As filed with the Securities and Exchange Commission on August 14, 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 June 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 August 8, 1997, there were 17,603,796 shares of the Registrant's
common stock outstanding (as adjusted to reflect the 100% stock dividend paid on
May 14, 1997).
<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
June 30, 1997 and December 31, 1996 3
Consolidated Statements of Income for the three and six
months ended June 30, 1997 and 1996 4
Consolidated Statement of Changes in Stockholders' Equity for
the six months ended June 30, 1997 5
Consolidated Statements of Cash Flows for the six
months ended June 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 11-19
Item 3. Quantitative and Qualitative Disclosures about Market Risk 19
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>
T R FINANCIAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(UNAUDITED)
<CAPTION>
June 30, December 31,
1997 1996
------------ ------------
(in thousands, except share amounts)
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 20,276 $ 18,128
Securities available for sale:
Bonds and equities 381,832 337,446
Mortgage-backed securities 98,658 104,401
------------ ------------
Total securities available for sale 480,490 441,847
------------ ------------
Securities held to maturity, net (estimated fair value of $1,119,486 and
$1,017,702 at June 30, 1997 and December 31, 1996, respectively):
Bonds 42,422 53,632
Mortgage-backed securities 1,065,726 955,300
------------ ------------
Total securities held to maturity, net 1,108,148 1,008,932
------------ ------------
Loans receivable 1,874,090 1,716,182
Allowance for possible loan losses (14,990) (14,370)
------------ ------------
Loans receivable, net 1,859,100 1,701,812
------------ ------------
Other real estate owned, net 817 3,264
Banking house and equipment, net 14,225 13,320
Accrued interest receivable 23,778 21,517
Federal Home Loan Bank stock, at cost 33,390 33,390
Deferred tax asset, net 4,440 6,668
Other assets 7,119 10,749
------------ ------------
Total assets $ 3,551,783 $ 3,259,627
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Due to depositors $ 2,397,143 $ 2,343,513
Borrowed funds 859,728 637,835
Mortgagors' escrow deposits 18,971 19,585
Accounts payable and accrued expenses 14,672 11,190
Official checks outstanding 19,193 24,251
Accrued taxes payable 3,216 --
Other liabilities 18,510 19,215
------------ ------------
Total liabilities 3,331,433 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; 17,519,296 shares and 17,574,040 shares outstanding at June 30, 1997
and December 31, 1996, respectively 227 227
Additional paid-in-capital 107,546 104,880
Retained earnings, partially restricted 169,806 157,716
Net unrealized appreciation (depreciation) in certain securities, net of tax 1,336 (1,501)
Less:
Unallocated common stock held by Employee Stock Ownership Plan ("ESOP") (5,127) (5,650)
Unearned common stock held by Bank's Recognition and Retention Plans and
Trusts (RRP's) (154) (346)
Common stock held by Bank's Supplemental Executive Retirement
Plan and Trust, at cost (104,578 shares and 78,192 shares at
June 30, 1997 and December 31, 1996, respectively) (1,188) (721)
Treasury stock, at cost (5,204,704 shares and 5,149,960 shares
at June 30, 1997 and December 31, 1996, respectively) (52,096) (50,567)
------------ ------------
Total stockholders' equity 220,350 204,038
------------ ------------
Total liabilities and stockholders' equity $ 3,551,783 $ 3,259,627
============ ============
See accompanying notes to unaudited consolidated financial statements.
</TABLE>
3
<PAGE>
<TABLE>
T R FINANCIAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<CAPTION>
For the For the
three months ended six months ended
June 30, June 30,
------------------------ ------------------------
1997 1996 1997 1996
-------- -------- -------- --------
(in thousands, except per share amounts)
<S> <C> <C> <C> <C>
Interest income:
Mortgage loans $ 32,176 $ 27,732 $ 62,642 $ 53,800
Mortgage-backed securities 21,432 18,972 41,763 37,344
Bonds, equities and other investments 7,433 5,617 13,971 11,883
Other loans 2,083 1,599 4,205 3,051
-------- -------- -------- --------
Total interest income 63,124 53,920 122,581 106,078
-------- -------- -------- --------
Interest expense:
Deposits 28,623 24,379 56,507 48,390
Borrowed funds 11,999 8,969 21,557 17,538
-------- -------- -------- --------
Total interest expense 40,622 33,348 78,064 65,928
-------- -------- -------- --------
Net interest income 22,502 20,572 44,517 40,150
Provision for possible loan losses 200 500 550 1,000
-------- -------- -------- --------
Net interest income after provision
for possible loan losses 22,302 20,072 43,967 39,150
-------- -------- -------- --------
Non-interest income:
Loan fees and other charges, net 1,592 1,544 3,042 2,991
Net gain on sales of securities 1,014 2,004 1,980 4,759
Gain on sales of whole loans 27 2 158 3
Other income 353 258 786 675
-------- -------- -------- --------
Total non-interest income 2,986 3,808 5,966 8,428
-------- -------- -------- --------
Non-interest expense:
Salaries and employee benefits 6,921 6,178 13,687 12,504
Occupancy and equipment expense 1,239 1,196 2,604 2,493
Marketing expense 705 603 1,355 1,271
Other real estate owned expense 56 292 133 661
FDIC assessment 77 -- 151 1
Other operating expense 2,502 2,611 4,998 4,762
-------- -------- -------- --------
Total non-interest expense 11,500 10,880 22,928 21,692
-------- -------- -------- --------
Income before provision for income
taxes 13,788 13,000 27,005 25,886
-------- -------- -------- --------
Provision for income taxes 5,374 5,786 10,827 11,488
-------- -------- -------- --------
Net income $ 8,414 $ 7,214 $ 16,178 $ 14,398
======== ======== ======== ========
Net income per common and common
equivalent share $ 0.48 $ 0.41 $ 0.92 $ 0.81
======== ======== ======== ========
See accompanying notes to unaudited consolidated financial statements.
