<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1999 0-28886
-----------------------
Commission File Number
ROSLYN BANCORP, INC.
--------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 11-3333218
- ------------------------------ ----------------------------------
(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
1400 Old Northern Boulevard, Roslyn, New York 11576
- -----------------------------------------------------------------------------
(Address of Principal Executive Offices) (Zip Code)
(516) 621-6000
--------------------------------------------------
(Registrant's telephone number, including area code)
None
---------------------------------------------------------
Securities registered pursuant to Section 12(b) of the Act
Common Stock, $.01 par value
----------------------------------------------------
Securities registered pursuant to Section 12(g) of the Act
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [ X ] No [ ]
Indicate the number of shares outstanding of each of the Issuer's classes of
common stock, as of the latest practicable date.
The Registrant had 76,928,744 shares of Common Stock outstanding as of May 13,
1999.
<PAGE>
FORM 10-Q
ROSLYN BANCORP, INC.
INDEX
<TABLE>
<CAPTION>
<S> <C> <C>
Page
Number
------
PART I - FINANCIAL INFORMATION
- ------------------------------
ITEM 1. Financial Statements - Unaudited:
Consolidated Statements of Financial Condition at
March 31, 1999 and December 31, 1998 1
Consolidated Statements of Income for the three months ended
March 31, 1999 and 1998 2
Consolidated Statement of Changes in Stockholders' Equity
for the three months ended March 31, 1999 3
Consolidated Statements of Cash Flows
for the three months ended March 31, 1999 and 1998 4
Notes to Unaudited Consolidated Financial Statements 5
ITEM 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 14
ITEM 3. Quantitative and Qualitative Disclosure about Market Risk 27
PART II - OTHER INFORMATION
- ------------------------------
ITEM 1. Legal Proceedings 28
ITEM 2. Changes in Securities 28
ITEM 3. Defaults Upon Senior Securities 28
ITEM 4. Submission of Matters to a Vote of Security Holders 28
ITEM 5. Other Information 28
ITEM 6. Exhibits and Reports on Form 8-K 28
Signature Page 30
</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.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Unaudited)
(In thousands, except share amounts)
<TABLE>
<CAPTION>
March 31, 1999 December 31, 1998
-------------- -----------------
ASSETS
------
<S> <C> <C>
Cash and cash equivalents:
Cash and cash items $ 6,016 $ 8,403
Due from banks 51,547 47,706
Money market investments 35,500 38,079
------------- ------------
93,063 94,188
Debt and equity securities, net:
Held-to-maturity (estimated fair value of $0 and $27,148, respectively) - 26,965
Available-for-sale 698,617 795,362
Mortgage-backed and mortgage related securities, net:
Held-to-maturity (estimated fair value of $0 and $1,268,461, respectively) - 1,250,266
Available-for-sale 3,084,468 1,795,833
------------- ------------
3,783,085 3,868,426
Federal Home Loan Bank of New York stock, at cost 26,379 40,029
Loans held-for-sale, net 75,027 81,725
Loans receivable held for investment, net:
Real estate loans, net 3,452,553 3,527,944
Consumer 101,453 96,005
------------- ------------
3,554,006 3,623,949
Less allowance for possible loan losses (40,272) (40,207)
------------- ------------
3,513,734 3,583,742
Banking house and equipment, net 30,698 32,170
Accrued interest receivable 44,017 47,103
Mortgage servicing rights, net 15,530 13,779
Excess of cost over fair value of net assets acquired 2,331 2,449
Real estate owned, net 873 1,176
Deferred tax asset, net 10,240 5,308
Other assets 33,289 29,624
------------- ------------
Total assets $ 7,628,266 $ 7,799,719
============= ============
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Liabilities:
Deposits:
Savings accounts $ 958,423 $ 971,138
Certificates of deposit 2,839,160 2,835,578
Money market accounts 143,509 120,930
Demand deposit accounts 285,373 291,336
------------- ------------
Total deposits 4,226,465 4,218,982
Official checks outstanding 40,202 22,472
Borrowed funds:
Reverse-repurchase agreements 2,000,382 2,094,319
Other borrowings 372,578 433,528
Accrued dividends and interest on deposits 23,223 28,808
Mortgagors' escrow and security deposits 77,663 72,044
Accrued taxes payable 9,033 34,012
Accrued expenses and other liabilities 80,776 42,188
------------- ------------
Total liabilities 6,830,322 6,946,353
------------- ------------
Commitments and contingencies - -
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; 79,236,244 and 89,196,513
shares issued and; 76,928,744 and 76,459,921 shares outstanding at March 31, 1999 and
December 31, 1998, respectively 792 892
Additional paid-in-capital 481,332 529,012
Retained earnings-substantially restricted 444,959 512,184
Accumulated other comprehensive income:
Net unrealized gain on securities available-for-sale, net of tax 9,482 13,745
Unallocated common stock held by Employee Stock Ownership Plan (ESOP) (49,770) (53,831)
Unearned common stock held by Stock-Based Incentive Plan (SBIP) (29,459) (30,818)
Common stock held by Supplemental Executive Retirement Plan and Trust (SERP), at cost - (2,158)
Treasury stock, at cost (2,307,500 shares and 12,736,592 shares at March 31, 1999 and
December 31, 1998 , respectively) (59,392) (115,660)
------------- ------------
Total stockholders' equity 797,944 853,366
------------- ------------
Total liabilities and stockholders' equity $ 7,628,266 $ 7,799,719
============= ============
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
1
<PAGE>
ROSLYN BANCORP, INC.
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
For the
Three Months Ended
March 31,
----------------------------
1999 1998
---------- ----------
<S> <C> <C>
Interest income:
Federal funds sold and short-term deposits $ 694 $ 675
Debt and equity securities 11,796 12,756
Mortgage-backed and mortgage related securities 49,635 60,185
Real estate loans 65,491 59,596
Consumer and student loans 2,065 1,345
---------- ----------
Total interest income 129,681 134,557
---------- ----------
Interest expense:
Deposits 44,552 47,762
Borrowed funds 33,539 33,954
---------- ----------
Total interest expense 78,091 81,716
---------- ----------
Net interest income before provision for possible loan losses 51,590 52,841
Provision for possible loan losses - 550
---------- ----------
Net interest income after provision for possible loan losses 51,590 52,291
---------- ----------
Non-interest income:
Fees and service charges 1,350 1,751
Mortgage banking operations 3,217 1,835
Net gains on securities 2,185 4,269
Real estate operations, net 290 244
Other non-interest income 118 305
---------- ----------
Total non-interest income 7,160 8,404
---------- ----------
Non-interest expense:
General and administrative expenses:
Compensation and employee benefits 11,854 15,430
Occupancy and equipment 2,201 2,253
Deposit insurance premiums 155 84
Advertising and promotion 630 1,350
Other non-interest expenses 4,011 5,189
---------- ----------
Total general and administrative expenses 18,851 24,306
Amortization of excess of cost over fair value of net
assets acquired 118 117
Merger related costs 87,987 -
Restructuring charge 5,903 -
---------- ----------
Total non-interest expense 112,859 24,423
---------- ----------
(Loss)/income before provision for income tax and extraordinary item (54,109) 36,272
Provision for income tax 1,657 13,213
---------- ----------
(Loss)/income before extraordinary item (55,766) 23,059
Extraordinary item, net of tax - Prepayment penalty on debt extinguishment (2,916) -
---------- ----------
Net (loss)/income $ (58,682) $ 23,059
========== ==========
Basic and diluted (loss)/earnings per share:
(Loss)/income before extraordinary item $ (0.78) $ 0.31
Extraordinary item, net of tax (0.04) -
---------- ----------
Net (loss)/income per share $ (0.82) $ 0.31
========== ==========
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
2
<PAGE>
ROSLYN BANCORP, INC.
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
(Unaudited)
(In thousands, except share amounts)
<TABLE>
<CAPTION>
Unallocated Unearned
Retained Accumulated Common Common
Additional Earnings- Other Stock Stock
Common Paid-in- Substantially Comprehensive Held by Held by
Stock Capital Restricted Income ESOP SBIP
--------- ---------- ---------- -------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1998 $ 892 $ 529,012 $ 512,184 $ 13,745 $ (53,831) $ (30,818)
Comprehensive loss:
Net loss (58,682)
Other comprehensive income, net of
tax :
Unrealized loss on certain
securities,
net of reclassification (5,755)
adjustment (1)
Comprehensive loss
Adjustments to stockholders' equity to
effect the merger with T R
Financial Corp. (100) (47,768) 1,492 3,613 52
Allocation of ESOP stock 84 448
Amortization of SBIP stock awards 4 (164) 1,307
Cash dividends declared on
common stock (8,379)
--------- ---------- ---------- -------- ---------- ----------
Balance at March 31, 1999 $ 792 $ 481,332 $ 444,959 $ 9,482 $ (49,770) $ (29,459)
========= ========== ========== ======== ========== ==========
<CAPTION>
Common Treasury
Stock Held by Stock
SERP, at cost at cost Total
------------- ------------ -----------
<S> <C> <C>
Balance at December 31, 1998 $ (2,158) $ (115,660) $ 853,366
Comprehensive loss:
Net loss (58,682)
Other comprehensive income, net of
tax:
Unrealized loss on certain
securities,
net of reclassification
adjustment (1) (5,755)
----------
Comprehensive loss (2) (64,437)
----------
Adjustments to stockholders' equity to
effect the merger with T R
Financial Corp. 2,158 56,268 15,715
Allocation of ESOP stock 517
Amortization of SBIP stock awards 1,147
Cash dividends declared on
common stock (8,379)
Balance at March 31, 1999 $ - $ (59,392) $ 797,944
=========== =========== ==========
</TABLE>
(1) Disclosure of reclassification adjustment, net of tax, for the three months
ended March 31, 1999:
<TABLE>
<CAPTION>
<S> <C>
Net unrealized depreciation arising during the period $ (4,523)
Less: Reclassification adjustment for net gains included in net loss 1,232
--------
Net unrealized loss on certain securities $ (5,755)
========
(2) Disclosure of Comprehensive Income at March 31, 1998:
Comprehensive Income:
Net income $ 23,059
Other comprehensive income, net of tax:
Unrealized loss on certain securities, net of reclassification
adjustment (369)
--------
Comprehensive income $ 22,690
========
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
3
<PAGE>
ROSLYN BANCORP, INC.
Consolidated Statements of Cash Flows
(Unaudited)
(In thousands)
<TABLE>
<CAPTION>
For the Three Months Ended
March 31,
-------------------------------
1999 1998
--------------- -------------
<S> <C> <C>
Cash flows from operating activities:
Net (loss) income $ (58,682) $ 23,059
Adjustments to reconcile net (loss) income to net cash (used in) provided by operating activities:
Provision for possible loan losses - 550
Recovery of possible other real estate owned losses (329) (150)
Originated mortgage servicing rights, net of amortization and valuation adjustment (1,751) (388)
Amortization of excess of cost over fair value of net assets acquired 118 117
Depreciation and amortization 797 926
Amortization of premiums in excess of (less than) accretion of discounts 20 (2,527)
ESOP and SBIP expense 1,497 4,052
Proceeds from sales of loans held-for-sale, net of originations and purchases 10,701 643
Gains on sales of loans (3,981) (413)
Net gains on securities (2,185) (4,269)
Net gains on sales of real estate owned (9) (205)
Merger related costs and restructuring charges 65,727 -
Income taxes deferred and tax benefits attributable to stock plans (2,013) 224
Changes in assets and liabilities:
Decrease in accrued interest receivable 3,086 154
Decrease (increase) in other assets 2,908 (594)
Increase (decrease) in official checks outstanding 17,730 (12,239)
(Decrease) increase in accrued dividends and interest (5,585) 216
Decrease in accrued taxes payable (24,979) (6,246)
(Decrease) increase in accrued expenses and other liabilities (27,139) 38,351
Net increase (decrease) in unearned income 849 (324)
Increase in other, net 168 114
---------- ---------
Net cash (used in) provided by operating activities (23,052) 41,051
---------- ---------
Cash flows from investing activities:
Proceeds from calls and repayments of debt and mortgage-backed and mortgage related securities
held-to-maturity and redemption of FHLB Capital Stock 13,650 128,642
Proceeds from sales and repayments of debt, equity, mortgage-backed and mortgage-related
securities available-for-sale 872,482 779,025
Purchases of securities held-to-maturity and FHLB Capital Stock - (144,249)
Purchases of debt, equity, mortgage-backed and mortgage related securities available-for-sale (792,144) (809,380)
Loan originations and purchases less than (in excess of) principal repayments 69,137 (192,688)
Proceeds from sales of loans held for investment - 8,942
Disposition (purchases) of banking house and equipment, net 675 (1,152)
Proceeds from sales of other real estate owned 641 439
---------- ---------
Net cash provided by (used in) investing activities 164,441 (230,421)
---------- ---------
Cash flows from financing activities:
Increase in demand deposit, money market and savings accounts 3,901 3,049
Increase (decrease) in certificates of deposit 3,582 (7,447)
(Decrease) increase in borrowed funds (154,887) 235,641
Increase in mortgagors' escrow and security deposits 5,619 20,003
Net proceeds from exercise of stock options - 538
Cash dividends paid on common stock (8,379) (5,989)
Cost to repurchase common stock - (23,190)
Proceeds from reissuance of treasury stock 7,650 -
---------- ---------
Net cash (used in) provided by financing activities (142,514) 222,605
---------- ---------
Net (decrease) increase in cash and cash equivalents (1,125) 33,235
Cash and cash equivalents at beginning of period 94,188 40,673
---------- ---------
Cash and cash equivalents at end of period $ 93,063 $ 73,908
========== =========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest on deposits and borrowed funds $ 88,724 $ 62,402
========== =========
Income taxes $ 26,428 $ 4,535
========== =========
Non-cash investing activities:
Additions to real estate owned, net $ - $ 676
========== =========
Transfer of securities from held-to-maturity to available-for-sale, at amortized cost $1,269,280 $ -
========== =========
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
4
u
<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").
