As filed with the Securities and Exchange Commission on August 13, 1998
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended June 30, 1998
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from -------------- to --------------
Commission File Number: 0-21386
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 7, 1998, there were 17,628,300 shares of the Registrant's
common stock outstanding.
<PAGE>
FORM 10-Q
T R FINANCIAL CORP.
INDEX
<TABLE>
<CAPTION>
Page
PART I -- FINANCIAL INFORMATION Number
- ------------------------------- ------
<S> <C> <C>
Item 1. Financial Statements -- Unaudited
Consolidated Statements of Financial Condition at
June 30, 1998 and December 31, 1997 3
Consolidated Statements of Income for the three
and six months ended June 30, 1998 and 1997 4
Consolidated Statement of Changes in Stockholders' Equity for
the six months ended June 30, 1998 5
Consolidated Statements of Cash Flows for the six
months ended June 30, 1998 and 1997 6
Notes to Unaudited Consolidated Financial Statements 7-12
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 12-20
Item 3. Quantitative and Qualitative Disclosures about Market Risk 20
</TABLE>
PART II -- OTHER INFORMATION
- ----------------------------
<TABLE>
<CAPTION>
<S> <C> <C>
Item 1. Legal Proceedings 21
Item 2. Changes in Securities 21
Item 3. Defaults Upon Senior Securities 21
Item 4. Submission of Matters to a Vote of Security Holders 21
Item 5. Other Information 21
Item 6. Exhibits and Reports on Form 8-K 22
Signature Page 23
</TABLE>
================================================================================
Statements contained in this Form 10-Q which are not historical
facts are forward-looking statements, as that term is defined in
the Private Securities Litigation Reform Act of 1995. Such
forward-looking statements are subject to risks and uncertainties
which could cause actual results to differ materially from those
projected. Such risks and uncertainties include potential changes
in interest rates, competitive factors in the financial services
industry, general economic conditions, the effect of new
legislation and other risks detailed in documents filed by the
Company with the Securities and Exchange Commission from time to
time.
================================================================================
2
<PAGE>
PART I -- FINANCIAL INFORMATION
- --------------------------------
ITEM 1. FINANCIAL STATEMENTS -- UNAUDITED
---------------------------------
<TABLE>
<CAPTION>
T R FINANCIAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(in thousands, except share and per share amounts)
June 30, December 31,
1998 1997
-------- ------------
(unaudited)
ASSETS
- ------
<S> <C> <C>
Cash and cash equivalents .............................................. $ 22,656 $ 18,307
Securities available for sale:
Bonds and equities ............................................ 287,263 308,569
Mortgage-backed securities .................................... 216,129 168,096
----------- -----------
Total securities available for sale ........................... 503,392 476,665
----------- -----------
Securities held to maturity, net (estimated fair value of $1,274,343 and
$1,245,735 at June 30, 1998 and December 31, 1997, respectively):
Bonds ......................................................... 33,392 42,092
Mortgage-backed securities .................................... 1,225,460 1,177,208
----------- -----------
Total securities held to maturity, net ........................ 1,258,852 1,219,300
----------- -----------
Loans receivable ....................................................... 2,256,021 2,062,896
Allowance for possible loan losses ..................................... (15,367) (14,917)
----------- -----------
Loans receivable, net ................................................ 2,240,654 2,047,979
----------- -----------
Other real estate owned, net ........................................... 1,998 1,040
Banking house and equipment, net ....................................... 12,899 13,642
Accrued interest receivable ............................................ 25,583 24,338
Federal Home Loan Bank (FHLB) stock, at cost ........................... 40,029 33,390
Deferred tax asset, net ................................................ 2,271 2,034
Other assets ........................................................... 7,466 6,361
----------- -----------
Total assets ......................................................... $ 4,115,800 $ 3,843,056
=========== ===========
LIABILITIES and STOCKHOLDERS' EQUITY
- ------------------------------------
Due to depositors ...................................................... $ 2,118,339 $ 2,202,353
Securities sold under agreements to repurchase ......................... 1,025,000 807,000
FHLB borrowings ........................................................ 620,078 491,578
Mortgagors' escrow deposits ............................................ 21,772 21,784
Accounts payable and accrued expenses .................................. 19,138 19,526
Official checks outstanding ............................................ 17,334 27,989
Accrued taxes payable .................................................. 11,142 15,620
Other liabilities ...................................................... 26,764 16,235
----------- -----------
Total liabilities .................................................... 3,859,567 3,602,085
----------- -----------
Commitments and contingencies .......................................... -- --
Stockholders' equity:
Preferred stock, $.01 par value, 5,000,000 shares authorized; none issued -- --
Common stock, $.01 par value, 60,000,000 shares authorized; 22,724,000
shares issued; 17,528,818 shares and 17,598,029 shares outstanding
at June 30, 1998 and December 31, 1997, respectively ............. 227 227
Additional paid-in-capital ........................................... 116,800 110,962
Retained earnings .................................................... 197,686 183,065
Accumulated other comprehensive income:
Net unrealized appreciation in certain securities, net of tax .... 4,743 5,057
Less:
Unallocated common stock held by Employee Stock Ownership Plan (ESOP) (4,112) (4,604)
Unearned common stock held by Bank's Recognition and Retention
Plan and Trust (RRP) ........................................... (52) (103)
Common stock held by Bank's Supplemental Executive Retirement Plan
and Trust (SERP), at cost (131,630 shares and 106,103 shares
at June 30, 1998 and December 31, 1997, respectively) .......... (2,097) (1,225)
Treasury stock, at cost (5,195,182 shares and 5,125,971 shares at
June 30, 1998 and December 31, 1997, respectively) ............. (56,962) (52,408)
----------- -----------
Total stockholders' equity .................................. 256,233 240,971
----------- -----------
Total liabilities and stockholders' equity ........................... $ 4,115,800 $ 3,843,056
=========== ===========
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
3
<PAGE>
<TABLE>
<CAPTION>
T R FINANCIAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
For the For the
three months ended six months ended
June 30, June 30,
-------------------------- --------------------------
1998 1997 1998 1997
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Interest income:
Mortgage loans ........................................... $ 39,026 $ 32,176 $ 75,920 $ 62,642
Mortgage-backed securities ............................... 25,513 21,432 50,602 41,763
Bonds, equities and other investments .................... 5,511 7,433 10,859 13,971
Other loans .............................................. 2,179 2,083 4,220 4,205
-------- -------- -------- --------
Total interest income .................................. 72,229 63,124 141,601 122,581
-------- -------- -------- --------
Interest expense:
Deposits ................................................. 23,556 28,623 47,647 56,507
Borrowed funds ........................................... 23,178 11,999 43,395 21,557
-------- -------- -------- --------
Total interest expense ................................. 46,734 40,622 91,042 78,064
-------- -------- -------- --------
Net interest income ........................................ 25,495 22,502 50,559 44,517
Provision for possible loan losses ......................... 250 200 500 550
-------- -------- -------- --------
Net interest income after provision
for possible loan losses ................................. 25,245 22,302 50,059 43,967
-------- -------- -------- --------
Non-interest income:
Loan fees and other charges, net ......................... 1,133 1,592 2,592 3,042
Net gain on sales of securities .......................... 3,354 1,014 4,958 1,980
Gain on sales of whole loans ............................. 13 27 280 158
Other income ............................................. 180 353 427 786
-------- -------- -------- --------
Total non-interest income .............................. 4,680 2,986 8,257 5,966
-------- -------- -------- --------
Non-interest expense:
Salaries and employee benefits ........................... 8,317 6,921 16,360 13,687
Occupancy and equipment expense .......................... 1,256 1,239 2,506 2,604
Marketing expense ........................................ 654 705 1,284 1,355
Other real estate owned expense .......................... 126 56 182 133
FDIC assessment .......................................... 72 77 149 151