</TABLE>
4
<PAGE>
<TABLE>
T R FINANCIAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
(UNAUDITED)
<CAPTION>
For the
six months ended
June 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 .............................................................. 1,643
Amortization of stock option costs .................................................. 13
Common stock acquired by Supplemental Executive Retirement Plan and Trust ........... 467
Tax benefits attributable to vested RRP shares and stock option exercises ........... 543
---------
Balance at end of period .............................................................. 107,546
---------
RETAINED EARNINGS, PARTIALLY RESTRICTED
Balance at beginning of period ........................................................ 157,716
Net income .......................................................................... 16,178
Cash dividends declared on common stock ($0.24 per share) .......................... (3,913)
Loss on reissuances of treasury stock (90,256 shares) ............................... (175)
---------
Balance at end of period .............................................................. 169,806
---------
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 ....................... 2,837
---------
Balance at end of period .............................................................. 1,336
---------
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 ....................................................... 575
Sale of shares held in RRP trust to treasury stock (31,000 shares)................... 140
---------
Balance at end of period .............................................................. (5,281)
---------
COMMON STOCK HELD BY BANK'S SUPPLEMENTAL EXECUTIVE
RETIREMENT PLAN AND TRUST
Balance at beginning of period ........................................................ (721)
Common stock acquired ............................................................... (467)
---------
Balance at end of period .............................................................. (1,188)
---------
TREASURY STOCK, AT COST
Balance at beginning of period ........................................................ (50,567)
Common stock acquired, at cost (145,000 shares) ..................................... (2,113)
Common stock reissued for options exercised (90,256 shares) ......................... 584
---------
Balance at end of period .............................................................. (52,096)
---------
Total stockholders' equity ............................................................ $ 220,350
=========
See accompanying notes to unaudited consolidated financial statements.
</TABLE>
5
<PAGE>
<TABLE>
T R FINANCIAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<CAPTION>
For the six months ended June 30,
1997 1996
--------- ---------
(in thousands)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ........................................................................ $ 16,178 $ 14,398
Adjustments to reconcile net income to net cash provided (used)
by operating activities:
Provision for possible loan losses .............................................. 550 1,000
Provision for possible other real estate owned losses ........................... 0 82
Depreciation of banking house and equipment ..................................... 1,018 791
Gain on calls of securities ..................................................... -- (30)
Net gain on sales of securities available for sale .............................. (1,973) (4,776)
Gain on sales of whole loans .................................................... (158) (3)
Net gain on sale of other real estate owned ..................................... (353) (74)
Amortization of net deferred loan origination costs ............................. 294 278
Amortization of premiums in excess of accretion of discounts .................... 601 694
Income taxes deferred and tax benefits attributable to stock plans .............. 416 118
Amortization relating to allocation and earned portions of stock plans .......... 2,358 2,086
Increase/decrease in:
Trading account securities ...................................................... -- (2,952)
Accrued interest receivable ..................................................... (2,261) (498)
Accounts payable and accrued expenses ........................................... 3,482 (4,856
Official checks outstanding ..................................................... (5,058) (7,133)
Other assets .................................................................... 3,630 (539)
Accrued taxes payable ........................................................... 3,216 (397)
Other liabilities ............................................................... (705) 4,132
--------- ---------
Net cash provided by operating activities .................................... 21,235 2,321
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Payments for the purchase of:
Securities held to maturity and FHLB Capital Stock .............................. (175,695) (203,656)
Securities available for sale ................................................... (118,394) (221,491)
Banking house and equipment ..................................................... (1,923) (548)
Proceeds from:
Redemption of FHLB Capital Stock and calls of securities ........................ 12,215 17,051
Sales of securities available for sale .......................................... 70,982 267,121
Repayments on securities ........................................................ 79,470 148,028
Sales of whole loans ............................................................ 9,837 550
Principal collected on real estate loans ........................................ 95,203 74,571
Sales of other real estate owned ................................................ 3,666 6,087
Principal collected on other loans .............................................. 19,476 10,027
Real estate loans originated and purchased ........................................ (262,985) (233,378)
Other loans originated and purchased .............................................. (20,371) (29,693)
