As filed with the Securities and Exchange Commission on November 13, 1997
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, 1997
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
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (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, 1997, there were 17,594,523 shares of the
Registrant's common stock outstanding.
<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, 1997 and December 31, 1996 3
Consolidated Statements of Income for the three and nine
months ended September 30, 1997 and 1996 4
Consolidated Statement of Changes in Stockholders' Equity for
the nine months ended September 30, 1997 5
Consolidated Statements of Cash Flows for the nine
months ended September 30, 1997 and 1996 6
Notes to Unaudited Consolidated Financial Statements 7-11
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 11-20
Item 3. Quantitative and Qualitative Disclosures about Market Risk 20
PART II -- OTHER INFORMATION
- ----------------------------
Item 1. Legal Proceedings 20
Item 2. Changes in Securities 20
Item 3. Defaults Upon Senior Securities 20
Item 4. Submission of Matters to a Vote of Security Holders 20
Item 5. Other Information 20
Item 6. Exhibits and Reports on Form 8-K 20
Signature Page 21
================================================================================
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 included 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.
================================================================================
2
<PAGE>
PART I -- FINANCIAL INFORMATION
- --------------------------------
ITEM 1. FINANCIAL STATEMENTS -- UNAUDITED
---------------------------------
<TABLE>
<CAPTION>
T R FINANCIAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(UNAUDITED)
September 30, December 31,
1997 1996
------------- ------------
(in thousands, except share and
per share amounts)
ASSETS
- ------
<S> <C> <C>
Cash and cash equivalents $ 28,335 $ 18,128
Securities available for sale:
Bonds and equities 328,670 337,446
Mortgage-backed securities 118,444 104,401
----------- -----------
Total securities available for sale 447,114 441,847
----------- -----------
Securities held to maturity, net (estimated fair value of $1,205,905 and
$1,017,702 at September 30, 1997 and December 31, 1996, respectively):
Bonds 42,325 53,632
Mortgage-backed securities 1,141,216 955,300
----------- -----------
Total securities held to maturity, net 1,183,541 1,008,932
----------- -----------
Loans receivable 1,966,869 1,716,182
Allowance for possible loan losses (14,934) (14,370)
----------- -----------
Loans receivable, net 1,951,935 1,701,812
----------- -----------
Other real estate owned, net 887 3,264
Banking house and equipment, net 13,920 13,320
Accrued interest receivable 22,969 21,517
Federal Home Loan Bank stock, at cost 33,390 33,390
Deferred tax asset, net 2,784 6,668
Other assets 6,689 10,749
----------- -----------
Total assets $ 3,691,564 $ 3,259,627
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Due to depositors $ 2,321,270 $ 2,343,513
Borrowed funds 1,048,903 637,835
Mortgagors' escrow deposits 27,728 19,585
Accounts payable and accrued expenses 16,701 11,190
Official checks outstanding 17,858 24,251
Accrued taxes payable 9,095 --
Other liabilities 19,796 19,215
----------- -----------
Total liabilities 3,461,351 3,055,589
----------- -----------
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; 22,724,000 shares
issued; 17,592,169 shares and 17,574,040 shares outstanding at September
30, 1997 and December 31, 1996, respectively 227 227
Additional paid-in-capital 108,875 104,880
Retained earnings, partially restricted 176,172 157,716
Net unrealized appreciation (depreciation) in certain securities, net of tax 3,585 (1,501)
Less:
Unallocated common stock held by Employee Stock Ownership Plan ("ESOP") (4,865) (5,650)
Unearned common stock held by Bank's Recognition and Retention Plans and
Trusts (RRP's) (129) (346)
Common stock held by Bank's Supplemental Executive Retirement
Plan and Trust, at cost (105,435 shares and 78,192 shares at
September 30, 1997 and December 31, 1996, respectively) (1,206) (721)
Treasury stock, at cost (5,131,831 shares and 5,149,960 shares
at September 30, 1997 and December 31, 1996, respectively) (52,446) (50,567)
----------- -----------
Total stockholders' equity 230,213 204,038
----------- -----------
Total liabilities and stockholders' equity $ 3,691,564 $ 3,259,627
=========== ===========
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
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,
-------------------------- --------------------------
1997 1996 1997 1996
-------- -------- -------- --------
(in thousands, except per share amounts)
<S> <C> <C> <C> <C>
Interest income:
Mortgage loans $ 33,984 $ 28,563 $ 96,626 $ 82,363
Mortgage-backed securities 22,617 19,014 64,380 56,358
Bonds, equities and other investments 6,481 5,844 20,452 17,727
Other loans 1,970 1,874 6,175 4,925
-------- -------- -------- --------
Total interest income 65,052 55,295 187,633 161,373
-------- -------- -------- --------
Interest expense:
Deposits 28,319 26,252 84,826 74,642
Borrowed funds 13,844 8,781 35,401 26,319
-------- -------- -------- --------
Total interest expense 42,163 35,033 120,227 100,961
-------- -------- -------- --------
Net interest income 22,889 20,262 67,406 60,412
Provision for possible loan losses 125 200 675 1,200
-------- -------- -------- --------
Net interest income after provision
for possible loan losses 22,764 20,062 66,731 59,212
-------- -------- -------- --------
Non-interest income:
Loan fees and other charges, net 1,622 1,405 4,664 4,396
Net gain on sales of securities 1,804 1,767 3,784 6,526
Gain on sales of whole loans -- -- 158 3
Other income 185 410 971 1,085
-------- -------- -------- --------
Total non-interest income 3,611 3,582 9,577 12,010
-------- -------- -------- --------
Non-interest expense:
Salaries and employee benefits 7,581 6,397 21,268 18,901
Occupancy and equipment expense 1,354 1,235 3,958 3,728
Marketing expense 671 560 2,026 1,831
Other real estate owned expense 50 181 183 842
FDIC assessment 76 1 227 2
Other operating expense 1,731 2,162 6,729 6,924
-------- -------- -------- --------
Total non-interest expense 11,463 10,536 34,391 32,228
-------- -------- -------- --------
Income before provision for income
taxes 14,912 13,108 41,917 38,994
-------- -------- -------- --------
Provision for income taxes 5,880 4,794 16,707 16,282
-------- -------- -------- --------
Net income $ 9,032 $ 8,314 $ 25,210 $ 22,712
======== ======== ======== ========
Net income per common and common
equivalent share $ 0.51 $ 0.47 $ 1.43 $ 1.28
======== ======== ======== ========
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
4
<PAGE>
<TABLE>
<CAPTION>
T R FINANCIAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
(UNAUDITED)
For the
nine months ended
September 30, 1997
---------------------------
(in thousands, except share
and per share amounts)
<S> <C>
COMMON STOCK (PAR VALUE: $.01)
- ------------------------------
Balance at beginning and end of period ......................................... $ 227
---------
ADDITIONAL PAID-IN-CAPITAL
- --------------------------
Balance at beginning of period ................................................. 104,880
Excess of ESOP compensation cost measured using fair value of stock
over its related cost ....................................................... 2,939
Amortization of stock option costs ........................................... 28
Common stock acquired by Supplemental Executive Retirement Plan and Trust .... 485
Tax benefits attributable to vested RRP shares and stock option exercises .... 543
---------
Balance at end of period ....................................................... 108,875
---------
RETAINED EARNINGS, PARTIALLY RESTRICTED
- ---------------------------------------
Balance at beginning of period ................................................. 157,716
Net income ................................................................... 25,210
Cash dividends declared on common stock ($0.39 per share) ................... (6,365)
Loss on reissuances of treasury stock (201,192 shares) ....................... (389)