After the close of business on February 16, 1999, T R Financial Corp. merged
with and into the Company and T R Financial Corp.'s subsidiary, Roosevelt
Savings Bank, merged with and into the Bank. All subsidiaries of Roosevelt
Savings Bank became subsidiaries of the Bank (the "Merger"). The acquisition was
accounted for as a pooling-of-interests, and accordingly, all historical
financial information for the Company has been restated to include T R Financial
Corp.'s historical information for the earliest period presented. Previously
reported balances of T R Financial Corp. have been reclassified to conform to
the Company's presentation and restated to give effect to the Merger. When
necessary, certain reclassifications have been made to prior period amounts to
conform to the current periods presentation.
The unaudited consolidated financial statements included herein reflect all
normal recurring adjustments which, in the opinion of management, are necessary
to present a fair statement of the results for the interim periods presented.
The results of operations for the three months ended March 31, 1999 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 1998 Annual Report on Form 10-K.
5
<PAGE>
2. ACQUISITION OF T R FINANCIAL CORP.
On February 16, 1999, a merger between T R Financial Corp., a Delaware company,
and the Company was completed with the Company as the surviving corporation (the
"Merger"). The transaction was treated as a tax-free reorganization and
accounted for using the pooling-of-interests method of accounting. As part of
this Merger, on February 16, 1999, T R Financial Corp.'s wholly-owned
subsidiary, Roosevelt Savings Bank, a New York State chartered stock savings
bank, was merged into the Bank.
Pursuant to the merger agreement, each share of T R Financial Corp. common stock
was converted into the Company's common stock at a fixed exchange ratio of 2.05.
As a result, 17,347,768 shares of T R Financial Corp. common stock were
exchanged for 35,528,785 shares of the Company's common stock and a total of
1,746,880 T R Financial stock options were converted into options to purchase a
maximum of 3,581,103 shares of the Company's common stock at exercise prices
ranging from $2.20 to $17.32 depending on the exercise price of the underlying
T R Financial stock option. Additionally under the agreement, five former
officers and five former directors of T R Financial Corp. have joined the Boards
of Directors of the Company and the Bank.
3. EMPLOYEE STOCK OWNERSHIP PLAN
For the three months ended March 31, 1999 and 1998, compensation expense
attributable to the ESOP was approximately $461,000 and $2.4 million,
respectively. The March 31, 1998 ESOP expense includes $1.9 million of
compensation expense attributable to T R Financial Corp.'s ESOP. Concurrent
6
<PAGE>
with the Merger and pursuant to the terms of the T R Financial Corp. ESOP, the
T R Financial Corp. ESOP loan of approximately $4.5 million was satisfied on
March 30, 1999, through the sale of approximately 244,000 shares of Roslyn
common stock. The remaining shares held by the ESOP trustee were released for
allocation to the former T R Financial Corp. employees. Included in the merger
related charge incurred during the quarter ended March 31, 1999 was $24.6
million relating to the allocation of the shares to the former employees of T R
Financial Corp. This transaction represents a non-cash charge to equity, as the
shares were acquired by the former T R Financial Corp. at its initial public
offering.
4. STOCK-BASED INCENTIVE PLAN
During the three months ended March 31, 1999, the Company granted stock awards
of 34,000 shares, with prices ranging from $17.81 to $20.69 per share, and
16,091 shares were forfeited. During the three months ended March 31, 1999, plan
participants vested in 16,284 shares. The total outstanding unvested stock
awards amounted to 1,252,491 shares at March 31, 1999. Upon the achievement of
certain defined performance targets, 85,057 of the aforementioned shares will
vest. For the three months ended March 31, 1999 and 1998, compensation expense
attributable to the Incentive Plan was approximately $1.0 million and $1.6
million, respectively.
During the three months ended March 31, 1999, the Company granted stock options
of 40,000 shares, with exercise prices ranging from $17.81 to $18.00 per share,
and 44,927 options were forfeited. The total number of outstanding stock options
was 7,761,562, including 1,746,880 of T R Financial Corp.'s stock options that
were converted into options to purchase a maximum of 3,581,103 shares of the
Company's common stock at exercise prices ranging $2.20 to $17.32. The weighted
average price of total outstanding stock options, at March 31, 1999 was $14.35.
The converted T R Financial Corp. stock options were fully vested upon the
consumation of the
7
<PAGE>
Merger. During the three months ended March 31, 1999, plan participants vested
in 3,658,403 stock options, including the vested T R Financial Corp. stock
options.
5. RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board ("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
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 No. 105.
SFAS No. 133 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.
6. RECENT DEVELOPMENTS
On February 10, 1999, the Company announced that its Board of Directors declared
a quarterly dividend of eleven and one half cents' ($0.115) per common share.
The dividend was paid on March 12, 1999 to shareholders of record as of March 2,
1999.
8
<PAGE>
On June 17, 1998, the Company announced that it had received all of the
necessary regulatory approvals to open a full service branch facility in
Bayshore, New York. The Company expects to open this branch in the second
quarter of 1999.
9
<PAGE>
7. DEBT AND EQUITY AND MORTGAGE-BACKED AND MORTGAGE RELATED
SECURITIES
The following table sets forth certain information regarding amortized cost
and estimated fair values of debt and equity and mortgage-backed and
mortgage related securities of the Company at March 31, 1999 and December
31, 1998, respectively.
<TABLE>
<CAPTION>
March 31, 1999 December 31, 1998
----------------------------- ---------------------------------
Estimated Estimated
Amortized Fair Amortized Fair
Cost Value Cost Value
------------- ------------- -------------- ----------------
<S> <C> <C> <C> <C>
(In thousands)
Available-for-sale:
Debt securities:
United States Government-direct and
Guaranteed $ 125,185 $ 127,944 $ 187,250 $ 191,669
United States Government agencies 140,284 140,606 154,353 154,986
State, county and municipal 5,481 5,635 - -
Industrial, financial corporation and other 1,121 1,150 3,003 3,123
----------- ---------- ----------- ------------
Total debt securities 272,071 275,335 344,606 349,778
----------- ---------- ----------- ------------
Equity securities:
Preferred and common stock 247,728 256,507 268,860 284,679
Trust preferreds 153,909 150,702 147,131 144,727
Other 14,893 16,073 14,883 16,178
----------- ---------- ----------- ------------
Total equity securities 416,530 423,282 430,874 445,584
----------- ---------- ----------- ------------
Mortgage-backed and mortgage related securities, net:
FNMA pass-through securities 36,227 35,947 3,135 3,142
GNMA pass-through securities 1,076,161 1,087,889 202,288 204,325
FHLMC pass-through securities 11,584 12,121 3,431 3,451
GNMA adjustable rate mortgage
pass-through securities 314,088 319,333 352,245 356,650
Whole loan private collateralized mortgage obligations 670,734 672,330 674,727 675,659
Agency collateralized mortgage obligations 966,885 956,848 553,917 552,606
----------- ----------- ------------ ------------
Total mortgage-backed and mortgage
related securities, net 3,075,679 3,084,468 1,789,743 1,795,833
----------- ----------- ------------ ------------
Total securities available-for-sale $ 3,764,280 $ 3,783,085 $ 2,565,223 $ 2,591,195
=========== =========== ============ ============
Held-to-maturity, net:
Debt securities:
Public utility $ - $ - $ 800 $ 796
State, county and municipal - - 5,551 5,809
Industrial, financial corporation and other - - 20,614 20,543
----------- ----------- ------------ ------------
Total debt securities - - 26,965 27,148
----------- ----------- ------------ ------------
Mortgaged-backed and mortgage related
securities, net:
FNMA pass-through securities - - 67,500 68,082
GNMA pass-through securities - - 1,045,918 1,060,676
FHLMC pass-through securities - - 65,864 68,245
Whole loan private collateralized mortgage
obligations - - 68,071 68,416
Agency collateralized mortgage obligations - - 2,913 3,042
----------- ----------- ------------ ------------
Total mortgage-backed and mortgage
related securities, net - - 1,250,266 1,268,461
----------- ----------- ------------ ------------
Total securities held-to-maturity $ - $ - $ 1,277,231 $ 1,295,609
=========== =========== ============ ============
</TABLE>
10
<PAGE>
8. LOANS RECEIVABLE, NET
Loans receivable, net at March 31, 1999 and December 31, 1998 consist of
the following:
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
------------ -------------
(In thousands)
<S> <C> <C>
Loans held-for-sale, net:
One- to four- family loans, net $ 73,908 $ 79,991
Student loans 1,119 1,734
---------- -----------
Loans held-for-sale, net $ 75,027 $ 81,725
========== ===========
Loans receivable held for investment, net:
Real estate loans, net:
One- to four- family $2,649,453 $2,730,004
Multi-family 90,038 84,575
Home equity and second mortgage 122,076 114,915
Commercial real estate 482,625 484,260
Construction and development 95,290 101,545
---------- ----------
Total real estate loans 3,439,482 3,515,299
Less:
Net unamortized discount and deferred income (4,190) (4,601)
Net deferred loan origination costs 17,261 17,246
---------- ----------
Total real estate loans, net 3,452,553 3,527,944
Other loans, net:
Consumer 16,518 16,219
Automobile leases, net 84,935 79,786
Less allowance for possible loan losses (40,272) (40,207)
---------- ----------
Loans receivable held for investment, net $3,513,734 $3,583,742
========== ==========
</TABLE>
11
<PAGE>
9. ASSET QUALITY
The following table sets forth information regarding non-accrual loans, at the
dates indicated and real estate owned. It is the Bank's general policy to
discontinue accruing interest on all loans which are 90 days or more past due,
or when in the opinion of management, such suspension is warranted. When a loan
is placed on non-accrual status, the Bank ceases the accrual of interest owed
and previously accrued interest is charged against interest income. Loans are
generally returned to accrual status when principal and interest payments are
current, there is reasonable assurance that the loan will be fully collectible
and a consistent record of performance has been demonstrated.
<TABLE>
<CAPTION>
At March 31, 1999 At December 31, 1998
---------------------- -------------------------
(In thousands)
Non-performing loans:
<S> <C> <C>
One- to four- family $15,287 $15,662
Commercial real estate 2,498 2,775
Home equity 61 120
Consumer loans 25 96
Automobile leases 62 -
------- -------
Total non-accrual loans 17,933 18,653
Loans contractually past due 90 days or more, other than
Non-accruing 1,363 3,421
------- -------
Total non-performing loans (1) 19,296 22,074
Real estate owned, net (2) 873 1,176
------- -------
Total non-performing assets $20,169 $23,250
======= =======
Allowance for possible loan losses as a percent of loans (3) 1.13% 1.11%
Allowance for possible loan losses as a percent of total
non-performing loans 208.71% 182.15%
Non-performing loans as a percent of loans (3) 0.54% 0.61%
Non-performing assets as a percent of total assets 0.26% 0.30%
</TABLE>
(1) Revised to conform T R Financial Corp.'s non-performing policy to Roslyn's.
(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.
