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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1996
OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ________________ to ____________
Commission File Number: 0-21386
T R FINANCIAL CORP.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 11-3154382
(STATE OR OTHER JURISDICTION (I.R.S. EMPLOYER
OF INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
1122 FRANKLIN AVENUE, GARDEN CITY, NEW YORK 11530 11530
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE) (ZIP CODE)
(516) 742-9300
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing for the past 90 days.
Yes X No
----- -----
As of November 7, 1996, there were 8,949,016 shares of the Registrant's
common stock outstanding.
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<PAGE>
FORM 10-Q
T R FINANCIAL CORP.
INDEX
Page
PART I -- FINANCIAL INFORMATION Number
- ------------------------------- ------
ITEM 1. Financial Statements -- Unaudited
Consolidated Statements of Financial Condition at
September 30, 1996 and December 31, 1995 3
Consolidated Statements of Income for the three and nine
months ended September 30, 1996 and 1995 4
Consolidated Statement of Stockholders' Equity for
the nine months ended September 30, 1996 5
Consolidated Statements of Cash Flows for the nine
months ended September 30, 1996 and 1995 6
Notes to Unaudited Consolidated Financial Statements 7-12
ITEM 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 13-21
PART II -- OTHER INFORMATION
ITEM 1. Legal Proceedings 22
ITEM 2. Changes in Securities 22
ITEM 3. Defaults Upon Senior Securities 22
ITEM 4. Submission of Matters to a Vote of Security Holders 22
ITEM 5. Other Information 22
ITEM 6. Exhibits and Reports on Form 8-K 22
Signature Page 23
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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
risks and uncertainties which could cause actual results to differ materially
from those projected. Such risks and uncertainties include the final results of
the disposition of the Nationar estate by the Superintendent of Banks of the
State of New York, 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.
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2
<PAGE>
<TABLE>
<CAPTION>
T R FINANCIAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
September 30, December 31,
ASSETS 1996 1995
- ------ ----------------- -----------------
<S> <C> <C>
Cash and cash equivalents $ 18,410 $ 21,204
Trading account securities 2,963 --
Securities available for sale:
Bonds and equities 325,198 304,154
Mortgage-backed securities 118,641 226,842
----------- -----------
Total securities available for sale 443,839 530,996
----------- -----------
Securities held to maturity, net (estimated market value of $942,803 and
$880,197 at September 30, 1996 and December 31, 1995, respectively):
Bonds 56,268 98,792
Mortgage-backed securities 888,018 756,831
----------- -----------
Total securities held to maturity, net 944,286 855,623
----------- -----------
Loans, net of deferred income 1,655,365 1,423,574
Allowance for possible loan losses (14,246) (13,267)
----------- -----------
Net loans 1,641,119 1,410,307
----------- -----------
Other real estate owned, net 3,666 6,547
Banking house and equipment, net 13,289 11,877
Accrued interest receivable 19,687 20,223
Federal Home Loan Bank stock, at cost 33,390 33,603
Deferred tax asset, net 10,127 4,410
Other assets 9,718 9,833
----------- -----------
Total assets $ 3,140,494 $ 2,904,623
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Due to depositors $ 2,279,370 $ 2,038,341
Borrowed funds 597,050 594,563
Mortgagors' escrow deposits 25,336 16,852
Accounts payable and accrued expenses 8,463 12,987
Official checks outstanding 12,753 25,102
Accrued taxes payable 368 3,095
Other liabilities 17,783 13,999
----------- -----------
Total liabilities 2,941,123 2,704,939
----------- -----------
Commitments and contingencies -- --
Stockholders' equity:
Preferred stock, $.01 par value, 5,000,000 shares authorized; none issued -- --
Common stock, $.01 par value, 30,000,000 shares authorized;
11,362,000 shares issued; 8,956,962 shares and 9,480,557 shares outstanding
at September 30, 1996 and December 31, 1995, respectively 114 114
Additional paid-in-capital 103,180 101,063
Retained earnings, partially restricted 151,576 133,111
Net unrealized appreciation (depreciation)
in certain securities, net of tax (3,044) 4,230
Less:Unallocated common stock held by ESOP (5,928) (6,763)
Unearned common stock held by Bank's Recognition and Retention
Plans and Trusts (RRP's) (395) (907)
Common stock held by Bank's Supplemental Executive Retirement
Plan and Trust, at cost (38,953 shares and 25,110 shares at
September 30, 1996 and December 31, 1995, respectively) (717) (351)
Treasury stock, at cost (2,405,038 shares and 1,881,443 shares
at September 30, 1996 and December 31, 1995, respectively) (45,415) (30,813)
----------- -----------
Total stockholders' equity 199,371 199,684
----------- -----------
Total liabilities and stockholders' equity $ 3,140,494 $ 2,904,623
=========== ===========
See accompanying notes to unaudited consolidated financial statements.
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
T R FINANCIAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
For the For the
three months ended nine months ended
September 30, September 30,
------------------------------------ -------------------------------
1996 1995 1996 1995
--------------- ------------------ -------------- --------------
<S> <C> <C> <C> <C>
Interest income: (in thousands, except per share amounts)
Mortgage loans $ 28,563 $ 23,791 $ 82,363 $ 67,617
Mortgage-backed securities 19,014 17,065 56,358 46,205
Bonds, equities and other investments 5,844 7,808 17,727 25,572
Other loans 1,874 1,336 4,925 3,488
-------- -------- -------- --------
Total interest income 55,295 50,000 161,373 142,882
-------- -------- -------- --------
Interest expense:
Deposits 26,252 23,545 74,642 65,757
Borrowed funds 8,781 8,540 26,319 25,232
-------- -------- -------- --------
Total interest expense 35,033 32,085 100,961 90,989
-------- -------- -------- --------
Net interest income before provision
for possible loan losses 20,262 17,915 60,412 51,893
Provision for possible loan losses 200 1,050 1,200 2,600
-------- -------- -------- --------
Net interest income after provision
for possible loan losses 20,062 16,865 59,212 49,293
-------- -------- -------- --------
Non-interest income:
Loan fees and other charges, net 1,405 1,656 4,396 4,292
Net gain on sales of securities 1,767 910 6,526 3,093
Gain on sales of whole loans -- 133 3 148
Other income 410 851 1,085 1,598
-------- -------- -------- --------
Total non-interest income 3,582 3,550 12,010 9,131
-------- -------- -------- --------
Non-interest expense:
Salaries and employee benefits 6,397 5,845 18,901 17,359
Occupancy and equipment expense 1,235 1,037 3,728 3,176
Marketing expense 560 573 1,831 2,008
Other real estate owned expense 181 615 842 1,605
FDIC assessment 1 (84) 2 1,763
Other operating expense 2,162 1,745 6,924 6,334
-------- -------- -------- --------
Total non-interest expense 10,536 9,731 32,228 32,245
-------- -------- -------- --------
Income before provision for income taxes 13,108 10,684 38,994 26,179
Provision for income taxes 4,794 4,750 16,282 11,606
-------- -------- -------- --------
Net income $ 8,314 $ 5,934 $ 22,712 $ 14,573
======== ======== ======== ========
Net income per common and common
equivalent share $ 0.94 $ 0.63 $ 2.56 $ 1.53
======== ======== ======== ========
See accompanying notes to unaudited consolidated financial statements.
