<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 March 31, 1998 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 42,114,959 shares of Common Stock outstanding as of May 5,
1998.
<PAGE>
FORM 10-Q
ROSLYN BANCORP, INC. AND SUBSIDIARY
INDEX
Page
Number
------
PART I - FINANCIAL INFORMATION
- ------------------------------
ITEM 1. Financial Statements - Unaudited:
Consolidated Statements of Financial Condition at
March 31, 1998 and December 31, 1997 1
Consolidated Statements of Income for the three months ended
March 31, 1998 and 1997 2
Consolidated Statement of Changes in Stockholders' Equity
for the three months ended March 31, 1998 3
Consolidated Statements of Cash Flows
for the three months ended March 31, 1998 and 1997 4
Notes to Unaudited Consolidated Financial Statements 5
ITEM 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 13
ITEM 3. Quantitative and Qualitative Disclosure about Market Risk 20
PART II - OTHER INFORMATION
- ---------------------------
ITEM 1. Legal Proceedings 23
ITEM 2. Changes in Securities 23
ITEM 3. Defaults Upon Senior Securities 23
ITEM 4. Submission of Matters to a Vote of Security Holders 23
ITEM 5. Other Information 23
ITEM 6. Exhibits and Reports on Form 8-K 24
Signature Page 26
=======================================================================
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 Securities and
Exchange Commission from time to time.
=======================================================================
<PAGE>
ROSLYN BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
MARCH 31, 1998 DECEMBER 31, 1997
-------------------- ---------------------
<S> <C> <C>
ASSETS
------
Cash and cash equivalents:
Cash and cash items $ 2,338 $ 2,516
Due from banks 39,141 19,850
Money market investments 11,200 -
-------------------- ---------------------
52,679 22,366
Debt and equity securities, net:
Held-to-maturity (estimated fair value of $2,014 and $2,026, respectively) 1,930 1,930
Available-for-sale 546,045 494,193
Mortgage-backed and mortgage related securities, net:
Held-to-maturity (estimated fair value of $168,164 and $200,445,
respectively) 168,014 200,193
Available-for-sale 1,812,552 1,856,633
-------------------- ---------------------
2,528,541 2,552,949
Loans held-for-sale, net 15,914 15,283
Loans receivable held for investment, net:
Real estate loans, net 1,069,883 973,634
Consumer 5,923 4,686
-------------------- ---------------------
1,075,806 978,320
Less allowance for possible loan losses (24,329) (24,029)
-------------------- ---------------------
1,051,477 954,291
Banking house and equipment, net 17,683 17,033
Accrued interest receivable 21,128 21,237
Mortgage servicing rights, net 9,409 9,155
Excess of cost over fair value of net assets acquired 2,788 2,906
Real estate owned, net 133 157
Other assets 6,636 5,702
-------------------- ---------------------
Total assets $ 3,706,388 $ 3,601,079
==================== =====================
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Liabilities:
Deposits:
Savings accounts $ 487,266 $ 468,928
Certificates of deposit 1,342,100 1,303,272
Money market accounts 46,952 49,344
Demand deposit accounts 130,122 120,701
-------------------- ---------------------
Total deposits 2,006,440 1,942,245
-------------------- ---------------------
Official checks outstanding 1,219 1,199
Borrowed funds:
Reverse-repurchase agreements 973,270 965,119
Other borrowings 1,822 1,332
Accrued dividends and interest on deposits 8,672 10,375
Mortgagors' escrow and security deposits 30,149 20,222
Accrued taxes payable 14,457 9,478
Deferred tax liability, net 103 1,742
Accrued expenses and other liabilities 48,986 21,032
-------------------- ---------------------
Total liabilities 3,085,118 2,972,744
-------------------- ---------------------
Stockholders' equity:
Preferred stock, $0.01 par value, 10,000,000 shares authorized; none issued - -
Common stock, $0.01 par value, 100,000,000 shares authorized; 43,642,459
shares issued; 42,822,459 and 43,642,459 shares outstanding, respectively 436 436
Additional paid-in-capital 423,598 423,411
Retained earnings - substantially restricted 271,188 261,120
Accumulated other comprehensive income:
Net unrealized gain on securities available-for-sale, net of tax 31,718 32,891
Unallocated common stock held by Employee Stock Ownership Plan (ESOP) (51,563) (52,012)
Unearned common stock held by Stock-Based Incentive Plan (SBIP) (35,802) (37,511)
Treasury stock, at cost (820,000 shares at March 31, 1998) (18,305) -
-------------------- ---------------------
Total stockholders' equity 621,270 628,335
-------------------- ---------------------
Total liabilities and stockholders' equity $ 3,706,388 $ 3,601,079
==================== =====================
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
1
<PAGE>
ROSLYN BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
FOR THE
THREE MONTHS ENDED
MARCH 31,
----------------------------------------------
1998 1997
------------------ ------------------
<S> <C> <C>
Interest income:
Federal funds sold and short-term deposits $ 646 $ 2,918
Debt and equity securities 7,437 8,264
Mortgage-backed and mortgage related securities 35,096 27,127
Real estate loans 20,742 11,668
Consumer and student loans 157 73
------------------ ------------------
Total interest income 64,078 50,050
------------------ ------------------
Interest expense:
Deposits 23,790 21,690
Borrowed funds 13,737 3,725
------------------ ------------------
Total interest expense 37,527 25,415
------------------ ------------------
Net interest income before provision for possible loan losses 26,551 24,635
Provision for possible loan losses 300 150
------------------ ------------------
Net interest income after provision for possible loan losses 26,251 24,485
------------------ ------------------
Non-interest income:
Loan servicing and fee income 2,223 1,726
Net gains on sales of loans 146 673
Net gains on securities 2,665 349
Real estate operations, net 282 56
Other non-interest income 248 42
------------------ ------------------
Total non-interest income 5,564 2,846
------------------ ------------------
Non-interest expense:
General and administrative expenses:
Compensation and employee benefits 8,018 6,809
Occupancy and equipment 995 829
Deposit insurance premiums 7 158
Advertising and promotion 720 599
Other non-interest expenses 1,902 3,113
------------------ ------------------
Total general and administrative expenses 11,642 11,508
Amortization of excess of cost over fair value of net
assets acquired 117 117
Charitable contribution to The Roslyn Savings Foundation - 12,711
------------------ ------------------
Total non-interest expense 11,759 24,336
------------------ ------------------
Income before income taxes 20,056 2,995
Provision for income taxes 6,729 531
------------------ ------------------
Net income $ 13,327 $ 2,464
================== ==================
Basic and diluted earnings per share $ 0.34 $ 0.06
================== ==================
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
2
<PAGE>
ROSLYN BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
(UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
Retained Accumulated
Additional Earnings- Other
Common Paid-in- Substantially Comprehensive
Stock Capital Restricted Income
---------- ------------- ------------- ----------------
<S> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1997 $ 436 $ 423,411 $ 261,120 $ 32,891
Comprehensive income (1):
Net income - - 13,327 -
Other comprehensive income, net of tax - - - -
Net unrealized loss on certain
securities, net of reclassification
adjustment - - - (1,173)
Comprehensive income - - - -
Allocation from shares purchased with
loan to ESOP - 187 - -
Amortization of SBIP stock awards - - (78) -
Cash dividends declared on common stock - - (3,181) -
Common stock repurchased
(820,000 shares) - - - -
----------- ------------- -------------- -----------------
BALANCE AT MARCH 31, 1998 $ 436 $ 423,598 $ 271,188 $ 31,718
=========== ============= ============== =================
<CAPTION>
Unallocated Unearned
Common Common
Stock Stock Treasury
Held by Held by Stock,
ESOP SBIP at Cost Total
------------ ----------- ------------ ------------
<S> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1997 $ (52,012) $ (37,511) $ - $ 628,335
Comprehensive income (1):
Net income - - - 13,327
Other comprehensive income, net of tax - - - -
Net unrealized loss on certain
securities, net of reclassification
adjustment - - - (1,173)
------------
Comprehensive income - - - 12,154
------------
Allocation from shares purchased with
loan to ESOP 449 - - 636
Amortization of SBIP stock awards - 1,709 - 1,631
Cash dividends declared on common stock - - - (3,181)
Common stock repurchased
(820,000 shares) - - (18,305) (18,305)
------------- ------------- ------------- -------------
BALANCE AT MARCH 31, 1998 $ (51,563) $ (35,802) $ (18,305) $ 621,270
============= ============= ============= =============
</TABLE>
(1) The following table shows the comprehensive income for the quarter ended
March 31, 1997:
Comprehensive income:
Net income 2,464
Other comprehensive income, net of tax -
Net unrealized loss on certain securities,
net of reclassification adjustment (7,171)
------
Comprehensive loss (4,707)
======
See accompanying notes to unaudited consolidated financial statements.