---------
Balance at end of period ....................................................... 176,172
---------
NET UNREALIZED APPRECIATION (DEPRECIATION) IN CERTAIN
SECURITIES, NET OF TAX
- -----------------------------------------------------
Balance at beginning of period ................................................. (1,501)
Net unrealized appreciation in certain securities, net of tax ................ 5,086
---------
Balance at end of period ....................................................... 3,585
---------
UNALLOCATED/UNEARNED COMMON STOCK HELD BY STOCK PLANS
- -----------------------------------------------------
Balance at beginning of period ................................................. (5,996)
Amortization relating to allocation of stock held by ESOP and
earned portion of RRP stock ................................................ 862
Sale of shares held in RRP trust to treasury stock (31,000 shares) ........... 140
---------
Balance at end of period ....................................................... (4,994)
---------
COMMON STOCK HELD BY BANK'S SUPPLEMENTAL EXECUTIVE
RETIREMENT PLAN AND TRUST, AT COST
- --------------------------------------------------
Balance at beginning of period ................................................. (721)
Common stock acquired ........................................................ (485)
---------
Balance at end of period ....................................................... (1,206)
---------
TREASURY STOCK, AT COST
- -----------------------
Balance at beginning of period ................................................. (50,567)
Common stock acquired, at cost (183,000 shares) .............................. (3,174)
Common stock reissued for options exercised (201,129 shares) ................. 1,295
---------
Balance at end of period ....................................................... (52,446)
---------
Total stockholders' equity ..................................................... $ 230,213
=========
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
5
<PAGE>
<TABLE>
<CAPTION>
T R FINANCIAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
For the nine months ended September 30,
1997 1996
------------------- ------------------
(in thousands)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ............................................................................ $ 25,210 $ 22,712
Adjustments to reconcile net income to net cash provided (used)
by operating activities:
Provision for possible loan losses .................................................. 675 1,200
Provision for possible other real estate owned losses ............................... 4 171
Depreciation of banking house and equipment ......................................... 1,557 1,267
Gain on calls of securities ......................................................... (1) (31)
Net gain on sales of securities available for sale .................................. (3,691) (6,520)
Gain on sales of whole loans ........................................................ (158) (3)
Net gain on sale of other real estate owned ......................................... (354) (369)
Amortization of net deferred loan origination costs ................................. 503 341
Amortization of premiums in excess of accretion of discounts ........................ 1,158 893
Income taxes deferred and tax benefits attributable to stock plans .................. 431 118
Amortization relating to allocation and earned portions of stock plans .............. 3,941 2,980
Increase/decrease in:
Trading account securities .......................................................... -- (2,963)
Accrued interest receivable ......................................................... (1,452) 536
Accounts payable and accrued expenses ............................................... 5,511 (4,524)
Official checks outstanding ......................................................... (6,393) (12,349)
Other assets ........................................................................ 4,060 115
Accrued taxes payable ............................................................... 9,095 (2,727)
Other liabilities ................................................................... 581 3,784
--------- ---------
Net cash provided by operating activities ........................................ 40,677 4,631
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Payments for the purchase of:
Securities held to maturity and FHLB Capital Stock .................................. (292,301) (244,538)
Securities available for sale ....................................................... (191,560) (284,785)
Banking house and equipment ......................................................... (2,157) (2,679)
Proceeds from:
Redemption of FHLB Capital Stock and calls of securities ............................ 15,315 20,924
Sales of securities available for sale .............................................. 175,189 320,432
Repayments on securities ............................................................ 124,985 179,341
Sales of whole loans ................................................................ 9,837 550
Principal collected on real estate loans ............................................ 150,107 112,430
Sales of other real estate owned .................................................... 3,692 7,318
Principal collected on other loans .................................................. 35,640 16,570
Real estate loans originated and purchased ............................................ (412,506) (315,837)
Other loans originated and purchased .................................................. (35,186) (50,302)
--------- ---------
Net cash used in investing activities ............................................. (418,945) (240,576)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Interest credited to deposits ......................................................... 66,535 74,642
Net (withdrawals) deposits in savings accounts, certificate of deposit accounts,
money market accounts and checking accounts ......................................... (88,778) 166,387
Net proceeds from exercise of stock options ........................................... 906 732
Net deposits to escrow accounts ....................................................... 8,143 8,484
Net (repayments of) proceeds from short-term borrowed funds ........................... (43,610) 15,500
Repayments of long-term borrowed funds ................................................ (80,800) (48,613)
Proceeds from long-term borrowed funds ................................................ 535,478 35,600
Purchase of treasury stock ............................................................ (3,034) (15,637)
Cash dividends paid ................................................................... (6,365) (3,944)
--------- ---------
Net cash provided by financing activities .......................................... 388,475 233,151
--------- ---------
Net increase (decrease) in cash and cash equivalents .................................. 10,207 (2,794)
Cash and cash equivalents at beginning of period ...................................... 18,128 21,204
--------- ---------
Cash and cash equivalents at end of period ............................................ $ 28,335 $ 18,410
========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for income taxes ............................................................ $ 4,351 $ 18,818
========= =========
Cash paid for interest on deposits and borrowed funds ................................. $ 49,147 $ 41,571
========= =========
Non-cash investing activities:
Additions to other real estate owned, net ........................................... $ 965 $ 4,239
========= =========
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
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, 1997 are not necessarily indicative of the results of operations
that may be expected for the entire year. Certain information and note
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been condensed or omitted
pursuant to the rules and regulations of the 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, 1996.