<TABLE>
<CAPTION>
Loans in arrears three months or more were as follows at:
Amount % of loans
------ ----------
(Dollars in thousands)
<S> <C> <C>
March 31, 1999 $15,917 0.45%
======= ====
December 31, 1998 $20,649 0.57%
======= ====
December 31, 1997 $18,264 0.60%
======= =====
</TABLE>
12
<PAGE>
There were no restructured loans that had not complied with the terms of their
restructuring agreement for a satisfactory period of time (normally six months)
at March 31, 1999 and $909,000 of restructured loans that had not complied with
the terms of their restructuring agreement at December 31, 1998. Interest
income that would have been recorded if the loans had been performing in
accordance with their original terms aggregated approximately $76,000 during the
year ended December 31, 1998.
13
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
General
Roslyn Bancorp, Inc. is a savings and loan holding company regulated by the
Office of Thrift Supervision. The primary operating subsidiary of Roslyn
Bancorp, Inc. is The Roslyn Savings Bank and its subsidiaries (the "Bank"), a
New York State chartered stock savings bank. While the following discussion of
financial condition and results of operations includes the collective results of
Roslyn Bancorp, Inc. and the Bank (collectively the "Company"), this discussion
reflects principally the Bank's activities as the Company currently does not
engage in any significant business activities other than the management of the
Bank and the investment of net proceeds from the Bank's mutual to stock
conversion which occurred on January 10, 1997.
Financial Condition
Total assets at March 31, 1999 were $7.63 billion, a decrease of $171.5 million,
or 2.2%, from $7.80 billion at December 31, 1998, primarily due to decreases in
both the mortgage loan and debt and equity securities available-for-sale
portfolios. Loans, net of unearned income, decreased $76.6 million, or 2.1%, to
$3.63 billion at March 31, 1999 compared to $3.71 billion at December 31, 1998.
The decrease in loans, net of unearned income, is primarily due to management's
strategy of selling the bulk of its residential originations into the secondary
market in an effort to better manage its interest rate risk. Debt and equity
securities available-for-sale and held-to-maturity decreased $123.7 million, or
15.0%, from $822.3 million at December 31, 1998, to $698.6 million at March 31,
1999 primarily due to management's strategy of selling certain U.S. Government
Bonds and common stock held by the former T R Financial Corp. and replacing them
with higher yielding agency mortgage-backed securities. Mortgage-backed and
mortgage related securities increased $38.4 million, or 1.3% from $3.05 billion
at December 31, 1998 to $3.08 billion at March 31, 1999. These overall
increases were primarily funded through deposit growth, cash flows and the
Company's leveraging strategy.
Total liabilities at March 31, 1999 were $6.83 billion, a decrease of $116.0
million, or 1.7%, from $6.95 billion at December 31, 1998. The overall decrease
in total liabilities was principally due to a $154.9 million decrease in
borrowed funds from $2.53 billion at December 31, 1998 to $2.37 billion at March
31, 1999. Partially offsetting the decrease in borrowed funds was an increase
in total deposits which is the result of the continued growth in certificates of
deposits and money market accounts. Total deposits increased $7.5 million to
$4.23 billion at March 31, 1999 as compared to $4.22 billion for the prior year-
end.
Total stockholders' equity decreased $55.4 million to $797.9 million at March
31, 1999 from $853.4 million at December 31, 1998. The decrease was primarily
due to dividends paid of $8.4 million for the three months ended March 31, 1999,
a $4.3 million decrease in net unrealized gain on securities available-for-sale,
net of tax, and the three months net loss of $58.7 million. Partially
offsetting the decreases were the amortization of unallocated and unearned
shares of common stock held by the Company's stock-related benefit plans.
Analysis of Net Interest Income
Net interest income represents the difference between income on interest-earning
assets and expense on interest-bearing liabilities. Net interest income depends
upon the volume of interest-earning assets and interest-bearing liabilities and
the interest rates earned or paid on them.
The following table sets forth certain information regarding the Company's
average statements of financial condition and its statements of income for the
three months ended March 31, 1999 and 1998, and reflects the average yield on
interest-earning assets and average cost of interest-bearing liabilities for the
periods indicated. Such yields and costs are derived by dividing income or
expense, annualized, by the average balance of interest-
14
<PAGE>
earning assets or interest-bearing liabilities, respectively. Average balances
are derived from average daily balances. Average balances and yields include
non-accrual loans.
<TABLE>
<CAPTION>
Three Months Ended March 31,
----------------------------------------------------------------------------------
1999 1998
------------------------------------------- -----------------------------------
Average Average
Average Yield/ Average Yield/
Balance Interest Cost Balance Interest Cost
------------ ----------- ---------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
(Dollars in thousands)
Assets:
Interest-earning assets:
Federal funds sold and short-term deposits $ 60,441 $ 694 4.59% $ 49,915 $ 675 5.41%
Debt and equity securities 736,045 11,796 6.41 852,527 12,756 5.99
Mortgage-backed and mortgage
related securities 3,070,912 49,635 6.47 3,341,737 60,185 7.20
Real estate loans, net 3,519,843 65,491 7.44 3,004,213 59,596 7.93
Consumer and student loans 114,215 2,065 7.23 72,565 1,345 7.41
------------- ----------- ------------ ---------
Total interest-earning assets 7,501,456 129,681 6.91 7,320,957 134,557 7.35
----------- ---------
Non-interest-earning assets 197,845 200,062
------------- ------------
Total assets $ 7,699,301 $ 7,521,019
============= ============
Liabilities and Stockholders' Equity:
Interest-bearing liabilities:
Money market accounts $ 129,617 1,161 3.58 $ 63,551 371 2.34
Savings accounts 1,032,541 5,412 2.10 1,109,673 7,837 2.82
NOW and Super NOW accounts 148,809 1,530 4.11 163,111 1,262 3.09
Certificates of deposit 2,904,745 36,449 5.02 2,746,575 38,292 5.58
------------- ----------- ------------- ---------
Total deposits 4,215,712 44,552 4.23 4,082,910 47,762 4.68
Borrowed funds 2,444,207 33,539 5.49 2,346,308 33,954 5.79
------------- ------------- ---------
Total interest-bearing liabilities 6,659,919 78,091 4.69 6,429,218 81,716 5.08
----------- ---------
Non-interest-bearing liabilities 189,399 227,500
------------- -------------
Total liabilities 6,849,318 6,656,718
Stockholders' equity 849,983 864,301
------------- -------------
Total liabilities and stockholders' equity $ 7,699,301 $ 7,521,019
============= =============
Net interest income/net interest rate spread $ 51,590 2.22% $ 52,841 2.27%
=========== ==== ========= ====
Net interest margin 2.75% 2.89%
===== ====
Ratio of interest-earning assets to
interest-bearing liabilities 112.64% 113.87%
====== ======
</TABLE>
15
<PAGE>
Comparison of Operating Results for the Three Months Ended March 31, 1999 and
1998
General
The Company reported a net loss of $58.7 million, or basic and diluted loss per
share of $0.82 for the quarter ended March 31, 1999, as compared to net income
of $23.1 million, or basic and diluted earnings per share of $0.31, for the
comparable prior year period.
The quarters include the operating results of T R Financial Corp., which was
acquired by the Company on February 16, 1999 and accounted for as a pooling-of-
interests transaction.
The quarter ended March 31, 1999, includes $78.5 million, net of tax of merger
related costs associated with the acquisition and $3.4 million, net of tax of
restructuring charges relating to the January 1999 early retirement program.
Additionally, an extraordinary item of $2.9 million, net of tax, was incurred
during the quarter ended March 31, 1999 related to prepayment penalties incurred
in recasting the borrowed fund position. The Company, in order to take advantage
of favorable market conditions while increasing spreads and reducing its
exposure to interest rate risk, restructured its securities and borrowed fund
position.
Interest Income
Interest income for the quarter ended March 31, 1999 decreased $4.9 million, or
3.6%, to $129.7 million, from $134.6 million as compared to the quarter ended
March 31, 1998. The decrease was primarily the result of a decrease in the
average yield on total interest-earning assets from 7.35% for the quarter ended
March 31, 1998 to 6.91% for the 1999 comparable quarter. Offsetting the decline
in the yield was a $180.5 million, or 2.5%, increase in average interest-earning
assets to $7.50 billion for the quarter ended March 31, 1999 as compared to
$7.32 billion in the comparable quarter of 1998. The increase in average
interest-earning assets was principally attributable to growth of $515.6 million
in average real estate loans, net and $41.7 million in average consumer and
student loans, offset by a $270.8 million decrease in average mortgage-backed
and mortgage related securities and $116.5 million decrease 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 $5.9 million, or 9.9%, to $65.5
million for the three months ended March 31, 1999, from $59.6 million for the
same period in 1998. The increase was a result of the growth in the average
balance of loans outstanding primarily due to increased loan originations. The
increase was partially offset by a 49 basis point decrease in the average yield
on real estate loans from 7.93% for the three months ended March 31, 1998 to
7.44% for the same period in 1999, principally due to an increased concentration
of lower yielding one- to four- family real estate loans within the loan
portfolio mix.
Interest income on consumer and student loans increased $720,000, or 53.5%, to
$2.1 million for the three months ended March 31, 1999, from $1.3 million for
the same period in 1998. The increase was a result of the growth in the average
balance of consumer loans outstanding. The increase was partially offset by an
18 basis point decrease in the average yield on consumer and student loans from
7.41% for the three months ended March 31, 1998 to 7.23% for the same period in
1999, principally due to the increased concentration of lower yielding home
equity loans within the consumer loan portfolio mix.
Interest income on mortgage-backed and mortgage related securities decreased
$10.6 million, or 17.5%, to $49.6 million for the three months ended, March 31,
1999, from $60.2 million for the same period in 1998. The decrease was partially
the result of the reduction in the average balance of mortgage-backed and
mortgage related securities due to management's strategy of decreasing its
investment in loan-based securities. The decrease was also due to a 73 basis
point decline in the average yield on mortgage-backed and mortgage related
securities from 7.20% for the three months ended March 31, 1998 to 6.47% for the
same period in 1999. Interest income on debt and equity
16
<PAGE>
securities decreased $1.0 million, or 7.5%, to $11.8 million for the three
months ended March 31, 1999 from $12.8 million for the same period in 1998. The
decrease was the result of a decline in the average balance of debt and equity
securities, offset by a 42 basis point increase in the average yield on debt and
equity securities from 5.99% for the three months ended March 31, 1998 to 6.41%
for the same period in 1999.
Interest Expense
Interest expense for the three months ended March 31, 1999, was $78.1 million,
compared to $81.7 million for the three months ended March 31, 1998, a decrease
of $3.6 million, or 4.4%. The decrease in interest expense is related to a 39
basis point decline in the average cost of interest-bearing liabilities offset
by a $230.7 million, or 3.6%, increase in the average balance of interest-
bearing liabilities from $6.43 billion for the quarter ended March 31, 1998 to
$6.66 billion for the quarter ended March 31, 1999. This increase reflects a
$132.8 million increase in the average balance of interest-bearing deposits and
a $97.9 million increase in the average balance of borrowed funds for the
quarter ended March 31, 1999, as compared to the prior year quarter.
The increase in total deposits was primarily due to an increase in the average
balance of money markets and certificates of deposit by offering competitive
rates. The lower average cost, partially offset by higher deposit balances,
resulted in a decrease of $3.2 million in interest expense on deposits for the
quarter ended March 31, 1999 as compared to the same quarter in 1998.
The average balance of borrowed funds increased $97.9 million from $2.35 billion
for the three months ended March 31, 1998 to $2.44 billion for the three months
ended March 31, 1999. This increase, coupled with a 30 basis point decrease in
the average cost, resulted in a $415,000 decrease in interest expense on
borrowed funds, from $34.0 million for the quarter ended March 31, 1998 to $33.5
million for the quarter ended March 31, 1999. The increase in borrowings,
principally reverse-repurchase agreements, are part of the Company's wholesale
leverage strategy to improve its return on invested capital.
The proceeds from the increased deposits and borrowings were reinvested in real
estate loans and investment securities.
Net Interest Income
Net interest income before provision for possible loan losses was $51.6 million
for the three months ended March 31, 1999 as compared to $52.8 million for the
three months ended March 31, 1998, a decrease of $1.3 million, or 2.4%. The net
interest margin and spread for the quarter ended March 31, 1999, decreased to
2.75% and 2.22%, respectively, from 2.89% and 2.27%, respectively, for the prior
year quarter due to the increase in the average balances of borrowed funds and
deposits, combined with the decrease in the rates earned on real estate loans
and mortgage-backed and related securities.