3
<PAGE>
ROSLYN BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED
MARCH 31,
-------------------------------------------
1998 1997
------------------ ------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 13,327 $ 2,464
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 300 150
Provision for possible losses on real estate owned (150) -
Originated mortgage servicing rights, net of amortization (254) (101)
Amortization of excess of cost over fair value of net assets acquired 117 117
Depreciation and amortization 405 380
Accretion of discounts, net of amortization of premiums (4,356) (480)
Amortization of premium on callable preferred stock 175 83
ESOP expense 573 474
SBIP expense 1,612 -
Proceeds from sales of loans held for sale, net of originations and purchases (526) 5,569
Gains on sales of loans (146) (673)
Net gains on securities (2,665) (349)
Net gains on sales of real estate owned (186) (134)
Increase in deferred income taxes (766) (621)
Changes in assets and liabilities:
Decrease (increase) in accrued interest receivable 109 (1,045)
(Increase) decrease in other assets (934) 3,327
Increase in official checks outstanding 20 -
(Decrease) increase in accrued dividends and interest on deposits (1,703) 121
Increase (decrease) in accrued taxes payable 4,979 (3,223)
Increase in accrued expense and other liabilities 28,135 9,075
Net (decrease) increase in unearned income (790) 1,072
Other, net 76 -
------------------ ------------------
Net cash provided by operating activities 37,352 28,917
------------------ ------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from repayments of mortgage-backed and mortgage related securities
held-to-maturity 32,266 16,866
Proceeds from sales and repayments of debt, equity, mortgage-backed and mortgage
related securities available-for-sale 720,122 90,695
Purchases of debt, equity, mortgage-backed and mortgage related securities
available-for-sale (723,181) (281,094)
Loan originations and purchases, net of principal repayments (96,828) (132,756)
Purchases of banking house and equipment, net (1,055) (281)
Proceeds from sales of real estate owned 360 977
------------------ ------------------
Net cash used in investing activities (68,316) (305,593)
------------------ ------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase (decrease) in demand deposit, money market, and savings accounts 25,367 (258,927)
Increase in certificates of deposit 38,828 27,184
Increase in borrowed funds 8,641 443,310
Increase in mortgagors' escrow and security deposits 9,927 5,521
Net proceeds of common stock issuance - 410,650
Loan to ESOP for open market purchase of common stock - (53,805)
Cash dividends paid on common stock (3,181) -
Costs to repurchase common stock (18,305) -
Decrease in non-depository stock subscriptions - (1,356,911)
------------------ ------------------
Net cash provided (used) by financing activities 61,277 (782,978)
------------------ ------------------
Net increase (decrease) in cash and cash equivalents 30,313 (1,059,654)
Cash and cash equivalents at beginning of period 22,366 1,126,310
------------------ ------------------
Cash and cash equivalents at end of period $ 52,679 $ 66,656
================== ==================
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest on deposits and borrowed funds $ 39,230 $ 25,294
================== ==================
Income taxes $ 2,359 $ 3,880
================== ==================
Non-cash investing activities:
Additions to real estate owned, net $ - $ 12
================== ==================
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
4
<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") and its direct wholly-owned
subsidiary The Roslyn Savings Bank and subsidiaries (the "Bank").
The unaudited consolidated financial statements included herein reflect all
normal recurring adjustments which, in the opinion of management, are necessary
to present a fair statement of the results for the interim periods presented.
The results of operations for the three months ended March 31, 1998 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 1997 Annual Report on Form 10-K.
2. EARNINGS PER SHARE
The Company adopted Statement of Financial Accounting Standard ("SFAS") No. 128,
"Earnings Per Share," effective December 15, 1997. This statement establishes
standards for computing and presenting earnings per share ("EPS") for entities
with publicly held common stock or potential common stock. The statement
simplifies the computations of EPS that were previously found in APB Opinion No.
15, "Earnings Per Share", and replaces primary EPS with basic EPS and fully
diluted EPS with diluted EPS. 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 or resulted in the issuance of common
stock that then shared in the earnings of the entity. This statement requires a
reconciliation of the numerator and denominator of the two EPS calculations and
the restatement of all prior period EPS data presented after adoption.
3. CONVERSION TO STOCK FORM OF OWNERSHIP
On May 29, 1996, the then 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 capital stock savings bank with the concurrent
formation of a holding company, Roslyn Bancorp, Inc. (the "Conversion").
5
<PAGE>
On January 10, 1997, the Company issued 42,371,359 shares of its common stock,
at a price of $10.00 per share, in an initial public offering. The Company
received gross proceeds from the Conversion of $423.7 million, before the
reduction from gross proceeds of $13.1 million for 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 the Company's common stock were contributed
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 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, through a $53.8 million loan from the Company and an initial $1.0
million contribution from the Bank, approximately 8% of the outstanding shares
of the Company's common stock, or 3,491,397 shares, 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
market value of the underlying shares during the period. For the three months
ended March 31, 1998 and 1997, compensation expense attributable to the ESOP was
approximately $573,000 and $474,000, respectively.