On April 15, 1997, the Board of Directors announced a stock split in
the form of a 100% stock dividend to stockholders of record at the close of
business on May 1, 1997. As a result, all share and per share amounts contained
in these unaudited consolidated financial statements have been restated to give
effect to the 100% stock dividend. The new shares were distributed on May 14,
1997.
Effective January 1, 1997, the Company adopted the provisions of
Statement of Financial Accounting Standards ("SFAS") No. 125, "Accounting for
Transfers and Servicing of Financial Assets and Extinguishment of Liabilities,"
as amended by SFAS No. 127, "Deferral of the Effective Date of Certain
Provisions of FASB Statement No. 125." The adoption of SFAS No. 125, as amended,
did not have a material effect on the Company's financial condition or results
of operations.
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 months ended September 30, 1997 and 1996, the
weighted average number of shares of common stock and common stock equivalents
outstanding was 17,797,201 and 17,685,332, respectively. For the nine months
ended September 30, 1997 and 1996, the weighted average number of shares of
common stock and common stock equivalents outstanding was 17,662,177 and
17,756,080, respectively. 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," the weighted average number of shares of common stock
and common stock equivalents is reduced by the weighted average number of
unallocated shares of common stock held by the Company's Employee Stock
Ownership Plan ("ESOP"). Accordingly, such shares for the three months ended
September 30, 1997 and 1996 have been reduced by 1,110,646 shares and 1,341,694
shares, respectively. For the nine months ended September 30, 1997 and 1996,
such shares have been reduced by 1,168,272 shares and 1,405,682 shares,
respectively.
7
<PAGE>
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, 1997.
<TABLE>
<CAPTION>
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 $ 194,243 $ 195,223 $ 1,178 $ (198)
Federal agency obligations 104,054 103,752 151 (453)
Industrial, financial corporation
and other bonds 2,039 2,082 43 --
Common and preferred stocks 20,863 27,613 6,751 (1)
---------- ---------- ---------- ----------
Total bonds and equities 321,199 328,670 8,123 (652)
---------- ---------- ---------- ----------
Mortgage-backed securities:
FNMA, net (1) 7,732 7,895 165 (2)
GNMA, net 102,766 103,851 1,125 (40)
FHLMC, net (1) 6,713 6,698 29 (44)
---------- ---------- ---------- ----------
Total mortgage-backed securities 117,211 118,444 1,319 (86)
---------- ---------- ---------- ----------
Total available for sale $ 438,410 $ 447,114 $ 9,442 $ (738)
========== ========== ========== ==========
Held to Maturity, Net:
Bonds:
Federal agency obligations $ 6,000 $ 5,986 $ -- $ (14)
Public utility bonds 901 864 -- (37)
Municipal bonds 6,553 6,730 177 --
Industrial and financial
corporation bonds 28,871 28,834 101 (138)
---------- ---------- ---------- ----------
Total bonds 42,325 42,414 278 (189)
---------- ---------- ---------- ----------
Mortgage-backed securities:
FNMA, net 88,959 88,559 530 (930)
GNMA, net 959,163 979,095 20,795 (863)
FHLMC, net (2) 90,185 92,792 2,607 --
CMOs, net (2) 2,909 3,045 136 --
---------- ---------- ---------- ----------
Total mortgage-backed securities 1,141,216 1,163,491 24,068 (1,793)
---------- ---------- ---------- ----------
Total held to maturity, net $1,183,541 $1,205,905 $ 24,436 $ (1,982)
========== ========== ========== ==========
</TABLE>
(1) Through June 30, 1997, these amounts included 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. During the three months ended
September 30, 1997, these securities were sold, and, as a result, the
remaining unamortized gross unrealized losses were reversed.
(2) Includes securities which were transferred on March 31, 1995 from
available for sale to held to maturity. As of September 30, 1997 the
amortized cost of these securities was reduced by $2,414,000 of gross
unrealized losses existing as of March 31, 1995, adjusted for subsequent
accretion.
8
<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 shares of T R Financial
common stock to be allocated by the ESOP 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. The compensation expense attributable to the ESOP was $1,557,000 and
$865,000, respectively, for the three months ended September 30, 1997 and 1996
and $3,724,000 and $2,469,000, respectively, for the nine months ended September
30, 1997 and 1996. The average quoted price of the underlying shares for the
three months ended September 30, 1997 and 1996 was $26.80 per share and $13.99
per share, respectively. For the nine months ended September 30, 1997 and 1996
such average price was $21.37 and $13.31, respectively.
5. STOCKHOLDERS' EQUITY
During the nine months ended September 30, 1997, a total of 183,000
shares of T R Financial common stock were repurchased by the Company at an
aggregate cost of $3,174,000. Of this amount, 31,000 shares represent
repurchases of unallocated shares held by the Roosevelt Savings Bank Recognition
and Retention Plan for Outside Directors in connection with the termination of
the plan.
For the nine months ended September 30, 1997, the Board of Directors
declared cash dividends on the Company's outstanding common stock of $0.11 per
share, $0.13 per share and $0.15 per share to stockholders of record on February
14, 1997, May 15, 1997 and August 15, 1997, respectively. These dividends
aggregated $6,365,000 and were paid in March, June and September 1997.
6. CONTINGENCIES
The Company is not involved in any 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 23, 1997 the Board of Directors declared a cash dividend on
the Company's outstanding common stock of $0.16 per share to stockholders of
record on November 12, 1997. The dividend is payable on December 1, 1997.
8. PROVISION FOR INCOME TAXES
In March 1997, New York City legislative changes were enacted to permit
continued future use of bad debt reserve methods similar to New York State tax
law. The Company reduced its provision for income taxes during the three months
ended March 31, 1997 by $275,000 principally as a result of the change in New
York City bad debt tax legislation.
9. RECENT ACCOUNTING PRONOUNCEMENTS
In February 1997, the Financial Accounting Standards Board ("FASB")
issued SFAS No. 128, "Earnings Per Share," which supersedes APB Opinion No. 15,
"Earnings Per Share." SFAS No. 128 replaces the current presentation of primary
earnings per share with basic earnings per share and replaces the current
presentation of fully diluted earnings per share with diluted earnings per
share.
9
<PAGE>
Basic earnings per share, unlike primary earnings per share, excludes
dilution and is computed by dividing income available to common stockholders by
the weighted average number of common shares outstanding during the period.
Diluted earnings per share reflects the potential dilution that could occur if
securities or other contracts to issue common stock were exercised, converted
into common stock or otherwise resulted in the issuance of common stock. Diluted
earnings per share is similar to fully diluted earnings per share under APB
Opinion No. 15.
