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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transaction period from -------- to ----------
0-21386
(COMMISSION FILE NUMBER)
T R FINANCIAL CORP.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 11-3154382
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NUMBER)
INCORPORATION OR ORGANIZATION)
1122 FRANKLIN AVENUE, 11530
GARDEN CITY, NEW YORK (ZIP CODE)
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
(516) 742-9300
(REGISTRANT'S TELEPHONE NUMBER INCLUDING AREA CODE)
Securities Registered Pursuant to Section 12(b) of the Act:
NONE
Securities Registered Pursuant to Section 12(g) of the Act:
COMMON STOCK, PAR VALUE $.01 PER SHARE
(TITLE OF CLASS)
PREFERRED STOCK PURCHASE RIGHTS
(TITLE OF CLASS)
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 twelve months (or for such shorter period that the
Registrant was required to file reports) and (2) has been subject to such
requirements for the past 90 days.
YES /X/ NO / /
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendments to this Form 10-K. /X/
As of March 12, 1998, there were 17,529,929 shares of the Registrant's
common stock outstanding. The aggregate market value of the Registrant's common
stock (based on closing price quoted on March 12, 1998) held by non-affiliates
was approximately $446,826,673.
DOCUMENTS INCORPORATED BY REFERENCE
(1) Portions of the Registrant's Annual Report to Stockholders for the year
ended December 31, 1997 are incorporated by reference into Items 1, 5, 6,
7, 7A and 8 of Part II hereof and Item 14 of Part IV hereof.
(2) Portions of the definitive Proxy Statement for the Registrant's 1998 Annual
Meeting of Stockholders are incorporated by reference into Items 10, 11, 12
and 13 of Part III hereof.
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<PAGE>
PART I
------
ITEM 1. BUSINESS
GENERAL
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T R Financial Corp. (the "Registrant"), headquartered in Garden City,
New York, is a bank holding company incorporated on February 12, 1993 under the
laws of the State of Delaware and is registered under the Bank Holding Company
Act of 1956, as amended ("BHCA"). The Registrant was organized for the purpose
of owning all of the outstanding capital stock of Roosevelt Savings Bank (the
"Bank"). On June 29, 1993, the Bank completed its conversion from a New York
State chartered mutual savings bank to a stock form of ownership, and the
Registrant completed the sale of 22,724,000 shares of common stock at $4.50 per
share, as adjusted for a 100% stock dividend paid on May 14, 1997. The
Registrant's operations commenced on June 29, 1993 and consist principally of
the operations of the Bank.
The Bank was organized in 1895 as a New York State chartered mutual
savings bank and became a New York State chartered stock savings bank on June
29, 1993. The Bank's deposits are insured by the Bank Insurance Fund ("BIF"), as
administered by the Federal Deposit Insurance Corporation ("FDIC"), up to the
maximum amounts permitted by law.
The Bank is a community-oriented financial institution offering
traditional deposit and loan products. The Bank's loan products include one- to
four-family residential, commercial real estate, multi-family residential and
other loans. The Bank also invests in a variety of securities, which include
mortgage-backed securities, short- and intermediate-term investment grade debt
securities (including U.S. Government obligations and federal agency securities)
and other marketable debt and equity securities.
The Bank services its customers from 15 full service banking facilities
located in the New York City Boroughs of Brooklyn and Queens and the State of
New York Counties of Nassau and Suffolk, including its principal office in
Garden City. These areas comprise the Bank's primary deposit gathering area. The
Bank's lending market covers the wider geographic area of the greater New York
metropolitan area and surrounding counties.
The Bank, which represents the only direct subsidiary of the
Registrant, has 12 subsidiaries, of which Roosevelt Asset Funding Corp.
("RAFC"), a real estate investment trust, is the largest. RAFC was incorporated
in the State of Delaware on April 28, 1997 for the purpose of the investment and
reinvestment of its assets in real property, interests in real property,
mortgage loans secured by real property, interests in mortgage loans secured by
real property, leasehold interests in real property and mortgage-backed
securities, including collateralized mortgage obligations. None of the remaining
subsidiaries accounted for a significant portion of the Registrant's
consolidated assets, nor contributed significantly to the Registrant's
consolidated results of operations, at or for the year ended December 31, 1997.
The Registrant and its wholly-owned direct subsidiary, the Bank, and the Bank's
subsidiaries are collectively referred to herein as the "Company."
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<PAGE>
At December 31, 1997, the Registrant had consolidated assets of $3.84
billion, deposits of $2.20 billion and stockholders' equity of $241.0 million.
The Registrant's consolidated revenues are derived principally from interest
from its loan and securities portfolios. Part II of this report contains a more
detailed discussion of the Registrant's financial condition and results of
operations.
MARKET AREA & COMPETITION
The Bank has been, and intends to continue to be, a community oriented
financial institution offering a variety of financial services to meet the needs
of the communities it serves. The Bank maintains 15 full service banking
facilities which are located in and around the New York metropolitan area. Of
its 15 banking facilities, six are located in Nassau County, four are located in
the New York City Borough of Queens, three are located in Suffolk County and two
are located in the New York City Borough of Brooklyn.
The greater New York metropolitan area has historically benefitted from
having a large number of corporate headquarters and a diversity of financial
service industries. The New York counties of Nassau and Suffolk have also
continued to benefit from a large developed suburban market, well educated
employment base and a diversity of industrial, service and high technology
businesses. After a prolonged period of decline, which was marked by layoffs in
the financial services and defense industries and corporate relocations and
downsizings, the economy in the greater New York metropolitan area performed
well during 1997.
Durable goods, retail trade and the service sector are driving economic
growth in the suburbs, while securities and service industries are responsible
for growth in New York City. In addition, the pool of skilled labor, access to
international markets and the growing media industry in the area have kept the
region one of the most attractive in the country.1 The healthy economy has also
benefitted the greater New York metropolitan area office market where the
overall vacancy rate fell from 15.0% to 11.9% in one year and the class A office
vacancy rate fell to 9.6%. During 1996 and 1997, total available prime space in
this area declined by more than 40%.1 This decline in the vacancy rate in the
greater New York metropolitan area kept asking rents for all types of space on
the upswing. (1)
The improved economic environment is also evident in the Long Island,
New York area, which is experiencing a rebound in its residential, commercial
and industrial real estate markets not seen in a number of years. The overall
vacancy rate decreased 1.5% from a year ago to 13.4%, the lowest level since
1988. During the first six months of 1997, the Long Island area had job gains of
15,100.(1)
The real estate market in Brooklyn and Queens remained relatively
stable during 1997. Brooklyn saw a slight decline in available space from the
third to fourth quarters of 1997, from 11.6 million feet to 10.7 million feet,
while Queens saw a slight increase in space from 13.4 million feet to 13.5
million feet for the same period. Notwithstanding this slight increase, the
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1 "Real Estate Forecast and Review, New York Area", Cushman & Wakefield,
1997.
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<PAGE>
available square footage for both Queens and Brooklyn decreased at the end of
1997 as compared to the prior year. (2) The office building vacancy rate in
Brooklyn for 1997 was 10.5% due in part to the limited supply of space. Office
rental rates for "A" class buildings was $25.00 per square foot, while "B"
quality space was $18.38 per square foot. (1)
The residential real estate market in the greater New York metropolitan
area was also favorably impacted during 1997 by increased demand for housing
during the period of low unemployment and generally low stable interest rates.
In much of New York City, the residential real estate market has been robust.
The sales price of homes sold in Queens County increased by 2.2% to $161,000
during 1997.(3) In Nassau County, there were 7,835 closings in 1997 compared
with 7,139 in 1996. The same pattern held true for Suffolk County, with 10,470
closings in 1997 compared with 9,885 in 1996. In addition, median prices of
homes are also on the rise advancing over the year in Nassau County from
$175,000 to $180,000 and in Suffolk County from $137,300 to $145,000.(4)
The Bank faces significant competition both in making loans and in
attracting deposits. The Bank's market area has a high density of financial
institutions, many of which are branches of significantly larger institutions
which have greater financial resources than the Bank, and all of which are
competitors of the Bank to varying degrees. The Bank's competition for loans
comes principally from commercial banks, savings banks, credit unions, savings
and loan associations and mortgage banking companies. Its most direct
competition for deposits has historically come from savings and loan
associations, savings banks, commercial banks and credit unions. The Bank faces
additional competition for deposits from short-term money market funds and other
corporate and government securities funds, as well as from other financial
institutions such as brokerage firms and insurance companies. Competition may
also increase as a result of the lifting of federal restrictions on the
interstate banking operations for financial institutions and the entrance of
non-depository financial institutions into the industry through the formation
and acquisition of thrift institutions.
LENDING ACTIVITIES
LOAN PORTFOLIO COMPOSITION. The Bank's loan portfolio consists
primarily of conventional fixed rate mortgage loans and adjustable rate mortgage
("ARM") loans secured by one- to four-family residences and, to a lesser extent,
commercial real estate loans, multi-family residential loans and other loans. At
December 31, 1997, the Bank had total loans of $2.06 billion, of which $1.68
billion, or 81.73%, were one- to four-family residential mortgage loans,
including co-op loans. Of the one- to four-family residential mortgage loans,
including co-op loans, outstanding at that date, 33.9% were ARM loans and 66.1%
were fixed rate loans. At December 31, 1997, commercial real estate loans
totaled $216.7 million, or 10.54% of total loans, multi-family loans
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2 "Brooklyn, Queens Real Estate Report," Greiner, Maltz Co., Inc., Fourth
Quarter 1997.
3 "Mortgage Press," June, 1997.
4 "In a Strong Market, Many Deals Close Quickly," New York Times, February 22,
1998.
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<PAGE>
totaled $27.5 million, or 1.34% of total loans, construction and land
development loans totaled $18.5 million, or 0.90% of total loans, and the Bank's
other loans, primarily consisting of a variety of consumer loans and automobile
leases, totaled $112.8 million, or 5.49% of total loans.
The types of loans that the Bank may originate are subject to various
federal and state laws and regulations. Interest rates charged by the Bank on
loans are affected principally by the demand for such loans, the supply of money
available for lending purposes and the rates offered by its competitors. These
factors are, in turn, affected by general economic conditions, monetary policies
of the federal government, including the Federal Reserve Board ("FRB"),
legislative and tax policies and governmental budgetary matters.
The following table sets forth the composition of the Bank's loan
portfolio in dollar amounts and in percentages of the total loan portfolio at
the dates indicated.
