months ended
June 30, 1997 reflects management's qualitative assessment of the loan
portfolio, net charge-offs and collection of delinquent loans. The decrease
resulted from management's assessment of the loan portfolio, the level of the
Company's allowance for possible loan losses and its assessment of the local
economy and market conditions. At June 30, 1997 and December 31, 1996, the
allowance for possible loan losses amounted to $23.8 million and $23.3 million,
respectively and the ratio of such allowance to non-performing loans was 308.55%
at June 30, 1997 as compared to 266.82% at December 31, 1996. Management
assesses the adequacy of the allowance for possible loan losses based on
evaluating known and inherent risks in the loan portfolio and upon management's
continuing analysis of the factors underlying the quality of the loan portfolio.
While management believes that, based on information currently available, the
allowance for possible loan losses is sufficient to cover losses inherent in its
loan portfolio at this time, no assurance can be given that the level of
allowance for possible loan losses will be sufficient to cover future possible
loan losses incurred by the Company or that future adjustments to the allowance
for possible loan losses will not be necessary if economic and other conditions
differ substantially from the economic and other conditions used by management
to determine the current level of the allowance for possible loan losses.
Management may in the future increase its level of allowance for possible loan
losses as a percentage of total loans and non-performing loans in the event it
increases the level of commercial real estate, multi-family, commercial,
construction and development or consumer lending as a percentage of its total
loan portfolio. In addition, various regulatory agencies, as an integral part of
their examination process, periodically review the allowance for possible loan
losses. Such agencies may require the Company to provide additions to the
allowance based upon judgments different from management.
NON-INTEREST INCOME
Non-interest income decreased $538,000, or 20.8%, to $2.0 million for
the quarter ended June 30, 1997 as compared to $2.6 million for the same period
in the prior year. The decrease was a result of a $734,000 decrease in gains on
sales of loans, which was partially offset by a decrease of $163,000 in losses
associated with real estate operations. The decrease in net gains on sales of
loans is primarily attributable to unfavorable market conditions in the
secondary market and to a lesser extent the Company retaining a larger
percentage of one- to four-family
18
<PAGE>
originations for its loan portfolio. The decrease in net losses on real estate
operations is primarily due to a decrease in the provision for possible losses
on other real estate owned of $150,000 from June 30, 1996 to June 30, 1997, and
a $13,000 increase in net other real estate owned income.
NON-INTEREST EXPENSE
Non-interest expense totaled $10.4 million for the quarter ended June
30, 1997 as compared to $8.1 million for the quarter ended June 30, 1996, an
increase of $2.3 million, or 28.7%. The increase is mainly the result of
increases in compensation and employee benefits, including the Company's
Employee Stock Ownership Plan, and additional personnel and other costs
associated with the late 1996 establishment of two Long Island branch offices
located in Lawrence and Massapequa, and two mortgage origination offices located
in West Hartford and Fairfield, Connecticut. In 1997, the Company further
expanded its loan origination network by opening two additional mortgage
origination offices in Rochester and Syracuse, New York.
INCOME TAXES
Total income tax expense increased $2.5 million, or 89.5%, from $2.8
million recorded during the quarter ended June 30, 1996 to $5.3 million during
the quarter ended June 30, 1997. The effective income tax rates were 33.78% for
the 1997 period as compared to 33.98% for the 1996 period.
COMPARISON OF OPERATING RESULTS FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND 1996
GENERAL
The Company reported net income of $12.9 million for the six month
period ended June 30, 1997, or $.32 per share, as compared to net income of
$10.9 million for the corresponding period in 1996. Due to the Bank's conversion
and acquisition by the Company on January 10, 1997, the Company had no
significant assets or operations prior to such date. Per share data for the six
months ended June 30, 1996 is not applicable. Accordingly, the data presented
for the six months ended June 30, 1996 reflects the operations of the Bank and
its subsidiaries only and the data presented for six months ended June 30, 1997
reflects the operations of the Company and the Bank and its subsidiaries. Net
income for the period ended June 30, 1997 includes a one-time charge relating to
the funding of the Foundation. The Foundation was established and funded with a
contribution by the Company of 1,271,100 shares of its common stock as part of
the January 10, 1997 conversion of the Bank to a New York State chartered stock
savings bank. The contribution resulted in a $7.4 million charge to earnings, on
a after tax basis. The Company's net income excluding the effect of funding the
Foundation was $20.3 million, or $.50 per share for the six month period ended
June 30, 1997. This represents a $9.4 million increase in net income from the
comparable period in 1996.