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
T R FINANCIAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(UNAUDITED)
For the
nine months ended
September 30, 1996
---------------------------
(in thousands except share
and per share amounts)
<S> <C>
COMMON STOCK (PAR VALUE)
- ------------------------
Balance at beginning and end of period ............................................ $ 114
----------
ADDITIONAL PAID-IN CAPITAL
- --------------------------
Balance at beginning of period .................................................... 101,063
Excess of ESOP compensation cost measured
using fair value of stock over its related cost ................................ 1,633
Increase in common stock held by Supplemental
Executive Retirement Plan and Trust ............................................ 366
Tax benefit attributable to vested RRP shares ..................................... 118
----------
Balance at end of period .......................................................... 103,180
----------
RETAINED EARNINGS, PARTIALLY RESTRICTED
- ---------------------------------------
Balance at beginning of period .................................................... 133,111
Net income ...................................................................... 22,712
Cash dividends declared ($0.48 per share) ....................................... (3,944)
Loss on reissuances of treasury stock (81,405 shares) ........................... (303)
----------
Balance at end of period .......................................................... 151,576
----------
UNALLOCATED/UNEARNED COMMON STOCK HELD BY STOCK PLANS
- -----------------------------------------------------
Balance at beginning of period .................................................... (7,670)
Amortization relating to allocation of ESOP stock and
earned portion of RRP ......................................................... 1,347
----------
Balance at end of period .......................................................... (6,323)
----------
COMMON STOCK HELD BY SUPPLEMENTAL EXECUTIVE
- -------------------------------------------
RETIREMENT PLAN AND TRUST
- -------------------------
Balance at beginning of period .................................................... (351)
Increase in carrying value of common stock held ................................. (366)
----------
Balance at end of period .......................................................... (717)
----------
UNREALIZED APPRECIATION (DEPRECIATION) IN CERTAIN
- -------------------------------------------------
SECURITIES, NET OF TAX
- ----------------------
Balance at beginning of period .................................................... 4,230
Decrease in net unrealized appreciation in certain securities, net of tax ....... (7,274)
----------
Balance at end of period .......................................................... (3,044)
----------
TREASURY STOCK
- --------------
Balance at beginning of period .................................................... (30,813)
Treasury stock purchased, at cost (605,000 shares) .............................. (15,637)
Exercise of stock options (81,405 shares) ....................................... 1,035
----------
Balance at end of period .......................................................... (45,415)
----------
Total stockholders' equity ........................................................ $ 199,371
==========
See accompanying notes to unaudited consolidated financial statements.
</TABLE>
5
<PAGE>
<TABLE>
<CAPTION>
T R FINANCIAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
For the nine months ended September 30,
1996 1995
------------------ ------------------
(in thousands)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ................................................................... $ 22,712 $ 14,573
Adjustments to reconcile net income to net cash provided
by operating activities:
Provision for possible loan losses ......................................... 1,200 2,600
Provision for possible other real estate owned losses ...................... 171 385
Depreciation of banking house and equipment ................................ 1,267 1,033
Gain on calls of securities ................................................ (31) (1)
Net gain on sales of securities available for sale ......................... (6,520) (3,076)
Gain on sales of whole loans ............................................... (3) (148)
Net gain on sale of other real estate owned ................................ (369) (675)
Net deferred loan origination costs ........................................ 341 342
Accretion of unearned discounts, net of amortization of premiums ........... 893 183
Income taxes deferred or credited to equity ................................ 118 404
Amortization relating to allocation and earned portions of stock plans ..... 2,980 2,580
Increase/decrease in:
Trading account securities ................................................. (2,963) (996)
Accrued interest receivable ................................................ 536 (1,857)
Accounts payable and accrued expenses ...................................... (4,524) 592
Official checks outstanding ................................................ (12,349) (11,042)
Other assets ............................................................... 115 (2,777)
Accrued taxes payable ...................................................... (2,727) 1,847
Other liabilities .......................................................... 3,784 2,545
---------- ----------
Net cash provided by operating activities ............................... 4,631 6,512
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Payments for the purchase of:
Securities held to maturity and FHLB Capital Stock ......................... (244,538) (319,638)
Securities available for sale .............................................. (284,785) (249,202)
Banking house and equipment ................................................ (2,679) (1,790)
Proceeds from:
Redemption of FHLB Capital Stock and calls of securities ................... 20,924 12,000
Sales of securities available for sale ..................................... 320,432 219,304
Repayments on securities ................................................... 179,341 215,283
Sales of whole loans ....................................................... 550 13,758
Principal collected on real estate loans ................................... 112,430 72,187
Sales of other real estate owned ........................................... 7,318 10,935
Principal collected on other loans ......................................... 16,570 10,896
Real estate loans originated and purchased ................................... (315,837) (261,579)
Other loans originated and purchased ......................................... (50,302) (34,130)
---------- ----------
Net cash used in investing activities .................................... (240,576) (311,976)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Interest credited to deposits ................................................ 74,642 50,586
Net deposits in savings accounts, certificate of deposit accounts,
money market accounts and checking accounts ................................ 166,387 216,657
Net deposits to escrow accounts .............................................. 8,484 9,401
Net proceeds from short-term borrowed funds .................................. 15,500 32,500
Repayments of long-term borrowed funds ....................................... (48,613) (59,756)
Proceeds from long-term borrowed funds ....................................... 35,600 54,619
Net proceeds from exercise of stock options .................................. 732 972
Purchase of treasury stock ................................................... (15,637) (10,038)
Cash dividends paid .......................................................... (3,944) (2,267)
---------- ----------
Net cash provided by financing activities ................................. 233,151 292,674
---------- ----------
Net decrease in cash and cash equivalents .................................... (2,794) (12,790)
Cash and cash equivalents at beginning of period ............................. 21,204 39,818
---------- ----------
Cash and cash equivalents at end of period ................................... $ 18,410 $ 27,028
========== ==========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for income taxes ................................................... $ 18,818 $ 9,365
========== ==========
Cash paid for interest on deposits and borrowed funds ........................ $ 41,571 $ 40,403
========== ==========
Non-cash investing activities:
Additions to other real estate owned, net .................................. $ 4,239 $ 15,456
========== ==========
See accompanying notes to unaudited consolidated financial statements.
</TABLE>
6
<PAGE>
T R FINANCIAL CORP. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements include the
accounts of T R Financial Corp. ("T R Financial"), its direct wholly-owned
subsidiary Roosevelt Savings Bank (the "Bank"), and the subsidiaries of the Bank
(collectively the "Company").
The unaudited consolidated financial statements included herein reflect all
normal recurring adjustments which are, in the opinion of management, necessary
to present a fair statement of the results for the interim periods presented.
The results of operations for the three and nine months ended September 30, 1996
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 U.S. Securities and Exchange Commission.
These unaudited consolidated financial statements should be read in conjunction
with the audited consolidated financial statements and notes thereto included in
the Company's Annual Report to Stockholders for the year ended December 31,
1995.
2. EARNINGS PER SHARE
Earnings per share is computed by dividing net income by the weighted average
number of shares of common stock and dilutive common stock equivalents
outstanding. For the three and nine months ended September 30, 1996, the
weighted average number of shares of common stock and common stock equivalents
outstanding was 8,842,666 (9,445,873 for the equivalent period in 1995) and
8,878,040 (9,529,731 for the equivalent period in 1995), respectively. For the
three and nine months ended September 30, 1996 such shares have been reduced, in
accordance with the provisions of the Accounting Standards Executive Committee
of the American Institute of Certified Public Accountants Statement of Position
93-6, "Employers' Accounting for Employee Stock Ownership Plans," by the
weighted average number of unallocated shares of common stock held by the
Company's Employee Stock Ownership Plan ("ESOP") of 670,847 (803,585 for the
equivalent period in 1995) and 702,841 (835,580 for the equivalent period in
1995), respectively.
3. DEBT AND EQUITY SECURITIES
The following tables set forth certain information regarding amortized cost,
estimated fair values and gross unrealized gains and losses on debt and equity
securities of the Company at September 30, 1996 and December 31, 1995,
respectively.