<TABLE>
<CAPTION>
At December 31,
----------------------------------------------------------------------------------------
1997 1996 1995
------------------------- ------------------------ ----------------------------------
Percent Percent Percent
of of of
Amount Total Amount Total Amount Total
------ ------- ------ ------- ------ ------
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Mortgage loans:
One- to four-family......... $1,424,689 69.30% $1,156,944 67.26% $ 973,086 68.22%
Co-op (1)................... 255,583 12.43 200,462 11.65 137,972 9.67
Multi-family................ 27,519 1.34 24,324 1.41 23,745 1.66
Commercial.................. 216,663 10.54 208,689 12.13 214,208 15.02
Construction & land
development............... 18,511 0.90 12,309 0.72 5,147 0.36
--------- ----- ---------- ------ --------- ------
Total mortgage loans........ 1,942,965 94.51 1,602,728 93.17 1,354,158 94.93
--------- ----- ---------- ------ ---------- ------
Other loans:
Student loans............... 1,731 0.08 2,649 0.15 3,029 0.21
Consumer loans (2).......... 40,963 1.99 23,909 1.39 18,342 1.29
Automobile leases........... 65,887 3.21 86,527 5.03 46,285 3.25
Loans on savings
accounts.................. 2,894 0.14 3,345 0.20 3,373 0.24
Overdraft loans............. 775 0.04 696 0.04 706 0.05
Property improvement
loans..................... 183 0.01 153 0.01 107 0.01
Business loans.............. 338 0.02 222 0.01 332 0.02
--------- ------ --------- ------ --------- ------
Total other loans........... 112,771 5.49 117,501 6.83 72,174 5.07
--------- ------ ------- -- ------ --------- ------
Total loans................... 2,055,736 100.00% 1,720,229 100.00% 1,426,332 100.00%
========== ====== ========= ====== ========= =======
Unearned discounts,
premiums and deferred
loan fees and costs,
net....................... 7,160 (4,047) (2,758)
Allowance for possible
loan losses............... (14,917) (14,370) (13,267)
---------- ----------- ----------
Net loans.................... $2,047,979 $1,701,812 $1,410,307
========== =========== ==========
<CAPTION>
1994 1993
------------------------- -------------------------
Percent Percent
of of
Amount Total Amount Total
------ ------- ------ -------
(dollars in thousands)
<S> <C> <C> <C> <C>
Mortgage loans:
One- to four-family......... $ 819,502 68.29% $ 693,303 64.54%
Co-op (1)................... 71,307 5.94 76,925 7.16
Multi-family................ 25,390 2.12 26,392 2.46
Commercial.................. 236,305 19.69 238,605 22.21
Construction & land
development............... 1,000 0.08 1,671 0.16
---------- ---- --------- ------
Total mortgage loans........ 1,153,504 96.12 1,036,896 96.53
---------- ----- --------- ------
Other loans:
Student loans............... 5,699 0.47 5,219 0.49
Consumer loans (2).......... 14,757 1.23 14,648 1.36
Automobile leases........... 21,845 1.82 13,138 1.22
Loans on savings
accounts.................. 3,243 0.27 3,456 0.32
Overdraft loans............. 680 0.06 727 0.07
Property improvement
loans..................... 66 0.01 26 0.00
Business loans.............. 256 0.02 64 0.01
--------- ---- --------- -----
Total other loans........... 46,546 3.88 37,278 3.47
--------- ------ --------- -------
Total loans................... 1,200,050 100.00% 1,074,174 100.00%
========= ====== ========== ======
Unearned discounts,
premiums and deferred
loan fees and costs, (2,710) (1,590)
net.......................
Allowance for possible (12,045) (13,760)
loan losses............... -------- --------
$1,185,295 $1,058,824
Net loans.................... ========== ==========
</TABLE>
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(1) Consists of loans secured by shares representing interests in individual
co-op units that are generally owner-occupied.
(2) Consists primarily of home equity loans and lines of credit.
LOAN ORIGINATIONS, PURCHASES, SALES AND SERVICING. The Bank originates
and purchases both ARM and fixed rate loans, the amounts of which are dependent
upon customer demand and market rates of interest. During 1997, the Bank
originated or purchased a total of $574.3 million of real estate mortgage loans.
The Bank supplements its loan origination activities in its general lending area
through wholesale correspondent loan programs with area mortgage bankers for the
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<PAGE>
purchase of whole loans. The Bank also utilizes loan origination programs with
area mortgage brokers for originations of mortgage loans. To a lesser extent,
the Bank may also sell loans that it originates into the secondary market to the
Federal National Mortgage Association ("FNMA"), the Federal Home Loan Mortgage
Corporation ("FHLMC") and other secondary market purchasers. The amount of loans
retained by the Bank is based upon market conditions and the Bank's funding
requirements. The Bank may also sell one- to four-family residential mortgage
loans on a case-by-case basis. The Bank generally sells loans into the secondary
market without recourse and retains the servicing rights on such loans sold. As
of December 31, 1997, the Bank was servicing approximately $131.1 million of
loans for others. The Bank is generally paid a fee of 0.25% to 0.375% of the
outstanding principal balance for servicing loans sold. For the year ended
December 31, 1997, the Bank's loan servicing fee income, net of the amortization
of mortgage servicing rights, totaled $493,000.
LOAN MATURITY AND REPRICING. The following table shows the maturity
schedule for principal or period of repricing of the Bank's loan portfolio at
December 31, 1997. Loans that have fixed rates of interest are shown below based
upon the contractual due dates. Loans that have adjustable rates are shown as
being due in the period during which the interest rates are next subject to
change.
<TABLE>
<CAPTION>
At December 31, 1997
-----------------------------------------------------------------------------------------
Mortgage Loans on Real Estate
------------------------------------------------------------
One- to
Four- Construction and Other Total
Family(2) Multi-Family Commercial Land Development Loans(3) Loans
-------- ------------ ---------- ---------------- -------- -----
(in thousands)
<S> <C> <C> <C> <C> <C> <C>
Amounts due(1):
Within one year.................. $ 196,368 $ 3,220 $ 41,285 $18,511 $ 54,149 $ 313,533
---------- ------ ------- ------ ------- ---------
After 1 year:
1 to 2 years................... 147,697 975 36,976 -- 26,889 212,537
2 to 3 years................... 228,347 1,936 23,285 -- 16,241 269,809
3 to 5 years................... 266,429 5,568 63,233 -- 6,322 341,552
5 to 10 years.................. 434,814 6,850 18,265 -- 4,014 463,943
Over 10 years.................. 400,586 8,970 27,456 -- 586 437,598
---------- ------- -------- ------- -------- ---------
Total due after
1 year...................... 1,477,873 24,299 169,215 -- 54,052 1,725,439
---------- ------- -------- ------- -------- ---------
Total amounts due............. $1,674,241 $27,519 $210,500 $18,511 $108,201 2,038,972
========== ======= ======== ======= ========
Non-accrual loans.................. 12,450
Deferred loan fees and costs, net 11,474
Less:
Allowance for possible
loan losses.................... (14,917)
----------
Total loans, net............. $2,047,979
==========
</TABLE>
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(1) Does not include non-accrual loans.
(2) Includes co-op loans.
(3) Net of unearned discount.
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<PAGE>
The following table sets forth, at December 31, 1997, the dollar amount
of all fixed rate loans contractually due after December 31, 1998, and all
adjustable rate loans repricing after December 31, 1998.
Due after December 31, 1998
------------------------------------------------
Fixed Rate Adjustable Rate Total
---------- --------------- -----
(in thousands)
Mortgage loans (1):
One- to four-family(2) $1,040,212 $437,661 $1,477,873
Multi-family 18,245 6,054 24,299
Commercial real estate 60,252 108,963 169,215
Other loans(1)(3) 54,052 -- 54,052
---------- -------- ----------
Total loans $1,172,761 $552,678 $1,725,439
========== ======== ==========
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(1) Does not include non-accrual loans.
(2) Includes co-op loans
(3) Net of unearned discount
ONE- TO FOUR-FAMILY MORTGAGE LOANS. The Bank offers first mortgage
loans secured by one- to four-family residences, including townhouses,
condominium and co-op units, located in its general lending area. The Bank
offers such loans as fixed rate mortgage loans and ARM loans with maturities of
10 to 30 years. Loan originations are generally obtained through the Bank's
correspondent mortgage banker and broker programs as well as from existing or
past customers and members of the local communities located in the Bank's
general lending area. Except as to loan amount, one- to four-family residential
mortgage loans are generally underwritten according to FNMA and other agency
guidelines. At December 31, 1997, 81.7% of the Bank's loans consisted of one- to
four-family mortgage loans, including co-op loans. At such date, one- to
four-family mortgage loans, including co-op loans, comprised $7.2 million, or
52.3%, of non-performing loans.
The Bank originates one- to four-family residential mortgage loans
without employer verification of the borrower's level of income if the
borrower's stated income is considered reasonable for the position held. These
loans involve a higher degree of risk as compared to the Bank's other fully
underwritten one- to four-family residential mortgage loans as there is a
greater opportunity for borrowers to falsify or overstate their level of income
and ability to service the indebtedness. Additionally, these loans are not
readily saleable in the secondary market either as whole loans or when pooled or
securitized. As a result, the Bank may not be able to sell such loans in the
future through established programs in the secondary market. Management,
however, does not believe that such inability will have a material adverse
impact on the liquidity needs of the Bank, as the Bank may obtain funds, if
necessary, from competitive deposit products, Federal Home Loan Bank of New York
("FHLB") advances, FHLB overnight and one month line of credit facilities or
from sales of securities under agreements to repurchase ("security repurchase
agreements"), as well as from internally generated sources. See "Sources of
Funds" for additional information regarding the Bank's primary sources of funds.
With respect to such limited income check loans, the Bank has heightened its
review and verification of the borrower's assets, limited the maximum
loan-to-value ratio on such loans to no more than 75% and charged higher
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<PAGE>
origination fees. During 1997, the Bank originated $50.5 million of limited
income check loans, or 9.8% of total one- to four-family mortgage loan
originations.