SFAS No. 128 is effective for financial statements with interim and
annual periods ending after December 15, 1997. As a result, the Company will be
required to apply the provisions of SFAS No. 128 beginning with financial
statements for the three and twelve months ended December 31, 1997. SFAS No. 128
also requires that, upon adoption of this statement, all prior period earnings
per share data be restated to conform with the provisions of SFAS No. 128.
While SFAS No. 128 does not permit early application, earnings per
share data computed pursuant to the provisions of SFAS No. 128, on a pro forma
basis, for the three and nine months ended September 30, 1997 and 1996 is as
follows:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1997 1996 1997 1996
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Basic earnings per share:
Income available to common stockholders $ 9,032,000 $ 8,314,000 $25,210,000 $22,712,000
=========== =========== =========== ===========
Weighted average number of common
shares outstanding 16,322,084 16,388,688 16,320,935 16,512,904
Weighted average pro rata allocation to
interim periods of common stock held
by the ESOP and to be allocated on
December 31st of each year 144,860 161,180 87,234 97,192
----------- ----------- ----------- -----------
Total denominator for basic earnings per share 16,466,944 16,549,868 16,408,169 16,610,096
=========== =========== =========== ===========
Basic earnings per share $ 0.55 $ 0.50 $ 1.54 $ 1.37
=========== =========== =========== ===========
Diluted earnings per share:
Income available to common stockholders $ 9,032,000 $ 8,314,000 $25,210,000 $22,712,000
=========== =========== =========== ===========
Total denominator for basic earnings per share 16,466,944 16,549,868 16,408,169 16,610,096
Plus: Weighted average number of shares that
would be issued upon exercise of dilutive
options assuming proceeds would be used to
repurchase shares pursuant to the treasury
stock method 1,330,257 1,135,464 1,254,008 1,145,984
----------- ----------- ----------- -----------
Total denominator for diluted earnings per share 17,797,201 17,685,332 17,662,177 17,756,080
=========== =========== =========== ===========
Diluted earnings per share $ 0.51 $ 0.47 $ 1.43 $ 1.28
=========== =========== =========== ===========
</TABLE>
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income" which establishes standards for reporting and display of comprehensive
income and its components in a full set of comparative general purpose financial
statements. The Company is required to adopt the provisions of SFAS No. 130 for
interim and annual reporting periods beginning after December 15, 1997. SFAS No.
130 defines comprehensive income as net income plus other comprehensive income.
Under existing accounting standards other comprehensive income will be
separately classified into foreign currency items,
10
<PAGE>
minimum pension liability adjustments and unrealized gains and losses on certain
investments in debt and equity securities. Only the last of these items,
however, is currently applicable to the Company.
The FASB also issued in June 1997, SFAS No. 131, "Disclosures about
Segments of an Enterprise and Related Information" which establishes standards
for the way public business enterprises, including the Company, are to report
information about operating segments in annual reporting and selected
information about operating segments in interim reporting. This statement also
establishes standards for related disclosures about products and services,
geographic areas and major customers. SFAS No. 131 supersedes SFAS No. 14,
"Financial Reporting for Segments of a Business Enterprise" and amends SFAS No.
94, "Consolidation of All Majority Owned Subsidiaries" to remove special
disclosure requirements for previously unconsolidated subsidiaries. SFAS No. 131
is effective for the Company for annual reporting periods beginning after
December 15, 1997 and requires interim periods to be presented in the second
year of application. The interim periods, however, must be presented in
comparative form unless it is impracticable to do so.
SFAS Nos. 130 and 131 are limited to additional disclosure and,
accordingly, the adoption of these statements will not have an impact on the
Company's financial condition or results of operations.
ITEM 2. 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 and its subsidiaries (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 $431.9 million, or 13.3%, to $3.69 billion at
September 30, 1997 from $3.26 billion at December 31, 1996, primarily as a
result of management's continued strategy to leverage its capital position
through asset growth. This growth was funded primarily by increased borrowed
funds.
Of the increase in total assets, $250.1 million was attributable to an
increase in loans receivable, net, due primarily to the origination and purchase
of residential real estate loans. Securities available for sale increased $5.3
million, or 1.2%, to $447.1 million at September 30, 1997 from $441.8 million at
December 31, 1996, due principally to purchases of such securities totaling
$191.6 million during the nine months ended September 30, 1997, offset by sales
of securities totaling $175.2 million. Securities held to maturity, net
increased $174.6 million, or 17.3%, to $1.18 billion at September 30, 1997 from
$1.01 billion at December 31, 1996. 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, 1997, the available for sale
portfolio had net unrealized appreciation of $8.7 million as compared to net
unrealized appreciation at December 31, 1996 of $1.9 million.
Total deposits decreased $22.2 million, or 0.9%, to $2.32 billion at
September 30, 1997 from $2.34 billion at December 31, 1996. This decrease was
attributable to the planned net outflow of certain
11
<PAGE>
higher cost customer deposits. Borrowed funds, however, increased $411.1
million, or 64.4%, to $1.05 billion at September 30, 1997 from $637.8 million at
December 31, 1996. This increase in borrowings is primarily attributable to a
$539.1 million increase in securities sold under agreements to repurchase, which
was partially offset by a $128.0 million decrease in Federal Home Loan Bank of
New York ("FHLB") borrowings. In managing the cost of funds, management is using
borrowings to leverage asset growth and to replace planned deposit outflow. This
strategy is intended to lower the Company's overall cost of funds in the fourth
quarter of 1997 as compared to the third quarter of 1997.
Stockholders' equity increased to $230.2 million at September 30, 1997,
or 6.2% of total assets, as compared to $204.0 million at December 31, 1996, or
6.3% of total assets. In accordance with Statement of Financial Accounting
Standards ("SFAS") No. 115, "Accounting for Investments in Certain Debt and
Equity Securities," stockholders' equity at September 30, 1997 and December 31,
1996 includes net unrealized appreciation (depreciation) in certain securities,
net of tax, of $3.6 million and ($1.5) million, respectively. The change in net
unrealized appreciation (depreciation) in certain securities from December 31,
1996 to September 30, 1997 resulted primarily from the affect that the
appreciation in the equity financial markets had during this period on equity
holdings of the Company and from a decrease in market interest rates during the
nine months ended September 30, 1997, which increased the estimated fair value
of fixed rate debt securities. The change in net unrealized appreciation was
only partially offset by the realization of net gains from sales of securities.
As of September 30, 1997, net unrealized appreciation (depreciation) in certain
securities, net of tax, included net unrealized depreciation of $1.4 million,
net of tax, relating to securities previously transferred from available for
sale to held to maturity. At December 31, 1996, such amount was $2.6 million of
net unrealized depreciation. In addition, during the nine months ended September
30, 1997, the Company continued its stock buyback program, purchasing 183,000
shares of common stock at a total cost of $3.2 million for the period. See
"Liquidity and Capital Resources."