--------- ---------
Net cash used in investing activities ......................................... (288,519) (165,331)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Interest credited to deposits ..................................................... 45,113 48,390
Net deposits in savings accounts, certificate of deposit accounts,
money market accounts and checking accounts ..................................... 8,517 79,243
Net proceeds from exercise of stock options ....................................... 409 224
Net (withdrawals from) deposits to escrow accounts ................................ (614) 53,000
Net repayments of short-term borrowed funds ....................................... (24,685) (33,913)
Repayments of long-term borrowed funds ............................................ (43,950) (38,900)
Proceeds from long-term borrowed funds ............................................ 290,528 356
Purchase of treasury stock ........................................................ (1,973) (15,637)
Cash dividends paid ............................................................... (3,913) (2,467)
--------- ---------
Net cash provided by financing activities ...................................... 269,432 168,096
--------- ---------
Net increase in cash and cash equivalents ......................................... 2,148 5,086
Cash and cash equivalents at beginning of period .................................. 18,128 21,204
--------- ---------
Cash and cash equivalents at end of period ........................................ $ 20,276 $ 26,290
========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for income taxes ........................................................ $ 671 $ 11,718
========= =========
Cash paid for interest on deposits and borrowed funds ............................. $ 26,713 $ 27,189
========= =========
Non-cash investing activities:
Additions to other real estate owned, net ....................................... $ 866 $ 4,239
========= =========
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 six months ended June 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 June 30, 1997 and 1996, the weighted
average number of shares of common stock and common stock equivalents
outstanding was 17,608,721 and 17,618,448, respectively. For the six months
ended June 30, 1997 and 1996, the weighted average number of shares of common
stock and common stock equivalents outstanding was 17,586,118 and 17,789,520,
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 June 30, 1997 and 1996 have
been reduced by 1,168,909 shares and 1,406,390 shares, respectively. For the six
months ended June 30, 1997 and 1996, such shares have been reduced by 1,197,562
shares and 1,438,208 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 June 30, 1997.
<TABLE>
<CAPTION>
June 30, 1997
-------------
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 $ 244,895 $ 244,612 $ 683 $ (966)
Federal agency obligations 107,054 106,034 65 (1,085)
Industrial, financial corporation
and other bonds 2,045 2,089 44 --
Common and preferred stocks 22,420 29,097 6,677 --
---------- ---------- ---------- ----------
Total bonds and equities 376,414 381,832 7,469 (2,051)
---------- ---------- ---------- ----------
Mortgage-backed securities:
FNMA, net (1) 16,563 16,642 260 (181)
GNMA, net 56,628 57,022 469 (75)
FHLMC, net (1) 24,317 24,994 788 (111)
---------- ---------- ---------- ----------
Total mortgage-backed securities 97,508 98,658 1,517 (367)
---------- ---------- ---------- ----------
Total available for sale $ 473,922 $ 480,490 $ 8,986 $ (2,418)
========== ========== ========== ==========
Held to Maturity, Net:
Bonds:
Federal agency obligations $ 6,000 $ 5,967 $ -- $ (33)
Public utility bonds 901 849 -- (52)
Municipal bonds 6,651 6,812 161 --
Industrial and financial
corporation bonds 28,870 28,832 115 (153)
---------- ---------- ---------- ----------
Total bonds 42,422 42,460 276 (238)
---------- ---------- ---------- ----------
Mortgage-backed securities:
FNMA, net 92,521 90,845 264 (1,940)
GNMA, net 877,047 888,459 14,511 (3,099)
FHLMC, net (2) 93,250 94,685 1,435 --
CMOs, net (2) 2,908 3,037 129 --
---------- ---------- ---------- ----------
Total mortgage-backed securities 1,065,726 1,077,026 16,339 (5,039)
---------- ---------- ---------- ----------
Total held to maturity, net $1,108,148 $1,119,486 $ 16,615 $ (5,277)
========== ========== ========== ==========
</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 June
30, 1997 the amortized cost of these securities was reduced by $1,566,000
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 June 30, 1997 the amortized
cost of these securities was reduced by $2,617,000 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 $1,150,000 and
$818,000, respectively, for the three months ended June 30, 1997 and 1996 and
$2,167,000 and $1,604,000, respectively, for the six months ended June 30, 1997
and 1996. The average quoted price of the underlying shares for the three months
ended June 30, 1997 and 1996 was $19.79 per share and $13.23 per share,
respectively. For the six months ended June 30, 1997 and 1996 such average price
was $18.65 and $12.97, respectively.
5. STOCKHOLDERS' EQUITY
During the six months ended June 30, 1997, a total of 145,000 shares of
T R Financial common stock were repurchased by the Company at an aggregate cost
of $2,113,000. 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 six months ended June 30, 1997, the Board of Directors declared
cash dividends on the Company's outstanding common stock of $0.11 per common
share and $0.13 per share to stockholders of record on February 14, 1997 and May
15, 1997, respectively. These dividends, aggregated $3,913,000, and were paid in
March and June, 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 July 22, 1997 the Board of Directors declared a cash dividend on the
Company's outstanding common stock of $0.15 per common share to stockholders of
record on August 15, 1997. The dividend is payable on September 2, 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.