7
<PAGE>
<TABLE>
<CAPTION>
September 30, 1996
--------------------------------------------------------------------------
Gross Unrealized
Amortized Estimated ------------------
Cost Fair Value Gains Losses
---------- ---------- ---------- ----------
(in thousands)
<S> <C> <C> <C> <C>
Available for Sale:
Bonds and equities:
United States Government
obligations $210,008 $209,173 $ 260 $ (1,095)
Federal agency obligations 90,058 88,639 130 (1,549)
Public utility bonds 483 467 -- (16)
Industrial, financial corporation
and other bonds 5,079 5,151 72 --
Commercial paper 2,996 2,994 -- (2)
Common and preferred stocks 17,187 18,774 1,628 (41)
-------- -------- -------- --------
Total bonds and equities 325,811 325,198 2,090 (2,703)
-------- -------- -------- --------
Mortgage-backed securities:
FNMA, net (1) 27,369 27,150 285 (504)
GNMA, net 66,741 66,439 149 (451)
FHLMC, net (1) 24,519 25,052 544 (11)
-------- -------- -------- --------
Total mortgage-backed securities 118,629 118,641 978 (966)
-------- -------- -------- --------
Total available for sale $444,440 $443,839 $ 3,068 $ (3,669)
======== ======== ======== ========
Held to Maturity, Net:
Bonds:
Federal agency obligations $ 6,000 $ 5,922 $ -- $ (78)
Public utility bonds 1,001 962 -- (39)
Municipal bonds 7,554 7,698 151 (7)
Industrial, financial corporation
and other bonds 41,713 41,711 192 (194)
-------- -------- -------- --------
Total bonds 56,268 56,293 343 (318)
-------- -------- -------- --------
Mortgage-backed securities:
FNMA, net (2) 100,901 97,712 122 (3,311)
GNMA, net 682,899 684,229 9,573 (8,243)
FHLMC, net (2) 101,313 101,449 670 (534)
CMOs, net (2) 2,905 3,120 215 --
-------- -------- -------- --------
Total mortgage-backed securities 888,018 886,510 10,580 (12,088)
-------- -------- -------- --------
Total held to maturity, net $944,286 $942,803 $ 10,923 $(12,406)
======== ======== ======== ========
</TABLE>
(1) Includes securities which were transferred on December 15, 1995 from held to
maturity to available for sale after having been previously transferred on March
31, 1995 from available for sale to held to maturity. As of September 30, 1996
the amortized cost of these securities was reduced by $1,728,000 of gross
unrealized losses existing as of March 31, 1995, adjusted for subsequent
accretion and sales of these securities.
(2) Includes securities which were transferred on March 31, 1995 from available
for sale to held to maturity. As of September 30, 1996 the amortized cost of
these securities was reduced by $3,108,000 of gross unrealized losses existing
as of March 31, 1995, adjusted for subsequent accretion.
8
<PAGE>
<TABLE>
<CAPTION>
December 31, 1995
-------------------------------------------------------------------------
Gross Unrealized
Amortized Estimated ------------------
Cost Fair Value Gains Losses
---------- ---------- ---------- ----------
(in thousands)
<S> <C> <C> <C> <C>
Available for Sale:
Bonds and equities:
United States Government obligations $178,699 $182,584 $ 4,088 $ (203)
Federal agency obligations 82,318 83,139 956 (135)
Public utility bonds 804 795 7 (16)
Industrial, financial corporation
and other bonds 26,420 27,289 869 --
Common and preferred stocks 9,067 10,347 1,322 (42)
-------- -------- -------- --------
Total bonds and equities 297,308 304,154 7,242 (396)
-------- -------- -------- --------
Mortgage-backed securities:
FNMA, net (1) 48,717 50,379 1,750 (88)
GNMA, net 125,056 128,569 3,575 (62)
FHLMC, net (1) 37,546 39,343 1,841 (44)
CMOs, net (1) 8,235 8,551 316 --
-------- -------- -------- --------
Total mortgage-backed securities 219,554 226,842 7,482 (194)
-------- -------- -------- --------
Total available for sale $516,862 $530,996 $ 14,724 $ (590)
======== ======== ======== ========
Held to Maturity, Net:
Bonds:
Federal agency obligations $ 14,424 $ 14,432 $ 24 $ (16)
Public utility bonds 1,050 1,021 1 (30)
Municipal bonds 7,962 8,208 258 (12)
Industrial, financial corporation
and other bonds 75,131 75,048 378 (461)
Canadian Bonds 225 243 18 --
-------- -------- -------- --------
Total bonds 98,792 98,952 679 (519)
-------- -------- -------- --------
Mortgage-backed securities:
FNMA, net (2) 109,281 109,210 664 (735)
GNMA, net 533,301 553,292 20,595 (604)
FHLMC, net (2) 111,347 115,630 4,450 (167)
CMOs, net (2) 2,902 3,113 211 --
-------- -------- -------- --------
Total mortgage-backed securities 756,831 781,245 25,920 (1,506)
-------- -------- -------- --------
Total held to maturity, net $855,623 $880,197 $ 26,599 $ 2,025
======== ======== ======== ========
</TABLE>
(1) Includes in the aggregate $48,462,000 of securities which were transferred
on December 15, 1995 from held to maturity to available for sale after having
been previously transferred on March 31, 1995 from available for sale to held to
maturity. As of December 31, 1995 the amortized cost of these securities was
reduced by $2,873,000 of gross unrealized losses existing as of March 31, 1995
and adjusted for subsequent accretion.
(2) Includes in the aggregate $97,948,000 of securities which were transferred
on March 31, 1995 from available for sale to held to maturity. As of December
31, 1995 the amortized cost of these securities was reduced by $3,706,000 of
gross unrealized losses existing as of March 31, 1995 and adjusted for
subsequent accretion.
9
<PAGE>
4. EMPLOYEE STOCK OWNERSHIP PLAN
The Company recognizes compensation expense attributable to its ESOP ratably
over the year based upon the estimated number of ESOP shares to be allocated
each December 31st. The amount of compensation expense recorded is equal to the
estimate of shares to be allocated by the ESOP multiplied by the average fair
value of the underlying shares during the period. For the three months ended
September 30, 1996 and 1995, compensation expense attributable to the ESOP was
$865,000 and $678,000, respectively. The average fair value of the underlying
shares for the three months ended September 30, 1996 and 1995 was $27.97 and
$20.59, respectively. For the nine months ended September 30, 1996 and 1995,
compensation expense attributable to the ESOP was $2,469,000 and $1,743,000,
respectively. The average fair value of the underlying shares for the nine
months ended September 30, 1996 and 1995 was $26.61 and $17.63, respectively.
5. STOCKHOLDERS' EQUITY
For the nine months ended September 30, 1996, a total of 605,000 shares of T R
Financial common stock were repurchased at an aggregate cost of $15,637,000.
There were no repurchases for the three months ended September 30, 1996.
During the nine months ended September 30, 1996, dividends totaling $3,944,000
were paid. Dividends of $0.14 per common share (or $1,155,000) were paid on
March 1, 1996, dividends of $0.16 per common share (or $1,312,000) were paid on
June 3, 1996 and dividends of $0.18 per common share (or $1,477,000) were paid
on September 3, 1996.
6. CONTINGENCIES
On February 6, 1995, the Superintendent of Banks of the State of New York (the
"Superintendent") took possession of Nationar, a check-clearing and trust
company, freezing all of its assets. The Bank used Nationar for certain
depository and collection services and maintained deposit balances with Nationar
in connection therewith. The Bank filed claims against Nationar in accordance
with the procedures established under the Banking Law of the State of New York,
and all of the Bank's deposit claims, except for $7,611.13, have either been
accepted by the Superintendent and approved by the court or are subject to a
pending motion by the Superintendent for approval of such acceptance.
The Superintendent obtained judicial approval to pay in full the accepted claims
for which priority of payment had been established and to make an initial
partial payment of 40% of the amount of accepted nonpriority claims. On or about
June 27, 1996 the Superintendent forwarded such payments to claimants, including
the Bank.