Other operating expense .................................. 1,499 2,502 3,617 4,998
-------- -------- -------- --------
Total non-interest expense ............................. 11,924 11,500 24,098 22,928
-------- -------- -------- --------
Income before provision for income taxes ................... 18,001 13,788 34,218 27,005
Provision for income taxes ................................. 7,237 5,374 13,721 10,827
-------- -------- -------- --------
Net income ................................................. $ 10,764 $ 8,414 $ 20,497 $ 16,178
======== ======== ======== ========
Basic earnings per share ................................... $ 0.65 $ 0.51 $ 1.24 $ 0.99
======== ======== ======== ========
Diluted earnings per share ................................. $ 0.62 $ 0.48 $ 1.17 $ 0.92
======== ======== ======== ========
</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
(in thousands, except per share amounts)
(unaudited)
Common Additional
Stock Paid-in Retained
Total (Par Value $0.01) Capital Earnings
----- ----------------- ------- --------
<S> <C> <C> <C> <C>
Balance at December 31, 1997 .................................... $ 240,971 $ 227 $ 110,962 $ 183,065
---------
Comprehensive income:
Net income .................................................... 20,497 -- -- 20,497
Other comprehensive income, net of tax:
Net unrealized appreciation on certain
securities, net of reclassification adjustment ............ (314) -- -- --
----
Comprehensive income (1) ......................................... 20,183 -- -- --
------
Cash dividends declared on common stock
($0.35 per share) .............................................. (5,779) -- -- (5,779)
Reissuance of treasury stock ..................................... 584 -- -- (97)
Benefit plan adjustments, including tax benefits ................. 5,458 -- 4,966 --
RRP amortization ................................................. 51 -- -- --
Common stock acquired at cost .................................... (5,235) -- 872 --
--------- --------- --------- ---------
Balance at June 30, 1998 ......................................... $ 256,233 $ 227 $ 116,800 $ 197,686
========= ========= ========= =========
</TABLE>
<TABLE>
<CAPTION>
Common Stock
Held by RRP as
Accumulated Unearned, Held
Other by ESOP as
Comprehensive Unallocated and Treasury
Income Held by SERP Stock, at cost
------ ------------ --------------
<S> <C> <C> <C>
Balance at December 31, 1997 ................... $ 5,057 $ (5,932) $(52,408)
Comprehensive income:
Net income ................................... -- -- --
Other comprehensive income, net of tax:
Net unrealized appreciation on certain
securities, net of reclassification
adjustment ............................... (314) -- --
Comprehensive income (1) ........................ -- -- --
Cash dividends declared on common stock
($0.35 per share) ............................. -- --
Reissuance of treasury stock .................... -- -- 681
Benefit plan adjustments, including tax benefits -- 492 --
RRP amortization ................................ -- 51 --
Common stock acquired at cost ................... -- (872) (5,235)
-------- -------- --------
Balance at June 30, 1998 ........................ $ 4,743 $ (6,261) $(56,962)
======== ======== ========
</TABLE>
(1) Comprehensive income for the six months ended June 30, 1997 was $19,015.
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 six months ended June 30,
1998 1997
--------- ---------
(in thousands)
<S> <C> <C>
Cash flows from operating activities:
Net income ................................................................................. $ 20,497 $ 16,178
Adjustments to reconcile net income to net cash provided (used)
by operating activities:
Provision for possible loan losses ....................................................... 500 550
Depreciation of banking house and equipment .............................................. 1,040 1,018
Net gain on sales of securities available for sale ....................................... (4,958) (1,973)
Gain on sales of whole loans ............................................................. (280) (158)
Net gain on sale of other real estate owned .............................................. (35) (353)
Amortization of net deferred loan origination costs ...................................... 1,191 294
Amortization of premiums in excess of accretion of discounts ............................. 3,405 601
Income taxes deferred and tax benefits attributable to stock plans ....................... 1,425 416
Amortization relating to allocation and earned portions of stock plans ................... 4,084 2,358
Increase/decrease in:
Accrued interest receivable .............................................................. (1,245) (2,261)
Accounts payable and accrued expenses .................................................... (388) 3,482
Official checks outstanding .............................................................. (10,655) (5,058)
Other assets ............................................................................. (1,105) 3,630
Accrued taxes payable .................................................................... (4,478) 3,216
Other liabilities ........................................................................ 10,529 (705)
--------- ---------
Net cash provided by operating activities ............................................. 19,527 21,235
--------- ---------
Cash flows from investing activities:
Payments for the purchase of:
Securities held to maturity and FHLB Capital Stock ....................................... (271,824) (175,695)
Securities available for sale ............................................................ (150,918) (118,394)
Banking house and equipment .............................................................. (297) (1,923)
Proceeds from:
Redemption of FHLB Capital Stock and calls of securities ................................. 18,883 12,215
Sales of securities available for sale ................................................... 81,327 70,982
Repayments on securities ................................................................. 250,616 79,470
Sales of whole loans ..................................................................... 8,942 9,837
Principal collected on real estate loans ................................................. 165,577 95,203
Sales of other real estate owned ......................................................... 134 3,666
Principal collected on other loans ....................................................... 36,071 19,476
Real estate loans originated and purchased ................................................. (357,013) (262,985)
Other loans originated and purchased ....................................................... (48,720) (20,371)
--------- ---------
Net cash used in investing activities .................................................. (267,222) (288,519)
--------- ---------
Cash flows from financing activities:
Interest credited to deposits .............................................................. 37,568 45,113
Net (withdrawals) deposits in savings accounts, certificate of deposit
accounts, money market accounts and checking accounts .................................... (121,582) 8,517
Net proceeds from exercise of stock options ................................................ 584 409
Net withdrawals to escrow accounts ......................................................... (12) (614)
Net (repayments of) proceeds from short-term borrowed funds ................................ 100,000 (24,685)
Repayments of long-term borrowed funds ..................................................... (38,500) (43,950)
Proceeds from long-term borrowed funds ..................................................... 285,000 290,528
Purchase of treasury stock ................................................................. (5,235) (1,973)
Cash dividends paid ........................................................................ (5,779) (3,913)
--------- ---------
Net cash provided by financing activities ............................................... 252,044 269,432
--------- ---------
Net increase in cash and cash equivalents .................................................. 4,349 2,148
Cash and cash equivalents at beginning of period ........................................... 18,307 18,128
--------- ---------
Cash and cash equivalents at end of period ................................................. $ 22,656 $ 20,276
========= =========
Supplemental disclosure of cash flow information:
Cash paid for income taxes ................................................................. $ 2,176 $ 671
========= =========
Cash paid for interest on deposits and borrowed funds ...................................... $ 51,924 $ 26,713
========= =========
Non-cash investing activities:
Additions to other real estate owned, net ................................................ $ 1,057 $ 866
========= =========
</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 six months ended June 30,
1998 are not necessarily indicative of the results of operations that may be
expected for the entire year. Certain information and note disclosures normally
included in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to the rules and
regulations of the 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, 1997.