Basic earnings per share, unlike primary earnings per share, excludes
dilution and is computed by dividing
9
<PAGE>
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 six months ended June 30, 1997 and 1996 is as follows:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
1997 1996 1997 1996
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Basic earnings per share:
Income available to common stockholders $ 8,414,000 $ 7,214,000 $16,178,000 $14,398,000
=========== =========== =========== ===========
Weighted average number of common
shares outstanding 16,293,565 16,369,722 16,320,351 16,575,696
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 86,597 96,484 57,944 64,666
----------- ----------- ----------- -----------
Total denominator for basic earnings per share 16,380,162 16,466,206 16,378,295 16,640,362
=========== =========== =========== ===========
Basic earnings per share $ 0.51 $ 0.44 $ 0.98 $ 0.87
=========== =========== =========== ===========
Diluted earnings per share:
Income available to common stockholders $ 8,414,000 $ 7,214,000 $16,178,000 $14,398,000
=========== =========== =========== ===========
Total denominator for basic earnings per share 16,380,162 16,466,206 16,378,295 16,640,362
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 1,228,559 1,152,242 1,207,823 1,149,158
----------- ----------- ----------- -----------
Total denominator for diluted earnings per share 17,608,721 17,618,448 17,586,118 17,789,520
=========== =========== =========== ===========
Diluted earnings per share $ 0.48 $ 0.41 $ 0.92 $ 0.81
=========== =========== =========== ===========
</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, 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.
10
<PAGE>
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. Management is currently
reviewing the specific application of these two statements to the Company's
financial reporting. No measurement or determination has yet been made with
respect to reporting comprehensive income and segment information.
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 $292.2 million, or 9.0%, to $3.55 billion at
June 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 and, to a
lesser extent, increased deposits.
Of the increase in total assets, $157.3 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 $38.6
million, or 8.7%, to $480.5 million at June 30, 1997 from $441.8 million at
December 31, 1996 due principally to purchases of such securities totaling
$118.4 million during the six months ended June 30, 1997, offset by sales of
securities totaling $71.0 million. Securities held to maturity, net increased
$99.2 million, or 9.8%, to $1.11 billion at June 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 June 30, 1997, the available for sale portfolio had net unrealized
appreciation of $6.6 million as compared to net unrealized appreciation at
December 31, 1996 of $1.9 million. This $4.7 million increase in net unrealized
appreciation, when tax effected, decreased deferred tax asset, net by $2.0
million.
Total deposits increased $53.6 million, or 2.3%, to $2.40 billion at
June 30,1997 from $2.34 billion at December 31, 1996. This increase was
primarily attributable to the crediting of interest and managed pricing and
marketing of deposit products. Borrowed funds increased $221.9 million, or
34.8%, to $859.7 million at June 30,
11
<PAGE>
1997 from $637.8 million at December 31, 1996. This increase in borrowings is
primarily attributable to a $313.0 million increase at June 30, 1997 in
securities sold under agreements to repurchase as compared to December 31, 1996,
which was partially offset by a $91.1 million decrease in Federal Home Loan Bank
of New York ("FHLB") borrowings.
Stockholders' equity increased to $220.4 million at June 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 June 30, 1997 and December 31, 1996
includes net unrealized appreciation (depreciation) in certain securities, net
of tax, of $1.3 million and ($1.5) million, respectively. The change in net
unrealized appreciation (depreciation) in certain securities from December 31,
1996 to June 30, 1997 resulted primarily from appreciation in the equity
financial markets and a decrease in market interest rates during the six months
ended June 30, 1997, which increased the estimated fair value of fixed rate debt
securities. The change in net appreciation was only partially offset by the
realization of net gains from sales of securities. As of June 30, 1997, net
unrealized appreciation (depreciation) in certain securities, net of tax,
included net unrealized depreciation of $2.3 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 six months ended June 30, 1997, the
Company continued its stock buyback program, purchasing 145,000 shares of common
stock at a total cost of $2.1 million for the period. See "Liquidity and Capital
Resources."
The Bank's leverage capital ratio decreased from 6.07% at December 31,
1996 to 5.89% at June 30, 1997 due to the increase in the Bank's quarterly
average assets, which was partially offset by a $13.9 million increase in the
Bank's regulatory capital. The Bank's risk-based capital ratio of 17.32% at June
30, 1997 represents a 46 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 $4.6 million to $11.3 million at June
30, 1997, from $15.9 million at December 31, 1996. The ratio of non-performing
assets to total assets decreased to 0.32% at June 30, 1997 from 0.49% at
December 31, 1996. Other real estate owned, net decreased $2.4 million to $817
thousand at June 30, 1997 from $3.3 million at December 31, 1996. Non-performing
loans decreased to $10.4 million at June 30, 1997 as compared to $12.6 million
at December 31, 1996 due to a $2.3 million reduction in non-accrual loans. The
ratio of non-performing loans to total loans decreased to 0.56% at June 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.
The following table sets forth certain information regarding the
Company's average statements of financial condition and its statements of income
for the three and six months ended June 30, 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.