INTEREST INCOME
Interest income amounted to $103.3 million for the six months ended June
30, 1997, representing an increase of $42.2 million, or 69.2% from the same
period in 1996. The increase was attributable to the growth in average interest-
earning assets to $2.83 billion for the six months ended June 30, 1997, from
$1.64 billion for the six month ended June 30, 1996. The growth in interest-
earning assets was primarily the result of the deployment of the January 10,
1997 conversion proceeds, deposit growth and the Company's leveraging strategy.
Although average interest-earning assets increased, the average yield on
interest-earning assets decreased by 13 basis points. The decrease is due in
part to the short-term liquidity position maintained prior to the Conversion on
January 10, 1997. Short-term liquidity was required to be maintained due to the
pending offering of Roslyn Bancorp, Inc. common stock and the anticipated return
of approximately $1.08 billion in non-depository stock subscriptions funds.
Interest income on mortgage-backed and mortgage related securities increased
$29.9 million, from $27.8
19
<PAGE>
million for the six months ended June 30, 1996 to $57.7 million for the same
period in 1997 due to an increase of $809.3 million, or 100.1%, in the average
balance of these securities and an increase in the average yield on these
securities of 27 basis points from 6.87% for the six months ended June 30, 1996
to 7.14% for the six months ended June 30, 1997. These yield increases were due
to increases in maturity terms for new purchases and the upward repricing of
securities purchased in prior periods.
Interest income on real estate loans increased $7.4 million, or 41.0%,
to $25.6 million for the six months ended June 30, 1997, from $18.2 million for
the same period in 1996. The increase was a result of the growth in the average
balance of loans outstanding primarily due to increased originations of one- to
four-family, construction and development, and commercial real estate loans and
the purchase of $89.8 million of one- to four-family real estate loans. Further
contributing to the increase in interest income for the six months ended June
30, 1997 compared to the same period in 1996 was a 33.1% decrease in non-
performing loans, from $11.5 million at June 30, 1996 to $7.7 million at June
30, 1997. The increase was partially offset by a 59 basis point decrease in the
average yield on real estate loans, net from 9.30% for the six months ended June
30, 1996 to 8.71% for the same period in 1997 principally due to an increased
concentration of one- to four-family real estate loans within the loan portfolio
mix.
INTEREST EXPENSE
Interest expense for the six months ended June 30, 1997, was $54.3
million, compared to $32.9 million for the six months ended June 30, 1996, an
increase of $21.4 million or 65.2%. The increase in interest expense is related
to an $814.5 million, or 57.1%, increase in the average balance of interest-
bearing liabilities from $1.43 billion in 1996 to $2.24 billion in 1997. This
increase reflects a $348.0 million increase in the average balance of interest-
bearing deposits for the six months ended June 30, 1997, as compared to the
comparable period in 1996, a 22 basis point increase in the average rate paid on
total interest-bearing deposits over the comparable period in 1996 due to a
increase in the average balance of certificates of deposit and a one time $1.3
million expense relating to interest paid on stock subscription escrow funds
received in connection with the offering of Roslyn Bancorp, Inc. common stock.
The average balance of certificates of deposit increased due to management's
strategy of funding asset growth by offering competitive rates, and through the
acquisition of $100.0 million of brokered deposits during the third and fourth
quarters of 1996 of which $99.8 million are still outstanding at June 30, 1997.
The effect of the higher average deposit balance primarily resulted in an
increase in interest expense on certificates of deposit of $9.9 million, or
42.9% from $22.9 million for the 1996 period to $32.8 million for the 1997
period.