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.
7
<PAGE>
2. 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, 1998.
<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 ................................... $ 176,615 $ 178,080 $ 1,511 $ (46)
Federal agency obligations ....................... 72,645 72,563 13 (95)
Industrial, financial corporation
and other bonds ............................... 3,011 3,069 58 --
Common and preferred stocks ...................... 25,624 33,551 8,025 (98)
---------- ---------- ---------- ----------
Total bonds and equities .......................... 277,895 287,263 9,607 (239)
---------- ---------- ---------- ----------
Mortgage-backed securities:
FNMA, net ........................................ 1,586 1,604 18 --
GNMA, net ........................................ 209,808 210,538 903 (173)
FHLMC, net ....................................... 3,977 3,987 17 (7)
---------- ---------- ---------- ----------
Total mortgage-backed securities ................... 215,371 216,129 938 (180)
---------- ---------- ---------- ----------
Total available for sale ........................ $ 493,266 $ 503,392 $ 10,545 $ (419)
========== ========== ========== ==========
Held to Maturity, Net:
Bonds:
Federal agency obligations ........................ $ 1,000 $ 1,000 $ -- $ --
Public utility bonds .............................. 800 779 -- (21)
Municipal bonds ................................... 5,824 6,006 182 --
Industrial and financial
corporation bonds ............................... 25,768 25,696 41 (113)
---------- ---------- ---------- ----------
Total bonds ..................................... 33,392 33,481 223 (134)
---------- ---------- ---------- ----------
Mortgage-backed securities:
FNMA, net ......................................... 77,132 77,529 584 (187)
GNMA, net ......................................... 1,068,761 1,080,933 13,535 (1,363)
FHLMC, net (1) .................................... 76,656 79,358 2,702 --
CMOs, net (1) ..................................... 2,911 3,042 131 --
---------- ---------- ---------- ----------
Total mortgage-backed securities ................... 1,225,460 1,240,862 16,952 (1,550)
---------- ---------- ---------- ----------
Total held to maturity, net ..................... $1,258,852 $1,274,343 $ 17,175 $ (1,684)
========== ========== ========== ==========
</TABLE>
(1) Includes securities which were transferred on March 31, 1995 from available
for sale to held to maturity. As of June 30, 1998 the amortized cost of
these securities was reduced by $1,807,000 of gross unrealized losses
existing as of March 31, 1995, adjusted for subsequent accretion.
3. EMPLOYEE STOCK OWNERSHIP PLAN
The Company recognizes compensation expense attributable to its employee
stock ownership plan ("ESOP") ratably over the year based upon the estimated
number of shares of T R Financial common stock
8
<PAGE>
to be allocated by the ESOP to participant accounts 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
$2,099,000 and $1,150,000, respectively, for the three months ended June 30,
1998 and 1997 and the average quoted price of the underlying shares was $38.42
per share and $19.79 per share, respectively, in each period. For the six months
ended June 30, 1998 and 1997, such compensation expense and average quoted price
of the underlying shares was $3,966,000 and $36.01 per share, respectively, in
1998 and $2,167,000 and $18.65 per share, respectively, in 1997.
4. EARNINGS PER SHARE
Earnings per share is computed in accordance with the provisions of
Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings Per
Share," which became effective for the Company as of December 31, 1997. As
required by the statement, earnings per share for all prior periods presented
have been restated. Basic earnings per share is computed by dividing income
available to common stockholders by the weighted average number of common shares
outstanding during the period. Such shares exclude the weighted average number
of unallocated shares of Company common stock held the ESOP. Diluted earnings
per share reflects the potential dilution that could occur if securities or
other contracts to issue common stock, such as stock options, were exercised,
converted into common stock or otherwise resulted in the issuance of common
stock.
The following table is a reconciliation of basic and diluted earnings per
share as required under SFAS No. 128.
<TABLE>
<CAPTION>
1998 1997
--------------------------------- --------------------------------
Per Per
Net Average Share Net Average Share
Income Shares Amount Income Shares Amount
------ ------ ------ ------ ------ ------
For the three months ended June 30,:
- ------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net income (all available to
common stockholders)................... $10,764,000 $8,414,000
=========== ==========
Weighted average number of shares of
common stock outstanding (1)........ 16,586,886 16,380,162
Basic earnings per share............... $0.65 $0.51
Effect of other potentially dilutive ===== =====
securities:
Stock options................. 857,585 1,228,559
------- ---------
Total weighted average of securities:.. 17,444,471 17,608,721
========== ==========
Diluted earning per share.............. $0.62 $0.48
For the six months ended June 30,: ===== =====
- ----------------------------------
Net income (all available to
common stockholders)................... $20,497,000 $16,178,000
=========== ===========
Weighted average number of shares of
common stock outstanding (2)........ 16,570,434 16,378,295
Basic earnings per share............... $1.24 $0.99
Effect of other potentially dilutive ===== =====
securities:
Stock options................. 882,782 1,207,824
======= ---------
Total weighted average of securities... 17,453,216 17,586,119
========== ==========
Diluted earnings per share............. $1.17 $0.92
===== =====
</TABLE>
(1) Excludes average unallocated shares of Company common stock held by the
ESOP at June 30, 1998 and June 30, 1997 of 941,679 and 1,168,909,
respectively.
(2) Excludes average unallocated shares of Company common stock held by the
ESOP at June 30, 1998 and June 30, 1997 of 968,618 and 1,197,562,
respectively.
9
<PAGE>
5. 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 that are believed by management to be immaterial
to the financial condition and results of operations of the Company.
6. STOCKHOLDERS' EQUITY
During the six months ended June 30, 1998, a total of 175,000 shares of T R
Financial common stock were repurchased by the Company at an aggregate cost of
$5,235,000. For the six months ended June 30, 1998, the Board of Directors
declared cash dividends on the Company's outstanding common stock of $0.17 per
common share and $0.18 per common share to stockholders of record on February
12, 1998 and May 14, 1998, respectively. These dividends aggregated $5,779,000
and were paid in March and June, 1998.