Provision for Possible Loan Losses
The Company had no provision for possible loan losses for the three months ended
March 31, 1999 as compared to $550,000 for the three months ended March 31,
1998. The lack of a provision for possible loan losses for the three months
ended March 31, 1999 reflects management's qualitative and quantitative
assessment of the loan portfolio, net charge-offs and collection of delinquent
loans. At March 31, 1999 and December 31, 1998, the allowance for possible loan
losses amounted to $40.3 million and $40.2 million, respectively, and the ratio
of such allowance to total non-performing loans was 208.71% and 182.15%,
respectively.
The Company's formalized process for assessing the adequacy of the allowance for
loan losses, and the resultant need, if any, for periodic provisions to the
allowance charged to income, entails both individual loan analyses and loan pool
analyses. The individual loan analyses are periodically performed on
individually significant loans or
17
<PAGE>
when otherwise deemed necessary, and primarily encompasses multi-family,
commercial real estate and construction and development loans. The result of
these individual analyses is the allocation of the overall allowance to specific
allowances for individual loans, both loans considered impaired and non-
impaired.
The loan pool analyses are performed on the balance of the portfolio, primarily
the one- to four- family residential and consumer loans. The pools consist of
aggregations of homogeneous loans having similar credit risk characteristics.
Examples of pools defined by the Company for this purpose are Company-
originated, fixed-rate residential loans; Company-originated, adjustable-rate
residential loans; purchased, fixed-rate residential loans; outside-serviced
residential loans; residential second mortgage loans; participations in
conventional first mortgages; residential construction loans; commercial
construction loans, etc. For each such defined pool, there is a set of sub-pools
based upon delinquency status: current, 30-59 days, 60-89 days, 90-119 days and
120+ days (the latter two sub-pools are considered to be "classified" by the
Company). For each sub-pool, the Company has developed a range of allowance
necessary to adequately provide for probable losses inherent in that pool of
loans. These ranges are based upon a number of factors including the risk
characteristics of the pool, actual loss and migration experience, expected loss
and migration experience considering current economic conditions, industry
norms, and the relative seasoning of the pool. The ranges of allowance developed
by the Company are applied to the outstanding principal balance of the loans in
each sub-pool; as a result, further specific and general allocations of the
overall allowance are made (the allocations for the classified sub-pools are
considered specific and the allocations for the non-classified sub-pools are
considered general).
The Company's overall allowance also contains an unallocated amount which is
supplemental to the results of the aforementioned process and takes into
consideration known and expected trends that are likely to affect the
creditworthiness of the loan portfolio as a whole such as, national and local
economic conditions, unemployment conditions in the local lending area and the
timeliness of court foreclosures proceedings in the Company's local and other
lending areas.
At March 31, 1999 and December 31, 1998, the loan portfolio continued to show
significant growth in all sectors, and the mix has continued to change. At those
dates, one- to four- family residential first mortgage loans were $2.72 billion
and $2.81 billion, respectively, or 75.0% and 75.8%, respectively, of loans net
of unearned income. The relatively riskier multi-family, commercial real estate,
construction and development, and home equity and second mortgage loans
aggregated $790.0 million and $785.3 million, respectively, at those dates, or
21.8% and 21.2%, respectively, of loans net of unearned income. Consumer,
student and automobile leases amounted to $102.6 million or 2.8% of gross loans
and $97.7 million or 2.6% of loans net of unearned income at March 31, 1999 and
December 31, 1998, respectively. Non-performing loans at those dates were $19.3
million and $22.1 million, respectively, of which $2.5 million and $2.8 million,
respectively, were commercial real estate loans. The allowance for possible loan
losses as a percent of loans was 1.13% and 1.11%, respectively, at those dates.
The quantitative information cited in the above paragraph indicates a continuing
trend over the last several years: (1) a dramatic increase in absolute dollars,
and significant increase in relative dollars, in the relatively less risky one-
to four- family residential first mortgage loans; (2) a steady increase in
absolute dollars, and significant decrease in relative dollars, in the
relatively riskier loans (as previously defined); and (3) a decrease in absolute
dollars in non-performing loans. The application of the Company's formalized
process for assessing the adequacy of the allowance for possible loan losses to
the loan portfolio undergoing the changes cited during the last several years
has resulted in a relatively flat absolute dollar level of the allowance for
possible loan losses and a steady decrease in the ratio of the allowance for
possible loan losses to total loans. Management continues to believe the
Company's reported allowance for possible loan losses is both appropriate in the
circumstances and adequate to provide for estimated probable losses inherent in
the loan portfolio.
18
<PAGE>
Non-Interest Income
Non-interest income decreased $1.2 million, or 14.8%, to $7.2 million for the
quarter ended March 31, 1999 as compared to $8.4 million for the same period in
the prior year. The decrease was a result of a $2.1 million decrease in net
gains on sales of securities and a $401,000 decrease in fees and service
charges. The decrease in net gains on sales of securities was due to
management's investment strategy of periodically recognizing profits from its
available-for-sale securities portfolio during favorable market conditions.
Offsetting these decreases is a $1.4 million increase in mortgage banking
operations income. The increase in mortgage banking operations income, which
includes gains from the sale of loans, was primarily due to an increased level
of loan production and favorable market conditions in the secondary market.
Non-Interest Expense
Non-interest expense totaled $112.9 million for the quarter ended March 31, 1999
as compared to $24.4 million for the quarter ended March 31, 1998. The increase
in non-interest expense was primarily attributable to merger related costs
associated with the acquisition of T R Financial Corp. totaling $88.0 million
and the restructuring charge in connection with the early retirement program for
employees totaling $5.9 million. The aforementioned merger related costs
associated with the acquisition comprised of $16.9 million of transaction costs,
$39.9 million of severance and other compensation costs, $24.6 million of ESOP
amortization costs and $6.5 million of costs associated with combining
operations. General and administrative expenses decreased $5.5 million, or
22.4%, to $18.9 million for the quarter ended March 31, 1999 from $24.3 million
for the 1998 corresponding quarter. The decrease primarily reflects cost savings
achieved in connection with the acquisition of T R Financial Corp., principally
relating to reductions in compensation and certain employee benefit plan
expenses and the elimination of other redundant charges. After giving effect to
the reduction in expenses relating to the merger, compensation and employee
benefits increased slightly due to the costs associated with additional
commission and other compensation costs associated with the increased volume of
loan originations, and to a lesser extent, due to an increase in office and
occupancy expense relating to the mid-fourth quarter 1998, opening of two
branches.
Income Taxes
Total income tax expense decreased $11.6 million, from $13.2 million recorded
during the quarter ended March 31, 1998 to $1.7 million during the quarter ended
March 31, 1999. The decrease is primarily attributable to the decrease in income
before income taxes and the tax effect of the merger related costs and other
restructuring charges.
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. Purchases of
mortgage-backed and mortgage related and debt and equity securities totaled
$792.1 million and $953.6 million during the three months ended March 31, 1999
and 1998, 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 three months ended March
31, 1999.
The Company closely monitors its liquidity position on a daily basis. Excess
short-term liquidity is invested in overnight federal funds sold. In the event
that the Bank should require funds beyond its ability to generate them
internally, additional sources of funds are available through the use of
reverse-repurchase agreements. At March 31,
19
<PAGE>
1999, the Company had $2.00 billion in reverse-repurchase agreements
outstanding, and at December 31, 1998 there were $2.09 billion 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.
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.
Management of Interest Rate Risk
The principal objectives of the Company's interest rate risk management are to
evaluate the interest rate risk inherent in certain balance sheet accounts,
determine the level of risk appropriate given the Company's business strategy,
operating environment, capital and liquidity requirements and performance
objectives, and manage the risk consistent with the Board of Directors' approved
guidelines. Through such management, the Company seeks to reduce the
vulnerability of its operations to changes in interest rates. The Company's
Board of Directors reviews the Company's interest rate risk position on a
monthly basis. The Company's Board of Directors has established an
Asset/Liability Committee comprised of the Company's senior management under the
direction of the Board of Directors. Senior management is responsible for
reviewing with the Board of Directors its activities and strategies, the effect
of those strategies on the Company's net interest margin, the market value of
the portfolio of investments and loans and the effect that changes in interest
rates will have on the Company's portfolio and exposure limits.
Currently, the Company has utilized the following strategies to manage interest
rate risk: (1) selling substantially all mortgage loans to the secondary market
without recourse; and (2) investing in shorter-term adjustable-rate securities
which may generally bear lower yields as compared to longer-term investments,
but which better position the Company for increases in market interest rates. In
recent years, the Company has attempted to shorten the maturities of its
interest-earning assets by increasing its investment in shorter-term investments
to better match the maturities of its deposit accounts, in particular its
certificates of deposit that mature in one year or less, which, at March 31,
1999, totaled $2.26 billion, or 34.9%, of total interest-bearing liabilities.
These strategies may adversely impact net interest income due to lower initial
yields on these investments in comparison to longer-term fixed-rate investments
and whole loans. However, management believes that reducing its exposure to
interest rate fluctuations will enhance long-term profitability.
Gap Analysis
The matching of assets and liabilities may be analyzed by examining the extent
to which such assets and liabilities are "interest rate sensitive" and by
monitoring an institution's "interest rate sensitivity gap." An asset or
liability is said to be interest rate sensitive within a specific time period if
it will mature or reprice within that time period. The interest rate
sensitivity gap is defined as the difference between the amount of interest-
earning assets maturing or repricing within a specific time period and the
amount of interest-bearing liabilities maturing or repricing within that same
time period. At March 31, 1999, the Company's one-year gap position was
negative 3.37%. 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
20
<PAGE>
decrease, there will be a corresponding effect on the Company's interest rate
margin and corresponding operating results.
The following table sets forth the amounts of interest-earning assets and
interest-bearing liabilities outstanding at March 31, 1999, which are
anticipated by the Company, based upon certain assumptions, to reprice or mature
in each of the future time periods shown (the Gap Table). Except as stated
below, the amount of assets and liabilities shown which reprice or mature during
a particular period were determined in accordance with the earlier of term to
repricing or the contractual maturity of the asset or liability. The table sets
forth an approximation of the projected repricing of assets and liabilities at
March 31, 1999, 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 8.00% to 40.00% 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 7.68% and 24.96% annually. Savings accounts were assumed to
decay at 21.00%, 5.00%, 5.00%, 5.00%, 5.00% and 59.00%, Super NOW and NOW
accounts and money market accounts were assumed to decay at 20.00%, 5.00%,
5.00%, 5.00%, 5.00% and 60.00%, 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.
21
<PAGE>
<TABLE>
<CAPTION>
At March 31, 1999
------------------------------------------------------------------------------------------------------
One Two Three Four Over
Up to to Two to Three to Four to Five Five
One Year Years Years Years Years Years Total
------------ ------------ ----------- ----------- ---------- ------------ ------
<S> <C> <C> <C> <C> <C> <C>
(Dollars in thousands)
Interest-earning assets
(1):
Federal funds sold $ 35,500 $ - $ - $ - $ - $ - $ 35,500
Debt and equity
securities, net (2) 155,645 33,926 96,154 18,909 - 420,362 724,996
Mortgage-backed and
mortgage related
securities, net (2) 1,690,712 672,910 347,116 178,581 75,099 120,050 3,084,468
Real estate loans,
net (3) (4) 937,743 521,384 388,417 321,086 464,019 875,966 3,508,615
Consumer and student
loans (4) 49,702 32,350 18,116 658 237 1,422 102,485
------------ ------------ ------------ ------------ ----------- ------------ ---------
Total interest-earning
assets 2,869,302 1,260,570 849,803 519,234 539,355 1,417,800 7,456,064
------------ ------------ ----------- ----------- ---------- ------------ ---------
Interest-bearing
liabilities:
Money market accounts 28,704 7,175 7,175 7,175 7,175 86,105 143,509
Savings accounts 201,266 47,921 47,921 47,921 47,921 565,473 958,423
Super NOW and NOW
accounts 30,589 7,648 7,648 7,648 7,648 91,773 152,954
Certificates of deposit 2,258,943 306,098 124,172 59,053 51,958 38,936 2,839,160
Borrowed funds 607,082 709,500 152,600 628,300 55,000 220,478 2,372,960
----------- ------------ ----------- ----------- ---------- ----------- ---------
Total interest-bearing
liabilities 3,126,584 1,078,342 339,516 750,097 169,702 1,002,765 6,467,006
----------- ------------ ----------- ----------- ---------- ----------- ---------
Interest sensitivity
gap (5) $ (257,282) $ 182,228 $ 510,287 $ (230,863) $ 369,653 $ 415,035 $ 989,058
============ ============ =========== =========== ========== =========== =========
Cumulative interest
sensitivity gap $ (257,282) $ (75,054) $ 435,233 $ 204,370 $ 574,023 $ 989,058
============ ============ =========== =========== ========== ============
Cumulative interest
sensitivity gap as a
percentage of total assets (3.37)% (0.98)% 5.71% 2.68% 7.52% 12.97%
Cumulative net interest-
earning assets as a
percentage of cumulative
interest-bearing liabilities 91.77% 98.22% 109.58% 103.86% 110.51% 115.29%
</TABLE>
(1) Interest-earning assets are included in the period in which the balances are
expected to be re-deployed and/or repriced as a result of anticipated
prepayments, scheduled rate adjustments and contractual maturities.