5. STOCK BASED INCENTIVE PLAN
The Roslyn Bancorp, Inc. 1997 Stock-Based Incentive Plan ("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 the Company's common stock under the
Incentive Plan is 6,108,444 shares. 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, and will primarily vest
over a five year period and which must be exercised no more than ten years from
the date of grant. The maximum number of the shares reserved for the award of
shares of common stock is 1,744,198
6
<PAGE>
shares, and will primarily vest over a five year period. 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
the Awards under the Incentive Plan. Each option and award may become 100%
exercisable/granted upon the occurrence of a change in control of the Company,
or upon death, disability or retirement of the optionee.
The Bank contributed $41.4 million, during the third quarter of 1997, to the
Incentive Plan to enable the Incentive Plan to purchase the 1,744,198 shares of
the Company's common stock to be awarded. This contribution represents deferred
compensation which is initially recorded as a reduction to stockholders' equity
and ratably charged to compensation expense over the vesting period of the
awards. The Committee established September 2, 1997 as the Incentive Plan's
effective grant date and 1,512,507 shares, reserved as noted above, were awarded
to outside directors, officers and employees of the Bank. During the quarter
ended March 31, 1998, the Company granted stock awards of 81,409 shares, with
prices ranging from $21.69 to $22.00 per share, and 16,597 shares were
forfeited. The total outstanding stock awards amounted to 1,577,319 shares at
March 31, 1998. Upon the achievement of certain defined performance targets,
148,900 of the aforementioned shares will vest. For the three months ended
March 31, 1998, compensation expense attributable to the Incentive Plan was
approximately $1.6 million.
Options granted under this plan are either non-statutory stock options or
incentive stock options. Each option entitles the holder to purchase one share
of the Company's common stock at an exercise price equal to the fair market
value on the date of grant. There was no compensation expense attributable to
the options as the Company used the intrinsic value based method of accounting
as the exercise price equaled the stock price at the grant date. During the
quarter ended March 31, 1998, the Company granted stock options of 403,000
shares, with exercise prices ranging from $20.31 to $23.00 per share, and
108,555 options were forfeited. The total number of outstanding stock options
were 4,173,951 at March 31, 1998.
6. RECENT ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board ("FASB") issued SFAS No.
130, "Reporting Comprehensive Income," which established standards for the
reporting and displaying of comprehensive income and its components in a full
set of comparative general purpose financial statements. The Company adopted
the provisions of SFAS No. 130 during the quarter ended March 31, 1998 to give
effect to this pronouncement. Under existing accounting standards, other
comprehensive income is separately classified into foreign currency items,
minimum pension liability adjustments and unrealized gains and losses on
available-for-sale securities. Only the last of these items, however, is
currently applicable to the Company. Comprehensive income is reported by the
Company in the Consolidated Statements of Changes in Stockholders' Equity.
The FASB also issued in June 1997, SFAS No. 131, "Disclosures about Segments of
an Enterprise and Related Information," which established standards for the way
public business
7
<PAGE>
enterprises, including the Company, are to report information about operating
segments in annual reporting and selected information about operating segments
in interim reporting. This statement also established standards for related
disclosures about products, services, geographic areas and major customers. SFAS
No. 131 is effective for annual reporting periods beginning after December 15,
1997 and requires interim periods to be presented in the second year of
application. SFAS No. 131 is limited to additional disclosures and, accordingly,
the adoption of this statement will not have an impact on the Company's
financial condition or results of operations.
In February 1998, the FASB issued SFAS No. 132, "Employer's Disclosures about
Pensions and Other Postretirement Benefits" an amendment of FASB Statements No.
87, 88, and 106. This statement revises employer's disclosures about pension
and other postretirement benefit plans. It does not change the measurement or
recognition of those plans. It standardizes the disclosure requirements for
pensions and other postretirement benefits to the extent practicable, requires
additional information on changes in the benefit obligations and fair values of
plan assets that will facilitate financial analysis, and eliminates certain
disclosures that are no longer as useful as they were when FASB Statements No.
87, "Employer's Accounting for Pensions," No. 88, "Employers' Accounting for
Settlements and Curtailments of Defined Benefit Pension Plans and for
Termination Benefits," and No. 106, "Employer's Accounting for Postretirement
Benefits Other Than Pensions," were issued. The statement suggests combined
formats for presentation of pension and other postretirement benefit
disclosures. The statement also permits reduced disclosures for nonpublic
entities.
This statement is effective for fiscal years beginning after December 15, 1997.
Earlier application is encouraged. Restatement of disclosures for earlier
periods provided for comparative purposes is required unless the information is
not readily available, in which case the notes to the financial statements
should include all available information and a description of the information
not available. SFAS No. 132 is limited to additional disclosures and,
accordingly, the adoption of this statement will not have an impact on the
Company's financial condition or results of operations.
7. RECENT DEVELOPMENTS
On January 13, 1998, the Company announced that its Board of Directors approved
the Company's initial stock repurchase plan. The plan authorizes the purchase
of approximately 2.2 million shares, or 5% of the outstanding shares, over the
next year. The repurchases will be made from time to time in open market or
negotiated transactions, at the discretion of management.
Additionally, on April 28, 1998, the Company announced that the Superintendent
of Banks of the State of New York granted the Company permission to purchase an
additional approximate 2.2 million shares, or 5% of outstanding shares, over the
same period. The Company, therefore, has the ability to repurchase up to 10% of
outstanding as of January 13, 1998 for a period not to exceed one year from that
date. As of March 31, 1998, the Company has repurchased 820,000 shares under
the stock repurchase program.
8
<PAGE>
On February 19, 1998, the Company announced that its Board of Directors declared
a quarterly dividend of eight cents ($0.08) per common share. The dividend was
paid on March 12, 1998 to shareholders of record as of March 2, 1998.
During April 1998, the Company announced the Roslyn Bancorp, Inc. Dividend
Reinvestment and Stock Purchase Plan (the "Plan"). The Plan is administered by
Registrar and Transfer Company (the "Plan Administrator"). The Plan provides
stockholders that hold at least 25 shares in registered stock on the books of
the Company with the ability to reinvest cash dividends paid on shares of common
stock of the Company in additional shares.
The Company will pay all brokerage commissions relating to the reinvestment of
dividends and the purchase of shares with additional cash contributions.
Administrative costs of the Plan relating to the investment of dividends will
also be paid by the Company. A $2.50 transaction fee will be deducted by the
Plan Administrator for each cash purchase. A $5.00 transaction fee is charged
for the deposit of certificates and a $10.00 fee is charged for the sale of
shares. Brokerage commissions for the sale of shares are paid by participants.
9
<PAGE>
8. 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 March 31, 1998 and December
31, 1997, respectively.