12
<PAGE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 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 $1,695,471 $ 32,176 7.59% $1,466,258 $ 27,732 7.57%
Other Loans 109,846 2,083 7.59 77,687 1,599 8.23
Mortgage-Backed Securities 1,133,558 21,432 7.56 1,014,317 18,972 7.48
Short-Term Securities 35,415 487 5.50 -- -- --
Other Securities 468,304 6,946 5.93 391,044 5,617 5.75
---------- ---------- ---------- ----------
Total Earning Assets 3,442,594 63,124 7.34 2,949,306 53,920 7.31
---------- ----------
Non-Earning Assets 67,840 69,807
---------- ----------
Total Assets $3,510,434 $3,019,113
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Interest-Bearing Liabilities:
Deposits:
Passbook Accounts $ 642,252 $ 4,883 3.04% $ 535,112 $ 3,581 2.68%
Now Accounts 9,890 68 2.75 13,283 121 3.64
Money Market Accounts 75,923 528 2.78 110,719 709 2.56
Certificate of Deposit Accounts 1,635,220 23,144 5.66 1,432,540 19,968 5.58
---------- ---------- ---------- ----------
Total Interest-Bearing Deposits 2,363,285 28,623 4.84 2,091,654 24,379 4.66
Borrowings 818,300 11,999 5.87 631,696 8,969 5.68
---------- ---------- ---------- ----------
Total Interest-Bearing Liabilities 3,181,585 40,622 5.11 2,723,350 33,348 4.90
---------- ----------
Other Liabilities 117,274 106,256
---------- ----------
Total Liabilities 3,298,859 2,829,606
Stockholders' Equity 211,575 189,507
---------- ----------
Total Liabilities and Stockholders'
Equity $3,510,434 $3,019,113
========== ==========
Net Interest Income/Interest Rate Spread $ 22,502 2.23% $ 20,572 2.41%
========== ==== ========== ====
Net Earning Assets/Net Interest Margin $ 261,009 2.61% $ 225,956 2.79%
========== ==== ========== ====
Ratio of Earning Assets to
Interest-Bearing Liabilities 1.08x 1.08x
==== ====
</TABLE>
13
<PAGE>
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 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 $1,659,349 $ 62,642 7.55% $1,419,651 $ 53,800 7.58%
Other Loans 109,832 4,205 7.66 73,512 3,051 8.30
Mortgage-Backed Securities 1,106,429 41,763 7.55 997,219 37,344 7.49
Short-Term Securities 17,826 489 5.49 8,423 223 5.30
Other Securities 456,664 13,482 5.90 398,119 11,660 5.86
---------- ---------- ---------- ----------
Total Earning Assets 3,350,100 122,581 7.32 2,896,924 106,078 7.32
---------- ----------
Non-Earning Assets 69,003 72,317
---------- ---------
Total Assets $3,419,103 $2,969,241
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Interest-Bearing Liabilities:
Deposits:
Passbook Accounts $ 630,924 $ 9,378 2.97% $ 529,877 $ 7,059 2.66%
Now Accounts 9,268 128 2.76 38,562 594 3.08
Money Market Accounts 75,915 1,049 2.76 89,538 1,200 2.68
Certificate of Deposit Accounts 1,634,995 45,952 5.62 1,400,401 39,537 5.65
---------- ---------- ---------- ----------
Total Interest-Bearing Deposits 2,351,102 56,507 4.81 2,058,378 48,390 4.70
Borrowings 746,272 21,557 5.78 617,355 17,538 5.68
---------- ---------- ---------- ----------
Total Interest-Bearing Liabilities 3,097,374 78,064 5.04 2,675,733 65,928 4.93
---------- ----------
Other Liabilities 112,672 103,480
---------- ----------
Total Liabilities 3,210,046 2,779,213
Stockholders' Equity 209,057 190,028
---------- ----------
Total Liabilities and Stockholders'
Equity $3,419,103 $2,969,241
========== ==========
Net Interest Income/Interest Rate Spread $ 44,517 2.28% $ 40,150 2.39%
========== ==== ========== ====
Net Earning Assets/Net Interest Margin $ 252,726 2.66% $ 221,191 2.77%
========== ==== ========== ====
Ratio of Earning Assets to
Interest-Bearing Liabilities 1.08x 1.08x
==== ====
</TABLE>
14
<PAGE>
COMPARISON OF OPERATING RESULTS FOR THE THREE MONTHS ENDED JUNE 30, 1997 AND
1996
GENERAL. The Company's net income for the three months ended June 30,
1997 increased $1.2 million to $8.4 million from $7.2 million for the same
period in 1996.
INTEREST INCOME. Interest income increased by $9.2 million, or 17.1%,
to $63.1 million for the three months ended June 30, 1997, from $53.9 million
for the same period in 1996, due to an increase in the average earning assets
during the period of $493.3 million to $3.44 billion for the three months ended
June 30, 1997, from $2.95 billion for the same period in 1996, reflecting the
Company's strategy to leverage its capital position through asset growth. Of the
increase in average earning assets, $229.2 million was attributable to growth in
mortgage loans, net, $119.2 million was attributable to growth in
mortgage-backed securities, $77.3 million was attributable to growth in other
securities and $32.2 million was attributable to growth in other loans. In
addition, during the three months ended June 30, 1997 the Company had an average
balance of short-term securities of $35.4 million. For the same period in 1996,
there were no short-term securities held by the Company. The average yield on
earning assets increased to 7.34% for the three months ended June 30, 1997 from
7.31% for the same period in 1996, due primarily to the increased yield on
mortgage-backed securities during the second quarter of 1997 as compared to the
comparable prior year period.