The Bank currently offers ARM loans secured by one- to four-family
residential properties, including townhouses, condominium and co-op units, that
adjust as follows: loans adjusting every one, three or five years, loans
adjusting in the seventh year and then converting to three-year ARM loans and
loans adjusting in the tenth year and converting to five-year ARM loans. The
Bank offers these products with a conversion feature on the one- and three-year
products which allows the borrower to convert after the first year to a fixed
rate of interest for the remaining term of the loan. The maximum loan amount for
which this feature is offered is $500,000. ARM loans that the Bank originates
for retention are currently offered with terms of up to 30 years with 95%
loan-to-value financing up to $300,000. The Bank also offers ARM loans in excess
of $300,000 up to $1,000,000 and up to 80% of the lower of the appraised value
or sales price of the property. The Bank also may consider loans that are
greater than $1,000,000. Such loans require approval by the Loan and Investment
Committee or Executive Committee of the Bank's Board of Directors. Currently,
the repricing rates on ARM loans fluctuate based upon a 275 basis-point spread
above the average yield on United States treasury securities, after the initial
rate is adjusted to a constant maturity which corresponds to the adjustment
period of the loan (the "U.S. Treasury constant maturity index") published
weekly by the FRB. The repricing rates are generally subject to limitations on
interest rate increases of a 2% adjustment per period and an aggregate
adjustment of 6% over the life of the loan. For the year ended December 31,
1997, the Bank originated or acquired $130.9 million of one- to four-family
residential ARM loans. At December 31, 1997, 33.9% of the Bank's one- to
four-family residential mortgage loans, including co-op loans, consisted of ARM
loans.
The volume and types of ARM loans originated by the Bank have been
affected by such market factors as the level of interest rates, competition and
consumer preferences. During 1997, the demand for fixed rate loans remained
strong as market interest rates remained stable during the year. Cyclical
decreases in market interest rates, however, would decrease the demand for ARM
loans in favor of fixed rate loans. Although the Bank will continue to offer ARM
loans, there can be no assurance that in the future the Bank will be able to
originate a sufficient volume of ARM loans to increase or maintain the
proportion that these loans bear to total loans.
The retention of ARM loans, as compared to fixed rate residential
mortgage loans, in the Bank's loan portfolio helps reduce the Bank's exposure to
increases in interest rates. However, ARM loans generally pose credit risks
different from the risks inherent in fixed rate loans, primarily because as
interest rates rise, the underlying payment of the borrower will rise, thereby
increasing the potential for default. In order to minimize risks, borrowers of
one-year ARM loans are qualified at the higher of the maximum adjusted rate at
the first adjustment or the FNMA minimum qualifying rate. The Bank has not in
the past, nor does it currently, originate ARM loans which provide for negative
amortization.
The Bank currently offers monthly and bi-weekly fixed rate mortgage
loans with terms of 10 to 30 years secured by one- to four-family residences,
including townhouses, condominium and co-op units. Interest rates charged on
fixed and adjustable rate mortgage loans are competitively priced based upon
market conditions. The Bank originates fixed rate loans for retention in its
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<PAGE>
portfolio with loan-to-value ratios of up to 97% of the lower of the appraised
value or sales price of the secured property for one-family primary residences
up to FNMA loan limits of $227,150 on purchase transactions only. Also, on
two-family primary residence purchase transactions, the maximum loan-to-value
ratio is 95%, up to FNMA loan limits of $290,650. On one- and two-family
purchases and non-cashout refinances, the Bank offers 90% financing up to
$300,000 and up to 80% financing to $1,000,000 on 10-year and 15-year terms with
monthly and bi-weekly payments and 20-year terms with bi-weekly payments. On
three- and four-family purchases and non-cashout refinances, the Bank offers 80%
financing up to FNMA and FHLMC limits for fixed rate terms from 20 to 30 years.
On shorter term fixed rate loans (10 year, 15 year monthly/bi-weekly and 20 year
bi-weekly), the Bank offers up to 80% financing to $1,000,000. The maximum
financing on cashout refinance transactions on fixed rate terms from 20 to 30
years up to $300,000 is 75% for one- and two-family residences and up to FNMA
limits for three- and four-family residences. Additionally, cashout refinances
are available on 10-year, 15-year monthly/bi-weekly and 20-year bi-weekly loan
products, with the maximum financing being 75% to $1,000,000. On co-op purchase
transactions, the maximum financing is 80% on 10-year and 15-year
monthly/bi-weekly fixed rates and 20-year bi-weekly loan products. On refinance
transactions, the maximum term on a fixed rate loan is 20 years. The Bank also
may consider loans that are greater than $1,000,000. Such loans require approval
by the Loan and Investment Committee or Executive Committee of the Bank's Board
of Directors. Fixed rate loans that the Bank originates for sale are made under
specific investor guidelines. For the year ended December 31, 1997, the Bank
originated $383.9 million of fixed rate one- to four-family residential mortgage
loans. During the fourth quarter of 1996, the Bank approved a program to
originate "B" quality mortgage loans. "B" quality loans pose additional credit
risk compared to the Bank's "A" loans, and the Bank charges higher rates or
origination fees on these loans, requires larger equity or downpayments compared
to "A" paper program loans and limits the origination to owner-occupied property
only. The Bank commenced originations under this program in 1997 and, during
1997, originated $2.9 million of "B" quality loans, or 0.6% of total one- to
four-family mortgage loan originations.
During 1997 and 1996, the Bank purchased through its correspondent
banker program one- and two-family Federal Housing Administration ("FHA")
government insured loans. These loans carried a maximum loan-to-value ratio of
97.75%, exclusive of the up-front mortgage insurance premiums. The current
maximum loan amounts on one- and two-family transactions are $170,362 and
$217,987, respectively. Total purchases for 1997 and 1996 were $70.6 million and
$1.9 million, respectively.
The Bank generally requires private mortgage insurance on all one- to
four-family, condominium or co-op mortgage loans with a loan-to-value ratio
greater than 80%. An origination fee is generally not charged on one- to
four-family primary residence full income verification mortgage loans. Mortgage
loans in the Bank's portfolio generally include due-on-sale clauses, which
provide the Bank with the contractual right to deem the loan immediately due and
payable in the event that the borrower transfers ownership of the property
without the Bank's consent. It is the Bank's policy to enforce due-on-sale
provisions within the applicable regulations and guidelines imposed by New York
State law and secondary market purchasers.
-9-
<PAGE>
The Bank also originates second mortgage loans secured by one- to
four-family and condominium owner-occupied residences. The underwriting
standards and procedures applicable to these loans are the same as for the
Bank's one- to four-family first mortgage loans. As of December 31, 1997, second
mortgage loans totaled $5.3 million, or 0.3% of total mortgage loans on real
estate.
MULTI-FAMILY LENDING. The Bank originates fixed rate and adjustable
rate multi-family loans secured by apartment buildings and mixed use (commercial
and residential) properties generally located in the greater New York
metropolitan area and surrounding counties. The Bank, however, in the past,
originated loans secured by multi-family properties located outside its general
geographic lending area. These "out-of-area" multi-family loans generally are
insured by the FHA. At December 31, 1997, the Bank had 34 multi-family loans
outstanding totalling $27.5 million, or 1.3% of total loans.
Multi-family loans are currently made with adjustable terms of five
years to maturity or provide for an interest rate adjustment at least every five
years, and fixed rate loans with maturities not exceeding 30 years. These loans
are generally made in amounts up to 75% of the appraised value of the secured
property, based on an appraisal performed by Bank personnel or an outside
independent appraiser, and are limited generally to a minimum amount of $300,000
and a maximum of $5.0 million. Larger loans, however, may be made from time to
time and community development loans may have loan-to-value ratios up to 80% or
90% with insurance. In making multi-family loans, the Bank bases its
underwriting decision primarily on the net operating income generated by the
real estate and its ability to support the debt service. Currently, the Bank
requires the net cash flow generated by the property to provide for the Bank's
debt service plus an additional 25%. Affordable multi-family loans generally
have higher loan-to-value ratios and lower debt service coverage ratios. The
Bank also considers the financial resources and income level of the borrower,
the borrower's experience in owning or managing similar property, the
marketability of the property and the Bank's lending experience with the
borrower. At December 31, 1997, the Bank's three largest multi-family loans were
a $3.7 million loan originated in 1997 secured by 396 unsold co-op units located
in Queens, New York, a $2.4 million loan originated in 1979 secured by eleven
three-story garden apartments covering 187 units located in Virginia Beach,
Virginia and a $2.1 million mortgage loan originated in 1979 secured by a 144
unit garden apartment building located in Wayne, Michigan. As of December 31,
1997, these loans were performing in accordance with their terms.
COMMERCIAL REAL ESTATE LENDING. The Bank originates loans secured by
commercial real estate properties generally located in the greater New York
metropolitan area and surrounding counties. The properties securing such loans
generally consist of office buildings, shopping centers, light industrial
buildings and other properties used solely for business purposes. Commercial
real estate loans generally carry adjustable interest rates with terms up to 15
years, with the initial rate based upon market conditions and adjustments based
on a spread of 2% to 3% above the FHLB borrowing rate for corresponding terms or
short-term fixed rates generally not exceeding five years. The Bank generally
originates commercial real estate loans as balloon repayment loans with
maturities or interest rate adjustments of three or five years and amortization
schedules of 15 to 30 years. These loans are made in accordance with the same
terms and underwriting standards that apply to the Bank's multi-family loans.
The average loan size for the
-10-
<PAGE>
Bank's commercial real estate loans outstanding at December 31, 1997 was
approximately $628,000.
The Bank's three largest commercial real estate loans as of December
31, 1997 consisted of a $6.9 million first mortgage loan secured by a new office
building located in Staten Island, New York, originated in 1997, a $5.0 million
loan originated in 1997 secured by an office building located in Suffolk County,
New York and a $4.1 million loan originated in 1997 secured by a strip shopping
center located in Nassau County, New York. As of December 31, 1997, these three
loans were performing in accordance with their terms.
The Bank's largest concentration of loans-to-one-borrower at December
31, 1997 consisted of nine loans secured by nine commercial real estate
properties located in the New York City Boroughs of Brooklyn and Queens and in
Nassau County. As of December 31, 1997, the outstanding balance of these loans
totaled $9.1 million and, as of such date, these nine loans were performing in
accordance with their terms. At December 31, 1997, the Bank's concentration of
such loans did not exceed its internal $34.5 million loans-to-one-borrower
limitation, which is the lesser of 1% of Bank assets or 15% of Bank capital.