<TABLE>
<CAPTION>
MARCH 31, 1998 DECEMBER 31, 1997
------------------------------- ------------------------------
ESTIMATED ESTIMATED
AMORTIZED FAIR AMORTIZED FAIR
COST VALUE COST VALUE
--------------- -------------- -------------- --------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Available-for-sale:
Debt securities:
United States Government - direct and
guaranteed $ 50,432 $ 52,536 $ 75,499 $ 77,975
United States Government agencies 127,739 127,830 125,097 125,481
Other 5,355 5,364 5,365 5,385
--------------- -------------- -------------- --------------
Total debt securities 183,526 185,730 205,961 208,841
--------------- -------------- -------------- --------------
Equity securities:
Preferred and common stock 261,489 297,630 243,864 274,253
Other 60,101 62,685 9,720 11,099
--------------- -------------- -------------- --------------
Total equity securities 321,590 360,315 253,584 285,352
--------------- -------------- -------------- --------------
Mortgage-backed and mortgage
related securities, net:
GNMA pass-through securities 12,504 13,794 14,291 15,711
FHLMC pass-through securities 89,170 90,200 250,206 253,153
GNMA adjustable rate mortgage
pass-through securities 436,896 445,216 442,037 449,260
Whole loan private collateralized
mortgage obligations 839,941 842,621 640,467 645,316
Agency collateralized mortgage
obligations 419,595 420,721 486,860 493,193
--------------- -------------- -------------- --------------
Total mortgage-backed and mortgage
related securities, net 1,798,106 1,812,552 1,833,861 1,856,633
--------------- -------------- -------------- --------------
Total securities available-for-sale $ 2,303,222 $ 2,358,597 $ 2,293,406 $ 2,350,826
=============== ============== ============== ==============
Held-to-maturity, net:
Debt securities:
State, county and municipal $ 1,930 $ 2,014 $ 1,930 $ 2,026
Mortgaged-backed and mortgage related
securities:
Whole loan private collateralized mortgage
obligations 168,014 168,164 200,193 200,445
--------------- -------------- -------------- --------------
Total securities held-to-maturity, net $ 169,944 $ 170,178 $ 202,123 $ 202,471
=============== ============== ============== ==============
</TABLE>
10
<PAGE>
9. LOANS RECEIVABLE, NET
Loans receivable, net at March 31, 1998 and December 31, 1997 consist of
the following:
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1998 1997
--------------- --------------
(IN THOUSANDS)
<S> <C> <C>
Real estate loans:
One- to four-family $ 697,458 $ 633,957
Multi-family 42,629 44,006
Commercial real estate 271,639 248,607
Construction and development 60,844 52,269
Home equity and second mortgage 20,309 16,974
Consumer 5,923 4,686
Student 560 1,296
--------------- --------------
Gross loans 1,099,362 1,001,795
Less:
Unamortized discounts, net 5,714 5,974
Deferred loan fees 1,177 1,522
Deferred mortgage interest 751 696
Allowance for possible loan losses 24,329 24,029
--------------- --------------
Total loans, net 1,067,391 969,574
Less:
Loans held-for-sale, net
One- to four-family, net 15,354 13,987
Student 560 1,296
--------------- --------------
Loans receivable held for
investment, net $ 1,051,477 $ 954,291
=============== ==============
</TABLE>
11
<PAGE>
10. ASSET QUALITY
The following table sets forth information regarding non-accrual loans, at the
dates indicated and real estate owned. It is the Bank's general policy to
discontinue accruing interest on all loans which are 90 days or more past due,
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.
<TABLE>
<CAPTION>
AT MARCH 31, AT DECEMBER 31,
1998 1997
---------------- -----------------
(IN THOUSANDS)
<S> <C> <C>
Non-performing loans:
One- to four-family $ 3,704 $ 3,676
Commercial real estate 5,274 2,723
Home equity 62 62
Consumer loans 22 19
---------------- -----------------
Total non-performing loans 9,062 6,480
Real estate owned, net (1) 133 157
---------------- -----------------
Total non-performing assets $ 9,195 $ 6,637
================ =================
Allowance for possible loan losses as a percent of loans (2) 2.26% 2.46%
Allowance for possible loan losses as a percent of total
non-performing loans 268.47% 370.82%
Non-performing loans as a percent of loans (2) 0.84% 0.66%
Non-performing assets as a percent of total assets 0.25% 0.18%
</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.
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 and its subsidiaries (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 March 31, 1998 were $3.71 billion, an increase of $105.3
million, or 2.9%, from $3.60 billion at December 31, 1997, primarily due to
increases in both the mortgage loan and debt and equity securities available-
for-sale portfolios. Loans, net of unearned income, increased $98.1 million, or
9.9%, to $1.09 billion at March 31, 1998 compared to $993.6 million at December
31, 1997. The increase in loans, net of unearned income, is primarily due to a
substantial increase in loan originations during the first quarter of 1998. Loan
originations increased 83.4% to $209.1 million for the first quarter in 1998, as
compared to $114.0 million during the first quarter of 1997. Debt and equity
securities available-for-sale increased $51.9 million, or 10.5%, from $494.2
million at December 31, 1997, to $546.0 million at March 31, 1998. These
increases were partially offset by a $76.3 million decrease in mortgage-backed
and mortgage related securities from $2.06 billion at December 31, 1997 to $1.98
billion at March 31, 1998. These overall increases were primarily funded
through deposit growth, cash flows and the Company's leveraging strategy.
Total liabilities at March 31, 1998 were $3.09 billion, an increase of $112.4
million, or 3.8%, from $2.97 billion at December 31, 1997. The overall increase
in total liabilities is principally due to a $64.2 million increase in total
deposits from $1.94 billion at December 31, 1997 to $2.01 billion at March 31,
1998. The increase in total deposits is primarily the result of the continued
growth in certificates of deposits and savings accounts. Borrowing remained
relatively consistent at $975.1 million at March 31, 1998 as compared to $966.5
million for the prior year-end.
Total stockholders' equity decreased $7.0 million to $621.3 million at March 31,
1998 from $628.3 million at December 31, 1997. The decrease is primarily due to
the repurchase of 820,000 shares of the Company's common stock at an average per
share price of $22.32. Also contributing to the decrease was a $1.2 million
decrease in net unrealized gain on securities available-for-sale, net of tax,
and dividends paid of $3.2 million. These decreases were partially offset by
quarterly earnings of $13.3 million and the amortization of unallocated and
unearned shares of common stock held by the Company's stock related benefit
plans.
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 months ended March 31, 1998 and 1997, 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-
13
<PAGE>
earning assets or interest-bearing liabilities, respectively. Average balances
are derived from average daily balances. Average balances and yields include
non-accrual loans.