7. REGULATORY CAPITAL
The following table sets forth the Bank's and the Company's amounts and
ratios for required and actual regulatory capital requirements at June 30, 1998.
<TABLE>
<CAPTION>
Bank Company
----------------------------------- ------------------------------------
Total Tier 1 Tier 1 Total Tier 1 Tier 1
Risk-Based Risk-Based Leverage Risk-Based Risk-Based Leverage
Capital Capital Capital Capital Capital Capital
------- ------- ------- ------- ------- -------
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
At June 30, 1998
Actual:
Amount............................... $258,718 $243,351 $243,351 $267,312 $251,945 $251,945
Ratio................................ 17.34% 16.31% 5.95% 17.96% 16.92% 6.14%
Minimum requirement for
capital adequacy purposes:
Amount............................... $119,383 $59,692 $122,610 $119,068 $57,062 $123,177
Ratio................................ 8.00% 4.00% 3.00% 8.00% 4.00% 3.00%
To be "well-capitalized" under prompt
corrective action provisions (1):
Amount............................... $149,229 $89,537 $204,351 -- -- --
Ratio................................ 10.00% 6.00% 5.00% -- -- --
</TABLE>
(1) Such amounts are not applicable to the Company.
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.
10
<PAGE>
9. RECENT ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board ("FASB") issued 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 No. 131 is limited to additional disclosure and, accordingly, the
adoption of this statement will not have an impact on the Company's financial
condition or results of operations.
In February 1998, the FASB issued SFAS 132, which amends existing
disclosure rules regarding pension and other post-retirement benefits to
standardize the disclosure formats effective for fiscal years beginning after
September 15, 1997. Disclosures regarding pensions and other non-pension
post-retirement benefits have been combined. SFAS 132 addresses disclosure
issues only and does not require any substantive change in accounting treatment
for the benefits covered by it. Accordingly, the implementation of SFAS 132 will
have no effect on the Company's financial condition or results of operations.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities," which is effective prospectively for the
Company on January 1, 2000. SFAS No. 133 standardizes the accounting for
derivative instruments, including certain derivative instruments embedded in
other contracts. Under the standard, entities are required to carry all
derivative instruments in the statement of financial position at fair value. The
accounting for changes in the fair value (i.e., gains or losses) of a derivative
instrument depends on whether it has been designated and qualifies as part of a
hedging relationship and, if so, on the reason for holding it. If certain
conditions are met, entities may elect to designate a derivative instrument as a
hedge of exposures to changes in fair values, cash flows or foreign currencies.
If the hedged exposure is a fair value exposure, the gain or loss on the
derivative instrument is recognized in earnings in the period of change together
with the offsetting loss or gain on the hedged item attributable to the risk
being hedged. If the hedged exposure is a cash flow exposure, the effective
portion of the gain or loss on the derivative instrument is reported initially
as a component of other comprehensive income (outside earnings) and subsequently
reclassified into earnings when the forecasted transaction affects earnings. Any
amounts excluded from the assessment of hedge effectiveness as well as the
ineffective portion of the gain or loss is reported in earnings immediately.
Accounting for foreign currency hedges is similar to the accounting for fair
value and cash flow hedges. If the derivative instrument is not designated as a
hedge, the gain or loss is recognized in earnings in the period of change.
The Company has not determined the impact that SFAS No. 133 will have on
its financial statements and believes that such determination will not be
meaningful until closer to the date of initial adoption.
10. RECENT DEVELOPMENTS
Proposed Merger with Roslyn Bancorp, Inc. On May 26, 1998, the Company
announced the signing of a definitive agreement ("Agreement") to merge with and
into Roslyn Bancorp, Inc. ("Roslyn")
11
<PAGE>
in an exchange of stock transaction. Under the terms of the Agreement, the
merger will be structured as a tax-free stock-for-stock transaction that will be
accounted for as a pooling of interests. As of June 30, 1998, the Company has
deferred $217 thousand of costs relating to the proposed merger.
Pursuant to the terms of the Agreement, the Company's stockholders will
receive 2.05 shares of Roslyn common stock for each share of Company common
stock held. The Company has the right to terminate the Agreement if the price of
Roslyn's common stock declines below certain specified levels, as described in
the Agreement. This transaction is expected to close in the 1998 fourth quarter
and is subject to regulatory approvals and the approval of both the Company's
and Roslyn's stockholders. In connection with the proposed merger, the Company
also announced that its stock repurchase program has been terminated.
Declaration of Cash Dividend. On July 21, 1998, the Board of Directors
declared a cash dividend on the Company's outstanding common stock of $0.20 per
share to stockholders of record on September 2, 1998. The dividend is payable on
September 14, 1998.
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 $272.7 million, or 7.1%, to $4.12 billion at June
30, 1998 from $3.84 billion at December 31, 1997, primarily as a result of
management's continued strategy to leverage its capital position through asset
growth. This growth was funded primarily by increased borrowings from securities
sold under agreements to repurchase ("securities repurchase agreements") and
from Federal Home Loan Bank of New York ("FHLB") borrowings.
Of the increase in total assets, $192.7 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 $26.7
million, or 5.6%, to $503.4 million at June 30, 1998 from $476.7 million at
December 31, 1997, due principally to purchases of such securities totaling
$150.9 million during the six months ended June 30, 1998. Such purchases were
partially offset by sales of securities totaling $81.3 million and repayments of
mortgage-backed securities. Securities held to maturity, net, increased $39.6
million, or 3.2%, to $1.26 billion at June 30, 1998 from $1.22 billion at
December 31, 1997. 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 portfolio. As
of June 30, 1998, the available for sale portfolio had net unrealized
appreciation of $10.1 million as compared to net unrealized appreciation at
December 31, 1997 of $11.1 million.
Total deposits decreased $84.0 million, or 3.8%, to $2.12 billion at June
30, 1998 from $2.20 billion at December 31, 1997. This decrease was attributable
to the planned net outflow of certain higher cost customer deposits. Total
borrowings, however, from securities repurchase agreements and from
12
<PAGE>
FHLB borrowings, increased $346.5 million, or 26.7%, to $1.65 billion at June
30, 1998 from $1.30 billion at December 31, 1997. In managing the Company's
overall cost of funds and interest rate sensitivity, management is using
borrowings to leverage asset growth and to supplement its deposit base. This
strategy is intended to mitigate the repricing effect of certain maturing time
deposit products.
Stockholders' equity increased to $256.2 million at June 30, 1998, or 6.2%
of total assets, as compared to $241.0 million at December 31, 1997, 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, 1998 and December 31, 1997
includes net unrealized appreciation in certain securities, net of tax, of $4.7
million and $5.1 million, respectively. In addition, during the six months ended
June 30, 1998, the Company repurchased 175,000 shares of Company common stock at
a total cost of $5.2 million for the period. See "Liquidity and Capital
Resources."