(2) Debt and equity and mortgage-backed and mortgage related securities are
shown at their respective carrying values. Equity securities includes
callable preferred stock, the maturities of which have been assumed to be
the date on which they are initially callable.
(3) For the purpose of the gap analysis, the allowance for possible loan losses
and non-accrual loans have been excluded.
(4) Loans held-for-sale, net 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.
22
<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, 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.
The Company's interest rate sensitivity is also monitored by management through
the use of a model which internally generates estimates of the change in net
portfolio value ("NPV") over a range of interest rate change scenarios. NPV is
the present value of expected cash flows from assets, liabilities, and off-
balance sheet contracts. The NPV ratio, under any interest rate scenario, is
defined as the NPV in that scenario divided by the market value of assets in the
same scenario. For purposes of the NPV table, prepayment assumptions similar to
those used in the Gap Table were used, reinvestment rates were those in effect
for similar products currently being offered and rates on core deposits were
modified to reflect recent trends. The following table sets forth the Company's
NPV as of March 31, 1999, as calculated by the Company.
<TABLE>
<CAPTION>
Change in
Interest
Rates NPV as % of Portfolio
in Basis Net Portfolio Value Value of Assets
Points
--------------------------------------------------------------- -----------------------------------------
(Rate Shock) Amount $ Change % Change NPV Ratio % Change (1)
- ------------- ----------------- ------------------ ----------------- ------------------ -----------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
200 $ 554,946 $ (306,433) (35.57)% 7.80% 7.26%
100 722,299 (139,080) (16.15) 9.75 3.51
Static 861,379 - 0.00 11.22 0.00
(100) 860,991 (388) (0.05) 10.99 (2.07)
(200) 875,361 13,982 1.62 11.02 (3.45)
</TABLE>
(1) Based on the portfolio value of the Company's assets assuming no change in
interest rates.
As in the case with the Gap Table, certain shortcomings are inherent in the
methodology used in the above interest rate risk measurements. Modeling changes
in NPV require the making of certain assumptions which may or may not reflect
the manner in which actual yields and costs respond to changes in market
interest rates. In this regard, the NPV model presented assumes that the
composition of the Company's interest sensitive assets and liabilities existing
at the beginning of a period remains constant over the period being measured and
also assumes that a particular change in interest rates is reflected uniformly
across the yield curve regardless of the duration to maturity or repricing of
specific assets and liabilities. Accordingly, although the NPV measurements and
net interest income models provide
23
<PAGE>
an indication of the Company's interest rate risk exposure at a particular point
in time, such measurements are not intended to and do not provide a precise
forecast of the effect of changes in market interest rates on the Company's net
interest income and will differ from actual results.
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 the FDIC and the New York State Banking
Department, the Bank must meet certain measures of capital adequacy with respect
to leverage and risk-based capital. As of March 31, 1999 the Bank exceeded
those requirements. The Bank's leverage capital ratio, Tier-I risk-based
capital ratio and total-risk based capital ratio were 8.38%, 19.19% and 20.41%,
respectively.
Computer Issues for the Year 2000
Year 2000 Compliance
The "Year 2000 Problem", as it is generally referred to, concerns the inability
of certain computer hardware and software systems and associated applications to
correctly recognize and process dates beyond December 31, 1999. Many computer
programs were developed using only six digits to define the date field in their
programs. Computer programs used by the Company, its suppliers or outside
service providers that have date-sensitive software may recognize "00" as the
year 1900, rather than the year 2000. Due to the nature of financial
information, calculations that rely on the integrity of the date field for the
correct processing of information could be significantly misstated, if
corrective action is not timely taken.
State of Readiness
The Company has implemented a detailed Year 2000 Plan, according to the
guidelines of the Federal Financial Institutions Examination Council, to
evaluate the Year 2000 compliance of its computer systems and the equipment
which supports the operation of the Company. As a New York State chartered
savings institution, the Bank is subject to review by both the NYSBD and the
FDIC. The FDIC has completed three Tier II Year 2000 examinations of the Bank's
remediation progress.
Beginning in 1997, the Company initiated formal communications with all of its
service providers, vendors, major fund providers, major borrowers and companies
with which it has material investments, to determine the extent to which it may
be vulnerable to the inability of those parties to remediate their own Year 2000
issues. The Company's vendor relationships cover a wide range of services which
may or may not be subject to a contractual agreement. Where a contractual
relationship exists between the Company and a provider of services, and the
Company suffers harm to its operations due to a failure on the part of the
vendor to provide the service, whether due to Year 2000 or some other issue, the
vendor would be subject to a breach of contract suit. In order to minimize the
risk of material loss or disruption of the Company's business due to an issue
involving date sensitive processing, the Company has not only required of all of
these vendors their written assurances that they are proactively addressing Year
2000 issues within their operations, but the Company is also requesting and
taking advantage of opportunities to test and verify these claims.
24
<PAGE>
Like many financial institutions, the Company relies upon computers for the
daily conduct of its business and for data processing generally. The Company
utilizes a combination of in-house and service bureau applications, with the
bulk of customer account processing being handled by leading national vendors of
data processing services for financial institutions. The Company has received
written assurances that these service providers have completed their internal
remediation of programs, and have substantially completed the remediation of
issues related to interdependencies with other parties. The Company continues to
participate both directly and indirectly in the testing of these servicers and
other third party dependencies.
The Company does not anticipate that there will be any significant or material
condition which will impact these service providers in their ability to deliver
accurate data processing services before, during and after the transition to the
new millennium. However, results of system tests conducted by the Company and by
other users of this service providers will be carefully monitored to ensure that
all issues have been identified and successfully remediated.
In addition to its outsourced systems, the Company relies on in-house, computer
based financial accounting and mortgage origination systems. The Company has
recently installed a new general ledger and financial accounting system, and has
upgraded the mortgage origination system. The new systems have been certified by
their respective vendors to be Year 2000 compliant. Language to that effect was
included in the service contracts executed with the system vendors. All of these
revisions were planned around the business needs of the Company, not the ability
or inability of the installed software to accommodate Year 2000 processing.
Nevertheless, these mission critical system replacements are Year 2000
compliant.
The balance of the Company's internal processing is supported by PC based
systems, using industry standard software to run non-mission critical
applications. Any software program or application which was not supported by the
vendor, or which required an update to achieve Year 2000 capability, has been
replaced or upgraded. Equipment which contains embedded chips or microprocessors
has also been tested and replaced or scheduled for replacement in 1999.
The Company believes it has developed an effective plan to address the Year 2000
problem and that, based on the available information, its Year 2000 transition
will not have a material effect on its business, operations or financial
results. However, the Company has no control over the progress of third parties
in addressing their own Year 2000 issues. If the necessary changes are not
effected or are not completed in a timely manner, or if unanticipated problems
arise, there may be a material impact on the Company's financial condition and
results of operations.
Cost to Address the Company's Year 2000 Issues
The Company's expenses related to Year 2000 issues for 1998 were $60,000 and the
Company anticipates the expenses for 1999 to be approximately $525,000. The
Company intends to fund such costs from its current operations. However, as
stated above, there can be no assurance that all such costs have been
identified, or that there may not be some unforeseen cost which may have a
material adverse effect on the Company's financial condition and results of
operations.
Risks of Year 2000 Issues
To date, the Company has not identified any system which presents a material
risk of failing to be Year 2000 compliant in a timely manner, or for which a
suitable alternative cannot be implemented. However, as the Company
25
<PAGE>
progresses with its Year 2000 transition, systems or equipment may be identified
which present a material risk of business interruption. Such disruption may
include the inability to process customer account transactions, including
deposits, withdrawals, loan payments and disbursements; the inability to
reconcile and record daily activity; the inability to process loan applications
or to track delinquencies; the inability to generate checks or to clear funds.
In addition, if any of the Company's major borrowers should fail to achieve Year
2000 compliance, and should they experience a disruption of their own
businesses, their ability to meet their obligations to the Company may be
seriously impaired. To mitigate credit risk in the case of large borrowers, the
Company currently includes a clause relating to the borrower's Year 2000
awareness and preparedness in its loan commitment documents. In addition, 100%
of all borrowers whose loans exceed $500,000 have been contacted to survey their
Year 2000 readiness in order to anticipate any potential exposure.
To the extent that the risks posed by the Year 2000 problem are pervasive in
data processing and telecommunication services worldwide, or to the extent that
disruption of a power utility prevents the Company from gaining access to its
systems, the Company cannot predict with certainty that it will remain
materially unaffected by issues related to the Year 2000 problem, which are
beyond the Company's control.
Contingency Plans
The Company is in the process of developing two types of contingency plans. The
Remediation Plans will identify components of mission critical applications
which are judged, at some point prior to December 31, 1999, to be at risk of
failure to achieve complete renovation, validation and implementation. Business
Interruption Plans will ensure that the Company has sufficiently planned for
unanticipated system failures at critical production dates before, on and after
January 1, 2000.
Remediation Plan: The Company expects to complete its Year 2000 transition and
- ----------------
to have thoroughly tested its systems prior to any date of potential disruption.
However, the Company is developing Year 2000 remediation plans for mission
critical systems which are not already identified as compliant. If the results
of testing of the Company's systems are not satisfactory, contingency plans will
be invoked within sufficient time to assure successful implementation of a
compliant alternative.
Business Interruption Plans: These plans would be invoked if unanticipated Year
- ----------------------------
2000 problems disrupt production, similar to Disaster Recovery Plans.
Essentially, they require that resources are planned for deployment to ensure
that such an interruption does not threaten the viability of the Company. The
Company will modify its current Business Resumption Plan to specifically address
the special circumstances of a disruption due to a Year 2000 related component
failure.
The discussion above contains certain forward-looking statements. Actual
results may differ materially from the Company's expectations due to the nature
and uncertainty of circumstances surrounding the Year 2000 problem. The Company
may fail to identify systems that are not Year 2000 compliant, or the Company or
other parties may fail to meet the dates and goals set above. If so, the extent
and nature of efforts to then address those contingencies, to repair or replace
the affected systems, the Company's ability to obtain qualified personnel,
consultants or other resources and the success of those efforts cannot be stated
with any degree of certainty.
26
<PAGE>
Current Legislation
Currently, legislation is pending that would broaden the activities in which
bank holding companies and banks may engage, and restructure the regulation of
financial service companies. The legislation would, however, restrict the
activities of unitary savings and loan holding companies, subject to a
grandfather for existing unitary savings and loan holding companies, such as the
Company. The Company is unable to predict whether legislation will be enacted or
the extent to which the legislation would impact competition or
restrict or disrupt its operations.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
For a description of the Company's quantitative and qualitative
disclosures about market risk, see the information set forth under the caption
"Management's Discussion and Analysis of Financial Conditions and Results of
Operations Interest Rate Sensitivity Analysis."
27
<PAGE>
PART II - OTHER INFORMATION
- ---------------------------
Item 1. Legal Proceedings
The Company is not involved in any pending legal proceedings other than
routine legal proceedings occurring in the ordinary course of business. Such
routine legal proceedings, in the aggregate, are believed by management to be
immaterial to the Company's financial condition or results of operations.
Item 2. Changes in Securities
Not applicable
Item 3. Defaults Upon Senior Securities
Not applicable
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable
Item 5. Other Information
Not applicable
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
--------
3.1 Certificate of Incorporation of Roslyn Bancorp, Inc.(1)
3.2 Bylaws of Roslyn Bancorp, Inc. (2)
10.17 Employment agreement between Roslyn Savings Bank and John M.
Tsimbinos
11.0 Statement re: Computation of Per Share Earnings
27.0 Financial Data Schedule
--------------------------
(1.) Incorporated by reference into this document from Exhibits filed
with the Registration Statement on Form S-1, and any amendments
thereto, Registration Statement No. 333-10471, filed with the
Securities and Exchange Commission on August 20, 1996.