The Bank's leverage capital ratio decreased from 6.07% at December 31,
1996 to 5.98% at September 30, 1997 due to the increase in the Bank's quarterly
average assets, which was partially offset by a $22.3 million increase in the
Bank's regulatory capital. The Bank's risk-based capital ratio of 17.69% at
September 30, 1997 represents an 83 basis point increase as compared to that
ratio at December 31, 1996. 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 $1.2 million to $14.7 million at
September 30, 1997, from $15.9 million at December 31, 1996. The ratio of
non-performing assets to total assets decreased to 0.40% at September 30, 1997
from 0.49% at December 31, 1996. Other real estate owned, net decreased $2.4
million to $887 thousand at September 30, 1997 from $3.3 million at December 31,
1996. Non-performing loans increased to $13.8 million at September 30, 1997 as
compared to $12.6 million at December 31, 1996 due primarily to a $1.0 million
increase in loans 90 days or more delinquent and still accruing. Despite the
increase in non-performing loans, the ratio of non-performing loans to total
loans decreased to 0.70% at September 30, 1997 as compared to 0.74% at December
31, 1996.
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.
12
<PAGE>
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, 1997 and 1996, 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.
<TABLE>
<CAPTION>
Three Months Ended September 30,
--------------------------------------------------------------------------------
1997 1996
------------------------------------ ---------------------------------------
Average Average
Average Yield/ Average Yield/
Balance Interest Cost Balance Interest Cost
---------- ---------- ------ ---------- ---------- ------
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
ASSETS
- ------
Earning Assets:
Mortgage Loans, Net $1,794,729 $ 33,984 7.57% $1,521,034 $ 28,563 7.51%
Other Loans 106,047 1,970 7.43 92,685 1,874 8.09
Mortgage-Backed Securities 1,203,120 22,617 7.52 1,007,800 19,014 7.55
Short-Term Securities 17,111 241 5.63 1,676 23 5.49
Other Securities 414,204 6,240 6.03 401,084 5,821 5.81
---------- ---------- ---------- ---------- ----
Total Earning Assets 3,535,211 65,052 7.36 3,024,279 55,295 7.31
---------- ----------
Non-Earning Assets 71,957 70,409
---------- ----------
Total Assets $3,607,168 $3,094,688
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Interest-Bearing Liabilities:
Deposits:
Passbook Accounts $ 642,387 $ 4,829 3.01% $ 590,966 $ 4,147 2.81%
Now Accounts 10,050 73 2.91 10,467 71 2.71
Money Market Accounts 77,228 529 2.74 73,297 499 2.72
Certificate of Deposit Accounts 1,596,573 22,888 5.73 1,520,838 21,535 5.66
---------- ---------- ---------- ---------- ----
Total Interest-Bearing Deposits 2,326,238 28,319 4.87 2,195,568 26,252 4.78
Borrowings 935,485 13,844 5.92 600,012 8,781 5.85
---------- ---------- ---------- ---------- ----
Total Interest-Bearing Liabilities 3,261,723 42,163 5.17 2,795,580 35,033 5.01
---------- ----------
Other Liabilities 121,148 102,418
---------- ----------
Total Liabilities 3,382,871 2,897,998
Stockholders' Equity 224,297 196,690
---------- ----------
Total Liabilities and Stockholders'
Equity $3,607,168 $3,094,688
========== ==========
Net Interest Income/Interest Rate Spread $ 22,889 2.19% $ 20,262 2.30%
========== ==== ========== ====
Net Earning Assets/Net Interest Margin $ 273,488 2.59% $ 228,699 2.68%
========== ==== ========== ====
Ratio of Earning Assets to
Interest-Bearing Liabilities 1.08x 1.08x
==== ====
</TABLE>
13
<PAGE>
<TABLE>
<CAPTION>
Nine Months Ended September 30,
--------------------------------------------------------------------------------
1997 1996
------------------------------------ ---------------------------------------
Average Average
Average Yield/ Average Yield/
Balance Interest Cost Balance Interest Cost
---------- ---------- ------ ---------- ---------- ------
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
ASSETS
- ------
Earning Assets:
Mortgage Loans, Net $1,704,972 $ 96,626 7.56% $1,453,692 $ 82,363 7.55%
Other Loans 108,555 6,175 7.58 79,949 4,925 8.21
Mortgage-Backed Securities 1,139,013 64,380 7.54 1,000,771 56,358 7.51
Short-Term Securities 17,585 731 5.54 6,158 246 5.33
Other Securities 442,355 19,721 5.94 399,114 17,481 5.84
---------- ---------- ---------- ----------
Total Earning Assets 3,412,480 187,633 7.33 2,939,684 161,373 7.32
---------- ----------
Non-Earning Assets 69,999 71,676
---------- ----------
Total Assets $3,482,479 $3,011,360
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Interest-Bearing Liabilities:
Deposits:
Passbook Accounts $ 634,787 $ 14,207 2.98% $ 550,389 $ 11,206 2.71%
Now Accounts 9,532 201 2.81 29,128 665 3.04
Money Market Accounts 76,358 1,578 2.76 84,084 1,699 2.69
Certificate of Deposit Accounts 1,622,047 68,840 5.66 1,440,840 61,072 5.65
---------- ---------- ---------- ----------
Total Interest-Bearing Deposits 2,342,724 84,826 4.83 2,104,441 74,642 4.73
Borrowings 810,036 35,401 5.83 611,531 26,319 5.74
---------- ---------- ---------- ----------
Total Interest-Bearing Liabilities 3,152,760 120,227 5.08 2,715,972 100,961 4.96
---------- ----------
Other Liabilities 115,528 103,123
---------- ----------
Total Liabilities 3,268,288 2,819,095
Stockholders' Equity 214,191 192,265
---------- ----------
Total Liabilities and Stockholders'
Equity $3,482,479 $3,011,360
========== ==========
Net Interest Income/Interest Rate Spread $ 67,406 2.25% $ 60,412 2.36%
========== ==== ========== ====
Net Earning Assets/Net Interest Margin $ 259,720 2.63% $ 223,712 2.74%
========== ==== ========== ====
Ratio of Earning Assets to
Interest-Bearing Liabilities 1.08x 1.08x
==== ====
</TABLE>
14
<PAGE>
COMPARISON OF OPERATING RESULTS FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1997
AND 1996
GENERAL. The Company's net income for the three months ended September
30, 1997 increased $718 thousand to $9.0 million from $8.3 million for the same
period in 1996.