Loans secured by commercial real estate properties generally involve a
greater degree of risk than residential mortgage loans. Because payments on
loans secured by commercial real estate properties are often dependent upon the
successful operation or management of the properties, repayment of such loans
may be subject, to a greater extent, to adverse conditions in the real estate
market or economy. Additionally, market declines in real estate values have been
more pronounced with respect to commercial real estate. The Bank reduces these
risks by originating such loans on a selective basis, although the Bank plans to
increase commercial real estate originations going forward.
CONSTRUCTION AND LAND DEVELOPMENT LOANS. The Bank originates
construction and land development loans generally for the construction of
commercial and light industrial buildings, apartment buildings, one- to
four-family residential properties and condominium developments located in the
Bank's general lending area. These loans may generally be made in amounts up to
$5.0 million. At December 31, 1997, advances on construction and land
development loans totaled $18.5 million, or 0.90% of total loans. In addition,
construction and land development loans had unadvanced amounts of $28.5 million.
At December 31, 1997, the three largest construction loans, including unadvanced
amounts, were a $11.7 million loan to finance the construction of 98 affordable
housing units in New York City; an $8.5 million loan to finance the construction
of a 216-unit senior citizen garden apartment project located in Suffolk County,
New York and an $8.2 million loan to finance the construction of a 58-unit
affordable housing project located in Brooklyn, New York. The Bank generally
requires firm end-loan commitments and personal guarantees on all construction
and land development loans. Advances are made to borrowers as phases of
construction of the property are completed. Construction loans in projects to be
sold as individual units generally require a presale requirement. Construction
and land development loans involve a greater degree of risk than other real
estate loans due to the fact that the underwriting of such loans is based on an
estimated value of the developed property, which can be difficult to ascertain
in light of uncertainties inherent in such estimations.
-11-
<PAGE>
CONSUMER AND OTHER LENDING. The Bank originates other loans for
business, personal, family or household purposes, which generally consist of
home-equity loans, student loans, overdraft loans, auto loans, commercial lines
of credit and personal lines of credit. These loans may generally be made in
amounts up to $100,000 with terms up to 15 years for secured loans, and in
amounts up to $10,000 with terms up to four years for unsecured loans. The Bank
also originates loans and purchases leases, originated by an unrelated third
party, which are secured by automobiles and are reviewed by the Bank's
underwriting personnel. As of April 1, 1997, however, this leasing company, in
connection with its acquisition by a commercial bank, discontinued its sales of
leases to the Bank. In February 1998, however, the Bank commenced a new program
to purchase automobile leases from another unrelated third party. To date, the
volume of such purchases has been minimal. As of December 31, 1997, consumer and
other loans, net of unearned discounts, totaled $109.0 million, or 5.3% of total
loans. The Bank offers credit cards to its customers through a third party
financial institution and receives an origination fee and transactional fees for
processing such accounts, but does not underwrite or finance any portion of the
credit card receivables.
LOAN UNDERWRITING. For all loans originated by the Bank, upon receipt
of a completed loan application from a prospective borrower, a credit report is
ordered, certain other information is verified and, if necessary, additional
financial information is requested. An appraisal of the real estate intended to
secure the proposed loan is required and is currently performed by staff
appraisers or independent appraisers who are approved by the Bank's Board of
Directors. The Bank requires title insurance on all mortgage loans, except for
certain consumer loans, secured by real estate. For first mortgage loans,
borrowers must obtain hazard insurance. Borrowers may also be required to obtain
flood insurance prior to closing. In the case of first mortgage loans, borrowers
generally are required to advance funds on a monthly basis together with each
payment of principal and interest to a mortgage escrow account from which the
Bank makes disbursements for items such as real estate taxes and private
mortgage insurance premiums, if required.
ENVIRONMENTAL ISSUES
The Bank encounters certain environmental risks in its lending
activities. Under federal and state environmental laws, lenders may become
liable for costs of cleaning up hazardous materials found on property serving as
security for bank loans. In addition, the existence of hazardous materials may
make it unfeasible for a lender to foreclose on such property. Although
environmental risks are usually associated with loans secured by commercial real
estate, risks also may be substantial for loans secured by residential real
estate if environmental contamination makes such property unsuitable for use.
This could also have a negative effect on property values. The Bank attempts to
control its risk by training its appraisers, inspectors and underwriters to be
cognizant of signs indicative of environmental hazards. In addition, since 1991
the Bank has generally required a Phase I Environmental Report, conducted by a
qualified environmental engineer, for all newly originated and renewed
commercial real estate loans. It is the Bank's policy not to make loans secured
by properties on which a potential environmental hazard is indicated in the
Phase I Environmental Report. In the future, however, the Bank may consider
using trained in-house personnel in lieu of outside environmental engineers and
Phase I reports to determine the existence of environmental hazards that may be
present at properties securing new or renewed loans. With respect to residential
loans, FNMA guidelines require that appraisals for
-12-
<PAGE>
single family residences on which the Bank lends include comments on
environmental influences. No assurance can be given, however, that the values of
properties securing loans in the Bank's portfolio will not be adversely affected
by unforeseen environmental risks, although the Bank is unaware of any
environmental issues which would subject it to any material liability at this
time.
DELINQUENT LOANS AND FORECLOSED ASSETS
As part of the Bank's collection procedures applicable to one- to
four-family mortgage loans, the Bank sends a late notice when a payment is over
15 days past due. A default letter is sent at the time the payment becomes 30
days past due. Telephone contact is initiated and continued at this time. A
third letter is sent after the 45th day of delinquency if no favorable response
is received. If payment remains uncollected, a demand for satisfaction is sent
by the 60th day. If contact is made with the borrower at any time prior to
foreclosure, the Bank attempts to obtain full payment or work out a repayment
schedule with the borrower to avoid foreclosure. Most loan delinquencies are
cured within 90 days and no legal action is taken. Foreclosure notices generally
are sent when a loan is 90 days delinquent.
The Bank's collection procedures applicable to commercial real estate
and multi-family loans are generally similar to those discussed above; however,
if an agreeable resolution of the delinquency is not reached, a notice of intent
to foreclose is generally sent after the 45th day of delinquency, and the matter
is generally referred to the Bank's attorneys after the 60th day of delinquency.
With respect to delinquent payments regarding other loans, delinquency
letters are sent to borrowers at the end of 15 and 30 days and monthly
thereafter, as needed. Any overdraft account over 60 days delinquent is frozen.
In the event such loans become delinquent 120 days or more, the account is
generally charged off and legal action is pursued.
The Bank generally continues accruing interest on all delinquent
secured loans until either foreclosure proceedings have been commenced or the
loan is 120 days past due and continues to accrue interest on all delinquent
unsecured loans until the loan is 90 days past due. The Bank reverses any
accrued interest upon foreclosure when the outstanding loan balance exceeds 90%
of the appraised value of the property.
The following table sets forth information regarding all non-accrual
loans, loans which are 90 days or more delinquent but on which the Bank is
accruing interest and foreclosed real estate at the dates indicated. If all
non-accrual loans had been performing in accordance with their original terms
and had been outstanding from the earlier of the beginning of the year or
origination, the Bank would have recorded interest income of $1.1 million, $1.2
million and $1.1 million for 1997, 1996 and 1995, respectively, as opposed to
$486,000, $584,000 and $88,000, which was included in interest income for such
years, respectively.
-13-
<PAGE>
<TABLE>
<CAPTION>
At December 31,
---------------------------------------------------------------------
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
(dollars in thousands)
<S> <C> <C> <C> <C> <C>
Non-accrual mortgage loans $12,194 $11,964 $17,067 $35,534 $34,234
Non-accrual other loans 256 156 164 116 232
------- ------- ------- ------- -------
Total non-accrual loans and restructured
loans 12,450 12,120 17,231 35,650 34,466
------- ------- ------- ------- -------
Mortgage loans 90 days or more
delinquent and still accruing 1,158 446 1,425 289 2,936
Other loans 90 days or more
delinquent and still accruing 137 63 46 59 72
------- ------- ------- ------- -------
Total non-performing loans(2) 13,745 12,629 18,702 35,998 37,474
------- ------- ------- ------- -------
Non-performing securities(1) -- -- -- 350 350
Other real estate owned(1) 1,040 3,264 6,547 6,535 7,077
------- ------- ------- ------- -------
Total non-performing assets $14,785 $15,893 $25,249 $42,883 $44,901
======= ======= ======= ======= =======
Non-performing loans to total loans(2) 0.67% 0.74% 1.31% 3.01% 3.49%
Non-performing assets to total assets(2) 0.38% 0.49% 0.87% 1.67% 2.24%
</TABLE>
- -----------------------
(1) Net of related allowance for possible losses.
(2) Non-performing loans excludes loans which have been restructured and are
accruing and performing in accordance with the restructured terms.
Restructured, accruing loans totaled $5,132,000, $5,297,000, $6,391,000,
$6,251,000 and $4,813,000 at December 31, 1997, 1996, 1995, 1994 and 1993,
respectively.
At December 31, 1997, all restructured loans were performing in
accordance with their terms.
At December 31, 1997, other real estate owned totaled $1.0 million.
Other real estate owned at December 31, 1997 consisted of one- to four-family
residential properties, including co-op units, with an aggregate carrying value
of $118,000 and commercial properties with an aggregate carrying value of
$922,000 . The Bank generally conducts appraisals on all properties securing
loans in foreclosure and foreclosed real estate annually and, if necessary based
upon the carrying amount of the property, charges-off any declines in value at
such times.
It is the Bank's general policy to dispose of properties acquired
through foreclosure or deeds in lieu thereof as quickly and as prudently as
possible. The exceptions, however, are properties held by the Bank's subsidiary,
BSR, Inc. ("BSR"), which generally are rented and offered for sale upon lease
termination, and property held by the Bank's subsidiary, Roosevelt Land Corp.
("RLC"), which was in the process of obtaining subdivision zoning approval on
two vacant parcels of land that were sold by RLC on May 31, 1997. At December
31, 1997, there were no properties in BSR or RLC.
Potential problem loans, as of December 31, 1997, not reflected in the
balance of non-accrual loans, loans 90 days past due and accruing interest or
restructured loans consisted of four commercial real estate loans aggregating
approximately $1.4 million. These loans are experiencing late payments due
generally to vacancies or cash flow problems of the borrower.
