<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1998
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 0-28886
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)
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 41,399,959 shares of Common Stock outstanding as of August 7,
1998.
<PAGE>
FORM 10-Q
ROSLYN BANCORP, INC. AND SUBSIDIARY
INDEX
<TABLE>
<CAPTION>
Page
Number
------
PART I - FINANCIAL INFORMATION
- ------------------------------
<S> <C>
ITEM 1. Financial Statements - Unaudited:
Consolidated Statements of Financial Condition at
June 30, 1998 and December 31, 1997 1
Consolidated Statements of Income for the three and six months ended
June 30, 1998 and 1997 2
Consolidated Statement of Changes in Stockholders' Equity
for the six months ended June 30, 1998 3
Consolidated Statements of Cash Flows
for the six months ended June 30, 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 23
PART II - OTHER INFORMATION
- ---------------------------
ITEM 1. Legal Proceedings 26
ITEM 2. Changes in Securities and Use of Proceeds 26
ITEM 3. Defaults Upon Senior Securities 26
ITEM 4. Submission of Matters to a Vote of Security Holders 26
ITEM 5. Other Information 26
ITEM 6. Exhibits and Reports on Form 8-K 27
Signature Page 29
</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 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>
June 30, 1998 December 31, 1997
-------------------- ---------------------
<S> <C> <C>
ASSETS
------
Cash and cash equivalents:
Cash and cash items $ 2,331 $ 2,516
Due from banks 26,393 19,850
Money market investments 58,500 -
------------------ --------------------
87,224 22,366
Debt and equity securities, net:
Held-to-maturity (estimated fair value of $1,735 and $2,026,
respectively) 1,735 1,930
Available-for-sale 630,981 494,193
Mortgage-backed and mortgage related securities, net:
Held-to-maturity (estimated fair value of $116,347 and $200,445,
respectively) 116,857 200,193
Available-for-sale 1,751,280 1,856,633
------------------ --------------------
2,500,853 2,552,949
Loans held-for-sale, net 41,551 15,283
Loans receivable held for investment, net:
Real estate loans, net 1,179,937 973,634
Consumer 6,371 4,686
------------------ --------------------
1,186,308 978,320
Less allowance for possible loan losses (24,629) (24,029)
------------------ --------------------
1,161,679 954,291
Banking house and equipment, net 17,825 17,033
Accrued interest receivable 21,582 21,237
Mortgage servicing rights, net 10,291 9,155
Excess of cost over fair value of net assets acquired 2,685 2,906
Real estate owned, net 277 157
Other assets 9,315 5,702
------------------ --------------------
Total assets $ 3,853,282 $ 3,601,079
================== ====================
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Liabilities:
Deposits:
Savings accounts $ 479,869 $ 468,928
Certificates of deposit 1,360,855 1,303,272
Money market accounts 64,486 49,344
Demand deposit accounts 129,160 120,701
------------------ -------------------
Total deposits 2,034,370 1,942,245
------------------ --------------------
Official checks outstanding 7,720 1,199
Borrowed funds:
Reverse-repurchase agreements 1,132,097 965,119
Other borrowings 77 1,332
Accrued dividends and interest on deposits 11,198 10,375
Mortgagors' escrow and security deposits 25,886 20,222
Accrued taxes payable 11,380 9,478
Deferred tax liability, net 1,760 1,742
Accrued expenses and other liabilities 34,396 21,032
------------------ --------------------
Total liabilities 3,258,884 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; 41,399,959 and 43,642,459 shares outstanding, respectively 436 436
Additional paid-in-capital 424,237 423,411
Retained earnings - substantially restricted 280,228 261,120
Accumulated other comprehensive income:
Net unrealized gain on securities available-for-sale, net of tax 33,227 32,891
Unallocated common stock held by Employee Stock Ownership Plan ("ESOP") (51,115) (52,012)
Unearned common stock held by Stock-Based Incentive Plan ("SBIP") (34,444) (37,511)
Treasury stock, at cost (2,242,500 shares at June 30, 1998) (58,171) -
------------------ --------------------
Total stockholders' equity 594,398 628,335
------------------ --------------------
Total liabilities and stockholders' equity $ 3,853,282 $ 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 For the Six Months Ended
June 30, June 30,
----------------------------------- -----------------------------------
1998 1997 1998 1997
--------------- ---------------- --------------- ----------------
<S> <C> <C> <C> <C>
Interest income:
Federal funds sold and repurchase agreements $ 277 $ 390 $ 923 $ 3,308
Debt and equity securities 8,742 8,149 16,179 16,412
Mortgage-backed and mortgage related securities 31,915 30,620 67,011 57,747
Real estate loans 23,724 13,975 44,466 25,643
Consumer and student loans 158 69 315 142
--------------- ---------------- --------------- ----------------
Total interest income 64,816 53,203 128,894 103,252
--------------- ---------------- --------------- ----------------
Interest expense:
Deposits 24,513 21,065 48,303 42,755
Borrowed funds 15,730 7,803 29,467 11,528
--------------- ---------------- --------------- ----------------
Total interest expense 40,243 28,868 77,770 54,283
--------------- ---------------- --------------- ----------------
Net interest income before provision for possible
loan losses 24,573 24,335 51,124 48,969
Provision for possible loan losses 300 150 600 300
--------------- ---------------- --------------- ----------------
Net interest income after provision for possible
loan losses 24,273 24,185 50,524 48,669
--------------- ---------------- --------------- ----------------
Non-interest income:
Loan servicing and fee income 3,124 1,532 5,347 3,259
Net (losses) gains on sales of loans (59) 524 87 1,196
Net gains (losses) on securities 1,087 (6) 3,752 343
Real estate operations, net 269 (93) 551 (37)
Other non-interest income 260 89 508 131
--------------- ---------------- --------------- ----------------
Total non-interest income 4,681 2,046 10,245 4,892
--------------- ---------------- --------------- ----------------
Non-interest expense:
General and administrative expenses:
Compensation and employee benefits 7,079 6,100 15,097 12,910
Occupancy and equipment 1,104 996 2,099 1,824
Deposit insurance premiums 10 55 17 213
Advertising and promotion 737 600 1,457 1,198
Other non-interest expenses 2,232 2,556 4,134 5,668
--------------- ---------------- --------------- ----------------
Total general and administrative expenses 11,162 10,307 22,804 21,813
Amortization of excess of cost over fair
value of net assets acquired 118 117 235 235
Charitable contribution to The Roslyn Savings
Foundation - - - 12,711
--------------- ---------------- --------------- ----------------
Total non-interest expense 11,280 10,424 23,039 34,759