As of September 30, 1996, the Bank had a remaining unpaid balance of its
accepted claims in the amount of approximately $2.7 million against which it
maintains a $1,100,000 reserve. On October 23, 1996 the Superintendent announced
that he filed an application for judicial approval for the distribution of final
dividends from the Nationar estate pursuant to which the Superintendent would
pay 100% of the accepted claims against the Nationar estate (other than claims
for stock and subordinated debentures of Nationar). The Superintendent's
application is scheduled to be heard by the Court on November 14, 1996, and the
final dividends, if approved, would be distributed within 20 business days after
certain conditions have been met. If the Superintendent receives such
authorization, the Bank believes that all of its $1,100,000 reserve will be
recovered. The Superintendent has announced that, if authorized by the court, he
intends to pay, before the end of 1996, 100% of the accepted claims against the
Nationar estate (other than claims for stock and subordinated debentures of
Nationar).
10
<PAGE>
The Company is not involved in any other pending legal proceedings other than
routine legal proceedings occurring in the ordinary course of business, which in
the aggregate involve amounts which are believed by management to be immaterial
to the financial condition and results of operations of the Company.
7. RECENT DEVELOPMENTS
On October 17, 1996 the Board of Directors declared a cash dividend on the
Company's outstanding common stock of $0.20 per common share to stockholders of
record on November 15, 1996. The dividend is payable on December 2, 1996.
8. REGULATORY MATTERS
The Bank is a member of the Bank Insurance Fund ("BIF") of the FDIC, and the
deposits of the Bank are insured up to applicable limits of the law by the BIF.
The FDIC also maintains the Savings Association Insurance Fund ("SAIF"), which,
in general, insures the deposits of federal and state savings associations and
federal savings banks ("thrifts") up to applicable limits of the law. Applicable
law requires that the BIF and SAIF be recapitalized to a ratio of 1.25% of
reserves to deposits. The BIF achieved the 1.25% ratio in May 1995. Having
determined that the BIF had sufficient reserves in excess of the 1.25% ratio,
the FDIC adopted regulations under which "well capitalized" BIF-insured
institutions without any significant supervisory concerns would pay deposit
insurance assessments at the statutory minimum of $2,000 annually beginning with
the first quarter of 1996. All other BIF-member institutions were assessed from
0.03% to 0.27% of BIF-assessable deposits. The FDIC also reported that, under
then current law and reasonably optimistic financial projections, the SAIF was
not expected to achieve the 1.25% ratio until 2001 and that SAIF-insured
institutions would continue to pay assessments at rates ranging from 0.23% to
0.31% of deposits, which created a disparity in the assessment rates for the BIF
and the SAIF insured deposits. This disparity in the assessment rates of the BIF
and the SAIF was resulting in the transfer of deposits from SAIF-insured
institutions to BIF-insured institutions, and the continuation of such transfers
could have caused SAIF assessments to become inadequate to meet the obligations
for payments on the bonds issued by the Financing Corporation ("FICO"), which
was established in 1989 to finance the resolution of failed thrifts.
On September 30, 1996, the Deposit Insurance Funds Act of 1996 (the "Funds Act")
was enacted into law, and it amended the Federal Deposit Insurance Act, as
amended (the "FDIA") in several ways to recapitalize the SAIF and reduce the
disparity in the assessment rates between the BIF and the SAIF. The Funds Act
authorized the FDIC to impose a special assessment on all institutions with
SAIFassessable deposits in the amount necessary to recapitalize the SAIF. As
implemented by the FDIC, the special assessment has been fixed, subject to
various adjustments, at 0.657% of an institution's SAIFassessable deposits, and
the special assessment will be paid on November 27, 1996. The Bank has no
SAIF-assessable deposits and will not be subject to the special SAIF assessment.
The Funds Act provides that the FDIC cannot assess regular deposit insurance
assessments for an insurance fund unless required to maintain or to achieve the
designated reserve ratio of 1.25%, except on those of its member institutions
that are not classified as "well capitalized" or that have been found to have
"moderately severe" or "unsatisfactory" financial, operational or compliance
weaknesses. The Bank has not been so classified by the FDIC. The Funds Act also
repealed the $2,000 minimum annual deposit insurance assessment.
In view of the imminent recapitalization of the SAIF by the special assessment,
the FDIC proposed on October 8, 1996, a reduction in the assessment rates for
SAIF-assessable deposits for periods beginning on October 1, 1996. As it would
be effective if adopted for the SAIF-assessable deposits of savings
11
<PAGE>
associations, the proposed assessment rates would range from 0.18% to 0.27% for
the last quarter of 1996 and would range from 0% to 0.27% for the following
assessment periods. If adopted, the range of deposit insurance assessment rates
for BIF members and SAIF members will be the same.
In addition, the Funds Act expanded the assessment base for the payments on the
FICO bonds to include, beginning January 1, 1997, the deposits of both BIF- and
SAIF-insured institutions. Until December 31, 1999, or such earlier date on
which the last savings association ceases to exist, the rate of assessment for
the FICO bonds on BIF-assessable deposits shall be one-fifth of the rate imposed
on SAIF-assessable deposits. Thereafter, the rate of assessment for the FICO
bonds will be the same for both BIF- and SAIF-insured institutions. It has been
estimated that the rate of assessments for the payments on the FICO bonds will
be 0.0129% for BIF-assessable deposits and 0.0644% for SAIF-assessable deposits
beginning on January 1, 1997.
The Funds Act also provides for the merger of the BIF and SAIF on January 1,
1999, with such merger being conditioned upon the prior elimination of the
thrift charter. The Secretary of the Treasury is required to conduct a study of
relevant factors with respect to the development of a common charter for all
insured depository institutions and abolition of separate charters for banks and
thrifts and to report the Secretary's conclusions and findings to the Congress
on or before March 31, 1997.
9. LEGISLATION REGARDING TAX BAD DEBT RESERVES
Under section 593 of the Internal Revenue Code, thrift institutions such as the
Bank, which meet certain definitional tests, primarily relating to their assets
and the nature of their business, are permitted to establish a tax reserve for
bad debts and to make annual additions thereto, which additions may, within
specified limitations, be deducted in arriving at their taxable income. The
Bank's deduction with respect to "qualifying loans," which are generally loans
secured by certain interests in real property, may currently be computed using
an amount based on the Bank's actual loss experience (the "Experience
Method"),or a percentage equal to 8% of the Bank's taxable income (the "PTI
Method"), computed without regard to this deduction and with additional
modifications and reduced by the amount of any permitted addition to the
non-qualifying reserve. Similar deductions for additions to the Bank's bad debt
reserve are permitted under the New York State Bank Franchise Tax and the New
York City Banking Corporation Tax; however, for purposes of these taxes, the
effective allowable percentage under the PTI method is 32% rather than 8%.
Under the Small Business Job Protection Act of 1996 (the "1996 Act"), which was
enacted in August 1996, section 593 of the Code was amended, and the Bank, as a
"large bank" (one with assets having an adjusted basis of more than $500
million), is no longer permitted to make additions to its tax bad debt reserve,
is permitted to deduct bad debts only as they occur and is required to recapture
(that is, take into taxable income) over a multi-year period, beginning with the
Bank's taxable year beginning on January 1, 1996, the excess of the balance of
its bad debt reserves (other than the supplemental reserve) as of December 31,
1995 over the balance of such reserves as of December 31, 1987, or over a lesser
period if the Bank's loan portfolio has decreased since December 31, 1987.
However, such recapture requirements are suspended for each of two successive
taxable years beginning January 1, 1996 in which the Bank originates a minimum
amount of certain residential loans based upon the average of the principal
amounts of such loans made by the Bank during its six taxable years preceding
January 1, 1996. The New York State tax law has been amended to prevent a
similar recapture of the Bank's bad debt reserve, and to permit continued future
use of the bad debt reserve methods, for purposes of determining the Bank's New
York State tax liability. The Bank's officers and industry leaders continue to
seek such amendments to the New York City tax law; however, the Company cannot
predict whether such changes to New York City law will be adopted and, if so, in
what form. The Company reduced its provision for income taxes during the three
months ended September 30, 1996 by $1,065,000 principally as a result of the
change in New York State bad debt tax legislation.