Interest expense on borrowed funds increased $10.2 million, from $1.3
million for the six months ended June 30, 1996 to $11.5 million for the six
months ended June 30, 1997 primarily due to an increase of $360.7 million in the
average balance of borrowed funds, from $45.6 million for the 1996 period to
$406.3 million for the comparable period in 1997, which was partially offset by
a 4 basis point decrease in the cost of borrowed funds from 5.72% for the 1996
period to 5.68% for the same period in 1997. Borrowed funds, principally reverse
repurchase agreements, have been reinvested in investment securities and real
estate loans as part of a strategy to leverage the Company's capital position
and improve its return on equity.
NET INTEREST INCOME
Net interest income was $49.0 million for the six months ended June 30,
1997, an increase of $20.8 million, or 73.9%, from $28.2 million for the six
month ended June 30, 1996. The increase in net interest income was attributable
to the growth in average-interest earning assets to $2.83 billion for the six
months ended June 30, 1997 from $1.64 billion for the six months ended June 30,
1996. The growth in interest-earning assets was principally the result of the
deployment of the January 10, 1997 conversion proceeds, deposit growth and the
Company's leveraging strategy which was utilized to increase both the investment
securities and real estate loan portfolios. Interest-bearing liabilities
increased $814.5 million, or 57.1% to $2.24 billion for the 1997 period from
20
<PAGE>
$1.43 billion for the 1996 period. The net interest margin for the six months
ended June 30, 1997, improved to 3.47% as compared to 3.43% for the comparable
period in 1996, despite a decline in the net interest spread. The net interest
spread declined to 2.47% from 2.83% for the period ended June 30, 1997 and 1996,
respectively, primarily as a result of a 59 basis point decrease in real estate
loan yields, a 22 basis point increase in total deposit costs and the Company's
increased leverage position.
PROVISION FOR POSSIBLE LOAN LOSSES
The provision for possible loan losses totaled $300,000 for the six
months ended June 30, 1997 as compared to $400,000 for the six months ended June
30, 1996. The allowance for possible loan losses totaled $23.8 million at June
30, 1997 which represents a ratio of allowance for possible loan losses as a
percent of total non-performing loans and to total loans of 308.55% and 3.51%,
respectively. Additionally, the Company experienced net recoveries of $176,000
for the six months ended June 30, 1997. The provision for possible loan losses
for the six months ended June 30, 1997 reflects management's qualitative
assessment of the loan portfolio, net charge-offs and the collection of
delinquent loans. Management assesses the adequacy of the allowance for possible
loan losses based on evaluating known and inherent risks in the loan portfolio
and upon management's continuing analysis of the factors underlying the quality
of the loan portfolio. While management believes that, based on information
currently available, the Company's allowance for possible loan losses is
sufficient to cover losses inherent in its loan portfolio at this time, no
assurance can be given that the level of allowance for possible loan losses will
be sufficient to cover future possible loan losses incurred or that future
adjustments to the allowance for possible loan losses will not be necessary if
economic and other conditions differ substantially from the economic and other
conditions used by management to determine the current level of the allowance
for possible loan losses. Management may in the future increase its level of
allowance for possible loan losses as a percentage of total loans and non-
performing loans in the event it increases the level of commercial real estate,
multi-family, commercial, construction and development or consumer lending as a
percentage of its total loan portfolio. In addition, various regulatory
agencies, as an integral part of their examination process, periodically review
the allowance for possible loan losses. Such agencies may require the Company to
provide additions to the allowance based upon judgments different from
management.