The Bank's leverage capital ratio decreased from 5.98% at December 31, 1997
to 5.95% at June 30, 1998 due to the increase in the Bank's quarterly average
assets, which was partially offset by an $18.5 million increase in the Bank's
Tier 1 leverage capital. The Bank's total risk-based capital ratio of 17.34% at
June 30, 1998 represents a 46 basis point decrease as compared to that ratio at
December 31, 1997. 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" and Note 7 to
Notes to Unaudited Consolidated Financial Statements.
Non-performing assets increased to $16.8 million at June 30, 1998, from
$14.8 million at December 31, 1997 and the ratio of these assets to total assets
increased to 0.41% at June 30, 1998 from 0.38% at December 31, 1997. Other real
estate owned, net, increased $958 thousand to $2.0 million at June 30, 1998 from
$1.0 million at December 31, 1997. Non-performing loans, the largest component
of non-performing assets, increased to $14.8 million at June 30, 1998 as
compared to $13.7 million at December 31, 1997 due primarily to a $3.7 million
increase in FHA government insured residential mortgage loans which are 90 days
or more delinquent. The ratio of non-performing loans to total loans at June 30,
1998 is 0.66% as compared to 0.67% at December 31, 1997.
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, 1998 and 1997, 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.
13
<PAGE>
<TABLE>
<CAPTION>
Three Months Ended June 30
-----------------------------------------------------------------------------
1998 1997
------------------------------------- ---------------------------------
Average Average
Average Yield/ Average Yield/
Balance Interest Cost Balance Interest Cost
------- -------- ---- ------- -------- ----
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Assets
- ------
Earning Assets:
Mortgage Loans, net $2,080,149 $39,026 7.50% $ 1,695,471 $32,176 7.59%
Other Loans 112,790 2,179 7.73 109,846 2,083 7.59
Mortgage-Backed Securities 1,448,482 25,513 7.05 1,133,558 21,432 7.56
Short-Term Securities 77 1 5.19 35,415 487 5.50
Other Securities 373,832 5,510 5.90 468,304 6,946 5.93
------- ----- ------- -----
Total Earning Assets 4,015,330 72,229 7.19 3,442,594 63,124 7.34
------ ------
Non-Earning Assets 84,478 67,840
------ ------
Total Assets $4,099,808 $ 3,510,434
========== ===========
Liabilities and Stockholders' Equity
- ------------------------------------
Interest-Bearing Liabilities:
Deposits:
Passbook Accounts $583,633 $3,605 2.47% $ 642,252 $ 4,883 3.04%
Now Accounts 11,475 77 2.68 9,890 68 2.75
Money Market Accounts 77,262 459 2.38 75,923 528 2.78
Certificate of Deposit Accounts 1,414,611 19,415 5.49 1,635,220 23,144 5.66
--------- ------ --------- ------
Total Interest-Bearing Deposits 2,086,981 23,556 4.51 2,363,285 28,623 4.84
Borrowings 1,627,554 23,178 5.70 818,300 11,999 5.87
--------- ------ ------- ------
Total Interest-Bearing Liabilities 3,714,535 46,734 5.03 3,181,585 40,622 5.11
------ ------
Other Liabilities 134,791 117,274
------- -------
Total Liabilities 3,849,326 3,298,859
Stockholders' Equity 250,482 211,575
------- -------
Total Liabilities and
Stockholders' Equity $ 4,099,808 $ 3,510,434
=========== ============
Net Interest Income/Interest
Rate Spread $25,495 2.16% $22,502 2.23%
======= ===== ======= =====
Net Earning Assets/Net Interest
Margin $ 300,795 2.54% $ 261,009 2.61%
========== ===== ============ =====
Ratio of Earning Assets to
Interest-Bearing Liabilities 1.08x 1.08x
===== =====
</TABLE>
14
<PAGE>
<TABLE>
<CAPTION>
Six Months Ended June 30,
---------------------------------------------------------------------------------
1998 1997
----------------------------------------- ---------------------------------
Average Average
Average Yield/ Average Yield/
Balance Interest Cost Balance Interest Cost
------- -------- ---- ------- -------- ----
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Assets
- ------
Earning Assets:
Mortgage Loans, net $ 2,026,744 $ 75,920 7.49% $ 1,659,349 $62,642 7.55%
Other Loans 109,875 4,220 7.68 109,832 4,205 7.66
Mortgage-Backed Securities 1,426,400 50,602 7.10 1,106,429 41,763 7.55
Short-Term Securities 1,035 30 5.80 17,826 489 5.49
Other Securities 368,604 10,829 5.88 456,664 13,482 5.90
------- ------- ------- ------
Total Earning Assets 3,932,658 141,601 7.21 3,350,100 122,581 7.32
------- -------
Non-Earning Assets 81,431 69,003
------ ------
Total Assets $ 4,014,089 3,419,103
============= =========
Liabilities and Stockholders' Equity
- ------------------------------
Interest-Bearing Liabilities:
Deposits:
Passbook Accounts $ 598,172 $ 7,608 2.54% $ 630,924 $9,378 2.97%
Now Accounts 11,149 143 2.57 9,268 128 2.76
Money Market Accounts 79,043 977 2.47 75,915 1,049 2.76
Certificate of Deposit Accounts 1,417,968 38,919 5.49 1,634,995 45,952 5.62
--------- ------ --------- ------
Total Interest-Bearing Deposits 2,106,332 47,647 4.52 2,351,102 56,507 4.81
Borrowings 1,523,920 43,395 5.70 746,272 21,557 5.78
--------- ------ ------- ------
Total Interest-Bearing Liabilities 3,630,252 91,042 5.02 3,097,374 78,064 5.04
------ ------
Other Liabilities 137,257 112,672
------- -------
Total Liabilities 3,767,509 3,210,046
Stockholders' Equity 246,580 209,057
------- -------
Total Liabilities and
Stockholders' Equity $ 4,014,089 $ 3,419,103
============ ===========
Net Interest Income/Interest
Rate Spread $ 50,559 2.19% $ 44,517 2.28%
========== ===== ========= =====
Net Earning Assets/Net Interest
Margin $ 302,406 2.57% $ 252,726 2.66%
============ ===== =========== =====
Ratio of Earning Assets to
Interest-Bearing Liabilities 1.08x 1.08x
===== =====
</TABLE>
15
<PAGE>
COMPARISON OF OPERATING RESULTS FOR THE THREE MONTHS ENDED JUNE 30, 1998 AND
1997
GENERAL. The Company's net income for the three months ended June 30, 1998
increased $2.4 million to $10.8 million from $8.4 million for the same period in
1997.