12
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
T R Financial Corp. ("T R Financial") is the bank holding company for
Roosevelt Savings Bank (the "Bank"), a New York chartered stock savings bank.
While the following discussion of financial condition and results of operations
includes the collective results of T R Financial and the Bank (collectively the
"Company"), this discussion reflects principally the Bank's activities.
FINANCIAL CONDITION
Total assets increased $235.9 million, or 8.1%, to $3.14 billion at
September 30, 1996 from $2.90 billion at December 31, 1995, primarily as a
result of management's continued strategy to leverage its capital position
through asset growth. This growth was funded primarily by attracting new
deposits. Of the increase in total assets, $230.8 million was attributable to an
increase in net loans due primarily to the origination and purchase of
residential real estate loans.
Securities available for sale decreased $87.2 million, or 16.4%, to
$443.8 million at September 30, 1996 from $531.0 million at December 31, 1995
due principally to sales of securities totaling $320.4 million during the nine
months ended September 30, 1996, offset by purchases of $284.8 million.
Securities held to maturity, net increased $88.7 million, or 10.4%, to $944.3
million at September 30, 1996 from $855.6 million at December 31, 1995. These
changes in securities portfolios reflect the effects of securities purchases,
securities repayments and maturities, and in the case of the available for sale
securities portfolio also reflects the effects of securities sales and changes
in the estimated fair values of the securities. As of September 30, 1996 the
available for sale portfolio had net unrealized depreciation of $601 thousand as
compared to net unrealized appreciation at December 31, 1995 of $14.1 million.
This $14.7 million decrease in unrealized appreciation, when tax effected,
increased deferred tax asset, net by $6.5 million.
Total deposits increased $241.0 million, or 11.8%, to $2.28 billion at
September 30,1996 from $2.04 billion at December 31, 1995. This increase was
primarily attributable to the successful marketing efforts for the Bank's
competitively priced deposit products. Borrowed funds increased $2.5 million, or
0.4%, to $597.1 million at September 30, 1996 from $594.6 million at December
31, 1995. This increase in borrowings is primarily attributable to a $15.5
million increase in overnight borrowings from the Federal Home Loan Bank (the
"FHLB") at September 30, 1996 as compared to December 31, 1995 which was
partially offset by $13.1 million decrease in FHLB term advances.
Stockholders' equity amounted to $199.4 million at September 30, 1996,
or 6.3% of total assets, as compared to $199.7 million at December 31, 1995, or
6.9% of total assets. In accordance with Statement of Financial Accounting
Standards ("SFAS") No. 115, stockholders' equity at September 30, 1996 and
December 31, 1995 includes net unrealized appreciation (depreciation) in certain
securities, net of tax, of $3.0 million of depreciation, and $4.2 million of
appreciation, respectively. The change in unrealized appreciation (depreciation)
in certain securities from December 31, 1995 to September 30, 1996 resulted
primarily from increases in market interest rates during the nine months ended
September 30, 1996, which lowered the estimated fair value of fixed rate debt
securities and, to a lesser extent, from the realization of net gains from sales
of securities. As of September 30, 1996, net unrealized appreciation
(depreciation) in certain securities, net of tax, included net depreciation of
$2.7 million relating to securities previously transferred from available for
sale to held to maturity. At December 31,
13
<PAGE>
1995, such amount was $3.7 million of net depreciation. In addition, during the
nine months ended September 30, 1996, the Company continued its stock buyback
program, purchasing 605,000 shares of common stock at a total cost of $15.6
million for the period. See "Liquidity and Capital Resources."
The Bank's leverage capital ratio decreased from 6.27% at December 31,
1995 to 6.05% at September 30, 1996 due to the increase in the Bank's quarterly
average assets, which was partially offset by a $5.8 million increase in the
Bank's regulatory capital. The Bank's risk-based capital ratio of 16.77% at
September 30, 1996 represents a 16 basis point decrease as compared to that
ratio at December 31, 1995. These capital ratios are well in excess of Federal
Deposit Insurance Corporation ("FDIC") capital requirements applicable to the
Bank. See "Liquidity and Capital Resources -- Regulatory Capital Position."
Non-performing assets decreased $11.2 million to $14.0 million at
September 30, 1996, from $25.2 million at December 31, 1995. The ratio of
non-performing assets to total assets decreased to 0.45% at September 30, 1996
from 0.87% at December 31, 1995. Other real estate owned, net decreased $2.9
million to $3.7 million at September 30, 1996 from $6.5 million at December 31,
1995. Non-performing loans decreased to $10.3 million at September 30, 1996 as
compared to $18.7 million at December 31, 1995 primarily due to an $8.9 million
reduction in non-accrual loans. The ratio of non-performing loans to total loans
decreased to 0.62% at September 30, 1996 as compared to 1.31% at December 31,
1995.
ANALYSIS OF NET INTEREST INCOME
Net interest income represents the difference between income on earning
assets and expense on interest-bearing liabilities. Net interest income depends
upon the volume of earning assets and interest-bearing liabilities and the
interest rates earned or paid on them.
The following table sets forth certain information regarding the
Company's average statements of financial condition and its statements of income
for the three and nine months ended September 30, 1996 and 1995, and reflects
the average yield on assets and average cost of liabilities for the periods
indicated. Such yields and costs are derived by dividing income or expense,
annualized, by the average balance of assets or liabilities, respectively, for
the periods shown. Average balances are derived from daily balances. Average
balances and yields include non-accrual loans.
14
<PAGE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED SEPTEMBER 30,
--------------------------------
1996 1995
-------------------------------------------- -------------------------------------------
Average Average
Average Yield/ Average Yield/
Balance Interest Cost Balance Interest Cost
----------- ----------- -------- ----------- ----------- --------
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
ASSETS
- ------
Earning Assets:
Mortgage Loans, Net $ 1,521,034 $ 28,563 7.51% $ 1,241,561 $ 23,791 7.66%
Other Loans 92,685 1,874 8.09 62,375 1,336 8.57
Mortgage-Backed Securities 1,007,800 19,014 7.55 889,493 17,065 7.67
Short-Term Securities 1,676 23 5.49 8,209 130 6.33
Securities 401,084 5,821 5.81 503,497 7,678 6.10
----------- ----------- ----------- -----------
Total Earning Assets 3,024,279 55,295 7.31 2,705,135 50,000 7.39
----------- -----------
Non-Earning Assets 70,409 74,782
----------- -----------
Total Assets $ 3,094,688 $ 2,779,917
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Interest-Bearing Liabilities:
Deposits:
Passbook Accounts $ 590,966 $ 4,147 2.81% $ 508,450 $ 3,498 2.75%
Now Accounts 10,467 71 2.71 61,024 526 3.45
Money Market Accounts 73,297 499 2.72 61,721 521 3.38
Certificate of Deposit Accounts 1,520,838 21,535 5.66 1,270,053 19,000 5.98
----------- ----------- ----------- -----------
Total Interest-Bearing Deposits 2,195,568 26,252 4.78 1,901,248 23,545 4.95
Borrowings 600,012 8,781 5.85 596,894 8,540 5.72
----------- ----------- ----------- -----------
Total Interest-Bearing Liabilities 2,795,580 35,033 5.01 2,498,142 32,085 5.13
----------- -----------
Other Liabilities 102,418 91,310
----------- -----------
Total Liabilities 2,897,998 2,589,452
Stockholders' Equity 196,690 190,465
----------- -----------
Total Liabilities and Stockholders'
Equity $ 3,094,688 $ 2,779,917