NON-INTEREST INCOME
Non-interest income, increased $216,000 or 4.6%, to $4.9 million for the
six month period ended June 30, 1997 as compared to $4.7 million for the six
month period ended June 30, 1996. The increase reflects in part, a $552,000
increase in loan servicing and fee income, a $288,000 increase in net gains on
securities and a decrease of $294,000 in losses on real estate operations. The
increase in loan servicing and fee income is primarily attributable to $467,000
in fee income earned on temporary bank balances relating to the post conversion
return of $1.08 billion of non-depository stock subscriptions. The decrease in
net losses on real estate operations is primarily due to the sale of one real
estate owned property during the first quarter of 1997 which resulted in a gain
of $124,000, a decrease in the provision for possible losses on other real
estate owned of $200,000 from the June 30, 1996 to the June 30, 1997 period,
partially offset by an increase of $30,000 in net other real estate owned
expenses. These increases in non-interest income were partially offset by a
$772,000 decrease in net gains on sales of loans and a $146,000 decrease in
other non-interest income. The decrease in net gains on sales of loans is
primarily attributable to unfavorable market conditions in the secondary market,
and to a lesser extent the Company retaining a larger percentage of one- to
four-family loan originations. The decrease in other non-interest income is
primarily due to real estate tax certiorari refunds received during the first
quarter of 1996.
NON-INTEREST EXPENSE
Non-interest expense totaled $34.8 million for the six months ended June
30, 1997 as compared to $16.5 million for the six months ended June 30, 1996, an
increase of $18.3 million, or 111.3%. The increase is primarily the result of
the one-time $12.7 million expense associated with funding the Foundation.
Excluding the effect of
21
<PAGE>
funding the Foundation, non-interest expense increased $5.6 million, or 34.0%,
to $22.0 million for the six months ended June 30, 1997 as compared to $16.5
million for the same period in 1996. The increase in non-interest expense was
primarily attributable to increases in compensation and employee benefits,
including the ESOP, and additional personnel and other costs associated with the
additional branch and mortgage origination offices. Also contributing to the
increase in non-interest expense were additional costs incurred in connection
with professional fees, advertising and promotional expenses and deposit
insurance premiums.
INCOME TAXES
Total income tax expense increased $806,000 or 15.9%, from $5.1 million
recorded during the six months ended June 30, 1996 to $5.9 million recorded
during the six months ended June 30, 1997. The effective income tax rates were
31.23% for the six months ended June 30, 1997 as compared to 31.69% for the
corresponding period in 1996.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary sources of funds are deposits, proceeds from the
principal and interest payments on loans, mortgage-backed and mortgage related
and debt and equity securities, and to a lesser extent, proceeds from the sale
of fixed-rate mortgage loans in the secondary market. While maturities and
scheduled amortization of loans and securities are predictable sources of funds,
deposit outflows, mortgage prepayments and mortgage loan sales are greatly
influenced by general interest rates, economic conditions and competition.
The primary investing activities of the Bank are the origination of both
one- to four-family and commercial real estate loans and the purchase of
mortgage-backed, mortgage related, and debt and equity securities. During the
six months ended June 30, 1997 and June 30, 1996, the Bank originated and
purchased mortgage loans in the amount of $300.5 million and $219.8 million,
respectively. Purchases of mortgage-backed and mortgage related and debt and
equity securities totaled $703.5 million and $362.0 million during the six
months ended June 30, 1997 and 1996, respectively. These activities were funded
primarily by principal repayments on loans and mortgage-backed and mortgage
related securities and by the Company's increased borrowed funds position during
the quarter ended June 30, 1997. Loan sales provided additional liquidity to the
Company, totaling $90.8 million and $123.5 million for the six months ended June
30, 1997 and 1996, respectively.
The Company closely monitors its liquidity position on a daily basis.
Excess, short-term liquidity is invested in overnight federal funds sold. In the
event that the Company should require funds beyond its ability to generate them
internally, additional sources of funds are available through the use of reverse
repurchase agreements. At June 30, 1997, the Company had $690.6 million in
reverse repurchase agreements outstanding, whereas, at December 31, 1996 there
were no reverse repurchase agreements outstanding. The aforementioned is
primarily attributable to management's decision to utilize borrowings, primarily
in the form of reverse repurchase agreements, to fund a significant portion of
its asset growth.