--------------- ---------------- --------------- ----------------
Income before income taxes 17,674 15,807 37,730 18,802
Provision for income taxes 5,371 5,340 12,100 5,871
--------------- ---------------- --------------- ----------------
Net income $ 12,303 $ 10,467 $ 25,630 $ 12,931
=============== ================ =============== ================
Basic earnings per share $ 0.32 $ 0.26 $ 0.66 $ 0.32
=============== ================ =============== ================
Diluted earnings per share $ 0.32 $ 0.26 $ 0.65 $ 0.32
=============== ================ =============== ================
Dividends per common share $ 0.085 $ 0.050 $ 0.165 $ 0.050
=============== ================ =============== ================
</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>
Unallocated
Retained Accumulated Common
Additional Earnings- Other Stock
Common Paid-in- Substantially Comprehensive Held by
Stock Capital Restricted Income ESOP
---------- ------------- ------------- ---------------- ------------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1997 $ 436 $ 423,411 $ 261,120 $ 32,891 $ (52,012)
Comprehensive income (1):
Net income 25,630
Other comprehensive income, net of tax
Net unrealized gain on certain
securities, net of reclassification
adjustment 336
Comprehensive income
Allocation from shares purchased with
loan to ESOP 474 897
Amortization of SBIP stock awards 352 (104)
Cash dividends declared on common stock (6,418)
Common stock acquired
(2,242,500 shares)
---------- ------------- ------------- ---------------- ------------
Balance at June 30, 1998 $ 436 $ 424,237 $ 280,228 $ 33,227 $ (51,115)
========== ============= ============= ================ ============
<CAPTION>
Unearned
Common
Stock Treasury
Held by Stock,
SBIP at cost Total
----------- ------------ ------------
<S> <C> <C> <C>
Balance at December 31, 1997 $ (37,511) $ - $ 628,335
------------
Comprehensive income (1):
Net income 25,630
Other comprehensive income, net of tax
Net unrealized gain on certain
securities, net of reclassification
adjustment 336
------------
Comprehensive income 25,966
------------
Allocation from shares purchased with
loan to ESOP 1,371
Amortization of SBIP stock awards 3,067 3,315
Cash dividends declared on common stock (6,418)
Common stock acquired
(2,242,500 shares) (58,171) (58,171)
------------ ------------ ------------
Balance at June 30, 1998 $ (34,444) $ (58,171) $ 594,398
============ ============ ============
</TABLE>
(1) The following table shows the comprehensive income for the six months ended
June 30, 1997:
Comprehensive income:
Net income $ 12,931
Other comprehensive income, net of tax -
Net unrealized gain on certain securities,
net of reclassification adjustment 5,626
---------
Comprehensive income $ 18,557
---------
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 Six Months Ended
June 30,
-------------------------------------------
1998 1997
------------------ ------------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 25,630 $ 12,931
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 600 300
Provision for possible losses on real estate owned (469) -
Originated mortgage servicing rights, net of amortization (1,136) (123)
Amortization of excess of cost over fair value of net assets acquired 235 235
Depreciation and amortization 833 765
Accretion of discounts, net of amortization of premiums (7,700) (1,084)
Amortization of premium on callable preferred stock 289 332
ESOP expense 1,245 970
SBIP expense 3,275 -
Loan originations and purchases net of proceeds from sales of loans held for sale (26,268) 5,617
Gains on sales of loans (87) (1,196)
Net gains on sales of securities (3,752) (343)
Net gains on sales of real estate owned (186) (134)
Increase in deferred income taxes (233) (5,234)
Changes in assets and liabilities:
Increase in accrued interest receivable (345) (2,607)
(Increase) decrease in other assets (3,613) 3,061
Increase in official checks outstanding 6,521 -
Increase in accrued dividends and interest on deposits 823 4,891
Increase in accrued taxes payable 1,902 612
Increase in accrued expense and other liabilities 13,825 1,921
Net (decrease) increase in unearned income (2,724) 1,113
Other, net 153 -
------------------ ------------------
Net cash provided by operating activities 8,818 34,738
------------------ ------------------
Cash flows from investing activities:
Proceeds from repayments of mortgage-backed and mortgage related securities
held-to-maturity 83,499 33,674
Proceeds from sales and repayments of debt, equity, mortgage-backed and mortgage
related securities available-for-sale 1,168,078 212,080
Purchases of debt, equity, mortgage-backed and mortgage related securities
available-for-sale (1,187,732) (703,469)
Loan originations and purchases, net of principal repayments (261,531) (166,459)
Proceeds from sales of loans held for investment 55,757 --
Purchases of banking house and equipment, net (1,625) (535)
Proceeds from sales of real estate owned 671 1,003
------------------ ------------------
Net cash used in investing activities (142,883) (623,706)
------------------ ------------------
Cash flows from financing activities:
Increase (decrease) in demand deposit, money market, and savings accounts 34,542 (270,783)
Increase in certificates of deposit 57,583 86,456
Increase in borrowed funds 165,723 690,374
Increase (decrease) in mortgagors' escrow and security deposits 5,664 (2,239)
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 (6,418) (2,010)
Costs to repurchase common stock (58,171) -
Decrease in non-depository stock subscriptions - (1,356,911)
------------------ ------------------
Net cash provided (used) by financing activities 198,923 (498,268)
------------------ ------------------
Net increase (decrease) in cash and cash equivalents 64,858 (1,087,236)
Cash and cash equivalents at beginning of period 22,366 1,126,310
------------------ ------------------
Cash and cash equivalents at end of period $ 87,224 $ 39,074
================== ==================
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest on deposits and borrowed funds $ 76,947 $ 49,392
================== ==================
Income taxes $ 10,559 $ 9,905
================== ==================
Non-cash investing activities:
Additions to real estate owned, net $ 137 $ 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 and six months ended June 30, 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 (the "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 Standards ("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
Accounting Principles Board 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").
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.
5
<PAGE>
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 expense 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. PROPOSED ACQUISITION OF T R FINANCIAL CORP.