Of the $32.2 million increase in the average balance of other loans for
the three months ended June 30, 1997 as compared to the same period in 1996,
82.4% 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.
INTEREST EXPENSE. Interest expense increased by $7.3 million, or 21.8%,
to $40.6 million for the three months ended June 30, 1997, from $33.3 million
for the same period in 1996, due primarily to a $271.6 million increase in
average interest-bearing deposits and a $186.6 million increase in average
borrowings. In addition, for the three months ended June 30, 1997 the average
rate paid on interest-bearing deposits and borrowings increased 18 basis points
and 19 basis points, respectively, as compared to the same period in 1996. The
average rate paid on interest-bearing liabilities increased to 5.11% for the
three months ended June 30, 1997 from 4.90% for the same period in 1996. The
average balance of interest-bearing liabilities increased $458.2 million for the
three months ended June 30, 1997, to $3.18 billion from $2.72 billion for the
same period in 1996.
NET INTEREST INCOME. Net interest income increased $1.9 million, or
9.4%, to $22.5 million for the three months ended June 30, 1997, from $20.6
million for the same period in 1996. This increase is the result, in part, of a
$493.3 million increase in the average balance of earning assets to $3.44
billion, offset by a $458.2 million increase in the average balance of
interest-bearing liabilities to $3.18 billion for the three months ended June
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 June 30, 1997 decreased to 2.23% from 2.41% for the same period in 1996.
PROVISION FOR POSSIBLE LOAN LOSSES. The provision for possible loan
losses decreased $300 thousand, or 60.0% to $200 thousand for the three months
ended June 30, 1997 from $500 thousand for the same period in 1996. The decrease
resulted from management's assessment of the loan portfolio and its 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 June 30, 1997, recoveries exceeded loan charge-offs
by $89 thousand. For the three months ended June 30, 1996, loan charge-offs, net
of recoveries, aggregated $88 thousand. At June 30, 1997 and December 31, 1996,
the allowance for possible loan losses amounted to $15.0 million and $14.4
million, respectively, and the ratio of such allowance to non-performing loans
was 143.54% at June 30, 1997 as compared to 113.79% at December 31, 1996.
Although management believes its allowance for possible loan losses is adequate
at June 30, 1997, if general economic conditions and real estate values
deteriorate, the level of non-performing loans may increase and higher
provisions for possible loan losses may
15
<PAGE>
be necessary, which would adversely affect future operating results.
NON-INTEREST INCOME. Non-interest income decreased $822 thousand to
$3.0 million for the three months ended June 30, 1997 from $3.8 million for the
same period in 1996. This decrease was primarily attributable to a $990 thousand
decrease in net gain on sales of securities. For the three months ended June 30,
1997, the Company sold available for sale securities for $49.3 million and
recognized $1.0 million of net securities gains. The securities sold included
$28.0 million of bonds, $15.0 million of mortgage-backed securities and $6.3
million of equities. These securities were sold at net gains (losses) of ($19)
thousand, ($3) thousand and $1.0 million, respectively.
NON-INTEREST EXPENSE. Non-interest expense increased $620 thousand, or
5.7%, to $11.5 million for the three months ended June 30, 1997, from $10.9
million for the same period in 1996. Of this increase, salary and employee
benefits expense increased $743 thousand, or 12.0%, 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 $43 thousand to $1.2 million for the
three months ended June 30, 1997, due primarily to increases in depreciation,
which resulted from capital expenditures on technology and building renovations,
which was partially offset by lower real estate taxes and building rents.
Marketing expense increased $102 thousand to $705 thousand for the three months
ended June 30, 1997 as compared to the same period in 1996. Other real estate
owned expense decreased $236 thousand to $56 thousand for the three months ended
June 30, 1997 as compared to the same period in 1996 due to fewer foreclosed
properties being held. FDIC assessment expense was $77 thousand for the three
month period ending June 30, 1997 as compared to zero for the same period in
1996. FDIC Bank Insurance Fund ("BIF") assessment rates for the three months
ended June 30, 1997 were $0.013 per $100 of insured deposits as compared to zero
per $100 of insured deposits for the comparable prior year period. Other
operating expense decreased $109 thousand, or 4.2%, for the three months ended
June 30, 1997 as compared to the same period during 1996, due in part to lower
computer and item processing changes.
PROVISION FOR INCOME TAXES. Provision for income taxes decreased $412
thousand to $5.4 million for the three months ended June 30, 1997 as compared to
$5.8 million during the same period in 1996. As a percentage of income before
provision for income taxes, the provision for income taxes decreased from 44.5%
of pre-tax earnings to 39.0%. This decrease resulted from certain business
initiatives put into place by the Company during the second quarter of 1997.
COMPARISON OF OPERATING RESULTS FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND 1996
GENERAL. The Company's net income for the six months ended June 30,
1997 increased $1.8 million to $16.2 million from $14.4 million for the same
period in 1996.