<TABLE>
<CAPTION>
Three Months Ended March 31,
---------------------------------------------------------------------------
1998 1997
------------------------------------- -----------------------------------
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 short-term deposits. $ 47,911 $ 646 5.39 % $ 215,979 $ 2,918 5.40 %
Debt and equity securities................. 523,897 7,437 5.68 489,774 8,264 6.75
Mortgage-backed and mortgage
related securities....................... 1,954,242 35,096 7.18 1,527,810 27,127 7.10
Real estate loans, net..................... 990,046 20,742 8.38 530,579 11,668 8.80
Consumer and student loans................. 7,058 157 8.90 3,544 73 8.24
----------- ---------- ---------- ----------
Total interest-earning assets....... 3,523,154 64,078 7.28 2,767,686 50,050 7.23
---------- ----------
Non-interest-earning assets................... 70,448 119,468
----------- ----------
Total assets.................................. $ 3,593,602 $ 2,887,154
=========== ==========
Liabilities and Stockholders' Equity:
Interest-bearing liabilities:
Money market accounts...................... $ 48,194 288 2.39 $ 59,606 408 2.74
Savings accounts........................... 496,800 3,834 3.09 466,373 3,544 3.04
NOW and Super NOW accounts................. 86,804 761 3.51 71,048 588 3.31
Certificates of deposit.................... 1,325,214 18,907 5.71 1,128,507 15,809 5.60
----------- ---------- ---------- ----------
Total deposits...................... 1,957,012 23,790 4.86 1,725,534 20,349 4.72
Borrowed funds............................. 927,174 13,737 5.93 269,207 3,725 5.53
Non-depository stock subscriptions......... - - - 211,612 1,341 2.53
----------- ---------- ---------- ----------
Total interest-bearing liabilities.. 2,884,186 37,527 5.20 2,206,353 25,415 4.61
---------- ----------
Non-interest-bearing liabilities.............. 87,750 107,931
----------- ----------
Total liabilities............................. 2,971,936 2,314,284
Stockholders' equity.......................... 621,666 572,870
----------- ----------
Total liabilities and stockholders' equity.... $ 3,593,602 $ 2,887,154
=========== ==========
Net interest income/net interest rate spread.. $ 26,551 2.08 % $ 24,635 2.62 %
========== ======== ========== ========
Net interest margin........................... 3.01 % 3.56 %
======== ========
Ratio of interest-earning assets to
interest-bearing liabilities................ 122.15 % 125.44 %
======== ========
</TABLE>
14
<PAGE>
Comparison of Operating Results for the Three Months Ended March 31, 1998
and 1997
General
The Company reported net income of $13.3 million, or $0.34 per share, for the
quarter ended March 31, 1998, as compared to net income of $2.5 million, or
$0.06 per share, for the comparable prior year period. Net income for the
quarter ended March 31, 1997 included a non-recurring after-tax charge of $7.4
million relating to the funding of the Foundation.
Interest Income
Interest income for the quarter ended March 31, 1998 increased $14.0 million, or
28.0%, to $64.1 million over the prior year quarter. The increase was primarily
the result of a $755.5 million, or 27.3%, increase in average interest-earning
assets to $3.52 billion for the quarter ended March 31, 1998, as compared to the
first quarter of 1997, supported with a corresponding increase in the average
yield to 7.28% from 7.23%. The increase in average interest-earning assets was
principally attributable to growth of $426.4 million in average mortgage-backed
and mortgage related securities and $459.5 million in average real estate loans,
net. This growth was primarily funded by increased deposits, borrowings and
cash flows. The increase in interest income was partially offset by a $2.3
million decrease in interest income on federal funds sold and short term
deposits from $2.9 million for the quarter ended March 31, 1997 to $646,000 for
the quarter ended March 31, 1998. The decrease was primarily the result of a
$168.1 million, or 77.8%, decrease in average federal funds sold and short-term
deposits to $47.9 million for the quarter ended March 31, 1998, as compared to
$216.0 million for the first quarter of 1997, due to the Company's short term
liquidity position maintained prior to the Conversion on January 10, 1997.
Interest income on real estate loans increased $9.1 million, or 77.8%, to $20.7
million for the three months ended March 31, 1998, from $11.7 million for the
same period in 1997. 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. The
increase was partially offset by a 42 basis point decrease in the average yield
on real estate loans from 8.80% for the three months ended March 31, 1997 to
8.38% for the same period in 1998, principally due to an increased concentration
of lower yielding one- to four-family real estate loans within the loan
portfolio mix.
Interest Expense
Interest expense for the three months ended March 31, 1998, was $37.5 million,
compared to $25.4 million for the three months ended March 31, 1997, an increase
of $12.1 million, or 47.7%. The increase in interest expense is related to a
$677.8 million, or 30.7%, increase in the average balance of interest-bearing
liabilities from $2.21 billion for the quarter ended March 31, 1997 to $2.88
billion for the quarter ended March 31, 1998. This increase reflects a $231.5
million increase in the average balance of interest-bearing deposits and a
$658.0 million increase in the average balance of borrowed funds for the quarter
ended March 31, 1998, as compared to the prior year quarter. The increase in
total deposits is primarily due to an 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 $150.0 million of
brokered deposits of which $50.0 million were acquired during the quarter ended
September 30, 1997 and $100.0 million during the third and fourth quarters of
1996. As of March 31, 1998, $149.7 million of brokered deposits remained
outstanding. The effect of the higher certificates of deposit average balance
in addition to a 11 basis point increase in the average cost resulted in an
increase of $3.1 million in interest expense on certificates of deposit for the
quarter ended March 31, 1998 as compared to the same quarter in 1997.
The average balance of borrowed funds increased $658.0 million from $269.2
million for the three months ended March 31, 1997 to $927.2 million for the
three months ended March 31, 1998. This increase, in addition to a 40 basis
point increase in the average cost, resulted in a $10.0 million increase in
interest expense on borrowed funds, from
15
<PAGE>
$3.7 million for the quarter ended March 31, 1997 to $13.7 million for the
quarter ended March 31, 1998. The increase in borrowings, principally reverse
repurchase agreements, are part of the Company's wholesale leverage strategy to
improve its return on invested capital subsequent to the Conversion.
The proceeds from the increase in certificates of deposit and borrowings were
reinvested in real estate loans, and investment securities, and, to a lesser
extent, fund the treasury stock repurchase program.
Net Interest Income
Net interest income before provision for possible loan losses was $26.6 million
for the three months ended March 31, 1998 as compared to $24.6 million for the
three months ended March 31, 1997, an increase of $2.0 million, or 7.8%. The
increase in net interest income before provision for possible loan losses was
attributable to a $755.5 million, or 27.3%, increase in average interest-earning
assets to $3.52 billion for the quarter ended March 31, 1998 from $2.77 billion
for the quarter ended March 31, 1997. The growth in average interest-earning
assets is primarily attributable to increases of $426.4 million and $459.5
million, respectively, in the average balance of mortgage-backed and mortgage
related securities and the real estate loan portfolios, partially offset by a
decrease of $168.1 million in average federal funds sold and short-term
deposits. This growth was primarily funded by increased deposits, borrowings
and cash flows. Interest-bearing liabilities increased $677.8 million, or
30.7%, to $2.88 billion for the 1998 period from $2.21 billion for the 1997
period. The net interest margin and spread for the quarter ended March 31,
1998, decreased to 3.01% and 2.08%, respectively, from 3.56% and 2.62%,
respectively, for the prior year quarter due to the increase in both the average
balances and rates paid on borrowed funds and certificates of deposit, the
proceeds of which were used to fund loan originations, invest in mortgage-backed
and mortgage related securities, and, to a lesser extent, fund share purchases
for the treasury stock repurchase program.