=========== ===========
Net Interest Income/Interest Rate Spread $ 20,262 2.30% $ 17,915 2.26%
=========== ==== =========== ====
Net Earning Assets/Net Interest Margin $ 228,699 2.68% $ 206,993 2.65%
=========== ==== =========== ====
Ratio of Earning Assets to
Interest-Bearing Liabilities 1.08x 1.08x
==== ====
</TABLE>
15
<PAGE>
<TABLE>
<CAPTION>
Nine Months Ended September 30,
-------------------------------
1996 1995
--------------------------------------------- ---------------------------------------
Average Average
Average Yield/ Average Yield/
Balance Interest Cost Balance Interest Cost
----------- ----------- -------- ----------- ----------- --------
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
ASSETS
- ------
Earning Assets:
Mortgage Loans, Net $ 1,453,692 $ 82,363 7.55% $ 1,185,615 $ 67,617 7.60%
Other Loans 79,949 4,925 8.21 54,032 3,488 8.61
Mortgage-Backed Securities 1,000,771 56,358 7.51 809,832 46,205 7.61
Short-Term Securities 6,158 246 5.33 6,132 275 5.98
Securities 399,114 17,481 5.84 563,569 25,297 5.98
----------- ----------- ----------- -----------
Total Earning Assets 2,939,684 161,373 7.32 2,619,180 142,882 7.27
----------- -----------
Non-Earning Assets 71,676 72,032
----------- -----------
Total Assets $ 3,011,360 $ 2,691,212
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Interest-Bearing Liabilities:
Deposits:
Passbook Accounts $ 550,389 $ 11,206 2.71% $ 495,011 $ 9,615 2.59%
Now Accounts 29,128 665 3.04 55,764 1,374 3.29
Money Market Accounts 84,084 1,699 2.69 54,536 1.260 3.08
Certificate of Deposit Accounts 1,440,840 61,072 5.65 1,217,389 53,508 5.86
----------- ----------- ----------- -----------
Total Interest-Bearing Deposits 2,104,441 74,642 4.73 1,822,700 65,757 4.81
Borrowings 611,531 26,319 5.74 592,371 25,232 5.68
----------- ----------- ----------- -----------
Total Interest-Bearing Liabilities 2,715,972 100,961 4.96 2,415,071 90,989 5.02
----------- -----------
Other Liabilities 103,123 89,925
----------- -----------
Total Liabilities 2,819,095 2,504,996
Stockholders' Equity 192,265 186,216
----------- -----------
Total Liabilities and Stockholders'
Equity $ 3,011,360 $ 2,691,212
=========== ===========
Net Interest Income/Interest Rate Spread $ 60,412 2.36% $ 51,893 2.25%
=========== ==== =========== ====
Net Earning Assets/Net Interest Margin $ 223,712 2.74% $ 204,109 2.64%
=========== ==== =========== ====
Ratio of Earning Assets to
Interest-Bearing Liabilities 1.08x 1.08x
==== ====
</TABLE>
16
<PAGE>
COMPARISON OF OPERATING RESULTS FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1996
AND 1995
GENERAL. The Company's net income for the three months ended September
30, 1996 increased $2.4 million to $8.3 million from $5.9 million for the same
period in 1995.
INTEREST INCOME. Interest income increased by $5.3 million, or 10.6%,
to $55.3 million for the three months ended September 30, 1996, from $50.0
million for the same period in 1995, due to an increase in the average earning
assets during the period of $319.1 million to $3.02 billion for the three months
ended September 30, 1996, from $2.71 billion for the same period in 1995,
reflecting the Company's strategy to leverage its capital position through asset
growth. Of the increase in average earning assets, $279.5 million was
attributable to growth in mortgage loans, net, $118.3 million was attributable
to growth in mortgage-backed securities and $30.3 million was attributable to
growth in other loans. Offsetting the increases in average mortgage loans,
mortgage-backed securities and other loans, was a $108.9 million decrease in the
average balance of securities, including short-term securities. The average
yield on earning assets decreased to 7.31% for the three months ended September
30, 1996 from 7.39% for the same period in 1995, due primarily to the downward
repricing of interest-earning assets during the third quarter of 1996 as
compared to the comparable prior year period.
INTEREST EXPENSE. Interest expense increased by $2.9 million, or 9.2%,
to $35.0 million for the three months ended September 30, 1996, from $32.1
million for the same period in 1995, due primarily to a $294.3 million increase
in average interest-bearing deposits which was partially offset by a 17 basis
point decrease in the average rate paid on interest-bearing deposit accounts. In
addition, average borrowings increased $3.1 million to $600.0 million for the
three months ended September 30, 1996 as compared to the same period in 1995
while the average cost of the borrowings increased 13 basis points to 5.85% over
this same period. The average rate paid on interest-bearing liabilities
decreased to 5.01% for the three months ended September 30, 1996 from 5.13% for
the same period in 1995. The average balance of interest-bearing liabilities
increased $297.4 million for the three months ended September 30, to $2.80
billion from $2.50 billion for the same period in 1995.
NET INTEREST INCOME. Net interest income before provision for possible
loan losses increased $2.3 million, or 13.1%, to $20.3 million for the three
months ended September 30, 1996, from $17.9 million for the same period in 1995.
This increase is the result, in part, of a $319.1 million increase in the
average balance of earning assets to $3.02 billion, offset by a $297.4 million
increase in the average balance of interest-bearing liabilities to $2.80 billion
for the three months ended September 30, 1996 as compared to the comparable
prior year period. Net interest income was also affected by an increase in the
net interest rate spread to 2.30% for the three months ended September 30, 1996
from 2.26% for the same period in 1995. However, the net interest rate spread
for the three months ended September 30, 1996 decreased from 2.41% for the three
months ended June 30, 1996.
PROVISION FOR POSSIBLE LOAN LOSSES. The provision for possible loan
losses decreased $850 thousand, or 81.0% to $200 thousand for the three months
ended September 30, 1996 from $1.1 million for the same period in 1995. The
decrease resulted from management's assessment of the loan portfolio, the level
of the Bank's allowance for possible loan losses and its assessment of the local
economy and market conditions. For the three months ended September 30, 1996 and
1995, loan charge-offs net of recoveries aggregated $106 thousand and $411
thousand, respectively. At September 30, 1996 and December 31, 1995, the
allowance for possible loan losses amounted to $14.2 million and $13.3 million,
respectively, and the ratio of such allowance to non-performing loans was
138.02% at September 30, 1996 as compared to 70.94% at December 31, 1995.
Although management believes its allowance for possible loan losses is adequate
at September 30, 1996, if general economic conditions and real estate
17
<PAGE>
values deteriorate, the level of non-performing loans may increase and higher
provisions for possible loan losses may be necessary, which would adversely
affect future operating results.
NON-INTEREST INCOME. Non-interest income increased $32 thousand to
$3.58 million for the three months ended September 30, 1996 from $3.55 million
for the same period in 1995. This increase was primarily attributable to an $857
thousand increase in net gain on sales of securities. For the three months ended
September 30, 1996, the Company sold available for sale securities having an
aggregate book value of $53.3 million, and recognized $1.8 million of net
securities gains. The securities sold included $16.0 million of bonds, $30.9
million of mortgage-backed securities and $6.4 million of equities. These
securities were sold at net gains of $97 thousand, $709 thousand and $1.0
million, respectively. The increase in net gains on sales of securities,
however, was partially offset by a $251 thousand decrease in loan fees and other
charges, net, and a $441 thousand decrease in other income. Other income for the
three months ended September 30, 1995 included a property tax refund of $335
thousand from the successful grievance by the Bank of certain assessed property
taxes.