Loan commitments totaled $212.3 million at June 30, 1997, comprised of
$59.7 million in one- to four-family loan commitments, $31.0 million in
commercial real estate loan commitments, $101.6 million in construction and
development loan commitments, $13.9 million in multi-family loan commitments and
$6.1 million in home equity loan commitments. Management of the Company
anticipates that it will have sufficient funds available to meet its current
loan commitments. Certificates of deposits that are scheduled to mature in one
year or less from June 30, 1997 totaled $803.3 million. Based upon prior
experience and the Bank's current pricing strategy, management believes that a
significant portion of such deposits will remain with the Bank.
The Bank's most liquid assets are cash and cash equivalents, short-term
securities, securities available-for-sale and securities held-to-maturity due
within one year. The levels of these assets are dependent on the Company's
operating, financing, lending, and investment activities during any given
period. At June 30, 1997, the
22
<PAGE>
Company had $39.1 million in cash and cash equivalents and no short-term
repurchase agreements outstanding whereas, at December 31, 1996 the Bank had
$624.6 million in cash and cash equivalents and $501.7 million in short-term
repurchase agreements outstanding. The decrease in cash and cash equivalents and
short-term repurchase agreements was primarily due to the Company's temporarily
high liquidity position at December 31, 1996 due to the receipt of stock
subscriptions held in escrow relating to the Conversion.
REGULATORY CAPITAL POSITION
The Bank is subject to minimum regulatory requirements imposed by the
Federal Deposit Insurance Corporation ("FDIC") which vary according to the
institution's capital level and the composition of its assets. An insured
institution is required to maintain core capital of not less than 3% of total
assets plus an additional 100 to 200 basis points ("leverage capital ratio"). An
insured institution must also maintain a ratio of total capital to risk-based
assets of 8%. Although the minimum leverage capital ratio is 3%, the Federal
Deposit Insurance Corporation Improvement Act ("FDICIA") stipulates that an
institution with less than 4% leverage capital ratio is deemed to be an
"undercapitalized" institution and results in the imposition of regulatory
restrictions. The Bank's capital ratios qualify it to be deemed "well
capitalized" under FDICIA.
In accordance with the requirements of FDIC and the New York State
Banking Department, the Bank must meet certain measures of capital adequacy with
respect to leverage and risk-based capital. As of June 30, 1997 and March 31,
1997, the Bank exceeded those requirements. The Bank's leverage capital ratios
were 13.75% and 14.52% at June 30, 1997 and March 31, 1997, respectively. The
Bank's Tier-1 risk-based capital ratios were 33.30% and 34.45% at June 30, 1997
and March 31, 1997, respectively. The Bank's total risk-based capital ratios
were 34.55% and 35.71% at June 30, 1997 and March 31, 1997, respectively.
23
<PAGE>
PART II - OTHER INFORMATION
---------------------------
ITEM 1. LEGAL PROCEEDINGS
- -------------------------
Not applicable
ITEM 2. CHANGES IN SECURITIES
- -----------------------------
Not applicable
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
- ---------------------------------------
Not applicable
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- -----------------------------------------------------------
On July 22, 1997 the Company held its annual meeting of stockholders for
the purpose of the election of Directors to three year terms, the approval of
the Roslyn Bancorp, Inc. 1997 Stock-Based Incentive Plan and the ratification of
KPMG Peat Marwick LLP as the Company's independent auditors. The number of votes
cast at the meeting as to each matter acted upon was as follows:
<TABLE>
<CAPTION>
No. of Votes For No. of Votes Withheld
---------------- ---------------------
<S> <C> <C>
1. Election of Directors
Thomas J. Calabrese, Jr. .... 36,937,110 379,624
Dr. Edwin W. Martin, Jr. .... 36,946,332 370,402
Richard C. Webel............. 36,959,136 357,598
</TABLE>
The Directors whose terms continued and the years their terms expire are
as follows:
Joseph L. Mancino (1998); James Swiggett (1998); Robert G. Freese
(1998); Floyd N. York (1999); Victor C. McCuaig (1999); and John P.
Nicholson (1999).