INTEREST INCOME. Interest income increased by $16.5 million, or 15.6%,
to $122.6 million for the six months ended June 30, 1997, from $106.1 million
for the same period in 1996, due to an increase in the average earning assets
during the period of $453.2 million to $3.35 billion for the six months ended
June 30, 1997, from $2.90 billion for the same period in 1996, reflecting the
Company's strategy to leverage its capital position through asset growth. Of the
increase in average earning assets, $239.7 million was attributable to growth in
mortgage loans, net, $109.2 million was attributable to growth in
mortgage-backed securities, $58.5 million was attributable to growth in other
securities, $36.3 million was attributable to growth in other loans, and $9.4
million was attributable to increased average balances of short-term securities.
The average yield on earning assets remained constant at 7.32% for the six
months ended June 30, 1997 and 1996.
Of the $36.3 million increase in the average balance of other loans for
the six months ended June 30, 1997 as compared to the same period in 1996, 84.8%
of this increase was attributable to automobile leases purchased
16
<PAGE>
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.
INTEREST EXPENSE. Interest expense increased by $12.1 million, or
18.4%, to $78.1 million for the six months ended June 30, 1997, from $65.9
million for the same period in 1996, due primarily to a $292.7 million increase
in average interest-bearing deposits and an $128.9 million increase in average
borrowings. In addition, for the six months ended June 30, 1997 the average rate
paid on interest-bearing deposits and borrowings increased 11 basis points and
10 basis points, respectively, as compared to the same period in 1996. The
average rate paid on interest-bearing liabilities increased to 5.04% for the six
months ended June 30, 1997 from 4.93% for the same period in 1996. The average
balance of interest-bearing liabilities increased $421.6 million for the six
months ended June 30, 1997, to $3.10 billion from $2.68 billion for the same
period in 1996.
NET INTEREST INCOME. Net interest income increased $4.4 million, or
10.9%, to $44.5 million for the six months ended June 30, 1997, from $40.2
million for the same period in 1996. This increase is the result, in part, of a
$453.2 million increase in the average balance of earning assets to $3.35
billion, offset by a $421.6 million increase in the average balance of
interest-bearing liabilities to $3.10 billion for the six months ended June 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 six months
ended June 30, 1997 decreased to 2.28% from 2.39% for the same period in 1996.
PROVISION FOR POSSIBLE LOAN LOSSES. The provision for possible loan
losses decreased $450 thousand, or 45.0% to $550 thousand for the six months
ended June 30, 1997 from $1.0 million for the same period in 1996. The decrease
resulted from management's assessment of the loan portfolio and 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 six months ended June 30, 1997 recoveries exceeded loan
charge-offs by $70 thousand. For the six months ended June 30, 1996, loan
charge-offs, net of recoveries, aggregated $115 thousand.
NON-INTEREST INCOME. Non-interest income decreased $2.5 million to $6.0
million for the six months ended June 30, 1997 from $8.4 million for the same
period in 1996. This decrease was primarily attributable to a $2.8 million
decrease in net gain on sales of securities. For the six months ended June 30,
1997, the Company sold available for sale securities for $71.0 million, and
recognized $2.0 million of net securities gains. The securities sold included
$40.9 million of bonds, $18.9 million of mortgage-backed securities and $11.2
million of equities. These securities were sold at net gains (losses) of ($7)
thousand, ($19) thousand and $1.9 million, respectively. In addition, gain on
sales of whole loans increased $155 thousand for the six months ended June 30,
1997 as compared to the comparable prior year period.
NON-INTEREST EXPENSE. Non-interest expense increased $1.2 million, or
5.7%, to $22.9 million for the six months ended June 30, 1997, from $21.7
million for the same period in 1996. Of this increase, salary and employee
benefits expense increased $1.2 million, or 9.5%, 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 $111 thousand to $2.6 million for the six months
ended June 30, 1997, due primarily to increases in depreciation, which resulted
from capital expenditures on technology and building renovations, and is
partially offset by lower real estate taxes and building rents. Marketing
expense increased $84 thousand to $1.4 million for the six months ended June 30,
1997 as compared to the same period in 1996. Other real estate owned expense
decreased $528 thousand to $133 thousand for the six months ended June 30, 1997
as compared to the same period in 1996 due to fewer foreclosed properties being
held. FDIC assessment expense was $151 thousand for the six month period ending
June 30, 1997 as compared to $1 thousand for the same period in 1996. FDIC Bank
Insurance Fund ("BIF") assessment rates for the six months ended June 30, 1997
were $0.013 per $100 of insured deposits as compared to zero per $100 of insured
deposits for the comparable prior year period.
17
<PAGE>
Other operating expense increased $236 thousand, or 5.0%, for the six months
ended June 30, 1997 as compared to the same period during 1996, due in part to
higher professional fees which were offset partially by lower computer and item
processing charges.
PROVISION FOR INCOME TAXES. Provision for income taxes decreased $661
thousand to $10.8 million for the six months ended June 30, 1997 as compared to
$11.5 million during the same period in 1996. As a percentage of income before
provision for income taxes, the provision for income taxes decreased from 44.4%
of pre-tax earnings to 40.0%. This decrease resulted from certain business
initiatives put into place by the Company during the second quarter of 1997 and
from certain legislative changes regarding tax bad debt reserves (see Note 8 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 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 six months ended June 30, 1997, T R
Financial repurchased 145,000 shares of its common stock pursuant to its sixth
stock repurchase program at a total cost of $2.1 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 June
30, 1997, a total of 579,000 shares had been repurchased pursuant to this
program. On July 22, 1997, the Board of Directors declared a quarterly cash
dividend of $0.15 per common share to stockholders of record on August 15, 1997.