INTEREST INCOME. Interest income increased by $9.8 million, or 17.6%,
to $65.1 million for the three months ended September 30, 1997, from $55.3
million for the same period in 1996, due to a $510.9 million increase in the
average balance of earning assets to $3.54 billion for the three months ended
September 30, 1997, from $3.02 billion for the same period in 1996, reflecting
the Company's strategy to leverage its capital position through asset growth. Of
the increase in the average balance of earning assets, $273.7 million was
attributable to growth in the average balance of mortgage loans, net, $195.3
million was attributable to growth in the average balance of mortgage-backed
securities, $15.4 million was attributable to growth in the average balance of
short-term securities, $13.4 million was attributable to growth in the average
balance of other loans and $13.1 million was attributable to an increase in the
average balance of other securities. The average yield on earning assets
increased to 7.36% for the three months ended September 30, 1997 from 7.31% for
the same period in 1996, due primarily to the increased average balance of
mortgage loans and mortgage-backed securities, which generally have yields that
are above the average yield on earning assets.
Of the $13.4 million increase in the average balance of other loans for
the three months ended September 30, 1997 as compared to the same period in
1996, 37.3% of this increase was attributable to automobile leases purchased
from a third party leasing company. As of April 1, 1997, the third party leasing
company was acquired by another third party and stopped selling its automobile
lease receivables to the Company.
INTEREST EXPENSE. Interest expense increased by $7.1 million, or 20.4%,
to $42.2 million for the three months ended September 30, 1997, from $35.0
million for the same period in 1996, due primarily to a $335.5 million increase
in average borrowings, a $130.7 million increase in average interest-bearing
deposits and, to a lesser extent, higher interest rates associated with each.
For the three months ended September 30, 1997 the average rate paid on
interest-bearing deposits and borrowings increased 9 basis points and 7 basis
points, respectively, as compared to the same period in 1996. The average rate
paid on interest-bearing liabilities increased to 5.17% for the three months
ended September 30, 1997 from 5.01% for the same period in 1996. The average
balance of interest-bearing liabilities increased $466.1 million for the three
months ended September 30, 1997, to $3.26 billion from $2.80 billion for the
same period in 1996.
NET INTEREST INCOME. Net interest income increased $2.6 million, or
13.0%, to $22.9 million for the three months ended September 30, 1997, from
$20.3 million for the same period in 1996. This increase is the result, in part,
of a $510.9 million increase in the average balance of earning assets to $3.54
billion, offset by a $466.1 million increase in the average balance of
interest-bearing liabilities to $3.26 billion for the three months ended
September 30, 1997 as compared to the comparable prior year period. As a result
of these increases and the yields and costs associated with the earning assets
and interest- bearing liabilities, the net interest rate spread for the three
months ended September 30, 1997 decreased to 2.19% from 2.30% for the same
period in 1996.
PROVISION FOR POSSIBLE LOAN LOSSES. The provision for possible loan
losses decreased $75 thousand, or 37.5%, to $125 thousand for the three months
ended September 30, 1997 from $200 thousand for the same period in 1996. The
decrease reflects management's assessment of the loan portfolio, the Bank's
historical charge-off experience, the level of the Bank's allowance for possible
loan losses and management's assessment of the local economy and market
conditions. For the three months ended September 30, 1997, net loan charge-offs
were $181 thousand as compared to $106 thousand for the comparable prior year
period. At September 30, 1997 and December 31, 1996, the allowance for possible
loan losses amounted to $14.9 million and $14.4 million, respectively, and the
ratio of such allowance to non-performing loans was
15
<PAGE>
108.08% at September 30, 1997 as compared to 113.79% at December 31, 1996.
Although management believes its allowance for possible loan losses is adequate
at September 30, 1997, if general economic conditions and real estate values
deteriorate, the level of non-performing loans and charge offs 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 $29 thousand to $3.6
million for the three months ended September 30, 1997 as compared to the
comparable 1996 period. This slight increase was attributable to a $217 thousand
increase in loan fees and other charges, net, a $225 thousand decrease in other
income and a $37 thousand increase in net gains on sales of securities. The 1996
period included in other income $295 thousand of gains relating to the
disposition of foreclosed property, which was not recurring in the three month
period ended September 30, 1997. While net gains on sales of securities totaled
$1.8 million in both the three months ended September 30, 1997 and 1996, the net
gains for the three months ended September 30, 1997 resulted from sales of
available for sale securities having an amortized cost of $102.4 million as
compared to $53.3 million in the 1996 comparable period. For the three months
ended September 30, 1997, the Company sold from its available for sale
portfolio: $71.8 million of bonds (as compared to $16.0 million in the same
period in 1996); $26.8 million of mortgage-backed securities; (as compared to
$31.0 million in the same period in 1996); and $3.8 million of equities (as
compared to $6.3 million in the same period in 1996). These securities were sold
during the three months ended September 30, 1997 at net gains (losses) of $86
thousand, ($594) thousand and $2.3 million, respectively (as compared to $97
thousand, $709 thousand and $97 thousand, respectively, for the same period in
1996).
NON-INTEREST EXPENSE. Non-interest expense increased $927 thousand, or
8.8%, to $11.5 million for the three months ended September 30, 1997, from $10.5
million for the same period in 1996. Of this increase, salary and employee
benefits expense increased $1.2 million, or 18.5%, due primarily to higher costs
associated with certain qualified stock-based compensation plans. Occupancy and
equipment expense increased $119 thousand to $1.4 million for the three months
ended September 30, 1997, due primarily to higher real estate taxes and
increases in depreciation, which resulted from capital expenditures on
technology and building renovations. Marketing expense increased $111 thousand
to $671 thousand for the three months ended September 30, 1997 as compared to
the same period in 1996. Other real estate owned expense decreased $131 thousand
to $50 thousand for the three months ended September 30, 1997 as compared to the
same period in 1996 due to fewer foreclosed properties being held. FDIC
assessment expense was $76 thousand for the three month period ending September
30, 1997 as compared to $1 thousand for the same period in 1996. FDIC Bank
Insurance Fund ("BIF") assessment rates for the three months ended September 30,
1997 were $0.013 per $100 of insured deposits as compared to zero per $100 of
insured deposits plus a nominal annual charge for the comparable prior year
period. Other operating expense decreased $431 thousand, or 19.9%, for the three
months ended September 30, 1997 as compared to the same period during 1996, due
in part to lower office supplies and losses from limited partnership investments
in certain housing projects qualifying for low income housing tax credits.