On May 26, 1998, Roslyn Bancorp, Inc. and T R Financial Corp. (the holding
company of Roosevelt Savings Bank) announced a definitive agreement to merge the
holding companies in an exchange of stock transaction. Under the terms of the
agreement, the merger will be structured as a tax-free stock-for-stock
transaction that will be accounted for as a pooling-of-interests. T R Financial
Corp. shareholders will receive 2.05 shares of Roslyn Bancorp, Inc. common
stock. for each share of T R Financial Corp. common stock held. The exchange
ratio may be increased by the Company in the event that T R Financial Corp.
exercises its rights under the merger agreement to terminate the merger
agreement due to the price of the Company's common stock declining below certain
levels established by formulas set forth in the merger agreement. In addition,
in connection with the merger, each party acquired an option to purchase 19.9 %
of the other company's then issued and outstanding common stock. The options may
only be exercised upon the occurrence of certain events (none of which have
occurred). The merger will create a financial institution with $7.7 billion in
assets and more than $4.1 billion in deposits. The combined institution will
retain the Roslyn name. The transaction is subject to both regulatory and
shareholder approvals and is expected to close in the fourth quarter of 1998.
5. 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 six months
ended June 30, 1998 and 1997, compensation expense attributable to the ESOP was
approximately $1.2 million and $970,000, respectively.
6. STOCK-BASED INCENTIVE PLAN
The Roslyn Bancorp, Inc. 1997 Stock-Based Incentive Plan ("Incentive Plan" or
"SBIP") 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
6
<PAGE>
shares of common stock is 1,744,198 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/vested upon the occurrence of a
change in control of the Company, or upon death, disability 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 six months
ended June 30, 1998, the Company granted stock awards of 91,409 shares, with
prices ranging from $21.69 to $27.75 per share, and 18,553 shares were
forfeited. During the six months ended June 30, 1998, plan participants vested
in 49,645 shares. The total outstanding stock awards amounted to 1,535,248
shares at June 30, 1998. Upon the achievement of certain defined performance
targets, 99,255 of the aforementioned shares will vest. For the six months
ended June 30, 1998, compensation expense attributable to the Incentive Plan was
approximately $3.2 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 six
months ended June 30, 1998, the Company granted stock options of 453,000 shares,
with exercise prices ranging from $20.31 to $27.88 per share, and 128,837
options were forfeited. Additionally, during the six months ended June 30,
1998, plan participants vested in 124,916 options. The total number of
outstanding stock options was 4,203,669 at June 30, 1998 with a weighted average
exercise price of $22.48.
7. 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 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,
7
<PAGE>
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 SFAS Nos. 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 SFAS No. 87, "Employer's Accounting
for Pensions," SFAS No. 88, "Employers' Accounting for Settlements and
Curtailments of Defined Benefit Pension Plans and for Termination Benefits," and
SFAS 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.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." This statement requires companies to
record derivatives on the balance sheet as assets or liabilities, measured at
fair value. The accounting for changes in the fair value of a derivative
depends on the intended use of the derivative and its specific designation as
follows:
a. For a derivative designated as hedging the exposure to changes in the fair
value of a recognized asset or liability or a firm commitment (referred to
as a fair value hedge), the gain or loss is recognized in earnings in the
period of change together with the offsetting loss or gain on the hedged
item attributable to the risk being hedged.
b. For a derivative designated as hedging the exposure to variable cash flows
of a forecasted transaction (referred to as a cash flow hedge), the
effective portion of the derivative's gain or loss is initially reported as
a component of other comprehensive income and subsequently reclassified
into earnings when the forecasted transaction affects earnings.
c. For a derivative designated as hedging the foreign currency exposure of a
net investment in a foreign operation, the gain or loss is reported in
other comprehensive income as part of the cumulative translation
adjustment. The accounting for a fair value hedge described above applies
to a derivative designated as a hedge of the foreign currency exposure of
an unrecognized firm commitment or an available-for-sale security.
d. For a derivative not designated as a hedging instrument, the gain or loss
is recognized in earnings in the period of change.
This Statement amends SFAS No. 52, "Foreign Currency Translation," to
permit special accounting for a hedge of a foreign currency forecasted
transaction with a derivative. It supersedes SFAS No. 80, "Accounting for
Futures Contracts," SFAS No. 105, "Disclosure of Information about Financial
Instruments with Off-Balance-Sheet Risk and Financial Instruments with
Concentrations of Credit
8
<PAGE>
Risk," and SFAS No. 119, "Disclosure about Derivative Financial Instruments
and Fair Value of Financial Instruments." It amends SFAS No. 107, "Disclosures
about Fair Value of Financial Instruments," to include in SFAS No. 107 the
disclosure provisions about concentrations of credit risk from SFAS 105.
This statement is effective for all fiscal quarters of fiscal years beginning
after June 15, 1999. Initial application of this statement should be as of the
beginning of an entity's fiscal quarter; on that date, hedging relationships
must be designated anew and documented pursuant to the provisions of this
statement. The Company has not yet determined the impact of SFAS No. 133 on its
financial statements.
8. RECENT DEVELOPMENTS
On June 17, 1998, the Company announced it had received all the necessary
regulatory approvals to open a full service branch facility in Bay Shore, New
York. The branch is expected to open during the fourth quarter of 1998.
On May 19, 1998, the Company announced that its Board of Directors declared a
quarterly dividend of eight and a half cents ($0.085) per common share. The
dividend was paid on June 12, 1998 to shareholders of record as of June 2, 1998.
On April 28, 1998, the Company announced that the Superintendent of Banks of the
State of New York granted the Company permission to purchase approximately 2.2
million additional shares, or 5% of outstanding shares in addition to the 2.2
million shares the Company was previously authorized to repurchase pursuant to
the initial stock repurchase plan announced on January 13, 1998. The Company
therefore had the ability to repurchase a total of 4.4 million shares through
January 12, 1999. As of June 30, 1998, the Company has repurchased 2,242,500
shares under the stock repurchase program, however, in connection with the
proposed acquisition of T R, the Company has suspended it's stock repurchase
program.
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.
9
<PAGE>
9. 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, 1998 and December
31, 1997, respectively.