This dividend is payable on September 2, 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.
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
18
<PAGE>
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 June 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
June 30, 1997............. $208,325 $208,325 $220,350 $220,350
Net unrealized
appreciation in certain
securities, net of tax.... (1,420) (1,420) (1,336) (1,336)
Mortgage servicing
rights not recognized..... (10) (10) (10) (10)
Allowance for possible
loan losses............... -- 14,990 -- 14,990
---------- ---------- ---------- ----------
Regulatory capital
position.................. 206,895 221,885 219,004 233,994
Minimum required
regulatory capital (3%
and 8%,
respectively) (1)........... 105,358 102,498 105,573 102,572
---------- ---------- ---------- ----------
Excess...................... $ 101,537 $ 119,387 $ 113,431 $ 131,422
========== ========== ========== ==========
Regulatory capital
ratio..................... 5.89% 17.32% 6.22% 18.25%
========== ========== ========== ==========
</TABLE>
(1) Applying the 4% leverage capital ratio imposed by FDICIA, Roosevelt Savings
Bank's leverage capital requirement at June 30, 1997 was $140.5 million and
as of such date the Bank exceeded this requirement by $66.4 million. T R
Financial's leverage capital requirement, applying the 4% leverage capital
ratio, was $140.8 million at June 30, 1997 and as of such date T R
Financial exceeded this requirement by $78.2 million.
REGULATORY MATTERS
On April 18, 1997, the FDIC formally approved the Bank's Community
Reinvestment Act ("CRA") Strategic Plan, which was submitted in accordance with
Section 345.27 of the Rules and Regulations of the FDIC. The CRA Strategic Plan,
which became effective as of January 1, 1997, specifies measurable goals for
lending, investment and services through December 31, 1998.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
----------------------------------------------------------
Not applicable.
19
<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 (submitted only with filing in electronic
format)
(b) REPORTS ON FORM 8-K
A Current Report on Form 8-K was filed by the Company on April
15, 1997 disclosing that the Board of Directors of T R
Financial Corp. announced a stock split in the form of a 100%
stock dividend.
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: August 14, 1997 By: /s/ John M. Tsimbinos
---------------------
John M. Tsimbinos
Chairman of the Board and
Chief Executive Officer
Date: August 14, 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
<TABLE>
T R FINANCIAL CORP.
STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
------------------------- -------------------------
1997 1996 1997 1996
----------- ----------- ----------- -----------
<C> <C> <C> <C> <C>
1. Net income $ 8,414,000 $ 7,214,000 $16,178,000 $14,398,000
=========== =========== =========== ===========
2. Weighted average
common shares
outstanding
16,293,565 16,369,722 16,320,351 16,575,696
3. Pro rata allocation
to interim periods of
ESOP shares to be
allocated on
December 31st of
each year 86,597 96,484 57,944 64,666
4. Common stock
equivalents
attributable to
dilutive effect of
stock options 1,228,559 1,152,242 1,207,823 1,149,158
----------- ----------- ----------- -----------
5. Total weighted
average common
shares and
equivalents
outstanding for
primary earnings
per share
computations 17,608,721 17,618,448 17,586,118 17,789,520
=========== =========== =========== ===========
6. Primary earnings
per share $ 0.48 $ 0.41 $ 0.92 $ 0.81
=========== =========== =========== ===========
</TABLE>
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> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<CASH> 17,276
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 3,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 480,490
<INVESTMENTS-CARRYING> 1,108,148
<INVESTMENTS-MARKET> 1,119,486
<LOANS> 1,874,090
<ALLOWANCE> 14,990
<TOTAL-ASSETS> 3,551,783
<DEPOSITS> 2,397,143
<SHORT-TERM> 63,000
<LIABILITIES-OTHER> 74,562
<LONG-TERM> 796,728
0
0
<COMMON> 227
<OTHER-SE> 220,123
<TOTAL-LIABILITIES-AND-EQUITY> 3,551,783
<INTEREST-LOAN> 66,847
<INTEREST-INVEST> 55,734
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 122,581
<INTEREST-DEPOSIT> 56,507
<INTEREST-EXPENSE> 78,064
<INTEREST-INCOME-NET> 44,517
<LOAN-LOSSES> 550
<SECURITIES-GAINS> 1,980
<EXPENSE-OTHER> 22,928
<INCOME-PRETAX> 27,005
<INCOME-PRE-EXTRAORDINARY> 16,178
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 16,178
<EPS-PRIMARY> 0.92
<EPS-DILUTED> 0.92
<YIELD-ACTUAL> 2.66
<LOANS-NON> 9,794
<LOANS-PAST> 649
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 14,370
<CHARGE-OFFS> 171
<RECOVERIES> 241
<ALLOWANCE-CLOSE> 14,990
<ALLOWANCE-DOMESTIC> 14,990
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