-14-
<PAGE>
ALLOWANCE FOR POSSIBLE LOAN LOSSES
The allowance for possible loan losses is maintained through provisions
for possible loan losses based on management's evaluation of the risks inherent
in its loan portfolio and delinquency trends in its loan portfolio and the
national and regional economies. The Bank's policy sets forth the procedures for
reviewing the adequacy of the allowance for possible loan losses and maintaining
the allowance at an appropriate level given the risk characteristics of the
Bank's loan portfolio. The Bank relies principally on the ongoing, comprehensive
analysis of the Bank's loan portfolio in determining the adequacy of the
allowance for possible loan losses. The evaluation also includes a system of
ranges and percentages as a supplemental measure for reviewing the adequacy of
the allowance for possible loan losses.
The following table sets forth the Bank's allowance for possible loan
losses and activity therein for the dates indicated.
<TABLE>
<CAPTION>
For the year ended December 31,
------------------------------------------------------------------------
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
(dollars in thousands)
<S> <C> <C> <C> <C> <C>
Balance at beginning of year................ $14,370 $13,267 $12,045 $13,760 $11,145
Provisions for possible loan losses......... 800 1,400 3,050 2,250 6,100
Loans charged off:
One- to four-family....................... 45 243 684 712 484
Co-op..................................... 144 148 113 175 155
Multi-family.............................. -- -- -- 98 11
Commercial................................ 244 57 2,095 3,178 2,651
Construction and land development......... -- -- -- -- 158
Other..................................... 159 90 127 184 408
------- ------- ------- ------- -------
Total loans charged off................. 592 538 3,019 4,347 3,867
Recoveries:
Mortgage loans............................ 274 199 1,128 271 230
Other..................................... 65 42 63 111 152
------- ------- ------- ------- -------
Total recoveries........................ 339 241 1,191 382 382
------- ------- ------- ------- -------
Balance at end of year...................... $14,917 $14,370 $13,267 $12,045 $13,760
======= ======= ======= ======= =======
Ratio of net charge-offs during the
year to average gross loans
outstanding during the year............... 0.01% 0.02% 0.14% 0.34% 0.35%
Ratio of allowance for possible loan
losses to total gross loans
outstanding at the end of the year........ 0.72 0.84 0.93 1.01 1.28
Ratio of allowance for possible loan
losses to non-performing loans at the
end of the year........................... 108.53 113.79 70.94 33.46 36.72
</TABLE>
-15-
<PAGE>
The balances set forth in the table below represent general loan loss
reserves and are not allocable to specific loans in the Bank's portfolio. The
allowance for possible loan losses at December 31, 1997, 1996, 1995, 1994 and
1993 is allocated as follows:
<TABLE>
<CAPTION>
At December 31,
-----------------------------------------------------------------------------------
1997 1996 1995
------------------------ ----------------------- --------------------------
Percent of Percent of Percent of
Loans in Loans in Loans in
Category Category Category
To Total To Total To Total
Amount Loans Amount Loans Amount Loans
------ ----------- ------ ---------- ------ ----------
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Loan Category
Mortgage loans:
One- to four-family.............. $8,134 69.30% $ 6,167 67.26% $ 3,006 68.22%
Co-op............................ 1,397 12.43 1,002 11.65 496 9.67
Multi-family..................... 175 1.34 159 1.41 -- 1.66
Commercial....................... 4,336 10.54 6,434 12.13 9,211 15.02
Construction and land
development.................... 217 0.90 62 0.72 -- 0.36
Other loans........................ 658 5.49 546 6.83 554 5.07
------- ------ ------- ------ ------- ------
Total............................ $14,917 100.00% $14,370 100.00% $13,267 100.00%
======= ====== ======= ====== ======= ======
</TABLE>
At December 31,
---------------------------------------------------
1994 1994
------------------------ -----------------------
Percent of Percent of
Loans in Loans in
Category Category
To Total To Total
Amount Loans Amount Loans
------ ----------- ------ ----------
(dollars in thousands)
LOAN CATEGORY
Mortgage loans:
One- to four-family..... $ 2,163 68.29% $ 3,700 64.54%
Co-op................... 532 5.94 1,140 7.16
Multi-family............ 298 2.12 170 2.46
Commercial.............. 8,831 19.69 7,900 22.21
Construction and land
development........... -- 0.08 60 0.16
Other loans............. 221 3.88 790 3.47
------- ------ ------- ------
Total................ $12,045 100.00% $13,760 100.00%
======= ====== ======= ======
SECURITIES ACTIVITIES
The policies of the Registrant and the Bank with respect to investments
in securities are set by their respective Boards of Directors. These policies
dictate that investment decisions will be made based on the safety of the
investment, liquidity requirements and potential return on investments.
Authority is delegated to certain officers to carry out the investment policies.
-16-
<PAGE>
The current policies permit investments in various types of securities
including U.S. Treasury obligations, securities of various federal agencies,
mortgage-backed securities, banker's acceptances of other Board approved
financial institutions, investment grade corporate debt securities, commercial
paper, federal funds and equities. The Bank previously purchased public utility
debt securities and Canadian debt securities, but during the past five years has
not purchased such securities; however, the Bank and/or Registrant may in the
future purchase such securities. The Registrant and the Bank currently do not
participate in hedging programs or interest rate swaps and do not invest in
non-investment grade bonds or high risk mortgage derivatives. Furthermore, the
Registrant and the Bank do not engage in any material derivative instrument
transactions falling under the scope of Statement of Financial Accounting
Standards ("SFAS") No. 119, "Disclosure about Derivative Financial Instruments
and Fair Value of Financial Instruments."
The Company adopted SFAS No. 115, "Accounting for Investments in
Certain Debt and Equity Securities," as of December 31, 1993. SFAS No. 115
requires securities classified as available for sale to be recorded at estimated
fair value, with changes in the net unrealized gains or losses of available for
sale securities reported, net of tax, as a separate component in stockholders'
equity. The adoption of SFAS No. 115 had no impact on 1993 net income. On March
31, 1995, the Company transferred certain mortgage-backed securities from
available for sale to held to maturity. On December 15, 1995, in connection with
a one-time opportunity permitted by the Financial Accounting Standards Board and
regulatory agencies, the Company transferred certain securities from held to
maturity to available for sale. Additional information regarding these
securities transfers appears on page 35 of the Registrant's 1997 Annual Report
to Stockholders in Note (3) of Notes to Consolidated Financial Statements and is
incorporated by reference herein.
Securities classified as held to maturity are stated at amortized cost
(unpaid principal in the case of mortgage-backed securities), adjusted for
amortization of premiums and accretion of discounts, as the Company has the
intent and ability to hold these securities until maturity. Premiums and
discounts on these securities are recognized in interest income using the
level-yield method over the period to maturity, adjusted in the case of
mortgage-backed securities for anticipated prepayments. Marketable equity
securities, bonds and other debt and mortgage-backed securities to be held for
indefinite periods of time, including securities that management intends to use
as part of its asset/liability strategy, or that may be sold in response to
changes in interest rates, changes in prepayment risk or other similar factors,
are classified as available for sale and recorded at estimated fair value.
The Company follows a policy of reserving for specific securities when,
in the opinion of the Company's management, the securities may have experienced
a decline in value that is other than temporary. Since the Company's adoption of
SFAS No. 115, both the available for sale and the held to maturity securities
portfolios that appear on page 35 of the Registrant's 1997 Annual Report to
Stockholders have experienced substantial volatility in estimated fair values,
which has been directly attributable to changes in market interest rates. As of
December 31, 1997, any gross unrealized losses in the held to maturity and
available for sale portfolios are considered by management of the Company to be
temporary.
-17-
<PAGE>
The Bank's policies permit purchases of U.S. Treasury and federal
agency securities with maturities of five years or less for trading, up to a
limit of 2% of its assets and, in the past, the Bank has purchased such
securities for trading. As of December 31, 1997, the Bank did not have any open
positions in its trading portfolio.
The following table sets forth certain information regarding the
amortized cost and estimated fair values of the Company's securities held to
maturity, net and FHLB capital stock:
<TABLE>
<CAPTION>
At December 31,
---------------------------------------------------------------------------
1997 1996 1995
---------------------- ----------------------- -----------------------
Estimated Estimated Estimated
Amortized Fair Amortized Fair Amortized Fair
Cost Value Cost Value Cost Value
--------- --------- --------- --------- --------- ---------
(in thousands)
<S> <C> <C> <C> <C> <C> <C>
Held to Maturity, net:
Bonds:
Federal agency obligations ....... $ 6,000 $ 5,997 $ 6,000 $ 5,926 $ 14,424 $ 14,432
Public utility bonds ............. 901 872 1,001 947 1,050 1,021
Municipal bonds .................. 6,318 6,518 6,921 7,102 7,962 8,208
Industrial and financial
corporation bonds ............... 28,873 28,796 39,710 39,690 75,131 75,048
Canadian bonds ................... -- -- -- -- 225 243
--------- --------- -------- ---------- --------- ---------
Total bonds .................... 42,092 42,183 53,632 53,665 98,792 98,952
Mortgage-backed securities:
FNMA, net(1) ..................... 85,777 86,058 98,178 96,258 109,281 109,210
GNMA, net ........................ 1,002,553 1,025,316 755,479 764,530 533,301 553,292
FHLMC, net(1) .................... 85,969 89,137 98,737 100,211 111,347 115,630
CMO, net(1) ...................... 2,909 3,041 2,906 3,038 2,902 3,113
---------- ---------- ---------- ---------- ---------- ----------
Total mortgage-backed securities 1,177,208 1,203,552 955,300 964,037 756,831 781,245
---------- ---------- ---------- ---------- ---------- ----------
Total held to maturity, net .. $1,219,300 $1,245,735 $1,008,932 $1,017,702 $ 855,623 $ 880,197
========== ========== ========== ========== ========== ==========
FHLB capital stock(2) ............ $ 33,390 $ 33,390 $ 33,390 $ 33,390 $ 33,603 $ 33,603
========== ========== ========== ========== ========== ==========
</TABLE>
- --------------------
(1) Amounts at December 31, 1997, 1996 and 1995 include certain securities
which were transferred between securities portfolios during 1995.
Additional information regarding the recorded amounts of these securities
appears on page 35 of the 1997 Annual Report to Stockholders in Note (3) of
Notes to Consolidated Financial Statements and is incorporated by reference
herein.
(2) FHLB capital stock is non-marketable and redeemable at par. Accordingly,
amortized cost and estimated fair value of such stock is at par value.