<TABLE>
<CAPTION>
June 30, 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 $ 45,389 $ 47,460 $ 75,499 $ 77,975
United States Government agencies 101,320 101,792 125,097 125,481
Other 2,004 2,017 5,365 5,385
--------------- -------------- -------------- --------------
Total debt securities 148,713 151,269 205,961 208,841
--------------- -------------- -------------- --------------
Equity securities:
Preferred and common stock 299,642 339,696 243,864 274,253
Other 135,964 140,016 9,720 11,099
--------------- -------------- -------------- --------------
Total equity securities 435,606 479,712 253,584 285,352
--------------- -------------- -------------- --------------
Mortgage-backed and mortgage
related securities, net:
GNMA pass-through securities 11,636 12,842 14,291 15,711
FHLMC pass-through securities 86,056 87,047 250,206 253,153
GNMA adjustable rate mortgage
pass-through securities 403,020 409,577 442,037 449,260
Whole loan private collateralized
mortgage obligations 854,361 856,637 640,467 645,316
Agency collateralized mortgage
obligations 384,859 385,177 486,860 493,193
--------------- -------------- -------------- --------------
Total mortgage-backed and mortgage
related securities, net 1,739,932 1,751,280 1,833,861 1,856,633
--------------- -------------- -------------- --------------
Total securities available-for-sale $ 2,324,251 $ 2,382,261 $ 2,293,406 $ 2,350,826
=============== ============== ============== ==============
Held-to-maturity, net:
Debt securities:
State, county and municipal $ 1,735 $ 1,735 $ 1,930 $ 2,026
Mortgaged-backed and mortgage related
securities:
Whole loan private collateralized mortgage
obligations 116,857 116,347 200,193 200,445
--------------- -------------- -------------- --------------
Total securities held-to-maturity, net $ 118,592 $ 118,082 $ 202,123 $ 202,471
=============== ============== ============== ==============
</TABLE>
10
<PAGE>
10. LOANS RECEIVABLE, NET
Loans receivable, net at June 30, 1998 and December 31, 1997 consist of the
following:
<TABLE>
<CAPTION>
June 30, December 31,
1998 1997
------------ -----------
(In thousands)
<S> <C> <C>
Real estate loans:
One- to four-family $ 793,468 $ 633,957
Multi-family 49,227 44,006
Commercial real estate 283,270 248,607
Construction and development 71,616 52,269
Home equity and second mortgage 29,713 16,974
Consumer 6,371 4,686
Student 119 1,296
------------ -----------
Gross loans 1,233,784 1,001,795
Less:
Unamortized discounts, net 5,456 5,974
Deferred loan fees (28) 1,522
Deferred mortgage interest 497 696
Allowance for possible loan losses 24,629 24,029
------------ -----------
Total loans, net 1,203,230 969,574
Less:
Loans held-for-sale, net
One- to four-family, net 41,432 13,987
Student 119 1,296
------------ -----------
Loans receivable held for
investment, net $ 1,161,679 $ 954,291
============ ===========
</TABLE>
11
<PAGE>
11. ASSET QUALITY
The following table sets forth information regarding non-accrual loans, at the
dates indicated and real estate owned ("REO"). 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 June 30, At December 31,
1998 1997
---------------- ---------------
(In thousands)
<S> <C> <C>
Non-performing loans:
One- to four-family $ 3,980 $ 3,676
Commercial real estate 4,396 2,723
Home equity 62 62
Consumer loans 22 19
---------------- ---------------
Total non-performing loans 8,460 6,480
Real estate owned, net (1) 277 157
---------------- ---------------
Total non-performing assets $ 8,737 $ 6,637
================ ===============
Allowance for possible loan losses as a percent of loans (2) 2.08% 2.46%
Allowance for possible loan losses as a percent of total
non-performing loans 291.12% 370.82%
Non-performing loans as a percent of loans (2) 0.71% 0.66%
Non-performing assets as a percent of total assets 0.23% 0.18%
</TABLE>
(1) REO 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 June 30, 1998 were $3.85 billion, an increase of $252.2 million,
or 7.0%, 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 $234.3 million, or 23.6%,
to $1.23 billion at June 30, 1998 compared to $993.6 million at December 31,
1997. The increase in loans, net of unearned income, was primarily due to a
substantial increase in loan originations during the first six months of 1998.
Loan originations increased 148.8%, to $533.6 million, for six months ended June
30, 1998, as compared to $214.5 million during the six months ended June 30,
1997. Debt and equity securities available-for-sale increased $136.8 million,
or 27.7%, from $494.2 million at December 31, 1997, to $631.0 million at June
30, 1998. These increases were partially offset by a $188.7 million decrease in
mortgage-backed and mortgage related securities from $2.06 billion at December
31, 1997 to $1.87 billion at June 30, 1998. These overall increases were
primarily funded through deposit growth, cash flows and the Company's leveraging
strategy.
Total liabilities at June 30, 1998 were $3.26 billion, an increase of $286.1
million, or 9.6%, from $2.97 billion at December 31, 1997. The overall increase
in total liabilities was principally due to a $92.1 million increase in total
deposits from $1.94 billion at December 31, 1997 to $2.03 billion at June 30,
1998. The increase in total deposits was primarily the result of the continued
growth in certificates of deposits, money market, demand deposits and savings
accounts. Borrowings increased $165.7 million to $1.13 billion at June 30, 1998
as compared to $966.5 million for the prior year-end.
Total stockholders' equity decreased $33.9 million to $594.4 million at June 30,
1998 from $628.3 million at December 31, 1997. The decrease was primarily due
to the repurchase of 2,242,500 shares of the Company's common stock, at an
average per share price of $25.94, and dividends paid of $6.4 million for the
six months ended June 30, 1998. These decreases were partially offset by the
six months earnings of $25.6 million, a $336,000 increase in net unrealized gain
on securities available-for-sale, net of tax, 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 and six months ended June 30, 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
13
<PAGE>
of interest-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 June 30,
----------------------------------------------------------------------------
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 repurchase
agreements $ 20,068 $ 277 5.52% $ 28,488 $ 390 5.48%
Debt and equity securities 598,846 8,742 5.84 496,806 8,149 6.56
Mortgage-backed and mortgage
related securities 1,918,804 31,915 6.65 1,707,197 30,620 7.17
Real estate loans, net 1,145,683 23,724 8.28 646,492 13,975 8.65
Consumer and student loans 6,583 158 9.60 3,149 69 8.76
----------- ---------- ----------- ----------
Total interest-earning assets 3,689,984 64,816 7.03 2,882,132 53,203 7.38
---------- ----------
Non-interest-earning assets 72,194 71,841
----------- -----------
Total assets $ 3,762,178 $ 2,953,973
=========== ===========
Liabilities and Stockholders' Equity:
Interest-bearing liabilities:
Money market accounts $ 52,727 $ 392 2.97% $ 53,829 $ 356 2.65%
Savings accounts 509,858 3,959 3.11 417,672 3,079 2.95
NOW and Super NOW accounts 87,536 748 3.42 67,178 667 3.97
Certificates of deposit 1,355,190 19,414 5.73 1,183,456 16,963 5.73
----------- ---------- ----------- ----------