INTEREST INCOME. Interest income increased by $9.1 million, or 14.4%, to
$72.2 million for the three months ended June 30, 1998, from $63.1 million for
the same period in 1997, due to a $572.7 million increase in the average balance
of earning assets to $4.02 billion for the three months ended June 30, 1998,
from $3.44 billion for the same period in 1997, reflecting the Company's
strategy to leverage its capital position through asset growth. This increase
was primarily attributable to growth in the average balance of mortgage loans,
net of $384.7 million and growth in the average balance of mortgage-backed
securities of $314.9 million. In addition, the average balance of other loans
increased $2.9 million, the average balance of short-term securities decreased
$35.3 million and the average balance of other securities decreased $94.5
million. The average yield on earning assets decreased to 7.19% for the three
months ended June 30, 1998 from 7.34% for the same period in 1997, due primarily
to the effects that the current interest rate environment has had on increasing
prepayments on higher yielding mortgage loans and mortgage-backed securities, on
lowering the yields of new assets acquired and on the downward repricing of
earning assets.
INTEREST EXPENSE. Interest expense increased by $6.1 million, or 15.0%, to
$46.7 million for the three months ended June 30, 1998, from $40.6 million for
the same period in 1997, due primarily to an $809.3 million increase in average
borrowings, and was partially offset by a $276.3 million decrease in average
interest-bearing deposits and generally lower interest rates associated with
deposits and borrowings. For the three months ended June 30, 1998 as compared to
the same period in 1997, the average rate paid on interest-bearing deposits
decreased 33 basis points and the average rate paid on borrowings decreased 17
basis points. As a result, the average rate paid on interest-bearing liabilities
decreased to 5.03% for the three months ended June 30, 1998 from 5.11% for the
same period in 1997. The average balance of interest-bearing liabilities
increased $533.0 million for the three months ended June 30, 1998, to $3.71
billion from $3.18 billion for the same period in 1997.
NET INTEREST INCOME. Net interest income increased $3.0 million, or 13.3%,
to $25.5 million for the three months ended June 30, 1998, from $22.5 million
for the same period in 1997. This increase is the result, in part, of a $572.7
million increase in the average balance of earning assets to $4.02 billion,
offset by a $533.0 million increase in the average balance of interest-bearing
liabilities to $3.71 billion for the three months ended June 30, 1998 as
compared to the comparable prior year period. As a result of these increases and
the related decreases in 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, 1998 decreased to 2.16% from 2.23% for the same period in
1997.
PROVISION FOR POSSIBLE LOAN LOSSES. The provision for possible loan losses
increased $50 thousand, or 25.0%, to $250 thousand for the three months ended
June 30, 1998 from $200 thousand for the same period in 1997. The increase
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 June 30, 1998, the Bank had net loan recoveries of
$213 thousand as compared to net loan charge-offs of $88 thousand for the
comparable prior year period. At June 30, 1998 and December 31, 1997, the
allowance for possible loan losses amounted to $15.4 million and $14.9 million,
respectively, and the ratio of such allowance to non-performing loans was 103.5%
at June 30, 1998, as compared to 108.5% at December 31, 1997. This decline in
the ratio of allowance for possible loan losses to non-performing loans is
primarily attributable
16
<PAGE>
to a $3.7 million increase in FHA government insured residential mortgage loans
which are 90 days or more delinquent. Generally, the ultimate collection of such
loans is achieved through FHA insurance claims and without substantial
charge-offs to the allowance for possible loan losses. Although management
believes its allowance for possible loan losses is adequate at June 30, 1998, 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 $1.7 million to $4.7
million for the three months ended June 30, 1998 from $3.0 million for the same
period in 1997. This increase was attributable to a $2.3 million increase in net
gain on sales of securities and was partially offset a $459 thousand decrease in
loan fees and other charges, net and a $173 thousand decrease in other income.
The decrease in loan fees and other charges, net was primarily attributable to
higher deferrals of such fees. Other income decreased principally due to lower
levels of recoveries on foreclosed properties in 1998, the non-recurring
recoveries in 1997 relating to the Bank's legal claims for recoveries in the
liquidation of Nationar and lower levels of certificate of deposit penalty
income. The net gains on sales of securities totaled $3.4 million in the three
months ended June 30, 1998 as compared to $1.0 million for the same period in
1997. The net gains for the three months ended June 30, 1998 resulted from sales
of available for sale securities having an amortized cost of $50.6 million as
compared to $49.3 million in the 1997 comparable period. For the three months
ended June 30, 1998, the Company sold $40.9 million of bonds (as compared to
$28.0 million in the same period in 1997), $4.3 million of mortgage-backed
securities (as compared to $15.0 million in the comparable prior year period)
and $5.4 million of equities (as compared to $6.3 million in the same period in
1997) from its available for sale portfolio . These securities were sold during
the three months ended June 30, 1998 at net gains (losses) of $510 thousand, $86
thousand and $2.8 million, respectively (as compared to $(19) thousand, $(3)
thousand, and $1 million, respectively, for the same period in 1997).
NON-INTEREST EXPENSE. Non-interest expense increased $424 thousand, or
3.7%, to $11.9 million for the three months ended June 30, 1998, from $11.5
million for the same period in 1997. Of this increase, salaries and employee
benefits expense increased $1.4 million, or 20.2%, due primarily to higher costs
associated with certain stock-based compensation plans. For the three months
ended June 30, 1998 as compared to the same period in 1997, occupancy and
equipment expense increased $17 thousand to $1.3 million for the three months
ended June 30, 1998 while marketing expense decreased $51 thousand to $654
thousand. Other real estate owned expense increased $70 thousand to $126
thousand for the three months ended June 30, 1998 as compared to the same period
in 1997. FDIC assessment expense was $72 thousand for the three month period
ending June 30, 1998 as compared to $77 thousand for the same period in 1997.
FDIC Bank Insurance Fund ("BIF") assessment rates for both periods were $0.013
per $100 of insured deposits. Other operating expense decreased $1.0 million, or
40.1%, for the three months ended June 30, 1998 as compared to the same period
during 1997, due in part to lower loan origination costs, lower professional
fees and generally lower levels of other operating expenses.
PROVISION FOR INCOME TAXES. Provision for income taxes increased $1.9
million to $7.2 million for the three months ended June 30, 1998 as compared to
$5.4 million during the same period in 1997. As a percentage of income before
provision for income taxes, the provision for income taxes was 40.2% of pre-tax
earnings for the three months ended June 30, 1998 as compared to 39.0% in the
comparable 1997 period due to the effect that increased compensation under the
ESOP has on the Company's effective tax rate.
17
<PAGE>
COMPARISON OF OPERATING RESULTS FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND 1997
GENERAL.The Company's net income for the six months ended June 30, 1998
increased $4.3 million to $20.5 million from $16.2 million for the same period
in 1997.