Provision for Possible Loan Losses
The provision for possible loan losses totaled $300,000 for the three months
ended March 31, 1998 as compared to $150,000 for the three months ended March
31, 1997. The provision for possible loan losses for the three months ended
March 31, 1998 reflects management's qualitative assessment of the loan
portfolio, net charge-offs and collection of delinquent loans. The increase
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 March 31, 1998 and December 31, 1997, the
allowance for possible loan losses amounted to $24.3 million and $24.0 million,
respectively, and the ratio of such allowance to non-performing loans was
268.47% at March 31, 1998 as compared to 370.82% at December 31, 1997.
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,
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.
16
<PAGE>
Non-Interest Income
Non-interest income increased $2.8 million, or 95.5%, to $5.6 million for the
quarter ended March 31, 1998 as compared to $2.8 million for the same period in
the prior year. The increase was a result of a $2.3 million increase in net
gains on sales of securities and a $497,000 increase in loan servicing and fee
income, which was partially offset by a $527,000 decrease in net gains on the
sales of loans. The increase in net gains on securities is due to management's
investment strategy of periodically recognizing profits from its available-for-
sale securities portfolio during favorable market conditions. The increase in
loan servicing and fee income is primarily due to an increased level of loan
production resulting in increased loan sales and servicing fee income. These
increases were partially offset by the decrease in net gains on sales of loans
which were primarily attributable to unfavorable market conditions in the
secondary market.
Non-Interest Expense
Non-interest expense totaled $11.8 million for the quarter ended March 31, 1998
as compared to $24.3 million for the quarter ended March 31, 1997, a decrease of
$12.5 million, or 51.7%. The decrease is primarily the result of the one-time
$12.7 million charge associated with funding the Foundation in the 1997 period.
Excluding the effect of funding the Foundation, non-interest expense increased
$134,000, or 1.2%, to $11.8 million for the three months ended March 31, 1998 as
compared to $11.6 million for the same period in 1997. Excluding the effect of
funding the Foundation, the increase in non-interest expense was primarily
attributable to an increase in compensation and employee benefits of $1.2
million, including the Company's ESOP and Stock-Based Incentive Plan ("SBIP"),
offset by a decrease of $1.2 million in other non-interest expenses principally
relating to a reduction in professional fees.
Income Taxes
Total income tax expense increased $6.2 million, from $531,000 recorded during
the quarter ended March 31, 1997 to $6.7 million during the quarter ended March
31, 1998. The increase is primarily attributable to the increase in income
before income taxes, due in part to the one-time charitable donation made by the
Company to the Foundation in the first quarter of 1997. The Company's
contribution of common stock to the Foundation is tax deductible, subject to a
limitation based on 10% of the Company's annual taxable income. The Company,
however, is able to carry forward any unused portion of the deduction for five
years following the year in which the contribution was made. Based on the
Company's estimate of annual taxable income during the carry forward period (the
five years following the time of contribution), the Company recognized a tax
benefit of $5.3 million on the $12.7 million charitable donation during the
first quarter of 1997.
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
securities, dividends received on equity securities, and to a lesser extent,
proceeds from the sale of residential 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 Company are the origination of both one-
to four-family and commercial real estate loans and the purchase of mortgage-
backed and mortgage related and debt and equity securities. During the quarters
ended March 31, 1998 and 1997, the Bank originated loans in the amount of $209.1
million and $114.0 million, respectively. Purchases of mortgage-backed and
mortgage related and debt and equity securities totaled $723.2 million and
$281.1 million during the quarters ended March 31, 1998 and 1997, respectively.
These activities were funded primarily by principal repayments on loans and
mortgage-backed and mortgage related securities, deposit growth and by the
Company's increased borrowed funds position during the quarter ended March 31,
1998. Loan
17
<PAGE>
sales provided additional liquidity to the Company, totaling $57.7 million and
$49.3 million for the quarters ended March 31, 1998 and 1997, 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 Bank should require funds beyond its ability to generate them
internally, additional sources of funds are available through the use of
reverse-repurchase agreements. At March 31, 1998, the Company had $973.3
million in reverse-repurchase agreements outstanding, and at December 31, 1997
there were $965.1 million in 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.
At March 31, 1998 the Company had outstanding loan commitments to advance
approximately $255.2 million for mortgage loans, primarily all of which were
fixed-rate commercial and residential real estate loans. Management of the
Company anticipates that it will have sufficient funds available to meet its
current loan commitments. Certificates of deposit that are scheduled to mature
in one year or less from March 31, 1998 totaled $1.01 billion. Based upon prior
experience, and the Company's current pricing strategy, management believes that
a significant portion of such deposits will remain with the Company.
The Company'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.
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 March 31, 1998 the Bank exceeded
those requirements. The Bank's leverage capital ratio, Tier-1 risk-based
capital ratio and total-risk based capital ratio were 11.48%, 25.19% and 26.44%,
respectively.
Computer Issues for the Year 2000
Many existing computer programs use only two digits to identify a year in the
date field. These programs were designed without considering the impact of the
upcoming change in the century. If not corrected, many computer applications
could fail or create erroneous results by or at the year 2000. The Company
primarily utilizes a third party vendor and such vendor's proprietary software
to process its electronic data. The third party data processing vendor is
modifying, upgrading or replacing its computer software applications and systems
as necessary to permit correct recording of year dates for 2000 and later years.
The vendor has engaged a consultant to review its year 2000 issues and has
implemented a year 2000 compliance program. It has also initiated a compliance
testing program to ensure that all changes are adequately tested.
Roslyn National Mortgage Corp. ("RNMC"), the Bank's mortgage banking subsidiary
(formerly Residential First, Inc.), utilizes a combination of purchased and
contract based software, as well as the services of a third party vendor.
18
<PAGE>
RNMC is also in the process of assessing the impact of these products and
services on its internal processes, and has identified compliant alternatives
where necessary.
The Company does not expect that the cost of its year 2000 compliance program
will be material to its financial condition or results of operations and
believes that it will be able to satisfy such compliance program by the end of
1998 without any material disruption in its operations. Although the Company
has requested status information from its major suppliers and software vendors,
in the event that any significant vendor does not timely achieve year 2000
compliance, the Company's business or operations could be adversely affected.