Total deposits 2,005,311 24,513 4.89 1,722,135 21,065 4.89
Borrowed funds 1,063,966 15,730 5.91 541,808 7,803 5.76
----------- ---------- ----------- ----------
Total interest-bearing liabilities 3,069,277 40,243 5.24 2,263,943 28,868 5.10
---------- ----------
Non-interest-bearing liabilities 95,495 68,500
----------- -----------
Total liabilities 3,164,772 2,332,443
Stockholders' equity 597,406 621,530
----------- -----------
Total liabilities and stockholders' equity $ 3,762,178 $ 2,953,973
=========== ===========
Net interest income/net interest rate spread $ 24,573 1.79% $ 24,335 2.28%
========== ======== ========== =========
Net interest margin 2.66% 3.38%
======== =========
Ratio of interest-earning assets to
interest-bearing liabilities 120.22% 127.31%
======== =========
</TABLE>
14
<PAGE>
<TABLE>
<CAPTION>
Six Months Ended June 30,
---------------------------------------------------------------------------
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 repurchase
agreements $ 33,913 $ 923 5.44% $ 121,715 $ 3,308 5.44%
Debt and equity securities 561,579 16,179 5.76 493,309 16,412 6.65
Mortgage-backed and mortgage
related securities 1,936,425 67,011 6.92 1,617,999 57,747 7.14
Real estate loans, net 1,067,593 44,466 8.33 588,856 25,643 8.71
Consumer and student loans 6,819 315 9.24 3,347 142 8.49
----------- ---------- ----------- ----------
Total interest-earning assets 3,606,329 128,894 7.15 2,825,226 103,252 7.31
---------- ----------
Non-interest-earning assets 71,325 96,106
----------- -----------
Total assets $ 3,677,654 $ 2,921,332
=========== ===========
Liabilities and Stockholders' Equity:
Interest-bearing liabilities:
Money market accounts $ 50,473 $ 680 2.69% $ 56,701 $ 763 2.69%
Savings accounts 503,363 7,793 3.10 441,886 6,624 3.00
NOW and Super NOW accounts 87,172 1,509 3.46 73,717 1,255 3.40
Certificates of deposit 1,340,284 38,321 5.72 1,156,647 32,772 5.67
----------- ---------- ----------- ----------
Total deposits 1,981,292 48,303 4.88 1,728,951 41,414 4.79
Borrowed funds 995,247 29,467 5.92 406,261 11,528 5.68
Non-depository stock subscriptions - - - 105,806 1,341 2.53
----------- ---------- ----------- ----------
Total interest-bearing liabilities 2,976,539 77,770 5.23 2,241,018 54,283 4.84
---------- ----------
Non-interest-bearing liabilities 91,646 82,980
----------- -----------
Total liabilities 3,068,185 2,323,998
Stockholders' equity 609,469 597,334
----------- -----------
Total liabilities and stockholders' equity $ 3,677,654 $ 2,921,332
=========== ===========
Net interest income/net interest rate spread $ 51,124 1.92% $ 48,969 2.47%
========== ======= ========== =======
Net interest margin 2.84% 3.47%
======= =======
Ratio of interest-earning assets to
interest-bearing liabilities 121.16% 126.07%
======= =======
</TABLE>
15
<PAGE>
Comparison of Operating Results for the Three Months Ended June 30, 1998 and
1997
General
The Company reported net income of $12.3 million, or basic and diluted earnings
per share of $0.32, for the quarter ended June 30, 1998, as compared to net
income of $10.5 million, or basic and diluted earnings per share of $0.26, for
the comparable prior year period.
Interest Income
Interest income for the quarter ended June 30, 1998 increased to $64.8 million,
or 21.8%, from $53.2 million as compared to the quarter ended June 30, 1997. The
increase was primarily the result of a $807.9 million, or 28.0%, increase in
average interest-earning assets to $3.69 billion for the quarter ended June 30,
1998, as compared to $2.88 billion in the comparable quarter of 1997, offset
partially by a corresponding decrease in the average yield from 7.38% to 7.03%.
The increase in average interest-earning assets was principally attributable to
growth of $499.2 million in average real estate loans, net, $211.6 million in
average mortgage-backed and mortgage related securities and $102.0 million in
average debt and equity securities. This growth was primarily funded by
increased deposits, borrowings and cash flows.
Interest income on real estate loans increased $9.7 million, or 69.8%, to $23.7
million for the three months ended June 30, 1998, from $14.0 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 37 basis point decrease in the average yield
on real estate loans from 8.65% for the three months ended June 30, 1997 to
8.28% 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 income on mortgage-backed and mortgage related securities increased
$1.3 million, or 4.2%, to $31.9 million for the three months ended June 30,
1998, from $30.6 million for the same period in 1997. The increase was a result
of the growth in the average balance of mortgage-backed and mortgage related
securities due to management's strategy of increasing its investment in
loan-based securities. The increase was partially offset by a 52 basis point
decline in the average yield on mortgage-backed and mortgage related securities
from 7.17% for the three months ended June 30, 1997 to 6.65% for the same period
in 1998. Interest income on debt and equity securities increased $593,000, or
7.3%, to $8.7 million for the three months ended June 30, 1998, from $8.1
million for the same period in 1997. The increase was the result of growth in
the average balance of debt and equity securities, offset by a 72 basis point
decline as the average yield on debt and equity securities decreased from 6.56%
for the three months ended June 30, 1997 to 5.84% for the same period as 1998.
Interest Expense
Interest expense for the three months ended June 30, 1998, was $40.2 million,
compared to $28.9 million for the three months ended June 30, 1997, an increase
of $11.3 million, or 39.4%. The increase in interest expense is related to a
$805.3 million, or 35.6%, increase in the average balance of interest-bearing
liabilities from $2.26 billion for the quarter ended June 30, 1997 to $3.07
billion for the quarter ended June 30, 1998. This increase reflects a $283.2
million increase in the average balance of interest-bearing deposits and a
$522.2 million increase in the average balance of borrowed funds for the quarter
ended June 30, 1998, as compared to the prior year quarter.
The increase in total deposits was primarily due to an increase in the average
balance of savings accounts and certificates of deposit 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 June 30,
1998, $149.7 million of brokered deposits remained outstanding. The
16
<PAGE>
higher deposit balances and a higher average cost resulted in an increase of
$3.4 million in interest expense on deposits for the quarter ended June 30, 1998
as compared to the same quarter in 1997.
The average balance of borrowed funds increased $522.2 million from $541.8
million for the three months ended June 30, 1997 to $1.06 billion for the three
months ended June 30, 1998. This increase, in addition to a 15 basis point
increase in the average cost, resulted in a $7.9 million increase in interest
expense on borrowed funds, from $7.8 million for the quarter ended June 30, 1997
to $15.7 million for the quarter ended June 30, 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 increased deposits and borrowings were reinvested in real
estate loans, investment securities, and, to a lesser extent, used to fund the
treasury stock repurchase program.