INTEREST INCOME. Interest income increased by $19.0 million, or 15.5%, to
$141.6 million for the six months ended June 30, 1998, from $122.6 million for
the same period in 1997, due to an increase in the average earning assets during
the period of $582.6 million to $3.93 billion for the six months ended June 30,
1998, from $3.35 billion for the same period in 1997, partially offset by lower
yields earned on such assets. Of the increase in average earning assets, $367.4
million was attributable to growth in mortgage loans, net, $320.0 million was
attributable to growth in mortgage-backed securities, and $43 thousand was
attributable to growth in other loans. These increases were partially offset by
an $88.1 million decrease in the average balance of other securities and a $16.8
million decrease in the average balance of short-term securities. The average
yield on earning assets decreased 11 basis points to 7.21% for the six months
ended June 30, 1998 as compared to the same period in 1997. This decrease in the
yield of average earning assets reflects the effects that the current interest
rate environment has had on increasing prepayments on higher yielding mortgage
loans and mortgage-backed securities, on lowering the yields of new assets
acquired and on the downward repricing of earning assets.
INTEREST EXPENSE. Interest expense increased by $13.0 million, or 16.6%, to
$91.0 million for the six months ended June 30, 1998, from $78.1 million for the
same period in 1997, due primarily to a $777.6 million increase in average
borrowings and partially offset by a $244.8 million decrease in average
interest-bearing deposits. In addition, for the six months ended June 30, 1998
the average rate paid on interest-bearing deposits and borrowings decreased 29
basis points and 8 basis points, respectively, as compared to the same period in
1997. The average rate paid on total interest-bearing liabilities, however,
decreased only 2 basis points to 5.02% for the six months ended June 30, 1998
from 5.04% for the same period in 1997. The more moderate decrease in the
average rate paid on total interest-bearing liabilities as compared to the
aforementioned decreases in the average rate paid on deposits and on borrowings
is due to the changing mix of funding towards borrowings. The average balance of
interest-bearing liabilities increased $532.9 million for the six months ended
June 30, 1998, to $3.63 billion from $3.10 billion for the same period in 1997.
NET INTEREST INCOME. Net interest income increased $6.0 million, or 13.6%,
to $50.6 million for the six months ended June 30, 1998, from $44.5 million for
the same period in 1997. This increase is the result, in part, of a $582.6
million increase in the average balance of earning assets to $3.93 billion,
offset by a $532.9 million increase in the average balance of interest-bearing
liabilities to $3.63 billion for the six months ended June 30, 1998 as compared
to the comparable prior year period. As a result of these increases and the
decreases in 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, 1998 decreased to 2.19% from 2.28% for the same period in 1997.
PROVISION FOR POSSIBLE LOAN LOSSES. The provision for possible loan losses
decreased $50 thousand, or 9.1%, to $500 thousand for the six months ended June
30, 1998 from $550 thousand for the same period in 1997. 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, 1998, loan charge-offs, net of recoveries,
aggregated $50 thousand. For the comparable period in 1997, recoveries exceeded
loan charge-offs by $70 thousand.
NON-INTEREST INCOME. Non-interest income increased $2.3 million to $8.3
million for the six months ended June 30, 1998 from $6.0 million for the same
period in 1997. This increase was primarily attributable to a $3.0 million
increase in net gain on sales of securities and a $122 thousand increase in gain
on sales of whole loans and was partially offset by lower levels of loan fees
and other charges, net and other income.
18
<PAGE>
For the six months ended June 30, 1998, the Company sold available for sale
securities having an amortized cost of $76.4 million, and recognized $5.0
million of net securities gains. The securities sold included $62.9 million of
bonds, $4.3 million of mortgage-backed securities and $9.2 million of equities.
These securities were sold at net gains of $550 thousand, $86 thousand and $4.3
million, respectively. Loan fees and other charges, net decreased $450 thousand
for the six months ended June 30, 1998 as compared to the prior year comparable
period as a result of higher deferrals of loan origination fees. In addition,
other income decreased $359 thousand due primarily to lower levels of recoveries
on foreclosed properties during 1998 as compared to 1997.
NON-INTEREST EXPENSE. Non-interest expense increased $1.2 million, or 5.1%,
to $24.1 million for the six months ended June 30, 1998, from $22.9 million for
the same period in 1997. Of this increase, salaries and employee benefits
expense increased $2.7 million, or 19.5%, due primarily to higher costs
associated with certain stock-based compensation plans and normal salary
increases and offset partially by lower costs associated with health benefit
plans. For the six months ended June 30, 1998 as compared to the comparable
prior year, occupancy and equipment expense decreased $98 thousand to $2.5
million and marketing expense decreased $71 thousand to $1.3 million. Other real
estate owned expense increased $49 thousand to $182 thousand for the six months
ended June 30, 1998 as compared to the same period in 1997. FDIC assessment
expense was $149 thousand for the six month period ending June 30, 1998 as
compared to $151 thousand for the same period in 1997. BIF assessment rates for
both periods were $0.013 per $100 of insured deposits. Other operating expense
decreased $1.4 million, or 27.6% for the six months ended June 30, 1998 as
compared to the same period during 1997 due to lower loan origination costs,
lower professional fees and generally lower levels of other operating expenses.
PROVISION FOR INCOME TAXES. Provision for income taxes increased $2.9
million to $13.7 million for the six months ended June 30, 1998 as compared to
$10.8 million during the same period in 1997. As a percentage of income before
provision for income taxes, the provision for income taxes represented 40.1% of
pre-tax earnings in both periods. Provision for income taxes for the six months
ended June 30, 1997 included a $275,000 reduction attributable to certain
legislative changes regarding bad tax debt reserves (see Note 8 to Notes to
Unaudited Consolidated Financial Statements.)
LIQUIDITY AND CAPITAL RESOURCES
GENERAL. Following the completion of the Bank's conversion and T R
Financial's stock offering in June 1993, 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 can use its liquidity
to, among other things, support future expansion of operations or
diversification into other banking related businesses, pay dividends to its
stockholders or repurchase its common stock. During the six months ended June
30, 1998, T R Financial repurchased 175,000 shares of its common stock pursuant
to its sixth stock repurchase program at a cost of $5.2 million. The sixth stock
repurchase program was authorized by the Board of Directors on April 16, 1996
covering the repurchase of up to 1,789,618 shares of common stock. As of June
30, 1998, a total of 792,000 shares had been repurchased pursuant to this
program. On May 26, 1998, the Company announced that it had entered into a
definitive agreement to merge with and into Roslyn Bancorp, Inc. (see Note 10 to
Notes to Unaudited Consolidated Financial Statements). In connection with the
proposed merger, the Company has terminated its stock repurchase program. On
July 21, 1998, the Board of Directors declared a quarterly cash dividend of
$0.20 per common share to stockholders of record on September 2, 1998. This
dividend is payable on September 14, 1998.
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
19
<PAGE>
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 prepayments of mortgage loans and
mortgage-backed securities are greatly influenced by general interest rates,
economic conditions and competition.