(2.) Incorporated by reference into this document from the Exhibits
filed with the Form 10-K, and any amendments thereto, Commission File
No. 0-28886, filed with the securities and Exchange Commission on
March 31, 1999.
(b) Reports on Form 8-K
-------------------
(i) On January 12, 1999, Roslyn filed a Report on Form 8-K to
announce that it had entered into the First Amendment, dated as of January 23,
1999 to the Agreement and Plan of Merger, dated as of May 25, 1998 with T R
Financial Corp.
(ii) On February 8, 1999, Roslyn filed a Report on Form 8-K
regarding its issuance of a press release which reported earnings for the fiscal
year and quarter ended December 31, 1998.
(iii) On February 19, 1999, Roslyn filed a Report on Form 8-K to
announce the consummation of its acquisition of T R Financial Corp., as well as
to announce the consummation of the merger of Roosevelt Savings Bank with and
into The Roslyn Savings Bank.
28
<PAGE>
Exhibit Index
-------------
<TABLE>
<CAPTION>
Exhibit No. Identification of Exhibit
- ----------- -------------------------
<S> <C>
10.17 Employment Agreement between Roslyn Savings Bank and John M. Tsimbinos
11.0 Statement re: Computation of Per Share Earnings
27.0 Financial Data Schedule (submitted only with filing in electronic filing)
</TABLE>
29
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ROSLYN BANCORP, INC.
(Registrant)
Date: May 17, 1999 By: /S/ Joseph L. Mancino
------------- -----------------------------------------------
Joseph L. Mancino
Vice Chairman of the Board, President and
Chief Executive Officer
Date: May 17, 1999 By: /S/ Michael P. Puorro
------------ -----------------------------------------------
Michael P. Puorro
Treasurer and Chief Financial Officer
30
<PAGE>
EXHIBIT 10.17
<PAGE>
THE ROSLYN SAVINGS BANK
EMPLOYMENT AGREEMENT
This AGREEMENT ("Agreement") is made effective as of February 16, 1999, by
and between The Roslyn Savings Bank (the "Institution"), a state chartered
savings institution with its principal offices at 1400 Old Northern Boulevard,
Roslyn, New York 11576, Roslyn Bancorp, Inc., a corporation organized under the
laws of the State of Delaware, the holding company for the Institution (the
"Company"), and John M. Tsimbinos ("Executive").
WHEREAS, the Institution wishes to assure itself of the services of
Executive for the period provided in this Agreement; and
WHEREAS, the Executive is willing to serve in the employ of the Institution
on a full-time basis for said period.
NOW, THEREFORE, in consideration of the mutual covenants herein contained,
and upon the other terms and conditions hereinafter provided, the parties hereby
agree as follows:
1. POSITION AND RESPONSIBILITIES.
During the period of Executive's employment hereunder, Executive agrees to
serve as the Chairman of the Board of the Company and Vice Chairman of the
Institution. The Executive shall render administrative and management services
to the Company and the Institution such as are customarily performed by persons
in a similar executive officer capacity. During said period, Executive also
agrees to serve as a director of the Company and the Institution and, if
elected, as an officer and director of any subsidiary of the Institution.
2. TERMS.
(a) The period of Executive's employment under this Agreement shall be
deemed to have commenced as of the date first above written and shall continue
through the period ending on the last day of the month in which he attains age
65, that is, July 31, 2002.
(b) During the period of Executive's employment hereunder, except for
periods of absence occasioned by illness, reasonable vacation periods, and
reasonable leaves of absence, Executive shall devote substantial time,
attention, skill and efforts to the performance of his duties hereunder
including activities and services related to the organization, operation and
management of the Institution and participation in community and civic
organizations; provided, however, that, with the approval of the Board of
-------- -------
Directors of the Institution, as evidenced by a resolution of such Board, from
time to time, Executive may serve, or continue to serve, on the boards of
directors of, and hold any other offices or positions in, companies or
organizations, which, in such Board's judgment, will not present any conflict of
interest with the Institution or materially affect the performance of
Executive's duties pursuant to this Agreement.
(c) Notwithstanding anything herein contained to the contrary, Executive's
employment with the Institution may be terminated by the Institution or
Executive during the term of this Agreement, subject to the terms and conditions
of this Agreement. However, Executive shall not perform, in any respect,
directly or indirectly, during the pendency of his temporary or permanent
suspension or termination from the Institution, duties and responsibilities
formerly performed at the
-1-
<PAGE>
Institution as part of his duties and responsibilities as Chairman of the Board
of the Company and Vice Chairman of the Institution.
3. COMPENSATION AND REIMBURSEMENT.
(a) The Executive shall be entitled to an annual rate of salary from the
Institution equal to the greater of (i) $500,000 per year or (ii) if higher, the
annual rate of salary payable by the Institution to the second highest paid
officer or employee taking into account all forms of cash compensation ("Base
Salary"). Base Salary shall include any amounts of compensation deferred by
Executive under any qualified or unqualified plan maintained by the Institution.
Such Base Salary shall be payable bi-weekly. During the period of this
Agreement, Executive's Base Salary shall be reviewed at least annually; the
first such review will be made no later than one year from the date of this
Agreement. Such review shall be conducted by the Board or by a Committee of the
Board delegated such responsibility by the Board. The Committee or the Board may
increase Executive's Base Salary. Any increase in Base Salary shall become the
"Base Salary" for purposes of this Agreement. In addition to the Base Salary
provided in this Section 3(a), the Institution shall also provide Executive, at
no premium cost to Executive, with all such other benefits as provided uniformly
to permanent full-time employees of the Institution.
(b) In exchange for the Executive's agreement not to compete with the
Company or the Institution set forth in Section 10(a) hereof, the Executive
shall, in addition to the Base Salary provided for by paragraph (a) of this
Section 3, be entitled to additional compensation during the term of this
Agreement at an annual rate equal to $175,000. Such noncompete compensation
shall be payable bi-weekly.
(c) Executive shall be entitled to participate in or receive benefits under
any employee benefit plans, including, but not limited to, retirement plans,
supplemental retirement plans, pension plans, profit-sharing plans, stock or
option plans, health-and-accident plans, medical coverage or any other employee
benefit plan or arrangement made available by the Institution at present or in
the future to its senior executives and key management employees, subject to and
on a basis consistent with the terms, conditions and overall administration of
such plans and arrangements. Executive shall be entitled to incentive
compensation and bonuses as provided in any plan or arrangement of the
Institution in which Executive is eligible to participate. Subject to the
provisions of Section 3(e) of this Agreement, nothing paid to the Executive
under any such plan or arrangement will be deemed to be in lieu of other
compensation to which the Executive is entitled under this Agreement.
(d) In addition to the Base Salary provided for by paragraph (a) of this
Section 3, the noncompete compensation provided for by paragraph (b) of this
Section 3 and other compensation provided for by paragraph (c) of this Section
3, the Institution shall pay or reimburse Executive for all reasonable travel
and other reasonable expenses incurred in the performance of Executive's
obligations under this Agreement and may provide such additional compensation in
such form and such amounts as the Board may from time to time determine.
(e) The total aggregate present value of the compensation and benefits
provided to the Executive by the Institution under Subsections (a), (b), (c) and
(e) of this Section 3 shall not be less than or greater than $1,000,000 per year
(approximately prorated for any applicable portion of a calendar year) (the
"Limit"). To the extent that the compensation provided for in Subsections (a),
(b), (c) and (e) of this Section 3 each year during the term of this Agreement
does not at least equal the Limit, the Institution shall provide the Executive
with grants of stock options, option-related
-2-
<PAGE>
awards or awards of the Company's common stock under the Roslyn Bancorp, Inc.
1997 Stock-Based Incentive Plan or other plan or arrangement, valued using a
generally accepted valuation methodology (such as market value for common stock
grants and Black-Scholes or alternative option pricing methods) acceptable to
the Institution and the Executive, or cash payments under incentive or other
plans, such that the estimated aggregate present value of the compensation
provided to the Executive by the Institution under Subsections (a), (b), (c) and
(e) of this Section 3 shall equal the Limit.
(f) In addition to any pension benefits to which the Executive shall be
entitled (i) under any tax-qualified defined benefit plan of the Company, the
Institution or any of their respective subsidiaries or affiliates, or any
predecessor of any of them ("Retirement Plan") and (ii) under any supplemental
executive retirement or other defined benefit plan or other excess benefit plan
within the meaning of section 3(36) of the Employee Retirement Income Security
Act of 1974, as amended ("ERISA") and under any plan to provide deferred income
for a select group of management or highly compensated employees of the Company,
the Institution or any of their respective subsidiaries or affiliates, or any
predecessor of any of them (collectively, "SERP"), the Company and the
Institution shall provide an additional supplemental pension benefit under this
Agreement equal to the difference between (A) the pension benefits that the
Executive would have been entitled to under the Retirement Plan and SERP if his
Base Salary under this Agreement were $675,000 (the Base Salary set forth in
Section 3(a) as it may be amended from time to time) and (B) the pension
benefits that the Executive is actually entitled to under the Retirement Plan
and SERP. The intent of this Section 3(f) is to permit the Executive to
continue to accrue additional pension benefits under the Retirement Plan and
SERP on and following the date of this Agreement, determined as if his
compensation under such Retirement Plan and SERP were based upon the prior
sentence. For purposes of interpretation, attached hereto as Exhibit A are
computations prepared by the Retirement System Group Inc. which set forth the
Executive's accrued monthly pension benefits as of the dates indicated under the
Retirement Plan and SERP of T R Financial Corp. and Roosevelt Savings Bank. The
supplemental pension benefits provided for in this Section 3(f) shall be paid in
the same form and at the same time and subject to the same terms and conditions,
and to the same beneficiaries, as the pension benefits provided to the Executive
under the Retirement Plan and/or the SERP, as the case may be. Notwithstanding
the foregoing, the Executive and the Institution may mutually agree that such
supplemental pension benefit be paid in a different form or commencing at a
different time.
(g) Executive's principal place of employment shall be at the Institution's
executive offices at the address first above written, or at such other location
in New York City or in Nassau or Suffolk County at which the Institution shall
maintain its principal executive offices, or at such other location as the Board
and Executive may mutually agree upon. The Institution shall provide Executive,
at his principal place of employment, with a private office, stenographic
services and other support services and facilities suitable to his position with
the Institution and necessary or appropriate in connection with the performance
of his assigned duties under this Agreement. The Institution shall provide
Executive with an automobile suitable to the position of Chairman of the Company
and Vice Chairman of the Institution, in accordance with the prior practices of
T R Financial Corp. and Roosevelt Savings Bank, and such automobile may be used
by Executive in carrying out his duties under the Agreement, including commuting
between his residence and his principal place of employment, and other personal
use. The Institution shall reimburse Executive for his ordinary and necessary
business expenses, including, without limitation, fees for memberships in such
clubs and organizations as Executive and the Board shall mutually agree are
necessary and appropriate for business purposes, and travel and entertainment
expenses, incurred in connection with the performance of his duties under this
Agreement, upon presentation to the
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<PAGE>
Institution of an itemized account of such expenses in such form as the
Institution may reasonably require.
4. PAYMENTS TO EXECUTIVE UPON AN EVENT OF TERMINATION.
(a) Upon the occurrence of an Event of Termination (as herein defined)
during the Executive's term of employment under this Agreement, the provisions
of this Section shall apply. As used in this Agreement, an "Event of
Termination" shall mean and include any of the following: (i) the termination by
the Institution of Executive's full-time employment hereunder for any reason
other than termination governed by Section 5(a) hereof, or for Cause, as defined
in Section 7 hereof; (ii) Executive's resignation from the Institution's employ,
upon, any (A) unless consented to by the Executive, failure to elect or reelect
or to appoint or reappoint Executive as Chairman of the Board of the Company and
Vice Chairman of the Institution or failure to nominate or renominate Executive
as a Director of the Institution or the Company as of the date of this
Agreement, (B) a material change in Executive's function, duties, or
responsibilities with the Institution, which change would cause Executive's
position to become one of lesser responsibility, importance, or scope from the
position and attributes thereof described in Section 1, above, unless consented
to by the Executive, (C) a relocation of Executive's principal place of
employment by more than 25 miles from its location at the effective date of this
Agreement, unless consented to by the Executive, (D) a reduction in the benefits
and perquisites to the Executive from those being provided as of the effective
date of this Agreement, unless consented to by the Executive, (E) a liquidation
or dissolution of the Company or the Institution, or (F) breach of this
Agreement by the Institution. Upon the occurrence of any event described in
clauses (A), (B), (C), (D), (E) or (F), above, Executive shall have the right to
elect to terminate his employment under this Agreement by resignation upon not
less than sixty (60) days prior written notice given within six full calendar
months after the event giving rise to said right to elect.