Net Interest Income
Net interest income before provision for possible loan losses was $24.6 million
for the three months ended June 30, 1998 as compared to $24.3 million for the
three months ended June 30, 1997, an increase of $238,000, or 1.0%. The
net interest margin and spread for the quarter ended June 30, 1998, decreased to
2.66% and 1.79%, respectively, from 3.38% and 2.28%, respectively, for the prior
year quarter due to the increase in the average balances of borrowed funds and
deposits, combined with the increase in the rates paid on borrowed funds. The
proceeds from the increased borrowings and deposits 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 June 30, 1998 as compared to $150,000 for the three months ended June 30,
1997. The provision for possible loan losses for the three months ended June 30,
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 June 30, 1998 and December 31, 1997, the allowance for
possible loan losses amounted to $24.6 million and $24.0 million, respectively,
and the ratio of such allowance to total non-performing loans was 291.12% at
June 30, 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.
Non-Interest Income
Non-interest income increased $2.7 million, or 128.8%, to $4.7 million for the
quarter ended June 30, 1998 as compared to $2.0 million for the same period in
the prior year. The increase was a result of a $1.1 million increase in net
gains on sales of securities and a $1.6 million increase in loan servicing and
fee income, which was partially offset
17
<PAGE>
by a $583,000 decrease in net gains on the sales of loans. The increase in net
gains on securities was 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 was
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 was primarily attributable to
unfavorable market conditions in the secondary market.
Non-Interest Expense
Non-interest expense totaled $11.3 million for the quarter ended June 30,1998 as
compared to $10.4 million for the quarter ended June 30, 1997, a increase of
$856,000, or 8.2%. The increase in non-interest expense was primarily
attributable to an increase in compensation and employee benefits of $979,000,
which principally relates to the costs associated with the Company's Stock-Based
Incentive Plan.
Income Taxes
Total income tax expense increased $31,000, from $5.3 million recorded during
the quarter ended June 30, 1997 to $5.4 million during the quarter ended June
30, 1998. The increase is primarily attributable to the increase in income
before income taxes.
Comparison of Operating Results for the Six Months Ended June 30, 1998 and 1997
General
The Company reported net income of $25.6 million for the six month period ended
June 30, 1998, or basic earnings per share of $0.66 and diluted earnings per
share of $0.65, as compared to net income of $12.9 million, or basic and diluted
earnings per share of $0.32, for the corresponding period in 1997. Net income
for the six months ended June 30, 1997 included a $7.4 million, after tax,
non-recurring expense relating to the funding of The Roslyn Savings Foundation
(the "Foundation").
Interest Income
Interest income amounted to $128.9 million for the six months ended June 30,
1998, representing an increase of $25.6 million, or 24.8%, from the same period
in 1997. The increase was attributable to the growth in average interest-earning
assets to $3.61 billion for the six months ended June 30, 1998, from $2.83
billion for the six month ended June 30, 1997. The growth in average
interest-earning assets was primarily attributable to growth of $478.7 million
in average real estate loans, net and $318.4 million in average mortgage-backed
and mortgage related securities, offset by a $87.8 million decrease in average
federal funds sold and repurchase agreements. This growth was primarily funded
by increased deposits, borrowings and cash flows.
Interest income on real estate loans increased $18.9 million, or 73.4%, to $44.5
million for the six months ended June 30, 1998, from $25.6 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, construction and development, home equity and second mortgages and
commercial real estate loans. The increase in interest income for the six months
ended June 30, 1998, as compared to the same period in 1997, was partially
offset by a 38 basis point decrease in the average yield on real estate loans,
net from 8.71% for the six months ended June 30, 1997 to 8.33% for the same
period in 1998. The decline in the low yield was principally due to an increased
concentration of one- to four-family real estate loans within the loan portfolio
mix in 1998.
Interest income on mortgage-backed and mortgage related securities increased
$9.3 million, or 16.0% to $67.0 million for the six months ended June 30, 1998,
from $57.7 million for the same period in 1997. The increase was a result of
18
<PAGE>
a $318.4 million growth in the average balance of mortgage-backed and mortgage
related securities from $1.62 billion for the six months ended June 30, 1997 to
$1.94 billion for the six months ended June 30, 1998, due to management's
strategy of increasing its investment in loan based securities. Partially
offsetting this increase was a 22 basis point decline in the average yield on
mortgage-backed and mortgage related securities from 7.14% for the six months
ended June 30, 1997 to 6.92% for the same period in 1998.
Interest income on federal funds sold and repurchase agreements decreased $2.4
million, or 72.1%, to $923,000 for the six months ended June 30, 1998, from $3.3
million for the same period in 1997. The decrease is due to the short-term
liquidity position maintained by the Company in early January 1997 relating to
the then pending offering of the Company's common stock and the anticipated
return of approximately $1.08 billion in non-depository stock subscription
funds.
Interest Expense
Interest expense for the six months ended June 30, 1998, was $77.8 million,
compared to $54.3 million for the six months ended June 30, 1997, an increase of
$23.5 million, or 43.3%. The increase in interest expense is related to a $735.5
million, or 32.8%, increase in the average balance of interest-bearing
liabilities from $2.24 billion in 1997 to $2.98 billion in 1998. This increase
reflects a $252.3 million increase in the average balance of interest-bearing
deposits and a $589.9 million increase in the average balance of borrowed funds
for the six months ended June 30, 1998, as compared to the comparable period in
1997, offset by a $105.8 million decrease in average non-depository stock
subscriptions.
The increase in total deposits is primarily due to an increase in the average
balance of savings and certificates of deposit accounts 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 June 30,
1998, $149.7 million of brokered deposits remain outstanding. The effect of the
higher average deposit balances, in addition to a 9 basis point increase in the
average cost, resulted in an increase of $6.9 million in interest expense on
deposits for the six months ended June 30, 1998 as compared to the same period
in 1997.
The average balance of borrowed funds increased $588.9 million, from $406.3
million for the six months ended June 30, 1997 to $995.2 million for the six
months ended June 30, 1998. This increase, in addition to a 24 basis point
increase in the average cost, resulted in an $18.0 million increase in interest
expense on borrowed funds, from $11.5 million for the six months ended June 30,
1997 to $29.5 million for the six months ended June 30, 1997. The increase in
borrowings, principally reverse-repurchase agreements, are part of the Company's
wholesale leveraging strategy.