19
<PAGE>
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
Quantitative and Qualitative Disclosure about Market Risk is presented at
December 31, 1997 in Exhibit 13.0 to the Company's Annual Report of Form 10-K,
filed with the Securities and Exchange Commission on March 31, 1998. There have
been no material changes in the Company's market risk at March 31, 1998 compared
to December 31, 1997. The following is an update of the discussion provided
therein:
General: The Company's largest component of market risk continues to be
interest rate risk. Virtually all of this risk continues to reside at the Bank
level. The Bank still is not subject to foreign currency exchange or commodity
price risk. At March 31, 1998, neither the Company nor the Bank owned any
trading assets, nor did they utilize hedging transactions such as interest rate
swaps and caps.
Assets, Deposit Liabilities and Wholesale Funds: There has been no material
change in the composition of assets, deposit liabilities and wholesale funds
from December 31, 1997 to March 31, 1998.
Gap Analysis: The matching of assets and liabilities may be analyzed by
examining the extent to which such assets and liabilities are "interest rate
sensitive" and by monitoring an institution's interest rate sensitivity "gap."
An asset or liability is said to be interest rate sensitive within a specific
time period if it will mature or reprice within that time period. The interest
rate sensitivity gap is defined as the difference between the amount of
interest-earning assets maturing or repricing within a specific time period and
the amount of interest-bearing liabilities maturing or repricing within that
same time period. At March 31, 1998, the Company's one-year gap position, the
difference between the amount of interest-earning assets maturing or repricing
within one year and interest-bearing liabilities maturing or repricing within
one year, was negative 6.57%. A gap is considered positive when the amount of
interest rate sensitive assets exceeds the amount of interest rate sensitive
liabilities. A gap is considered negative when the amount of interest rate
sensitive liabilities exceeds the amount of interest rate sensitive assets.
Accordingly, during a period of rising interest rates, an institution with a
negative gap position would be in a worse position to invest in higher yielding
assets which, consequently, may result in the cost of its interest-bearing
liabilities increasing at a rate faster than its yield on interest-earning
assets than if it had a positive gap. During a period of falling interest
rates, an institution with a negative gap would tend to have its interest-
bearing liabilities repricing downward at a faster rate than its interest-
earning assets as compared to an institution with a positive gap which,
consequently, may tend to positively affect the growth of its net interest
income. Given the Company's existing liquidity position and its ability to sell
securities from its available-for-sale portfolio, management of the Company
believes that its negative gap position will have no material adverse effect on
its liquidity position. If interest rates decrease, there will be a
corresponding effect on the Company's interest rate margin and corresponding
operating results.
The following table sets forth the amounts of interest-earning assets and
interest-bearing liabilities outstanding at March 31, 1998, which are
anticipated by the Company, based upon certain assumptions, to reprice or mature
in each of the future time periods shown (the Gap Table). Except as stated
below, the amount of assets and liabilities shown which reprice or mature during
a particular period were determined in accordance with the earlier of term to
repricing or the contractual maturity of the asset or liability. The table sets
forth an approximation of the projected repricing of assets and liabilities at
March 31, 1998, on the basis of contractual maturities, anticipated prepayments,
and scheduled rate adjustments within a one year period and subsequent annual
time intervals. Prepayment assumptions ranging from 7.68% to 35.34% per year
were applied to the real estate loan portfolio, dependent upon the loan type and
coupon. Mortgage-backed and mortgage related securities were assumed to prepay
at rates between 9.24% and 37.62% annually. Savings accounts were assumed to
decay at 21.19%, 4.99%, 4.99%, 4.99%, 4.99% and 58.86%, Super NOW and NOW
accounts and money market accounts were assumed to decay at 20.0%, 5.0%, 5.0%,
5.0%, 5.0% and 60.0%, for the periods of up to one year, one to two years, two
to three years, three to four years, four to five years, and over five years,
respectively. Prepayment and deposit decay rates can have a significant impact
on the Company's estimated gap. While the Company believes such assumptions to
be reasonable, there can be no assurance that assumed prepayment rates and decay
rates will approximate actual future loan prepayment and deposit withdrawal
activity.
20
<PAGE>
<TABLE>
<CAPTION>
At March 31, 1998
-----------------------------------------------------------
One Two Three
Up to to Two to Three to Four
One Year Years Years Years
------------ ------------ ------------ ------------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Interest-earning assets (1):
Federal funds sold $ 11,200 $ - $ - $ -
Debt and equity securities (2) 70,753 35,698 16,639 27,366
Mortgage-backed and
mortgage related securities (2) 1,035,418 385,388 194,442 111,343
Real estate loans, net (3) (4) 267,702 84,276 83,799 226,052
Consumer and student loans (4) 4,643 379 350 313
------------- ------------ ------------ ------------
Total interest-earning assets 1,389,716 505,741 295,230 365,074
Interest-bearing liabilities:
Money market savings
accounts 9,390 2,348 2,348 2,348
Savings accounts 103,266 24,304 24,304 24,304
Super NOW and NOW accounts 17,621 4,405 4,405 4,405
Certificates of deposit 1,011,117 140,217 63,973 62,389
Borrowed funds 491,653 348,439 105,000 30,000
------------- ------------ ------------ ------------
Total interest-bearing
liabilities 1,633,047 519,713 200,030 123,446
------------- ------------ ------------ ------------
Interest sensitivity gap (5) $ (243,331) $ (13,972) $ 95,200 $ 241,628
============= ============ ============ ============
Cumulative interest sensitivity gap $ (243,331) $ (257,303) $ (162,103) $ 79,525
============= ============ ============ ============
Cumulative interest sensitivity gap
as a percentage of total assets (6.57)% (6.94)% (4.37)% 2.15%
Cumulative interest-earning
assets as a percentage of
cumulative interest-bearing
liabilities 85.10% 88.05% 93.11% 103.21%
<CAPTION>
At March 31, 1998
--------------------------------------------------------
Four Over
to Five Five
Years Years Total
----------- ------------- -----------
(Dollars in thousands)
<S> <C> <C> <C>
Interest-earning assets (1):
Federal funds sold $ - $ - $ 11,200
Debt and equity securities (2) 8,466 389,053 547,975
Mortgage-backed and
mortgage related securities (2) 70,827 183,148 1,980,566
Real estate loans, net (3) (4) 74,870 339,499 1,076,198
Consumer and student loans (4) 74 701 6,460
----------- ---------- -----------
Total interest-earning assets 154,237 912,401 3,622,399
Interest-bearing liabilities:
Money market savings
accounts 2,348 28,170 46,952
Savings accounts 24,304 286,784 487,266
Super NOW and NOW accounts 4,405 52,863 88,104
Certificates of deposit 41,412 22,992 1,342,100
Borrowed funds - - 975,092
----------- ---------- -----------
Total interest-bearing
liabilities 72,469 390,809 2,939,514
----------- ---------- -----------
Interest sensitivity gap (5) $ 81,768 $ 521,592 $ 682,885
=========== ========== ===========
Cumulative interest sensitivity gap $ 161,293 $ 682,885
=========== ==========
Cumulative interest sensitivity gap 4.35% 18.42%
as a percentage of total assets
Cumulative interest-earning
assets as a percentage of
cumulative interest-bearing
liabilities 106.33% 123.23%
</TABLE>
(1) Interest-earning assets are included in the period in which the balances
are expected to be re-deployed and/or repriced as a result of anticipated
prepayments, scheduled rate adjustments, and contractual maturities.