(b) Upon the occurrence of an Event of Termination, on the Date of
Termination, as defined in Section 8, the Institution shall be obligated to pay
Executive, or, in the event of his subsequent death, his beneficiary or
beneficiaries, or his estate, as the case may be, a sum equal to the sum of: (i)
the amount (subject to the Limit) of the remaining payments that the Executive
would have earned if he had continued his employment with the Institution during
the remaining term of this Agreement at the Executive's Base Salary at the Date
of Termination; (ii) (subject to the Limit) the amount equal to the annual
contributions or payments that would have been made on Executive's behalf to any
employee benefit plans of the Institution or the Company during the remaining
term of this Agreement based on contributions or payments made (on an annualized
basis) at the Date of Termination and (iii) the amount (subject to the Limit) of
the noncompete compensation that would have been payable during the remaining
term of this Agreement based on contributions or payments made (on an annualized
basis) at the Date of Termination. At the election of the Executive, which
election is to be made prior to an Event of Termination, such payment shall be
made: (a) in a lump sum as of the Executive's Date of Termination, (b) on a bi-
weekly basis in approximately equal installments during the remaining term of
the Agreement, or (c) on an annual basis in approximately equal installments
during the remaining term of the Agreement. Such payments shall not be reduced
in the event the Executive obtains other employment following termination of
employment.
-4-
<PAGE>
5. CHANGE IN CONTROL.
(a) For purposes of this Agreement, a "Change in Control" of the
Institution shall be deemed to have occurred at such time as (A) any "person"
(as the term is used in Sections 13(d) and 14(d) of the Securities Exchange Act
of 1934, as amended ("Exchange Act")) is or becomes the "beneficial owner" (as
defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of voting
securities of the Institution or the Company representing 25% or more of the
Institution's or the Company's outstanding voting securities or right to acquire
such securities except for any voting securities of the Institution purchased by
the Company and any voting securities purchased by any employee benefit plan of
the Institution, or (B) individuals who constitute the Board on the date hereof
(the "Incumbent Board") cease for any reason to constitute at least a majority
thereof, provided that any person becoming a director subsequent to the date
hereof whose election was approved by a vote of at least three-quarters of the
directors comprising the Incumbent Board, or whose nomination for election by
the Company's stockholders was approved by a Nominating Committee solely
composed of members which are Incumbent Board members, shall be, for purposes of
this clause (B), considered as though he were a member of the Incumbent Board,
or (C) a plan of reorganization, merger, consolidation, sale of all or
substantially all the assets of the Company or similar transaction (a
"Transaction") occurs or is effectuated, other than a Transaction following
which: (i) more than 50% of the equity ownership interests of the entity
resulting from such Transaction are beneficially owned (within the meaning of
Rule 13d-3 promulgated under the Exchange Act) in substantially the same
relative proportions by persons who, immediately prior to such Transaction,
beneficially owned (within the meaning of Rule 13d-3 promulgated under the
Exchange Act) more than 50% of the outstanding equity ownerships interests in
the Institution; and (ii) more than 50% of the securities entitled to vote
generally in the election of directors of the entity resulting from such
Transaction are beneficially owned (within the meaning of Rule 13d-3 promulgated
under the Exchange Act) in substantially the same relative proportions by
persons who, immediately prior to such Transaction, beneficially owned (within
the meaning of Rule 13d-3 promulgated under the Exchange Act) more than 50% of
the securities entitled to vote generally in the election of directors of the
Institution.
(b) If a Change in Control has occurred pursuant to Section 5(a) or the
Board has determined that a Change in Control has occurred, Executive shall be
entitled to the benefits provided in paragraphs (c) and (d), of this Section 5
upon his subsequent termination of employment at any time during the term of
this Agreement due to (i) Executive's dismissal, or (ii) Executive's voluntary
resignation following any demotion, loss of title, office or significant
authority or responsibility, reduction in the annual compensation or material
reduction in benefits or relocation of his principal place of employment by more
than 25 miles from its location immediately prior to the change in control,
unless such termination is because of his death or termination for Cause.
(c) Upon the Executive's entitlement to benefits pursuant to Section 5(b),
the Institution shall pay Executive, or in the event of his subsequent death,
his beneficiary or beneficiaries, or his estate, as the case may be, as
severance pay or liquidated damages, or both, a sum equal to the greater of: (i)
the payments due for the remaining term of the Agreement, including the amount
of the noncompete compensation that would have been payable during the remaining
term of this Agreement; or (ii) three (3) times Executive's annual compensation
for the most recently completed year. Such annual compensation shall include
Base Salary, commissions, bonuses, contributions or accruals on behalf of
Executive to any pension and profit sharing plan, any benefits to be paid or
received under any stock-based benefit plan, severance payments, directors or
committee fees and fringe benefits paid or to be paid to the Executive during
such years. At the election of the
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<PAGE>
Executive, which election is to be made prior to a Change in Control, such
payment shall be made: (a) in a lump sum, (b) on a bi-weekly basis in
approximately equal installments over a period of thirty-six (36) months
following the Executive's termination, or (c) on an annual basis in
approximately equal installments over a period of thirty-six (36) months
following the Executive's termination. Such payments shall not be reduced in the
event Executive obtains other employment following termination of employment.
(d) Upon the Executive's entitlement to benefits pursuant to Section 5(b),
the Institution will cause to be continued life, medical, dental and long-term
or other disability coverage substantially equivalent to the coverage maintained
by the Institution for Executive at no premium cost to Executive prior to his
severance. Such coverage and payments shall cease upon the expiration of
thirty-six (36) months following the Change in Control.
6. CHANGE OF CONTROL RELATED PROVISIONS.
In each calendar year that Executive is entitled to receive payments or
benefits under the provisions of this Employment Agreement, the Institution
shall determine if an excess parachute payment (as defined in Section 4999 of
the Internal Revenue Code of 1986, as amended, and any successor provision
thereto, (the "Code")) exists. Such determination shall be made after taking any
reductions permitted pursuant to Section 280G of the Code and the regulations
thereunder. Any amount determined to be an excess parachute payment after taking
into account such reductions shall be hereafter referred to as the "Initial
Excess Parachute Payment". As soon as practicable after a Change in Control,
the Initial Excess Parachute Payment shall be determined. Upon the Date of
Termination following a Change in Control, the Institution shall pay Executive,
subject to applicable withholding requirements under applicable state or federal
law, an amount equal to:
(1) twenty (20) percent of the Initial Excess Parachute Payment (or such
other amount equal to the tax imposed under Section 4999 of the Code);
and
(2) such additional amount (tax allowance) as may be necessary to
compensate Executive for the payment by Executive of state and federal
income and excise taxes on the payment provided under Clause (1) and on
any payments under this Clause (2). In computing such tax allowance,
the payment to be made under Clause (1) shall be multiplied by the
"gross up percentage" ("GUP"). The GUP shall be determined as follows:
Tax Rate
GUP = _________
1- Tax Rate
The "Tax Rate" for purposes of computing the GUP shall be the sum of
the highest marginal federal and state income and employment-related
tax rates, including any applicable excise tax rates, applicable to the
Executive in the year in which the payment under Clause (1) is made.
(3) Notwithstanding the foregoing, if it shall subsequently be determined
in a final judicial determination or a final administrative settlement
to which Executive is a party that the excess parachute payment as
defined in Section 4999 of the Code, reduced as described above, is
more than the Initial Excess Parachute Payment (such different amount
being hereafter referred to
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<PAGE>
as the "Determinative Excess Parachute Payment") then the Institution's
independent accountants shall determine the amount (the "Adjustment
Amount") the Institution must pay to the Executive in order to put the
Executive in the same position as the Executive would have been if the
Initial Excess Parachute Payment had been equal to the Determinative
Excess Parachute Payment. In determining the Adjustment Amount,
independent accountants of the Institution shall take into account any
and all taxes (including any penalties and interest) paid by or for
Executive or refunded to Executive or for Executive's benefit. As soon
as practicable after the Adjustment Amount has been so determined, the
Institution shall pay the Adjustment Amount to Executive. In no event
however, shall Executive make any payment under this paragraph to the
Institution.
7. TERMINATION FOR CAUSE.
The term "Termination for Cause" shall mean termination because of: 1)
Executive's personal dishonesty, willful misconduct, breach of fiduciary duty
involving personal profit, intentional failure to perform stated duties, willful
violation of any law, rule, regulation (other than traffic violations or similar
offenses), final cease and desist order or material breach of any provision of
this Agreement which results in a material loss to the Institution or the
Company, or 2) Executive's conviction of a felony. For the purposes of this
Section, no act, or the failure to act, on Executive's part shall be "willful"
unless done, or omitted to be done, not in good faith and without reasonable
belief that the action or omission was in the best interests of the Bank or its
affiliates. Notwithstanding the foregoing, Executive shall not be deemed to have
been terminated for Cause unless and until there shall have been delivered to
him a Notice of Termination which shall include a copy of a resolution duly
adopted by the affirmative vote of not less than three-fourths of the members of
the Board at a meeting of the Board called and held for that purpose (after
reasonable notice to Executive and an opportunity for him, together with
counsel, to be heard before the Board), finding that in the good faith opinion
of the Board, Executive was guilty of conduct justifying Termination for Cause
and specifying the particulars thereof in detail. The Executive shall not have
the right to receive compensation or other benefits for any period after
Termination for Cause. During the period beginning on the date of the Notice of
Termination for Cause pursuant to Section 8 hereof through the Date of
Termination, any unvested stock options and related limited rights granted to
Executive under any stock option plan shall not be exercisable nor shall any
unvested awards granted to Executive under any stock benefit plan of the
Institution, the Company or any subsidiary or affiliate thereof, vest. At the
Date of Termination, any such unvested stock options and related limited rights
and any such unvested awards shall become null and void and shall not be
exercisable by or delivered to Executive at any time subsequent to such
Termination for Cause.
8. NOTICE.
(a) Any purported termination by the Institution or by Executive shall be
communicated by Notice of Termination to the other party hereto. For purposes of
this Agreement, a "Notice of Termination" shall mean a written notice which
shall indicate the specific termination provision in this Agreement relied upon
and shall set forth in reasonable detail the facts and circumstances claimed to
provide a basis for termination of Executive's employment under the provision so
indicated.
(b) "Date of Termination" shall mean the date specified in the Notice of
Termination (which, in the case of a Termination for Cause, shall not be less
than thirty (30) days from the date such Notice of Termination is given);
provided, however, that if a dispute regarding the Executive's
-7-
<PAGE>
termination exists, the "Date of Termination" shall be determined in accordance
with Section 8(c) of this Agreement.
(c) If, within thirty (30) days after any Notice of Termination is given,
the party receiving such Notice of Termination notifies the other party that a
dispute exists concerning the termination, except upon the occurrence of a
Change in Control and voluntary termination by the Executive in which case the
Date of Termination shall be the date specified in the Notice, the Date of
Termination shall be the date on which the dispute is finally determined, either
by mutual written agreement of the parties, by a binding arbitration award, or
by a final judgment, order or decree of a court of competent jurisdiction (the
time for appeal therefrom having expired and no appeal having been perfected)
and; provided, further, that the Date of Termination shall be extended by a
notice of dispute only if such notice is given in good faith and the party
giving such notice pursues the resolution of such dispute with reasonable
diligence. Notwithstanding the pendency of any such dispute, the Institution
will continue to pay Executive his full compensation in effect when the notice
giving rise to the dispute was given (including, but not limited to, Base
Salary) and continue him as a participant in all compensation, benefit and
insurance plans in which he was participating when the notice of dispute was
given, until the dispute is finally resolved in accordance with this Agreement.
Amounts paid under this Section are in addition to all other amounts due under
this Agreement and shall not be offset against or reduce any other amounts due
under this Agreement.
9. POST-TERMINATION OBLIGATIONS.
All payments and benefits to Executive under this Agreement shall be
subject to Executive's compliance with this Section 9 for one (1) full year
after the earlier of the expiration of this Agreement or termination of
Executive's employment with the Institution. Executive shall, upon reasonable
notice, furnish such information and assistance to the Institution as may
reasonably be required by the Institution in connection with any litigation in
which it or any of its subsidiaries or affiliates is, or may become, a party.