PROVISION FOR INCOME TAXES. Provision for income taxes increased $1.1
million to $5.9 million for the three months ended September 30, 1997 as
compared to $4.8 million during the same period in 1996. As a percentage of
income before provision for income taxes, the provision for income taxes was
39.4% of pre-tax earnings for the three months ended September 30, 1997 as
compared to 36.6% in the comparable 1996 period. The 1996 third quarter
provision was reduced by $1.1 million principally as a result of a change in New
York State bad debt tax legislation.
COMPARISON OF OPERATING RESULTS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 AND
1996
GENERAL. The Company's net income for the nine months ended September
30, 1997 increased $2.5 million to $25.2 million from $22.7 million for the same
period in 1996.
16
<PAGE>
INTEREST INCOME. Interest income increased by $26.3 million, or 16.3%,
to $187.6 million for the nine months ended September 30, 1997, from $161.4
million for the same period in 1996, due to an increase in the average balance
of earning assets during the period of $472.8 million to $3.41 billion for the
nine months ended September 30, 1997, from $2.94 billion for the same period in
1996, reflecting the Company's strategy to leverage its capital position through
asset growth. Of the increase in the average balance of earning assets, $251.3
million was attributable to growth in the average balance of mortgage loans,
net, $138.2 million was attributable to growth in the average balance of
mortgage-backed securities, $43.2 million was attributable to growth in the
average balance of other securities, $28.6 million was attributable to growth in
the average balance of other loans, and $11.4 million was attributable to an
increase in the average balance of short-term securities. The average yield on
earning assets remained relatively constant at 7.33% for the nine months ended
September 30, 1997 as compared to 7.32% for the comparable 1996 period.
Of the $28.6 million increase in the average balance of other loans for
the nine months ended September 30, 1997 as compared to the same period in 1996,
77.4% of this increase was attributable to automobile leases purchased from a
third party leasing company. As of April 1, 1997, the third party leasing
company was acquired by another third party and stopped selling its automobile
lease receivables to the Company.
INTEREST EXPENSE. Interest expense increased by $19.3 million, or
19.1%, to $120.2 million for the nine months ended September 30, 1997, from
$101.0 million for the same period in 1996, due to a $238.3 million increase in
average interest-bearing deposits and a $198.5 million increase in average
borrowings. In addition, for the nine months ended September 30, 1997 the
average rate paid on interest-bearing deposits and borrowings increased 10 basis
points and 9 basis points, respectively, as compared to the same period in 1996.
The average rate paid on interest-bearing liabilities increased to 5.08% for the
nine months ended September 30, 1997 from 4.96% for the same period in 1996. The
average balance of interest-bearing liabilities increased $436.8 million for the
nine months ended September 30, 1997, to $3.15 billion from $2.72 billion for
the same period in 1996.
NET INTEREST INCOME. Net interest income increased $7.0 million, or
11.6%, to $67.4 million for the nine months ended September 30, 1997, from $60.4
million for the same period in 1996. This increase is the result, in part, of a
$472.8 million increase in the average balance of earning assets to $3.41
billion, offset by a $436.8 million increase in the average balance of
interest-bearing liabilities to $3.15 billion for the nine months ended
September 30, 1997 as compared to the comparable prior year period. As a result
of these increases and the yields and costs associated with the earning assets
and interest-bearing liabilities, the net interest rate spread for the nine
months ended September 30, 1997 decreased to 2.25% from 2.36% for the same
period in 1996.
PROVISION FOR POSSIBLE LOAN LOSSES. The provision for possible loan
losses decreased $525 thousand, or 43.8% to $675 thousand for the nine months
ended September 30, 1997 from $1.2 million for the same period in 1996. The
decrease reflects management's assessment of the loan portfolio, the Bank's
historical charge-off experience, the level of the Bank's allowance for possible
loan losses and management's assessment of the local economy and market
conditions. For the nine months ended September 30, 1997 loan charge-offs, net
of recoveries, aggregated $111 thousand, as compared to $221 thousand for the
comparable prior year period.
NON-INTEREST INCOME. Non-interest income decreased $2.4 million to $9.6
million for the nine months ended September 30, 1997 from $12.0 million for the
same period in 1996. This decrease was primarily attributable to a $2.7 million
decrease in net gain on sales of securities. For the nine months ended September
30, 1997, the Company sold available for sale securities with an amortized cost
of $171.4 million, as compared to $320.4 million in the 1996 comparable period.
For the nine months ended September 30, 1997, the securities sold included:
$112.7 million of bonds (as compared to $215.3 million in the same period in
1996); $45.6 million of mortgage-backed securities (as compared to $94.5 million
in the same period in 1996); and $13.1 million of equities (as compared to $10.6
million in the same period in 1996).
17
<PAGE>
These securities were sold during the nine months ended September 30, 1997 at
net gains (losses) of $93 thousand, ($575) thousand and $4.3 million,
respectively (as compared to $2.5 million, $1.7 million and $2.3 million,
respectively, for the same period in 1996).
NON-INTEREST EXPENSE. Non-interest expense increased $2.2 million, or
6.7%, to $34.4 million for the nine months ended September 30, 1997, from $32.2
million for the same period in 1996. Of this increase, salary and employee
benefits expense increased $2.4 million, or 12.5%, due primarily to higher costs
associated with certain qualified stock-based compensation plans, health benefit
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 $230 thousand to $4.0 million for the nine
months ended September 30, 1997, due primarily to increases in depreciation,
which resulted primarily from capital expenditures on technology. Marketing
expense increased $195 thousand to $2.0 million for the nine months ended
September 30, 1997 as compared to the same period in 1996. Other real estate
owned expense decreased $659 thousand to $183 thousand for the nine months ended
September 30, 1997 as compared to the same period in 1996 due to fewer
foreclosed properties being held. FDIC assessment expense was $227 thousand for
the nine month period ending September 30, 1997 as compared to $2 thousand for
the same period in 1996. Other operating expense decreased $195 thousand, or
2.8%, for the nine months ended September 30, 1997 as compared to the same
period during 1996, due to lower levels of expense in such areas as office
supplies and computer processing, which were partially offset by higher
professional fees.
PROVISION FOR INCOME TAXES. Provision for income taxes increased $425
thousand to $16.7 million for the nine months ended September 30, 1997 as
compared to $16.3 million during the same period in 1996. As a percentage of
income before provision for income taxes, the provision for income taxes
decreased from 41.8% of pre-tax earnings to 39.9%. This 1997 effective tax rate
reflects the tax affects associated with certain business initiatives put into
place by the Company during the second quarter of 1997 and from certain New York
City legislative changes regarding tax bad debt reserves (see Note 8 to
Unaudited Consolidated Financial Statements). The 1996 effective tax rate
includes the effect of New York State legislative changes regarding tax bad debt
reserves.