NON-INTEREST EXPENSE. Non-interest expense increased $805 thousand, or
8.3%, to $10.5 million for the three months ended September 30, 1996, compared
to the same period in 1995. Of this increase, salary and employee benefits
expense increased $552 thousand, or 9.4%, due primarily to higher costs
associated with certain health benefit plans, qualified stock-based compensation
plans and normal salary increases and offset partially by lower costs associated
with restricted stock plans which are now substantially fully vested. Occupancy
and equipment expense increased $198 thousand to $1.2 million for the three
months ended September 30, 1996, due primarily to a $111 thousand increase in
depreciation due primarily to capital expenditures on technology and building
renovations and increased facilities costs for buildings. Marketing expense
decreased $13 thousand to $560 thousand for the three months ended September 30,
1996 as compared to the same period in 1995. Other real estate owned expense
decreased $434 thousand to $181 thousand for the three months ended September
30, 1996 as compared to the same period in 1995 due to fewer foreclosed
properties being held. FDIC assessment expense was $1 thousand for the three
month period ending September 30, 1996 as compared to an $84 thousand refund in
the same period in 1995. This refund resulted from a retroactive decrease in
1995 Bank Insurance Fund ("BIF") assessment rates from $0.23 per $100 of insured
deposits to zero. Other operating expense increased $417 thousand, or 23.9%, for
the three months ended September 30, 1996 as compared to the same period during
1995, due primarily to higher costs associated with loan originations, office
supplies and losses from low income housing limited partnership investments
which are offset over the term of the investment by low income housing tax
credits and tax deductions for partnership losses.
PROVISION FOR INCOME TAXES. Provision for income taxes increased $44
thousand to $4.79 million for the three months ended September 30, 1996 as
compared to $4.75 million during the same period in 1995. As a percentage of
income before provision for income taxes, however, the provision for income
taxes decreased from 44.5% of pre-tax earnings to 36.6%. This decrease resulted
from Federal and New York State legislative changes regarding tax bad debt
reserves (see Note 9 to notes to unaudited consolidated financial statements.)
COMPARISON OF OPERATING RESULTS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND
1995
GENERAL. The Company's net income for the nine months ended September
30, 1996 increased $8.1 million to $22.7 million from $14.6 million for the same
period in 1995.
INTEREST INCOME. Interest income increased by $18.5 million, or 12.9%,
to $161.4 million for the nine months ended September 30, 1996, from $142.9
million for the same period in 1995, due to an
18
<PAGE>
increase in the average earning assets during the period and an increase in the
average yield on earning assets. Average earning assets increased $320.5 million
to $2.94 billion for the nine months ended September 30, 1996, from $2.62
billion for the same period in 1995, reflecting the Company's strategy to
leverage its capital position through asset growth. Of the increase in average
earning assets, $268.1 million was attributable to growth in mortgage loans,
$190.9 million was attributable to growth in mortgage-backed securities and
$25.9 million was attributable to growth in other loans. Offsetting the
increases in average mortgage loans, mortgage-backed securities and other loans
was a $164.4 million decrease in the average balance of securities, including
short-term securities. The average yield on earning assets increased to 7.32%
for the nine months ended September 30, 1996 from 7.27% for the same period in
1995, due primarily to a change in the mix of earning assets away from lower
yielding shorter-term securities and into higher yielding longer-term mortgage
loans and mortgage-backed securities.
INTEREST EXPENSE. Interest expense increased by $10.0 million, or
11.0%, to $101.0 million for the nine months ended September 30, 1996, from
$91.0 million for the same period in 1995, due primarily to a $281.7 million
increase in average interest-bearing deposits which was partially offset by an 8
basis point decrease in the average rate paid on interest-bearing deposit
accounts. In addition, average borrowings increased $19.2 million to $611.5
million for the nine months ended September 30, 1996 as compared to the same
period in 1995 while the average cost of the borrowings increased 6 basis points
to 5.74% over this same period. The average rate paid on interest-bearing
liabilities decreased to 4.96% for the nine months ended September 30, 1996 from
5.02% for the same period in 1995. The average balance of interest-bearing
liabilities increased $300.9 million for the nine months ended September 30,
1996, to $2.72 billion from $2.42 billion for the same period in 1995.
NET INTEREST INCOME. Net interest income before provision for possible
loan losses increased $8.5 million, or 16.4%, to $60.4 million for the nine
months ended September 30, 1996, from $51.9 million for the same period in 1995.
This increase is the result, in part, of a $320.5 million increase in the
average balance of earning assets to $2.94 billion, offset by a $300.9 million
increase in the average balance of interest-bearing liabilities to $2.72 billion
for the nine months ended September 30, 1996, as compared to the comparable
prior year period. Net interest income was also affected by an increase in the
average net interest rate spread to 2.36% for the nine months ended September
30, 1996 from 2.25% for the same period in 1995. The increase in the net
interest rate spread was primarily attributable to an increase in rates earned
during the respective periods and the change in mix of earning assets discussed
above. See "Management's Discussion and Analysis of Financial Condition --
Interest Rate Sensitivity" appearing in the Company's Annual Report to
Stockholders for the year ended December 31, 1995.
PROVISION FOR POSSIBLE LOAN LOSSES. The provision for possible loan
losses decreased $1.4 million or 53.8%, to $1.2 million for the nine months
ended September 30, 1996 from $2.6 million for the same period in 1995. The
decrease resulted from management's assessment of the loan portfolio, the level
of the Bank's allowance for possible loan losses and its assessment of the local
economy and market conditions. For the nine months ended September 30, 1996 and
1995, loan charge-offs net of recoveries aggregated $221 thousand and $1.6
million, respectively.
NON-INTEREST INCOME. Non-interest income increased $2.9 million to
$12.0 million for the nine months ended September 30, 1996 from $9.1 million for
the same period in 1995. This increase was primarily attributable to a $3.4
million increase in net gain on sales of securities and a $104 thousand increase
in loan fees and other charges, net. For the nine months ended September 30,
1996, the Company sold available for sale securities having an aggregate book
value of $313.9 million, and recognized $6.5 million of net securities gains.
The securities sold included $212.8 million of bonds, $92.8 million in
mortgage-backed securities and $8.3 million of equities. Respectively, these
securities
19
<PAGE>
were sold at net gains of $2.5 million, $1.7 million and $2.3 million. The
increases in net gain on sales of securities and loan fees and other charges
net, however, were partially offset by a $513 thousand decrease in other income
and a $145 thousand decrease in gain on sales of whole loans. Other income was
lower for the nine months ending September 30, 1996 primarily as a result of the
previously discussed $335 thousand refund of property taxes received in 1995
which was nonrecurring and a $72 thousand decrease in early withdrawal fees on
time deposits for the nine months ended September 30, 1996 as compared to the
same period in 1995.
NON-INTEREST EXPENSE. Non-interest expense decreased $17 thousand to
$32.2 million for the nine months ended September 30, 1996, compared to the same
period in 1995. Salary and employee benefits expense increased $1.5 million, or
8.9%, due primarily to higher costs associated with certain health benefit
plans, qualified stock-based compensation plans and normal salary increases and
offset partially by lower costs associated with restricted stock plans which are
now substantially vested. Occupancy and equipment expense increased $552
thousand to $3.7 million for the nine months ended September 30, 1996, due
primarily to a $194 thousand increase in depreciation due to capital
expenditures on technology and building renovation and increased facilities cost
for buildings. Marketing expense decreased $177 thousand to $1.8 million for the
nine months ended September 30, 1996 as compared to the same period in 1995.
Other real estate owned expense decreased $763 thousand to $842 thousand for the
nine months ended September 30, 1996 as compared to the same period in 1995.
FDIC assessment decreased $1.8 million to $2 thousand for the nine months ended
September 30, 1996 as compared to the same period in 1995 due to a decrease in
BIF assessment rates. For the Bank, such rates were $0.23 per $100 of insured
deposits through June 1, 1995, at which time such rates decreased to $0.04 per
$100 of insured deposits. For 1996, the 1996 BIF assessment rate for the Bank
was reduced to zero per $100 of insured deposits plus a $2 thousand annual fee.
Other operating expense increased $590 thousand, or 9.3%, for the nine months
ended September 30, 1996 as compared to the same period during 1995 due
primarily to higher costs associated with loan origination activities and higher
computer processing charges.
PROVISION FOR INCOME TAXES. Provision for income taxes increased $4.7
million to $16.3 million for the nine months ended September 30, 1996 from $11.6
million during the same period in 1995, due to higher net earnings for the nine
months ended September 30, 1996 as compared to the same period for 1995 (see
Note 9 to notes to unaudited consolidated financial statements).