-18-
<PAGE>
The table below sets forth certain information regarding the amortized
cost, weighted average yields and contractual maturities of the Company's debt
securities held to maturity, net at December 31, 1997. No amortization payments
are considered with respect to the mortgage-backed securities. No prepayments
have been considered in the calculation of the weighted average years to
maturity.
<TABLE>
<CAPTION>
At December 31, 1997
--------------------------------------------------------------------------------------
After One Year After Five Years
One Year or Less Through Five Years Through Ten Years
----------------------- -------------------------------- ------------------------
Weighted Weighted Weighted
Amortized Average Amortized Average Amortized Average
Cost Yield Cost Yield Cost Yield
--------- ------- --------- -------- --------- ---------
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Held to Maturity, net:
Bonds:
Federal agency obligations.............. -- -- $ 6,000 4.32% -- --
Public utility bonds.................... $ 100 7.00% 451 5.30 $ 350 5.66%
Municipal bonds......................... 570 5.45 3,195 5.54 875 5.94
Industrial and financial corporation
bonds................................. 25,228 6.42 3,000 7.32 645 3.19
------- ------- ------
Total bonds........................... 25,898 6.40 12,646 5.38 1,870 4.94
Mortgage-backed securities................ -- -- 5,152 5.36 5,244 6.43
------- ------- ------
Total................................. $25,898 6.40 $17,798 5.37 $7,114 6.04
======= ======= ======
</TABLE>
<TABLE>
<CAPTION>
At December 31, 1997
-----------------------------------------------------------------------------------
After 10 Years Total Held to Maturity Securities, net
----------------------- ------------------------------------------------------
Average
Weighted Remaining Estimated Weighted
Amortized Average Years to Amortized Fair Average
Cost Yield Maturity Cost Value Yield
--------- -------- --------- --------- --------- --------
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Held to Maturity, net:
Bonds:
Federal agency obligations....... -- -- 1.07 $ 6,000 $ 5,997 4.32%
Public utility bonds............. -- -- 5.41 901 872 5.63
Municipal bonds.................. $ 1,678 5.47% 5.96 6,318 6,518 5.57
Industrial and financial
corporation bonds..............
-- -- 1.12 28,873 28,796 6.45
---------- ---------- ----------
Total bonds.................... 1,678 5.47 1.93 42,092 42,183 5.99
Mortgage-backed securities......... 1,166,812 7.65 25.46 1,177,208 1,203,552 7.63
---------- ---------- ----------
Total.......................... $1,168,490 7.64 24.64 $1,219,300 $1,245,735 7.57
========== ========== ==========
</TABLE>
-19-
<PAGE>
The following table sets forth certain information regarding the
amortized cost and estimated fair values of the Company's available for sale
securities:
<TABLE>
<CAPTION>
At December 31,
------------------------------------------------------------------------------
1997 1996 1995
----------------------- ------------------------ -----------------------
Estimated Estimated Estimated
Amortized Fair Amortized Fair Amortized Fair
Cost Value Cost Value Cost Value
--------- --------- --------- --------- --------- --------
(in thousands)
<S> <C> <C> <C> <C> <C> <C>
Available for Sale:
Bonds and equities:
U.S. government obligations ......... $200,348 $201,964 $214,989 $214,585 $178,699 $182,584
Federal agency obligations .......... 75,057 74,841 98,057 97,074 82,318 83,139
Public utility bonds ................ -- -- -- -- 804 795
Industrial, financial corporation
and other bonds ................... 2,032 2,065 4,059 4,126 26,420 27,289
Common and preferred stocks ......... 21,791 29,699 19,448 21,661 9,067 10,347
-------- -------- -------- -------- -------- --------
Total bonds and equities ............ 299,228 308,569 336,553 337,446 297,308 304,154
-------- -------- -------- ------- -------- --------
Mortgage-backed securities:
FNMA, net(1) ........................ 6,758 6,912 17,393 17,453 48,717 50,379
GNMA, net ........................... 155,103 156,683 60,259 60,552 125,056 128,569
FHLMC, net(1) ....................... 4,496 4,501 25,717 26,396 37,546 39,343
CMO, net(1) ......................... -- -- -- -- 8,235 8,551
-------- -------- -------- -------- -------- --------
Total mortgage-backed securities... 166,357 168,096 103,369 104,401 219,554 226,842
-------- -------- -------- -------- -------- --------
Total available for sale ........ $465,585 $476,665 $439,922 $441,847 $516,862 $530,996
======== ======== ======== ======== ======== ========
</TABLE>
- ----------------
(1) Amounts at December 31, 1996 and 1995 include certain securities which were
transferred from held to maturity to available for sale. Additional
information regarding the recorded amounts of these securities appears on
page 35 of the 1997 Annual Report to Stockholders in Note (3) of Notes to
Consolidated Financial Statements and is incorporated by reference herein.
The table below sets forth certain information regarding the amortized
cost, weighted average yields and contractual maturities of the Company's debt
securities classified available for sale at December 31, 1997. No amortization
payments are considered with respect to the mortgage-backed securities. No
prepayments have been considered in the calculation of the weighted average
years to maturity.
<TABLE>
<CAPTION>
At December 31, 1997
-----------------------------------------------------------------------------
After One Year After Five Years
One Year Or Less Through Five Years Through Ten Years
---------------------- ---------------------- ---------------------
Weighted Weighted Weighted
Amortized Average Amortized Average Amortized Average
Cost Yield Cost Yield Cost Yield
--------- -------- --------- -------- --------- --------
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Available for Sale:
Bonds:
U.S. government obligations........... $17,939 5.48% $174,562 5.99% $ 7,847 6.69%
Federal agency obligations............ -- -- 75,057 6.12 -- --
Industrial, financial
corporation and other bonds.......... 1,005 8.50 1,027 7.50 -- --
------- -------- -------
Total bonds.......................
18,944 5.64 250,646 6.03 7,847 6.69
Mortgage-backed securities............ -- -- -- -- -- --
------- -------- ------
Total............................. $18,944 5.64 $250,646 6.03 $7,847 6.69
======= ======== ======
</TABLE>
-20-
<PAGE>
<TABLE>
<CAPTION>
At December 31, 1997
-----------------------------------------------------------------------------------
After 10 Years Total Available for Sale Securities
---------------------- -------------------------------------------------------
Average
Weighted Remaining Estimated Weighted
Amortized Average Years to Amortized Fair Average
Cost Yield Maturity Cost Value Yield
--------- -------- --------- --------- --------- ---------
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Available for Sale:
Bonds:
U.S. government obligations........ -- -- 2.13 $200,348 $201,964 5.97%
Federal agency obligations......... -- -- 3.13 75,057 74,841 6.12
Industrial, financial
corporation and other
bonds............................ -- -- 1.03 2,032 2,065 7.99
-------- -------- --------
Total bonds..................... -- -- 2.39 277,437 278,870 6.02
Mortgage-backed securities........... $166,357 7.57% 27.64 166,357 168,096 7.57
-------- -------- --------
Total........................... $166,357 7.57 11.86 $443,794 $446,966 6.60
======== ======== ========
</TABLE>
MORTGAGE-BACKED SECURITIES ACTIVITIES. The Bank has historically
invested in mortgage-backed securities as an alternative investment to loan
origination. At December 31, 1997, mortgage-backed securities had a total
amortized cost of $1.34 billion and a total estimated fair value of $1.37
billion. As a percentage of the Company's held to maturity and available for
sale securities portfolios, the amortized cost of mortgage-backed securities at
December 31, 1997 represented 96.5% and 35.7%, respectively.
The Bank's policies permit investment in mortgage-backed securities
that are insured or guaranteed by the FHLMC, FNMA or the Government National
Mortgage Association ("GNMA") and do not allow investments in riskier mortgage
derivative products, such as stripped mortgage-backed securities or residuals.
SOURCE OF FUNDS
GENERAL. Deposits, borrowings, including security repurchase
agreements, loans and mortgage-backed securities repayments and maturities and
redemptions of held to maturity securities and the available for sale securities
portfolio are the primary sources of the Bank's funds for lending, investing and
other general purposes. The Registrant's primary sources of funds are its
available for sale securities portfolio and its dividend sources from the Bank
to the extent such payments are permitted by law or regulation.
DEPOSITS. The Bank offers a variety of deposit accounts having a range
of interest rates and terms. The Bank's deposits consist of passbook savings,
NOW, demand deposits, money market and certificate of deposit accounts. The flow
of deposits is influenced significantly by general economic conditions, changes
in prevailing interest rates and competition. The Bank's deposits are obtained
primarily from the areas in which its banking offices are located. Management
determines the Bank's deposit rates based upon market conditions and local
competition. The Bank has not used brokers to obtain deposits, and relies
primarily on customer service, offering new deposit products, competitive
pricing, marketing and long-standing relationships with customers to attract and
retain these deposits. Certificate of deposit accounts in excess of $100,000 are
not actively solicited by the Bank. Additionally, the Bank currently
-21-
<PAGE>
does not pay a rate of interest on certificate of deposit accounts in excess of
$100,000 that is higher than the rate paid on any other dollar denomination of
certificate of deposit accounts and currently does not offer a negotiated rate
on certificate of deposit accounts.
At December 31, 1997, the Bank had outstanding $153.9 million in
certificate of deposit accounts in amounts of $100,000 or more, maturing as
follows:
Weighted Average
Amount Interest Rate
------------- ----------------
(in thousands)
Maturity Period
3 months or less .............. $ 56,635 5.52%
Over 3 through 6 months........ 30,634 5.49
Over 6 through 12 months....... 23,458 5.65
Over 12 months ................ 43,188 6.31
--------
Total ...................... $153,915 5.76
=========
The following table sets forth the distribution of the Bank's deposit
accounts at the dates indicated and the weighted average nominal interest rates
on each category of deposits presented. Information with respect to the average
balances and average rates paid on the various categories of deposits appears on
page 16 of the Registrant's 1997 Annual Report to Stockholders in "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and is
incorporated by reference herein.