10. NON-COMPETITION AND NON-DISCLOSURE.
(a) Upon any termination of Executive's employment hereunder pursuant to
Section 4 hereof, Executive agrees not to compete with the Institution for a
period of one (1) year following such termination in any city, town or county in
which the Executive's normal business office is located and the Institution has
an office or has filed an application for regulatory approval to establish an
office, determined as of the effective date of such termination, except as
agreed to pursuant to a resolution duly adopted by the Board. Executive agrees
that during such period and within said cities, towns and counties, Executive
shall not work for or advise, consult or otherwise serve with, directly or
indirectly, any entity whose business materially competes with the depository,
lending or other business activities of the Institution. The parties hereto,
recognizing that irreparable injury will result to the Institution, its business
and property in the event of Executive's breach of this Subsection 10(a) agree
that in the event of any such breach by Executive, the Institution, will be
entitled, in addition to any other remedies and damages available, to an
injunction to restrain the violation hereof by Executive, Executive's partners,
agents, servants, employees and all persons acting for or under the direction of
Executive. Executive represents and admits that in the event of the termination
of his employment pursuant to Section 7 hereof, Executive's experience and
capabilities are such that Executive can obtain employment in a business engaged
in other lines and/or of a different nature than the Institution, and that the
enforcement of a remedy by way of injunction will not prevent Executive from
earning a livelihood. Nothing herein will be construed
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<PAGE>
as prohibiting the Institution from pursuing any other remedies available to the
Institution for such breach or threatened breach, including the recovery of
damages from Executive.
(b) Executive recognizes and acknowledges that the knowledge of the
business activities and plans for business activities of the Institution as it
may exist from time to time, is a valuable, special and unique asset of the
business of the Institution. Executive will not, during or after the term of
his employment, disclose any knowledge of the past, present, planned or
considered business activities of the Institution thereof to any person, firm,
corporation, or other entity for any reason or purpose whatsoever unless
expressly authorized by the Board of Directors or required by law.
Notwithstanding the foregoing, Executive may disclose any knowledge of banking,
financial and/or economic principles, concepts or ideas which are not solely and
exclusively derived from the business plans and activities of the Institution.
Further, Executive may disclose information regarding the business activities of
the Bank or Institution to the Superintendent of Banks of the State of New York,
the New York Banking Department, OTS, the Federal Deposit Insurance Corporation
("FDIC") or other appropriate bank regulator pursuant to a formal regulatory
request. In the event of a breach or threatened breach by the Executive of the
provisions of this Section, the Institution will be entitled to an injunction
restraining Executive from disclosing, in whole or in part, the knowledge of the
past, present, planned or considered business activities of the Institution or
from rendering any services to any person, firm, corporation, other entity to
whom such knowledge, in whole or in part, has been disclosed or is threatened to
be disclosed. Nothing herein will be construed as prohibiting the Institution
from pursuing any other remedies available to the Institution for such breach or
threatened breach, including the recovery of damages from Executive.
11. SOURCE OF PAYMENTS.
(a) All payments provided in this Agreement shall be timely paid in cash or
check from the general funds of the Institution subject to Section 11(b). The
Company, however, unconditionally guarantees payment and provision of all
amounts and benefits due hereunder to Executive and, if such amounts and
benefits due from the Institution are not timely paid or provided by the
Institution, such amounts and benefits shall be paid or provided by the Company.
(b) Notwithstanding any provision herein to the contrary, payments pursuant
to this Agreement shall be allocated in proportion to the level of activity and
the time expended on such activities by the Executive as determined by the
Company and the Institution on a quarterly basis. Notwithstanding any provision
herein to the contrary, to the extent that compensation payments and benefits,
as provided by this Agreement, are paid to or received by Executive under the
Employment Agreement dated February 16, 1999, between Executive and the Company,
such compensation payments and benefits paid by the Company will be subtracted
from any amount due simultaneously to Executive under similar provisions of this
Agreement.
12. EFFECT ON PRIOR AGREEMENTS AND EXISTING BENEFITS PLANS.
This Agreement contains the entire understanding between the parties hereto
and supersedes any prior employment agreement between the Institution or any
predecessor of the Institution and Executive, except that this Agreement shall
not affect or operate to reduce any benefit, compensation, tax indemnification
or other provision inuring to the benefit of the Executive under the Employment
Agreements dated as of January 23, 1997 between the Executive and T R Financial
Corp. and Roosevelt Savings Bank, respectively ("Prior Agreements"). Such Prior
Agreements shall continue in full force and effect except to the extent of the
payments made to the executive as of the
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<PAGE>
closing of the merger of T R Financial Corp. with Roslyn Bancorp, Inc., which
transaction closed on the date of this Agreement. No provision of this Agreement
shall be interpreted to mean that Executive is subject to receiving fewer
benefits than those available to him without reference to this Agreement.
13. NO ATTACHMENT.
(a) Except as required by law, no right to receive payments under this
Agreement shall be subject to anticipation, commutation, alienation, sale,
assignment, encumbrance, charge, pledge, or hypothecation, or to execution,
attachment, levy, or similar process or assignment by operation of law, and any
attempt, voluntary or involuntary, to affect any such action shall be null,
void, and of no effect.
(b) This Agreement shall be binding upon, and inure to the benefit of,
Executive and the Institution and their respective successors and assigns.
14. MODIFICATION AND WAIVER.
(a) This Agreement may not be modified or amended except by an instrument
in writing signed by the parties hereto.
(b) No term or condition of this Agreement shall be deemed to have been
waived, nor shall there be any estoppel against the enforcement of any provision
of this Agreement, except by written instrument of the party charged with such
waiver or estoppel. No such written waiver shall be deemed a continuing waiver
unless specifically stated therein, and each such waiver shall operate only as
to the specific term or condition waived and shall not constitute a waiver of
such term or condition for the future as to any act other than that specifically
waived.
15. REQUIRED PROVISIONS.
Any payments made to Executive pursuant to this Agreement, or otherwise,
are subject to and conditioned upon compliance with 12 U.S.C. Section 1828(k)
and any rules and regulations promulgated thereunder, including 12 C.F.R. Part
359.
16. SEVERABILITY.
If, for any reason, any provision of this Agreement, or any part of any
provision, is held invalid, such invalidity shall not affect any other provision
of this Agreement or any part of such provision not held so invalid, and each
such other provision and part thereof shall to the full extent consistent with
law continue in full force and effect.
17. HEADINGS FOR REFERENCE ONLY.
The headings of sections and paragraphs herein are included solely for
convenience of reference and shall not control the meaning or interpretation of
any of the provisions of this Agreement.
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<PAGE>
18. GOVERNING LAW.
This Agreement shall be governed by the laws of the State of New York,
unless otherwise specified herein.
19. ARBITRATION.
Any dispute or controversy arising under or in connection with this
Agreement shall be settled exclusively by arbitration, conducted before a panel
of three arbitrators sitting in a location selected by the Executive within
fifty (50) miles from the location of the Institution, in accordance with the
rules of the American Arbitration Association then in effect. Judgment may be
entered on the arbitrator's award in any court having jurisdiction; provided,
however, that Executive shall be entitled to seek specific performance of his
right to be paid until the Date of Termination during the pendency of any
dispute or controversy arising under or in connection with this Agreement.
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<PAGE>
20. PAYMENT OF COSTS AND LEGAL FEES AND REINSTATEMENT OF BENEFITS.
In the event any dispute or controversy arising under or in connection with
Executive's termination is resolved in favor of the Executive, whether by
judgment, arbitration or settlement, Executive shall be entitled to the payment
of: (1) all legal fees incurred by Executive in resolving such dispute or
controversy, and (2) any back-pay, including salary, bonuses and any other cash
compensation, fringe benefits and any compensation and benefits due Executive
under this Agreement.
21. INDEMNIFICATION.
The Institution shall provide Executive (including his heirs, executors and
administrators) with coverage under a standard directors' and officers'
liability insurance policy at its expense and shall indemnify Executive (and his
heirs, executors and administrators) to the fullest extent permitted under New
York law against all expenses and liabilities reasonably incurred by him in
connection with or arising out of any action, suit or proceeding in which he may
be involved by reason of his having been a director or officer of the
Institution (whether or not he continues to be a director or officer at the time
of incurring such expenses or liabilities), such expenses and liabilities to
include, but not be limited to, judgments, court costs and attorneys' fees and
the cost of reasonable settlements.
22. SUCCESSOR TO THE INSTITUTION.
The Institution shall require any successor or assignee, whether direct or
indirect, by purchase, merger, consolidation or otherwise, to all or
substantially all the business or assets of the Institution or the Institution,
expressly and unconditionally to assume and agree to perform the Institution's
obligations under this Agreement, in the same manner and to the same extent that
the Institution would be required to perform if no such succession or assignment
had taken place.
[Remainder of Page Intentionally Left Blank]
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<PAGE>
SIGNATURES
IN WITNESS WHEREOF, The Roslyn Savings Bank and Roslyn Bancorp, Inc. have
caused this Agreement to be executed and their seals to be affixed hereunto by
their duly authorized officers and directors, and Executive has signed this
Agreement, on the 16/th/ day of February, 1999.
ATTEST: THE ROSLYN SAVINGS BANK
/s/ R. Patrick Quinn By: /s/ Joseph L. Mancino
- ------------------------------- ------------------------------
R. Patrick Quinn Joseph L. Mancino
Secretary For the Board of Directors
[SEAL]
ATTEST: ROSLYN BANCORP, INC.
(Guarantor)
/s/ R. Patrick Quinn By: /s/ Joseph L. Mancino
- ------------------------------- ------------------------------
R. Patrick Quinn Joseph L. Mancino
Secretary For the Board of Directors
[SEAL]
WITNESS:
/s/ A. Gordon Nutt By: /s/ John M. Tsimbinos
- ------------------------------- ------------------------------
A. Gordon Nutt John M. Tsimbinos
Executive
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<PAGE>
Exhibit 11.0
Roslyn Bancorp, Inc.
Statement Re: Computation of Per Share Earnings
(In thousands, except share and per share amounts)
<TABLE>
<CAPTION>
Three Months Three Months
Ended Ended
March 31, March 31,
1999 1998
----------- -----------
<S> <C> <C>
Net (loss) income $ (58,682) $ 23,059
----------- -----------
Weighted average common shares outstanding 71,824,745 73,612,156
----------- -----------
Basic loss/earnings per common share $ (0.82) $ 0.31
=========== ===========
Weighted average common shares outstanding 71,824,745 73,612,156
Potential common stock due to dilutive effect of stock options (1) 1,864,051
----------- -----------
Total shares for diluted earnings per share 71,824,745 75,476,207
----------- -----------
Diluted loss/earnings per common share $ (0.82) $ 0.31
=========== ===========
</TABLE>
(1) Effect would be anti-dilutive.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<LEGEND>
This schedule contains summary financial information extracted from the Form
10-Q and is qualified in its entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 57,563
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 35,500
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 3,783,085
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 3,629,033
<ALLOWANCE> 40,272
<TOTAL-ASSETS> 7,628,266
<DEPOSITS> 4,226,465
<SHORT-TERM> 125,000
<LIABILITIES-OTHER> 230,897
<LONG-TERM> 2,247,960
0
0
<COMMON> 792
<OTHER-SE> 797,152
<TOTAL-LIABILITIES-AND-EQUITY> 7,628,266
<INTEREST-LOAN> 67,556
<INTEREST-INVEST> 61,431
<INTEREST-OTHER> 694
<INTEREST-TOTAL> 129,681
<INTEREST-DEPOSIT> 44,552
<INTEREST-EXPENSE> 78,091
<INTEREST-INCOME-NET> 51,590
<LOAN-LOSSES> 0
<SECURITIES-GAINS> 2,185
<EXPENSE-OTHER> 112,859
<INCOME-PRETAX> (54,109)
<INCOME-PRE-EXTRAORDINARY> (55,766)
<EXTRAORDINARY> (2,916)
<CHANGES> 0
<NET-INCOME> (58,682)
<EPS-PRIMARY> (0.82)
<EPS-DILUTED> (0.82)
<YIELD-ACTUAL> 6.91
<LOANS-NON> 17,933
<LOANS-PAST> 1,363
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 4,606
<ALLOWANCE-OPEN> 40,207
<CHARGE-OFFS> 18
<RECOVERIES> 83
<ALLOWANCE-CLOSE> 40,272
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 40,272
</TABLE>