(2) Debt and equity and mortgage-backed and mortgage related securities are
shown at their respective carrying values. Equity securities includes
callable preferred stock, the maturities of which have been assumed to be
the date on which they are initially callable.
(3) For the purposes of the gap analysis, the allowance for possible loan
losses and non-performing loans have been excluded.
(4) Loans held-for-sale are included in the "Up to One Year" category.
(5) Interest sensitivity gap represents the difference between net
interest-earning assets and interest-bearing liabilities.
21
<PAGE>
Certain shortcomings are inherent in the method of analysis presented in the
foregoing table. For example, although certain assets and liabilities may have
similar maturities or periods to repricing, they may react in different degrees
to changes in market interest rates. Also, the interest rates on certain types
of assets and liabilities may fluctuate in advance of changes in market interest
rates, while interest rates on other types may lag behind changes in market
rates. Additionally, certain assets, such as adjustable rate mortgage ("ARM")
loans, have features which limit adjustments to interest rates on a short-term
basis and over the life of the asset. Further, in the event of a change in
interest rates, prepayment and early withdrawal levels may deviate significantly
from those assumed in calculating the table. Finally, the ability of borrowers
to service their ARM loans may decrease in the event of an interest rate
increase. The table reflects the estimates of management as to periods to
repricing at particular points in time. Among the factors considered,
management monitors both current trends and its historical repricing experience
with respect to particular or similar products. For example, the Bank has a
number of deposit accounts, including passbook savings, Super NOW and NOW
accounts and money market accounts which, subject to certain regulatory
exceptions not relevant here, may be withdrawn at any time. The Bank, based
upon its historical experience, assumes that while all customers in these
account categories could withdraw their funds on any given day, they will not do
so, even if market interest rates were to change. As a result, different
assumptions may be used at different points in time.
Interest Rate Risk Compliance: The Company continues to monitor the impact of
interest rate volatility upon net interest income and net portfolio value in the
same manner as at December 31, 1997. There have been no changes in the board
approved limits of acceptable variance in net interest income and net portfolio
value at March 31, 1998 compared to December 31, 1997 and the projected changes
continue to fall within the board approved limits at all levels of potential
interest rate volatility.
22
<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 April 28, 1998, the Company held its annual meeting of
stockholders for the purpose of the election of Directors to three year terms
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
Joseph L. Mancino........................... 32,494,165 306,210
James E. Swiggett........................... 32,492,249 308,126
Robert G. Freese............................ 32,484,494 315,881
</TABLE>
The Directors whose terms continued and the years their terms expire are as
follows:
Thomas J. Calabrese, Jr. (2000); Dr. Edwin W. Martin, Jr. (2000); Richard C.
Webel (2000); Floyd N. York (1999); Victor C. McCuaig (1999); and John P.
Nicholson (1999).
<TABLE>
<CAPTION>
No. of No. of
No. of Votes Votes
Votes For Withheld Abstaining
------------- ------------ -------------
<S> <C> <C> <C>
2. Ratification of KPMG Peat Marwick LLP as the
Company's independent auditors..................... 32,486,610 147,690 166,075
</TABLE>
Item 5. Other Information
Not applicable
23
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
--------
3.1 Certificate of Incorporation of Roslyn Bancorp, Inc.*
3.2 Bylaws of Roslyn Bancorp, Inc.*
11.0 Statement re: Computation of Per Share Earnings
27.0 Financial Data Schedule**
(b) Reports on Form 8-K
-------------------
Not applicable
* Incorporated by reference from the Form S-1 (Registration No. 333-10471), as
amended, filed on August 20, 1996.
**Submitted only with filing in electronic format.
24
<PAGE>
Exhibit Index
-------------
<TABLE>
<CAPTION>
Page
----
<C> <S> <C>
11.0 Statement re: Computation of Per Share Earnings 27
27.0 Financial Data Schedule (submitted only with filing in electronic filing) -
</TABLE>
25
<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: May 14, 1998 By: /s/ Joseph L. Mancino
----------------- ------------------------------------------
Joseph L. Mancino
Chairman of the Board, President and
Chief Executive Officer
Date: May 14, 1998 By: /s/ Michael P. Puorro
----------------- ------------------------------------------
Michael P. Puorro
Treasurer and Chief Financial Officer
26
<PAGE>
Exhibit 11.0
Roslyn Bancorp, Inc. and Subsidiary
Statement Re: Computation of Per Share Earnings
(In thousands, except share and per share amounts)
<TABLE>
<CAPTION>
THREE MONTHS THREE MONTHS
ENDED ENDED
MARCH 31, MARCH 31,
1998 1997
---------------- -----------------
<S> <C> <C>
Net income $ 13,327 $ 2,464
---------------- -----------------
Weighted average common shares outstanding 39,676,868 40,708,683
---------------- -----------------
Basic earnings per common share $ 0.34 $ 0.06
================ =================
Weighted average common shares outstanding
Potential common stock due to dilutive effect of stock options 2,118 -
---------------- -----------------
Total shares for diluted earnings per share 36,678,986 40,708,683
---------------- -----------------
Diluted earnings per common share $ 0.34 $ 0.06
================ =================
</TABLE>
27
<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>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 41,479
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 11,200
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 2,358,597
<INVESTMENTS-CARRYING> 169,944
<INVESTMENTS-MARKET> 170,178
<LOANS> 1,091,720
<ALLOWANCE> 24,329
<TOTAL-ASSETS> 3,706,388
<DEPOSITS> 2,006,440
<SHORT-TERM> 217,610
<LIABILITIES-OTHER> 103,586
<LONG-TERM> 757,482
436
0
<COMMON> 0
<OTHER-SE> 620,834
<TOTAL-LIABILITIES-AND-EQUITY> 3,706,388
<INTEREST-LOAN> 20,899
<INTEREST-INVEST> 42,533
<INTEREST-OTHER> 646
<INTEREST-TOTAL> 64,078
<INTEREST-DEPOSIT> 23,790
<INTEREST-EXPENSE> 37,527
<INTEREST-INCOME-NET> 26,551
<LOAN-LOSSES> 300
<SECURITIES-GAINS> 2,665
<EXPENSE-OTHER> 11,642
<INCOME-PRETAX> 20,056
<INCOME-PRE-EXTRAORDINARY> 20,056
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 13,327
<EPS-PRIMARY> 0.34
<EPS-DILUTED> 0.34
<YIELD-ACTUAL> 7.28
<LOANS-NON> 9,062
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 878
<ALLOWANCE-OPEN> 24,029
<CHARGE-OFFS> 0
<RECOVERIES> 0
<ALLOWANCE-CLOSE> 24,329
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 24,329
</TABLE>