The average balance of non-depository stock subscriptions decreased from $105.8
million for the six months ended June 30, 1997 to zero for the corresponding
1998 period. This decrease is due to the one-time expense incurred in the 1997
period relating to interest paid on stock subscription escrow funds received in
connection with the offering of the Company's common stock.
The proceeds from the increase in deposits and borrowings were reinvested in
real estate loans, investment securities, and, to a lesser extent, used to fund
the treasury stock repurchase program.
Net Interest Income
Net interest income before provision for possible loan losses was $51.1 million
for the six months ended June 30, 1998 as compared to $49.0 million for the six
months ended June 30, 1997, an increase of $2.1 million, or 4.4%. The net
interest margin and spread for the quarter ended June 30, 1998, decreased to
2.84% and 1.92%, respectively, from 3.47% and 2.47%, respectively, for the prior
year quarter due to the increase in both the average balances and rates paid on
borrowed funds and deposits. The proceeds from the borrowed funds and deposits
were used to fund loan
19
<PAGE>
originations, invest in mortgage-backed and mortgage related securities, and, to
a lesser extent, used to fund share purchases for the treasury stock repurchase
program.
Provision for Possible Loan Losses
The provision for possible loan losses totaled $600,000 for the six months ended
June 30, 1998 as compared to $300,000 for the six months ended June 30, 1997.
The provision for possible loan losses for the six months ended June 30, 1998
reflects management's qualitative assessment of the loan portfolio, net
charge-offs and collection of delinquent loans.
Non-Interest Income
Non-interest income increased $5.3 million, or 109.4%, to $10.2 million for the
six months ended June 30, 1998 as compared to $4.9 million for the same period
in the prior year. The increase was a result of a $3.4 million increase in net
gains on sales of securities and a $2.1 million increase in loan servicing and
fee income, which was partially offset by a $1.1 million decrease in net gains
on the sales of loans. The increase in net gains on securities was 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 was 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 $23.0 million for the six months ended June 30,1998
as compared to $34.8 million for the six months ended June 30, 1997, a decrease
of $11.8 million, or 33.7%. The decrease was primarily the result of the
one-time $12.7 million charge associated with funding the Foundation included in
the 1997 period. Excluding the effect of funding the Foundation, non-interest
expense increased $991,000, or 4.5%, to $23.0 million for the six months ended
June 30, 1998 as compared to $22.0 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 $2.2 million, including the Company's ESOP and SBIP, offset by a
decrease of $1.5 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 $5.9 million recorded
during the six months ended June 30, 1997 to $12.1 million during the six months
ended June 30, 1998. The increase was primarily attributable to both the
increase in income before income taxes and due 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 was tax deductible,
subject to a limitation based on 10% of the Company's annual taxable income. The
Company, however, was 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.
Mergers and Acquisitions
On May 26, 1998, Roslyn Bancorp, Inc. and T R Financial Corp. (the holding
company of Roosevelt Savings Bank) announced a definitive agreement to merge the
holding companies in an exchange of stock transaction. Under the terms of the
agreement, the merger will be structured as a tax-free stock-for-stock
transaction that will be accounted
20
<PAGE>
for as a pooling-of-interests. T R Financial Corp. shareholders will receive
2.05 shares of Roslyn Bancorp, Inc. common stock for each share of T R Financial
Corp. common stock held. The exchange ratio may be increased by the Company in
the event that T R Financial Corp. exercises its rights under the merger
agreement to terminate the merger agreement due to the price of the Company's
common stock declining below certain levels established by formulas set forth in
the merger agreement. In addition, in connection with the merger, each party
acquired an option to purchase 19.9 % of the other company's then issued and
outstanding common stock. The options may only be exercised upon the occurrence
of certain events (none of which have occurred). The merger will create a
financial institution with $7.7 billion in assets and more than $4.1 billion in
deposits. The combined institution will retain the Roslyn name. The transaction
is subject to both regulatory and shareholder approvals and is expected to close
in the fourth quarter of 1998.
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
six months ended June 30, 1998 and 1997, the Bank originated loans in the amount
of $533.6 million and $214.5 million, respectively. Purchases of mortgage-backed
and mortgage related and debt and equity securities totaled $1.19 billion and
$703.5 million during the six months ended June 30, 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 increases
in borrowed funds during the six months ended June 30, 1998. Loan sales provided
additional liquidity to the Company, totaling $182.5 million and $90.8 million
for the six months ended June 30, 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 June 30, 1998, the Company had $1.13 billion
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 June 30, 1998 the Company had outstanding loan commitments to advance
approximately $315.5 million for mortgage loans, primarily all of which were
fixed-rate commercial and residential real estate loans. Management anticipates
that it will have sufficient funds available to meet these loan commitments.
Certificates of deposit that are scheduled to mature in one year or less from
June 30, 1998 totaled $1.04 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.
21
<PAGE>
Regulatory Capital Position
The Bank is subject to minimum regulatory requirements imposed by the Federal
Deposit Insurance Corporation (the "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 (the "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, 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 11.00%, 21.59% and 22.84%, respectively.
Year 2000 Compliance
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. 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.
22
<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 June 30, 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
June 30, 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 June 30, 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 June 30, 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
13.46%. 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 June 30, 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
June 30, 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 7.98% to 29.58% 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 6.00% and 45.12% annually. Savings accounts were assumed to
decay at 21.19%, 4.99%, 4.99%, 4.99%, 4.99% and 58.86%, Super NOW
23
<PAGE>
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.