The primary investing activities of the Company are the origination or
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 with expected repayment 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 term advances and through
the use of securities sold under agreements to repurchase. In addition, the Bank
may access funds, if necessary, through a variety of other FHLB products
including 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. See Note 7 to
Notes to Unaudited Consolidated Financial Statements.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The amount of sensitivity that a company's assets and liabilities may have
to changes in market interest rates may be measured through the use of a model
which internally generates estimates of the change in net portfolio value
("NPV") over a range of interest rate change scenarios. NPV is the present value
of expected cash flows from assets, liabilities and off-balance sheet contracts.
The NPV ratio, under any interest rate scenario, is defined as the NPV in that
scenario divided by the market value of assets in the same scenario. For
purposes of the NPV table, prepayment assumptions similar to those used in the
Company's 1997 Annual Report, adjusted to reflect current market conditions,
were used. In addition, reinvestment rates used were those in effect for similar
products currently being offered and rates on core deposits were modified to
reflect recent trends. The following table sets forth the Company's NPV as of
June 30, 1998, as calculated by the Company.
20
<PAGE>
<TABLE>
<CAPTION>
Rate in Basis Points (Rate
Shock) (dollars in thousands) Net Portfolio Value Portfolio Value of Assets
- ----------------------------- ------------------- -------------------------
$ Amount $ Change Change % NPV Ratio Change % (1)
-------- -------- -------- --------- ------------
<S> <C> <C> <C> <C> <C> <C>
200 $194,224 $(88,573) -31.32% 5.02% -26.17%
100 269,062 (13,735) -4.86% 6.67% -1.86%
Static 282,797 -- -- 6.79% --
(100) 294,962 12,165 4.30% 6.97% 2.60%
(200) 301,545 18,748 6.63% 7.02% 3.27%
</TABLE>
(1) Based on the portfolio value of the Company's assets assuming no change in
interest rates.
Certain shortcomings are inherent in the methodology used in the above
interest rate risk measurements. Modeling changes in NPV requires the making of
certain assumptions which may or may not reflect the manner in which actual
yields and costs respond to changes in actual market interest rates. In this
regard, the NPV model presented assumes that the composition of the Company's
interest rate sensitive assets and liabilities existing at the beginning of a
period remains constant over the period being measured and also assumes that a
particular change in interest rates is reflected uniformly across the yield
curve regardless of the duration to maturity or repricing of specific assets and
liabilities. Accordingly, although the NPV measurements and net interest income
models provide an indication of the Company's interest rate risk exposure at a
particular point in time, such measurements are not intended to and do not
provide a precise forecast of the effect of changes in market interest rates on
the Company's net interest income and will differ from actual results.
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.
21
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
--------
2.1 Agreement and Plan of Merger, dated as of May 25, 1998, by
and between Roslyn Bancorp, Inc. and T R Financial Corp. (1)
11.1 Statement re Computation of Per Share Earnings (2)
27.1 Financial Data Schedule (submitted only with filing in
electronic format)
27.2 Restated Financial Data Schedule (submitted only with filing
in electronic format)
99.1 Stock Option Agreement, dated May 25, 1998, by and between
Roslyn Bancorp, Inc. and T R Financial Corp. (1)
99.2 Stock Option Agreement, dated May 25, 1998, by and between T
R Financial Corp. and Roslyn Bancorp, Inc. (1)
(1) Incorporated herein by reference to the Exhibits to the Registrant's
Current Report on Form 8-K filed on June 4, 1998.
(2) The computation of per share earnings appears on page 9 of this Quarterly
Report on Form 10-Q.
(b) Reports on Form 8-K
-------------------
A Current Report on Form 8-K was filed by the Company on
June 4, 1998 disclosing that of T R Financial Corp. and Roslyn
Bancorp, Inc. had entered into a definitive Agreement and Plan of
Merger.
22
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
T R FINANCIAL CORP.
(Registrant)
Date: August 13, 1998 By: /s/ John M. Tsimbinos
--------------------------
John M. Tsimbinos
Chairman of the Board and
Chief Executive Officer
Date: August 13, 1998 By: /s/ Dennis E. Henchy
--------------------------
Dennis E. Henchy
Executive Vice President
and Chief Financial Officer
23
<PAGE>
EXHIBIT INDEX
2.1 Agreement and Plan of Merger, dated as of May 25, 1998, by and between
Roslyn Bancorp, Inc. and T R Financial Corp. (1)
11.1 Statement re Computation of Per Share Earnings (2)
27.1 Financial Data Schedule (submitted only with filing in electronic
format)
27.2 Restated Financial Data Schedule (submitted only with filing in
electronic format).
99.1 Stock Option Agreement, dated May 25, 1998, by and between Roslyn
Bancorp, Inc. and T R Financial Corp. (1)
99.2 Stock Option Agreement, dated May 25, 1998, by and between T R
Financial Corp. and Roslyn Bancorp, Inc. (1)
(1) Incorporated herein by reference to the Exhibits to the Registrant's
Current Report on Form 8-K filed on June 4, 1998.
(2) The computation of per share earnings appears on page 9 of this Quarterly
Report on Form 10-Q.
<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>
<CIK> 0000898447
<NAME> T R FINANCIAL CORP.
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> DEC-31-1997
<PERIOD-END> JUN-30-1998
<CASH> 22,656
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 503,392
<INVESTMENTS-CARRYING> 1,258,852
<INVESTMENTS-MARKET> 1,274,343
<LOANS> 2,256,021
<ALLOWANCE> 15,367
<TOTAL-ASSETS> 4,115,800
<DEPOSITS> 2,118,339
<SHORT-TERM> 212,000
<LIABILITIES-OTHER> 96,150
<LONG-TERM> 1,433,078
0
0
<COMMON> 227
<OTHER-SE> 256,006
<TOTAL-LIABILITIES-AND-EQUITY> 4,115,800
<INTEREST-LOAN> 80,140
<INTEREST-INVEST> 61,461
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 141,601
<INTEREST-DEPOSIT> 47,647
<INTEREST-EXPENSE> 91,042
<INTEREST-INCOME-NET> 50,559
<LOAN-LOSSES> 500
<SECURITIES-GAINS> 4,958
<EXPENSE-OTHER> 24,098
<INCOME-PRETAX> 34,218
<INCOME-PRE-EXTRAORDINARY> 20,497
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 20,497
<EPS-PRIMARY> 1.24
<EPS-DILUTED> 1.17
<YIELD-ACTUAL> 2.57
<LOANS-NON> 13,165
<LOANS-PAST> 1,682
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 14,917
<CHARGE-OFFS> 102
<RECOVERIES> 52
<ALLOWANCE-CLOSE> 15,367
<ALLOWANCE-DOMESTIC> 15,367
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
<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>
<CIK> 0000898447
<NAME> T R FINANCIAL CORP.
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> DEC-31-1996
<PERIOD-END> JUN-30-1997
<CASH> 20,276
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 0
<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> 0.99
<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> 172
<RECOVERIES> 242
<ALLOWANCE-CLOSE> 14,990
<ALLOWANCE-DOMESTIC> 14,990
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