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 invested 50% of the net proceeds from the
stock offering in the Bank and initially invested the remaining proceeds in
short-term securities, corporate debt obligations, money market investments and
mortgage-backed securities. The Bank can pay dividends to T R Financial, to the
extent such payments are permitted by law or regulation, which serves as an
additional source of liquidity. T R Financial's liquidity is available to, among
other things, support future expansion of operations or diversification into
other banking related businesses, to pay dividends to its stockholders or
repurchase its common stock. During the nine months ended September 30, 1997, T
R Financial repurchased 183,000 shares of its common stock pursuant to its sixth
stock repurchase program at a total cost of $3.2 million. The sixth stock
repurchase program was authorized by the Board of Directors on April 16, 1996
and covers the repurchase of up to 1,789,618 shares of common stock. As of
September 30, 1997, a total of 617,000 shares had been repurchased pursuant to
this program. On October 23, 1997, the Board of Directors declared a quarterly
cash dividend of $0.16 per common share to stockholders of record on November
12, 1997. This dividend is payable on December 1, 1997.
The Bank's primary sources of funds are deposits, FHLB borrowings,
securities sold under agreements to repurchase and proceeds from principal and
interest payments on loans, mortgage-backed securities and debt securities.
Proceeds from the sales 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.
18
<PAGE>
The primary investing activities of the Company are the origination and
purchase of mortgage loans and the purchase of securities, including
mortgage-backed 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 investing activities during
any given period.
Liquidity management for the Company is both a daily and long-term
component of the Company's management strategy. Excess funds are generally
invested in short-term and intermediate-term securities. In the event that the
Company seeks to raise funds beyond what it generates internally, additional
sources of funds are available through the use of FHLB borrowings and through
the use of securities sold under agreements to repurchase. In addition, the Bank
may access funds, if necessary, through a $100 million overnight line of credit
and a $100 million one-month borrowing facility from the FHLB.
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 amount of at least 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 3.0%,
the Federal Deposit Insurance Corporation Improvement Act of 1991 ("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 regulatory capital positions and
ratios at September 30, 1997:
<TABLE>
<CAPTION>
ROOSEVELT SAVINGS 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>
Stockholders' equity at
September 30, 1997 $ 218,840 $ 218,840 $ 230,216 $ 230,216
Net unrealized
appreciation in certain
securities, net of tax (3,615) (3,615) (3,585) (3,585)
Mortgage servicing
rights not recognized (7) (7) (7) (7)
Allowance for possible
loan losses -- 14,934 -- 14,934
--------- --------- --------- ---------
Regulatory capital
position 215,218 230,152 226,624 241,558
Minimum required
regulatory capital (3%
and 8%, respectively) (1) 107,985 104,059 108,437 104,126
--------- --------- --------- ---------
Excess $ 107,233 $ 126,093 $ 118,187 $ 137,432
========= ========= ========= =========
Regulatory capital ratio 5.98% 17.69% 6.27% 18.56%
========= ========= ========= =========
</TABLE>
(1) Applying the 4% leverage capital ratio imposed by FDICIA, Roosevelt
Savings Bank's leverage capital requirement at September 30, 1997 was
$144.4 million and as of such date the Bank exceeded this requirement
by $71.2 million. T R Financial's leverage capital requirement,
applying the 4% leverage capital ratio, was $144.6 million at September
30, 1997 and as of such date T R Financial exceeded this requirement by
$82.0 million.
19
<PAGE>
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
----------------------------------------------------------
Not applicable.
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 (submitted only with filing in
electronic format)
(b) REPORTS ON FORM 8-K
Not applicable.
20
<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 13, 1997 By: /s/ John M. Tsimbinos
---------------------
John M. Tsimbinos
Chairman of the Board and
Chief Executive Officer
Date: November 13, 1997 By: /s/ Dennis E. Henchy
--------------------
Dennis E. Henchy
Executive Vice President
and Chief Financial Officer
21
<PAGE>
EXHIBIT INDEX
11. Statement re: Computation of Per Share Earnings
27. Financial Data Schedule (submitted only with filing in electronic
format)
22
EXHIBIT 11
T R FINANCIAL CORP.
STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------ ------------------------
1997 1996 1997 1996
---- ---- ---- ----
1. Net income
$ 9,032,000 $ 8,314,000 $25,210,000 $22,712,000
=========== =========== =========== ===========
2. Weighted average
common shares
outstanding
16,322,084 16,388,688 16,320,935 16,512,904
3. Pro rata allocation
to interim periods
of ESOP shares to
be allocated on
December 31st of
each year 144,860 161,180 87,234 97,192
4. Common stock
equivalents
attributable to
dilutive effect of
stock options 1,330,257 1,135,464 1,254,008 1,145,984
----------- ----------- ----------- -----------
5. Total weighted
average common
shares and
equivalents
outstanding for
primary earnings
per share
computations 17,797,201 17,685,332 17,662,177 17,756,080
=========== =========== =========== ===========
6. Primary earnings
per share $ 0.51 $ 0.47 $ 1.43 $ 1.28
=========== =========== =========== ===========
23
<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> 1000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> $ 28,335
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 447,114
<INVESTMENTS-CARRYING> 1,183,541
<INVESTMENTS-MARKET> 1,205,905
<LOANS> 1,966,869
<ALLOWANCE> 14,934
<TOTAL-ASSETS> 3,691,564
<DEPOSITS> 2,321,270
<SHORT-TERM> 39,075
<LIABILITIES-OTHER> 91,178
<LONG-TERM> 1,009,828
0
0
<COMMON> 227
<OTHER-SE> 229,986
<TOTAL-LIABILITIES-AND-EQUITY> 3,691,564
<INTEREST-LOAN> 102,801
<INTEREST-INVEST> 84,832
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 187,633
<INTEREST-DEPOSIT> 84,826
<INTEREST-EXPENSE> 120,227
<INTEREST-INCOME-NET> 67,406
<LOAN-LOSSES> 675
<SECURITIES-GAINS> 3,784
<EXPENSE-OTHER> 34,391
<INCOME-PRETAX> 41,917
<INCOME-PRE-EXTRAORDINARY> 25,210
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 25,210
<EPS-PRIMARY> 1.43
<EPS-DILUTED> 1.43
<YIELD-ACTUAL> 2.63
<LOANS-NON> 12,293
<LOANS-PAST> 1,525
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 14,370
<CHARGE-OFFS> 391
<RECOVERIES> 280
<ALLOWANCE-CLOSE> 14,934
<ALLOWANCE-DOMESTIC> 14,934
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