<TABLE>
<CAPTION>
1997 1996 1995
------------------------------ ------------------------------- -------------------------------
Weighted Weighted Weighted
Percent Average Percent Average Percent Average
of Total Nominal of Total Nominal of Total Nominal
Amount Deposits Rate Amount Deposits Rate Amount Deposits Rate
------ -------- -------- ------ --------- -------- ------ -------- --------
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Passbook accounts....... $ 600,910 27.29% 2.76% $ 581,074 24.80% 2.92% $ 501,467 24.60% 2.74%
NOW accounts............ 13,618 0.62 2.73 8,292 0.35 2.97 64,409 3.16 3.13
Demand accounts......... 65,219 2.96 -- 62,116 2.65 -- 58,641 2.88 --
---------- ---------- ---------
Total................... 679,747 30.87 2.49 651,482 27.80 2.63 624,517 30.64 2.52
---------- ---------- ---------
Money market accounts... 80,890 3.67 2.21 77,229 3.29 2.21 67,163 3.29 3.19
Certificate of
deposit accounts:
$100,000 or more........ 153,915 6.99 5.76 160,019 6.83 5.81 119,422 5.86 6.00
CD's original
maturity of:
6 months and less... 332,139 15.08 5.10 333,907 14.25 5.35 226,392 11.11 5.20
6 to 12 months...... 144,021 6.54 5.52 181,539 7.75 5.48 105,561 5.18 5.59
12 to 30 months..... 479,070 21.75 5.71 603,375 25.75 5.64 602,662 29.57 5.79
30 to 48 months..... 134,986 6.13 6.11 94,023 4.01 6.04 32,153 1.58 5.48
48 to 72 months..... 126,786 5.76 6.15 162,300 6.92 6.29 173,552 8.51 6.48
72 to 96 months..... 13,602 0.62 6.71 16,752 0.71 7.41 23,289 1.14 7.01
96 months or more... 26,714 1.21 7.29 27,773 1.19 7.28 31,259 1.53 7.27
IRA & Keogh less
than 3 years...... 30,483 1.38 6.19 35,114 1.50 6.26 32,371 1.59 5.84
---------- ---------- ----------
Total............... 1,441,716 65.46 5.67 1,614,802 68.91 5.72 1,346,661 66.07 5.83
---------- ---------- ----------
Total deposits.......... $2,202,353 100.00% 4.57 $2,343,513 100.00% 4.73 $2,038,341 100.00% 4.73
========== ========== ==========
</TABLE>
-22-
<PAGE>
BORROWINGS AND SECURITY REPURCHASE AGREEMENTS. Although deposits are
the Bank's primary source of funds, the Bank also utilizes borrowings from the
FHLB and security repurchase agreements as alternative cost effective funding
sources. The Bank's security repurchase agreements are transacted with Board of
Director approved, nationally recognized investment banking firms. Security
repurchase agreements are accounted for as collateralized borrowings by the
Bank. At December 31, 1997 and 1996, $807.0 million and $55.0 million,
respectively, of such agreements were outstanding.
The Bank also utilizes borrowings from the FHLB. Such borrowings are
made pursuant to several different credit programs, each of which has its own
interest rate and range of maturities. Management believes that, should FHLB
borrowings not be available in the future, it has other potential available
sources of funds. Additional information regarding the Bank's liquidity appears
on pages 22 through 24 of the Registrant's 1997 Annual Report to Stockholders in
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and is incorporated by reference herein. At December 31, 1997, the
Bank had $491.6 million of FHLB borrowings.
The following table sets forth certain information regarding borrowed
funds for the dates indicated:
<TABLE>
<CAPTION>
For the year ended December 31,
---------------------------------------
1997 1996 1995
------------ ------------ ----------
(dollars in thousands)
<S> <C> <C> <C>
FHLB borrowings:
Average balance outstanding .......................... $ 502,288 $ 599,843 $ 600,560
Maximum amount outstanding at any month
end during the year ................................ 577,900 652,550 652,563
Balance outstanding at end of year ................... 491,578 582,835 594,563
Weighted average interest rate during the year ....... 5.78% 5.75% 5.71%
Weighted average interest rate at end of year ........ 5.91 5.89 5.74
Securities sold under agreements to repurchase:
Average balance outstanding .......................... $ 401,572 $ 7,392 --
Maximum amount outstanding at any month
end during the year ................................ 807,000 55,000 --
Balance outstanding at end of year ................... 807,000 55,000 --
Weighted average interest rate during the year ....... 5.90% 5.56% --
Weighted average interest rate at end of the year..... 5.71 5.63 --
Total borrowed funds:
Average balance outstanding .......................... $ 903,860 $ 607,235 $ 600,560
Maximum amount outstanding at any month
end during the year ................................ 1,298,578 652,550 652,563
Balance outstanding at end of year ................... 1,298,578 637,835 594,563
Weighted average interest rate during the year ....... 5.83% 5.75% 5.71%
Weighted average interest rate at end of year ........ 5.78 5.86 5.74
</TABLE>
-23-
<PAGE>
PERSONNEL
As of December 31, 1997, the Company had 357 full-time employees and
142 part-time employees. The employees are not represented by a collective
bargaining unit, and the Company considers its relationship with its employees
to be good.
SUBSIDIARY AND JOINT VENTURE ACTIVITIES
Pursuant to its "leeway investment" authority under the New York
Banking Law, the Bank formed a number of wholly-owned subsidiary corporations
for the purposes of (i) taking "equity interests" in the construction and
development of residential properties on which the Bank was making loans, (ii)
acting as a custodian for documents pertaining to certain mortgage loans sold to
FNMA, and (iii) holding and maintaining properties acquired by the Bank as a
result of foreclosure proceedings or deeds in lieu thereof. As of December 31,
1997, the Bank had twelve such subsidiaries, eight of which were inactive during
1997.
ROOSEVELT ASSET FUNDING CORP. The largest of the Bank's wholly-owned
subsidiaries, Roosevelt Asset Funding Corp. ("RAFC"), is a real estate
investment trust which was incorporated in the State of Delaware on April 28,
1997 for the purpose of investment and reinvestment of its assets in real
property, interests in real property, mortgage loans secured by real property,
interests in mortgage loans secured by real property, leasehold interests in
real property and mortgage-backed securities, including collateralized mortgage
obligations.
ANACONDA ENTERPRISES, INC. Anaconda Enterprises, Inc. ("Anaconda") is a
wholly-owned subsidiary of the Bank that had been inactive prior to 1994. In
1994, however, this subsidiary was reactivated for the purpose of taking title,
in a foreclosure sale, to a multi-family building located in Wichita, Kansas.
The Bank was a participant in a syndicated loan and the lead lender for the
syndicate. In November 1994, the foreclosed property was sold and distributions
were made to the participants. At December 31, 1997, Anaconda had assets of
$23,000 representing cash balances held in escrow for the participants.
BELLINGHAM CORP. Bellingham Corp. is a wholly-owned subsidiary of the
Bank formed in 1992 to enter into a joint venture to acquire a warehouse
facility located in Suffolk County, New York. The joint venture was formed as a
result of the restructuring of a previously restructured $2.5 million loan
originally made by the Bank in 1986 to a partnership for the development of the
property, which became delinquent in 1992. In August 1994, the Bank withdrew its
equity interest pursuant to a restructuring agreement whereby the Bank increased
the loan to $5.2 million at December 31, 1994 and increased its security
position with other commercial properties having an aggregated estimated fair
value of $6.9 million based on 1994 external appraisals. The restructured loan
was satisfied during 1997. This corporation is now inactive.
BSR, INC. BSR, Inc. ("BSR") is a wholly-owned subsidiary of the Bank
formed to hold, operate and maintain real estate acquired by the Bank as a
result of foreclosure or deed in lieu thereof. As of December 31, 1997, all
properties held by BSR had been sold and BSR had assets of $500 representing
cash balances.
-24-
<PAGE>
ROOSEVELT ABSTRACT CORP. Roosevelt Abstract Corp. ("Roosevelt
Abstract") is a wholly-owned subsidiary of the Bank that was formed in 1988.
Roosevelt Abstract was activated in February 1993 to hold two foreclosed parcels
of vacant land located in Suffolk County, New York, which were sold in January
1994. This corporation is now inactive but retains cash balances of $400.
ROOSEVELT LAND CORP. Roosevelt Land Corp. ("RLC") is a wholly-owned
subsidiary of the Bank formed in 1993 to hold title to a previously foreclosed
parcel of vacant land located in Suffolk County, New York. RLC Land was engaged
in activities to develop and sell this land and as of December 31, 1996 had
entered into two separate contracts for sale of the land ($1.0 million each),
covering its entire interest. The closing of the sale occurred on May 31, 1997.
As of December 31, 1997, RLC had assets of $10,800 representing cash balances.
This corporation is now inactive
ROOSEVELT SERVICE CORPORATION. Roosevelt Service Corporation is a
wholly-owned subsidiary of the Bank that serves as a custodian for loan
documents relating to certain mortgage loans sold to FNMA. As of December 31,
1997, Roosevelt Service Corporation had assets of $200 representing cash
balances.
155 EAST 33RD STREET CORP. 155 East 33rd Street Corp. is a wholly-owned
subsidiary of the Bank formed in 1993 to acquire title to a specific foreclosed
mixed use commercial real estate property owned by the Bank. During 1996, the
property was sold for $300,000. The corporation is now inactive.
The Bank also has additional wholly-owned subsidiaries, Rokings Holding
Corporation, VBF Holding Corporation, Oyster Bay Holding Corporation and Rosouth
Holding Corporation, all of which are currently inactive and through which the
Bank currently has no plans to conduct operations.
SAVINGS BANK LIFE INSURANCE
As an issuing bank, the Bank offered Savings Bank Life Insurance
("SBLI") to its customers up to the legal maximum of $50,000 per insured
individual and, as a trustee bank, offers an additional $500,000 in group
coverage per insured under SBLI's Financial Institution Group Life Insurance
policy. The SBLI department's activities were separate from the Bank's with the
SBLI department paying its own expenses and reimbursing the Bank for any
expenses incurred on its behalf. Effective March 1, 1998, the Bank discontinued
the SBLI activity and transferred the SBLI department's assets and liabilities
to another issuing bank. The SBLI department's operations have not had a
material affect on the Bank's earnings and its discontinuation will also not
materially affect the Bank's earnings.
-25-
<PAGE>
FEDERAL AND STATE TAXATION
FEDERAL TAXATION
GENERAL. The following discussion of tax matters is intended only as a
summary and does not purport to be a comprehensive description of the tax rules
applicable to the Bank or the Registrant. For federal income tax purposes, the
Registrant and the Bank file consolidated income tax returns and report their
income on a calendar year basis using the accrual method of accounting and are
subject to federal income taxation in the same manner as other corporations with
some exceptions.