<TABLE>
<CAPTION>
At June 30, 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 $ 58,500 $ - $ - $ -
Debt and equity securities (2) 114,663 51,467 39,335 87,868
Mortgage-backed and
mortgage related securities (2) 844,208 405,792 213,337 129,001
Real estate loans, net (3) (4) 330,817 90,881 242,995 69,250
Consumer and student loans (4) 4,622 408 384 350
------------- ------------ ------------ ------------
Total interest-earning assets 1,352,810 548,548 496,051 286,469
Interest-bearing liabilities:
Money market accounts 12,897 3,224 3,224 3,224
Savings accounts 102,128 23,908 23,908 23,908
Super NOW and NOW accounts 17,156 4,289 4,289 4,289
Certificates of deposit 1,041,251 136,061 70,165 57,187
Borrowed funds 697,964 299,210 105,000 30,000
------------- ------------ ------------ ------------
Total interest-bearing liabilities 1,871,396 466,692 206,586 118,608
------------- ------------ ------------ ------------
Interest sensitivity gap (5) $ (518,586) $ 81,856 $ 289,465 $ 167,861
============= ============ ============ ============
Cumulative interest sensitivity gap $ (518,586) $ (436,730) $ (147,265) $ 20,596
============= ============ ============ ============
Cumulative interest sensitivity gap
as a percentage of total assets (13.46)% (11.33)% (3.82)% 0.53%
Cumulative interest-earning assets
as a percentage of cumulative
interest-bearing liabilities 72.29% 81.32% 94.21% 100.77%
<CAPTION>
At June 30, 1998
---------------------------------------------
Four Over
to Five Five
Years Years Total
------------ ------------ -------------
(Dollars in thousands)
<S> <C> <C> <C>
Interest-earning assets (1):
Federal funds sold - $ - $ 58,500
Debt and equity securities (2) - 339,383 632,716
Mortgage-backed and
mortgage related securities (2) 74,074 201,725 1,868,137
Real estate loans, net (3) (4) 90,105 388,883 1,212,931
Consumer and student loans (4) 27 677 6,468
------------ ------------ -------------
Total interest-earning assets 164,206 930,668 3,778,752
Interest-bearing liabilities:
Money market accounts 3,224 38,693 64,486
Savings accounts 23,908 282,109 479,869
Super NOW and NOW accounts 4,289 51,470 85,782
Certificates of deposit 35,040 21,151 1,360,855
Borrowed funds - - 1,132,174
------------ ------------ -------------
Total interest-bearing liabilities 66,461 393,423 3,123,166
------------ ------------ -------------
Interest sensitivity gap (5) $ 97,745 $ 537,245 $ 655,586
============ ============ =============
Cumulative interest sensitivity gap $ 118,341 $ 655,586
============ ============
Cumulative interest sensitivity gap
as a percentage of total assets 3.07% 17.01%
Cumulative interest-earning assets
as a percentage of cumulative
interest-bearing liabilities 104.34% 121.00%
</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 primarily
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.
24
<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 June 30, 1998
compared to December 31, 1997 and the projected changes continue to fall within
the Board of Directors approved limits at all levels of potential interest rate
volatility.
25
<PAGE>
PART II - OTHER INFORMATION
- ---------------------------
Item 1. LEGAL PROCEEDINGS
Not applicable
Item 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
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:
No. of Votes For No. of Votes Withheld
------------------ -----------------------
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
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
26
<PAGE>
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
---------
2.0 Agreement and Plan of Merger by and between Roslyn Bancorp, Inc.
and T R Financial Corp., dated as of May 25, 1998 *
2.1 Roslyn Bancorp, Inc. Stock Option Agreement dated as of May 25,
1998; T R Financial Corp. Stock Option Agreement, dated as of
May 25, 1998 *
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
-------------------
The Company filed a Form 8-K on June 3, 1998 in connection with
the merger, announced May 26, 1998, between the Company and T R
Financial Corp. The merger agreement and stock option agreements
were included by exhibit. The Company filed a Form 8-K on July
22, 1998 in connection with the investor presentation relating
the merger, announced on May 26, 1998, between Roslyn Bancorp,
Inc. and T R Financial Corp. The investor presentation
package was included by exhibit.
* Incorporated by reference from the Form 8-K filed on June 3, 1998.
** 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
27
<PAGE>
Exhibit Index
-------------
Page
----
11.0 Statement Re: Computation of Per Share Earnings 30
27.0 Financial Data Schedule (submitted only with filing in electronic
filing) -
28
<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 13, 1998 By: /s/ Joseph L. Mancino
------------------- -------------------------------------------
Joseph L. Mancino
Chairman of the Board, President and
Chief Executive Officer
Date: August 13, 1998 By: /s/ Michael P. Puorro
------------------- -------------------------------------------
Michael P. Puorro
Treasurer and Chief Financial Officer
29
<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
June 30, June 30,
1998 1997
--------------------- --------------------
<S> <C> <C>
Net income $ 12,303 $ 10,467
--------------------- --------------------
Weighted average common shares outstanding 38,283,369 40,253,165
--------------------- --------------------
Basic earnings per common share $ 0.32 $ 0.26
===================== ====================
Weighted average common shares outstanding 38,283,369 40,253,165
Potential common stock due to dilutive effect of stock options 354,419 -
--------------------- --------------------
Total shares for diluted earnings per share 38,637,788 40,253,165
--------------------- --------------------
Diluted earnings per common share $ 0.32 $ 0.26
===================== ====================
<CAPTION>
Six Months Six Months
Ended Ended
June 30, June 30,
1998 1997
--------------------- --------------------
<S> <C> <C>
Net income $ 25,630 $ 12,931
--------------------- --------------------
Weighted average common shares outstanding 38,976,269 40,463,404
--------------------- --------------------
Basic earnings per common share $ 0.66 $ 0.32
===================== ====================
Weighted average common shares outstanding 38,976,269 40,463,404
Potential common stock due to dilutive effect of stock options 168,111 -
--------------------- --------------------
Total shares for diluted earnings per share 39,144,380 40,463,404
--------------------- --------------------
Diluted earnings per common share $ 0.65 $ 0.32
===================== ====================
</TABLE>
30
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-Q
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 28,724
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 58,500
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 2,382,261
<INVESTMENTS-CARRYING> 118,592
<INVESTMENTS-MARKET> 118,082
<LOANS> 1,227,859
<ALLOWANCE> 24,629
<TOTAL-ASSETS> 3,853,282
<DEPOSITS> 2,034,370
<SHORT-TERM> 527,963
<LIABILITIES-OTHER> 92,340
<LONG-TERM> 604,211
0
0
<COMMON> 436
<OTHER-SE> 593,962
<TOTAL-LIABILITIES-AND-EQUITY> 3,853,282
<INTEREST-LOAN> 44,781
<INTEREST-INVEST> 83,190
<INTEREST-OTHER> 923
<INTEREST-TOTAL> 128,894
<INTEREST-DEPOSIT> 48,303
<INTEREST-EXPENSE> 77,770
<INTEREST-INCOME-NET> 51,124
<LOAN-LOSSES> 600
<SECURITIES-GAINS> 3,752
<EXPENSE-OTHER> 23,039
<INCOME-PRETAX> 37,730
<INCOME-PRE-EXTRAORDINARY> 37,730
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 25,630
<EPS-PRIMARY> 0.66
<EPS-DILUTED> 0.65
<YIELD-ACTUAL> 7.15
<LOANS-NON> 8,460
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 1,502
<ALLOWANCE-OPEN> 24,029
<CHARGE-OFFS> 0
<RECOVERIES> 0
<ALLOWANCE-CLOSE> 24,629
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 24,629
</TABLE>