<TABLE>
<CAPTION>
No. of Votes No. of Votes No. of Votes
For Against Abstaining
------------ ------------ ------------
<S> <C> <C> <C>
2. Approval of The Roslyn Bancorp, Inc.
1997 Stock-Based Incentive Plan........... 23,284,044 2,361,429 501,782
<CAPTION>
No. of Votes No. of Votes No. of Votes
For Against Abstaining
------------ ------------ ------------
<S> <C> <C> <C>
3. Ratification of KPMG Peat Marwick LLP
as the Company's independent auditors..... 36,800,217 324,412 192,105
</TABLE>
24
<PAGE>
ITEM 5. OTHER INFORMATION
- -------------------------
Not applicable
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
- ----------------------------------------
(a) Exhibits
--------
11.0 Statement re: Computation of Per Share Earnings
27.0 Financial Data Schedule*
(b) Reports on Form 8-K
-------------------
On May 29, 1997, the Company filed with the SEC a Current Report on Form
8-K which contained a press release. The May press release announced the
adoption of a quarterly dividend policy and the declaration of the Company's
first cash dividend.
* Submitted only with electronic filing in electronic format.
25
<PAGE>
Exhibit Index
-------------
<TABLE>
<CAPTION>
Page
----
<S> <C>
11.0 Statement re: Computation of Per Share Earnings 28
27.0 Financial Data Schedule (submitted only with electronic filing) -
</TABLE>
26
<PAGE>
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.
ROSLYN BANCORP, INC.
(Registrant)
Date: August 14, 1997 By: /s/ Joseph L. Mancino
------------------------------------------
Joseph L. Mancino
Chairman of the Board, President and
Chief Executive Officer
Date: August 14, 1997 By: /s/ Michael P. Puorro
------------------------------------------
Michael P. Puorro
Treasurer and Chief Financial Officer
27
<PAGE>
EXHIBIT 11
ROSLYN BANCORP, INC.
STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
JUNE 30, 1997
-------------
<S> <C>
Net income $ 10,467
-------------
Weighted average common shares outstanding 40,253,165
Common stock equivalents due to dilutive effect of stock options -
-------------
Total weighted average common shares and equivalents outstanding 40,253,165
=============
Primary earnings per common and common share equivalents $ 0.26
=============
Total weighted average common shares and equivalents outstanding 40,253,165
Additional dilutive shares using ending period market value versus
average market value for the period when utilizing the treasury
stock method regarding stock options -
-------------
Total shares for fully dilutive earnings per share 40,253,165
=============
Fully dilutive earnings per common and common share equivalents $ 0.26
=============
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<LEGEND>
This schedule contains summary financial information extracted from the Form
10-Q and is qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 11,174
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 27,900
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 2,148,346
<INVESTMENTS-CARRYING> 245,154
<INVESTMENTS-MARKET> 244,766
<LOANS> 687,398
<ALLOWANCE> 23,795
<TOTAL-ASSETS> 3,159,301
<DEPOSITS> 1,771,208
<SHORT-TERM> 692,203
<LIABILITIES-OTHER> 59,467
<LONG-TERM> 0
0
0
<COMMON> 436
<OTHER-SE> 635,987
<TOTAL-LIABILITIES-AND-EQUITY> 3,159,301
<INTEREST-LOAN> 25,785
<INTEREST-INVEST> 74,159
<INTEREST-OTHER> 3,308
<INTEREST-TOTAL> 103,252
<INTEREST-DEPOSIT> 42,755
<INTEREST-EXPENSE> 54,283
<INTEREST-INCOME-NET> 48,969
<LOAN-LOSSES> 300
<SECURITIES-GAINS> 343
<EXPENSE-OTHER> 34,759
<INCOME-PRETAX> 18,802
<INCOME-PRE-EXTRAORDINARY> 18,802
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 12,931
<EPS-PRIMARY> .32
<EPS-DILUTED> .32
<YIELD-ACTUAL> 7.31
<LOANS-NON> 7,708
<LOANS-PAST> 4
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 3,513
<ALLOWANCE-OPEN> 23,320
<CHARGE-OFFS> 24
<RECOVERIES> 200
<ALLOWANCE-CLOSE> 23,795
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 23,795
</TABLE>