LIQUIDITY AND CAPITAL RESOURCES
GENERAL. Following the completion of the Bank's conversion and T R
Financial's stock offering, T R Financial's principal business was that of its
subsidiary, the Bank. T R Financial initially invested $39.3 million of the net
proceeds of the offering in short-term securities, corporate debt obligations,
money market investments and mortgage-backed securities. T R Financial also has
available dividend sources from the Bank to the extent such payments are
permitted by law or regulation. T R Financial's liquidity is available to, among
other things, support future expansion of operations or diversification into
other banking related businesses, payment of dividends or repurchase of its
common stock. During the nine months ended September 30, 1996, T R Financial
repurchased 605,000 shares of common stock at a total cost of $15.6 million. On
April 16, 1996, the Board of Directors of T R Financial terminated the fifth
stock repurchase program and authorized a sixth stock repurchase program for the
repurchase of up to 10%, or 894,809 shares, of the common stock. As of September
30, 1996, 854,809 shares remained available for repurchase under this sixth
stock repurchase program. On October 17, 1996, the Board of Directors declared a
quarterly cash dividend of $0.20 per share to stockholders of record on November
15, 1996. This dividend is payable on December 2, 1996.
20
<PAGE>
The Bank's primary sources of funds are deposits, FHLB advances,
proceeds from principal and interest payments on loans, mortgage- backed
securities and debt securities. Proceeds from the sale of securities available
for sale and, to a lesser extent, loans are also sources of funding. While
maturities and scheduled amortization of loans and investments are predictable
sources of funds, deposit flows and mortgage prepayments are greatly influenced
by general interest rates, economic conditions and competition.
The primary investing activities of the Company are the origination of
mortgage loans and the purchase of securities. The Company's most liquid assets
are cash and cash equivalents, short-term securities, securities available for
sale and securities held to maturity due within one year. The levels of these
assets are dependent on the Company's operating, financing, lending and
investment activities during any given period.
REGULATORY CAPITAL POSITION. The Bank is subject to minimum regulatory
requirements imposed by the 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 3.0% 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
8.0%. Although the minimum leverage capital ratio is 3%, the Federal Deposit
Insurance Corporation Improvement Act ("FDICIA") stipulates that an institution
with less than a 4.0% 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 addition, the Company's capital ratios exceed the
minimum regulatory capital requirements imposed by the Federal Reserve Board,
which are substantially similar to the requirements of the FDIC. The following
table sets forth the Bank's and T R Financial's capital positions under
generally accepted accounting principles and their regulatory capital position
at September 30, 1996:
<TABLE>
<CAPTION>
BANK T R FINANCIAL (CONSOLIDATED)
------------------------------------------------------------------------------------
TOTAL TOTAL
LEVERAGE RISK-BASED LEVERAGE RISK-BASED
CAPITAL CAPITAL CAPITAL CAPITAL
------------ ------------ ------------ ------------
(dollars in thousands)
<S> <C> <C> <C> <C>
Capital position under
GAAP........................ $ 183,507 $ 183,507 $ 199,371 $ 199,371
Net unrealized
depreciation in certain
securities, net of tax...... 2,884 2,884 3,044 3,044
Allowance for possible
loan losses................. -- 14,246 -- 14,246
------------ ------------ ------------ ------------
Regulatory capital
position.................... 186,391 200,637 202,415 216,661
Minimum required
regulatory capital (3%
and 8%, respectively)(1).... 92,457 95,732 92,955 96,077
------------ ------------ ------------ ------------
Excess........................ $ 93,934 $ 104,905 $ 109,460 $ 120,584
============ ============ ============ ============
Regulatory capital
ratio....................... 6.05% 16.77% 6.53% 18.04%
============ ============ ============ ============
</TABLE>
(1) Applying the 4% leverage capital ratio imposed by FDICIA, the Bank's
leverage capital requirement at September 30, 1996 was $123.3 million and as of
such date the Bank exceeded this requirement by $63.1 million. T R Financial's
leverage capital requirement, applying the 4% leverage capital ratio, was $123.9
million at September 30, 1996 and as of such date T R Financial exceeded this
requirement by $78.5 million.
21
<PAGE>
PART II - OTHER INFORMATION
---------------------------
ITEM 1. LEGAL PROCEEDINGS
Not applicable
ITEM 2. CHANGES IN SECURITIES
Not applicable
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable
ITEM 5. OTHER INFORMATION
Not applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
11. Statement re: Computation of Per Share Earnings
27. Financial Data Schedule*
(b) REPORTS ON FORM 8-K
Not applicable.
- --------
* Submitted only with filing in electronic format.
22
<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.
T R FINANCIAL CORP.
(Registrant)
Date: November 12, 1996 By:/s/ John M. Tsimbinos
---------------------
John M. Tsimbinos
Chairman of the Board and
Chief Executive Officer
Date: November 12, 1996 By:/s/ Dennis E. Henchy
--------------------
Dennis E. Henchy
Executive Vice President
and Chief Financial Officer
23
<PAGE>
EXHIBIT INDEX
Page
----
11. Statement re: Computation of Per Share Earnings.................. 25
27. Financial Data Schedule (submitted only with filing in
electronic format).............................................. 26
24
<PAGE>
EXHIBIT 11
<TABLE>
<CAPTION>
T R FINANCIAL CORP.
STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------------------------ -------------------------------------------
1996 1995 1996 1995
-------------------- ------------------- -------------------- --------------------
<C> <C> <C> <C> <C>
1. Net income $ 8,314,000 $ 5,934,000 $ 22,712,000 $ 14,573,000
============= ============= ============= =============
2. Weighted average common
shares outstanding 8,194,344 8,847,283 8,256,452 9,020,224
3. Pro rata allocation to interim
periods of ESOP shares to be
allocated on December 31st of
each year (results from the
adoption of SOP 93-6) 80,590 80,436 48,596 48,441
4. Common stock equivalents
attributable to dilutive effect of
stock options 567,732 518,154 572,992 461,066
------------- ------------- ------------- -------------
5. Total weighted average common
shares and equivalents
outstanding for primary earnings
per share computations 8,842,666 9,445,873 8,878,040 9,529,731
============= ============= ============= =============
6. Primary earnings per share $ 0.94 $ 0.63 $ 2.56 $ 1.53
============= ============= ============= =============
</TABLE>
25
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
This schedule contains summary financial information extracted from the
consolidated condensed statement of financial condition and the consolidated
condensed statement of income and is qualified in its entirety by reference to
such financial statements.
</LEGEND>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 18,410
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 2,963
<INVESTMENTS-HELD-FOR-SALE> 443,839
<INVESTMENTS-CARRYING> 944,286
<INVESTMENTS-MARKET> 942,803
<LOANS> 1,655,365
<ALLOWANCE> 14,246
<TOTAL-ASSETS> 3,140,494
<DEPOSITS> 2,279,370
<SHORT-TERM> 34,500
<LIABILITIES-OTHER> 64,703
<LONG-TERM> 562,550
0
0
<COMMON> 114
<OTHER-SE> 199,257
<TOTAL-LIABILITIES-AND-EQUITY> 3,140,494
<INTEREST-LOAN> 87,288
<INTEREST-INVEST> 74,085
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 161,373
<INTEREST-DEPOSIT> 74,642
<INTEREST-EXPENSE> 100,961
<INTEREST-INCOME-NET> 60,412
<LOAN-LOSSES> 1,200
<SECURITIES-GAINS> 6,526
<EXPENSE-OTHER> 32,228
<INCOME-PRETAX> 38,994
<INCOME-PRE-EXTRAORDINARY> 22,712
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 22,712
<EPS-PRIMARY> 2.56
<EPS-DILUTED> 2.56
<YIELD-ACTUAL> 2.74
<LOANS-NON> 8,370
<LOANS-PAST> 1,952
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 13,267
<CHARGE-OFFS> 425
<RECOVERIES> 204
<ALLOWANCE-CLOSE> 14,246
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 14,246
</TABLE>