RECENT TAX LEGISLATION REGARDING TAX BAD DEBT RESERVES. Prior to the
enactment, on August 20, 1996, of the Small Business Job Protection Act of 1996
(the "Small Business Act"), for federal income tax purposes, thrift institutions
such as the Bank, which met certain definitional tests primarily relating to
their assets and the nature of their business, were permitted to establish tax
reserves for bad debts and to make annual additions thereto, which additions
could, within specified limitations, be deducted in arriving at their taxable
income. The Bank's deduction with respect to "qualifying loans," which are
generally loans secured by certain interests in real property, could be computed
using an amount based on a six-year moving average of the Bank's actual loss
experience (the "Experience Method"), or a percentage equal to 8.0% of the
Bank's taxable income (the "PTI Method"), computed without regard to this
deduction and with additional modifications and reduced by the amount of any
permitted addition to the non-qualifying reserve. Similar deductions for
additions to the Bank's bad debt reserve were permitted under the New York State
Bank Franchise Tax and New York City banking corporations tax; however, for
purposes of these taxes, the effective allowable percentage under the PTI Method
is 32% rather than 8% (See "State and Local Taxation").
Under the Small Business Act, the PTI Method was repealed and the Bank
is considered to be a "large bank," that is, one with assets having an adjusted
basis of more than $500 million. As a large bank, for federal income tax
purposes, the Bank is no longer permitted to make additions to its tax bad debt
reserve. The Bank is permitted to deduct bad debts only as they occur and is
required to recapture (that is, take into income) over a six-year period,
beginning with the Bank's taxable year beginning January 1, 1996, the excess of
the balance of its bad debt reserves (other than the supplemental reserve) as of
December 31, 1995, over its "base year reserve," that is, the balance of its bad
debt reserves as of December 31, 1987 (or over a lesser amount if the Bank's
loan portfolio decreased since December 31, 1987). However, under the Small
Business Act, such recapture requirements are suspended for each of the two
successive taxable years beginning January 1, 1996, in which the Bank originates
a minimum amount of certain residential loans during such years that is not less
than the average of the principal amounts of such loans made by the Bank during
its six taxable years preceding January 1, 1996.
DISTRIBUTIONS. To the extent that the Bank makes "non-dividend
distributions" to the Registrant, such distributions are considered to have been
made from the Bank's base year reserve to the extent thereof and then from its
supplemental reserve for losses on loans, and an amount based on the amount
distributed is included in the Bank's taxable income. Non-dividend
-26-
<PAGE>
distributions include distributions in excess of the Bank's current and
accumulated earnings and profits, as calculated for federal income tax purposes,
distributions in redemption of stock, and distributions in partial or complete
liquidation. However, dividends paid out of the Bank's current or accumulated
earnings and profits do not constitute non-dividend distributions and,
therefore, are not so included in the Bank's income.
The amount of additional taxable income created from a non-dividend
distribution is an amount that, when reduced by the tax attributable to the
income, is equal to the amount of the distribution. Thus, if the Bank makes a
non-dividend distribution, approximately one and one-half times the amount so
used would be includable in gross income for federal income tax purposes,
assuming a 35% federal corporate income tax rate. (See "REGULATION AND
SUPERVISION" for limits on the payment of dividends by the Bank). The Bank does
not intend to pay dividends that would result in a recapture of any portion of
its tax bad debt reserves.
CORPORATE ALTERNATIVE MINIMUM TAX. The Code imposes a tax ("AMT") on
alternative minimum taxable income ("AMTI") at a rate of 20%. Only 90% of AMTI
can be offset by net operating loss carryovers of which the Company currently
has none. AMTI is also adjusted by determining the tax treatment of certain
items in a manner that negates the deferral of income resulting from the regular
tax treatment of those items. Thus, the Company's AMTI is increased by an amount
equal to 75% of the amount by which the Company's adjusted current earnings
exceeds its AMTI (determined without regard to this adjustment and prior to
reduction for net operating losses). The Company does not expect to be subject
to the AMT.
ELIMINATION OF DIVIDENDS; DIVIDENDS RECEIVED DEDUCTION. The Registrant
may exclude from its income 100% of dividends received from the Bank as a member
of the same affiliated group of corporations. A 70% dividends received deduction
generally applies with respect to dividends received from corporations that are
not members of such affiliated group, except that an 80% dividends received
deduction applies if the Registrant and the Bank own more than 20% of the stock
of a corporation paying a dividend.
STATE AND LOCAL TAXATION
STATE AND CITY OF NEW YORK. The Bank and the Registrant are subject to
New York State franchise tax on net income or one of several alternative bases,
whichever results in the highest tax. "Net income" means federal taxable income
with certain adjustments. The Bank and the Registrant file combined returns. The
New York State tax rate for the 1997 calendar year is 10.053% (including the
Metropolitan Commuter Transportation District surcharge) of net income. In
general, the Registrant will not be required to pay New York State tax on
dividends and interest received from the Bank or on gains realized on the sale
of Bank stock. The Bank and the Registrant are also subject to a similarly
calculated New York City banking corporation tax of 9% on income allocated to
New York City.
New York State passed legislation in August 1996 that incorporated into
New York State tax law provisions for the continued use of bad debt reserves in
a manner substantially similar to the provisions that applied under federal law
prior to the enactment of the Small Business Act
-27-
<PAGE>
discussed above (see "Recent Tax Legislation Regarding Tax Bad Debt Reserves").
This legislation enabled the Bank to avoid the recapture of the New York State
tax bad debt reserves that otherwise would have occurred as a result of the
changes in federal law and to continue to utilize the reserve method for
computing its bad debt deduction. Similar legislation regarding the use and
treatment of tax bad debt reserves for purposes of the New York City banking
corporation tax was enacted in March 1997.
STATE OF DELAWARE. As a Delaware holding company not earning income in
Delaware, the Registrant is exempted from Delaware corporate income tax but is
required to file an annual report with, and pay an annual franchise tax to the
State of Delaware. This franchise tax approximated $74,000 for 1997.
REGULATION AND SUPERVISION
GENERAL
The Bank is a New York chartered savings bank, and its deposit accounts
are insured up to applicable limits by the FDIC under the BIF. The Bank is
subject to extensive regulation by the New York State Banking Department
("Banking Department"), as its chartering agency, and by the FDIC as the deposit
insurer. The Bank must file reports with the Banking Department and the FDIC
concerning its activities and financial condition, in addition to obtaining
regulatory approvals prior to entering into certain transactions, such as
mergers with, or acquisitions of, other depository institutions and opening or
acquiring branch offices. The Banking Department and the FDIC conduct periodic
examinations to assess the Bank's compliance with various regulatory
requirements. This regulation and supervision establishes a comprehensive
framework of activities in which a savings bank can engage and is intended
primarily for the protection of the deposit insurance fund and depositors. The
regulatory structure also gives the regulatory authorities extensive discretion
in connection with their supervisory and enforcement activities and examination
policies, including policies with respect to the classification of assets and
the establishment of adequate loan loss reserves for regulatory purposes. Any
change in such regulation, whether by the Banking Department, the FDIC or
through legislation, could have a material adverse impact on the Registrant and
the Bank and their operations and stockholders. The Registrant is also required
to file certain reports with, and otherwise comply with the rules and
regulations of, the FRB and the Banking Department and of the Securities and
Exchange Commission ("SEC") under the federal securities laws. Certain of the
regulatory requirements applicable to the Bank and to the Registrant are
referred to below or elsewhere herein.
NEW YORK LAW
The Bank derives its lending, investment and other activity powers
primarily from the applicable provisions of New York Banking Law ("Banking Law")
and the regulations adopted thereunder. Under these laws and regulations,
savings banks, including the Bank, may invest in real estate mortgages, consumer
and commercial loans, certain types of debt securities, including certain
corporate debt securities and obligations of federal, state and local
governments and
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<PAGE>
agencies, certain types of corporate equity securities and certain other assets.
A savings bank may also exercise trust powers upon approval of the Banking
Department. The exercise of these lending, investment and other activity powers
are limited by federal law and the regulations thereunder. See "Federal Deposit
Insurance Corporation Improvement Act of 1991 -- Restrictions Upon
State-Chartered Banks."
Under the Banking Law, the Superintendent of Banks of the State of New
York (the "Superintendent") may issue an order to a New York-chartered banking
institution to appear and explain an apparent violation of law, to discontinue
unauthorized or unsafe practices and to keep prescribed books and accounts. Upon
a finding by the New York Banking Board that any director, trustee or officer of
any banking organization has violated any law, or has continued unauthorized or
unsafe practices in conducting the business of the banking organization after
having been notified by the Superintendent to discontinue such practices, such
director, trustee or officer may be removed from office after notice and an
opportunity to be heard. The Bank does not know of any past or current practice,
condition or violation that might lead to any proceeding by the Superintendent
or the New York Banking Board against the Bank or any of its directors or
officers.
FEDERAL DEPOSIT INSURANCE CORPORATION IMPROVEMENT ACT OF 1991
The Federal Deposit Insurance Corporation Improvement Act of 1991
("FDICIA") imposed a number of new mandatory supervisory measures on commercial
banks, savings banks and savings associations. FDICIA also addressed additional
sources of funding for the BIF, which insures the deposits of commercial banks
and savings banks.
SAFETY AND SOUNDNESS STANDARDS. Pursuant to FDICIA, as amended by the
Riegle Community Development and Regulatory Improvement Act of 1994, the FDIC,
together with the other federal bank regulatory agencies, have adopted safety
and soundness guidelines for insured depository institutions. The guidelines
establish general standards relating to internal controls, information systems
and internal audit systems, loan documentation, credit underwriting, interest
rate exposure, asset growth, asset quality, earnings and employee compensation.
In general, the guidelines require, among other things, appropriate systems and
practices to identify and manage the risks and exposures specified in the
guidelines. The guidelines prohibit excessive compensation as an unsafe and
unsound practice and describe compensation as excessive when the amounts paid
are unreasonable or disproportionate to the services performed by an executive
officer, employee, director, or principal shareholder. In addition, regulations
were adopted to require a bank that is given notice by the FDIC that it is not
satisfying any of such safety and soundness standards to submit a compliance
plan to the FDIC. If, after being so notified, a bank fails to submit an
acceptable compliance plan or fails in any material respect to implement an
accepted compliance plan, the FDIC may issue an order directing corrective and
other actions of the types to which a significantly undercapitalized institution
is subject under the "prompt corrective action" provisions of FDICIA. If a bank
fails to comply with such an order, the FDIC may seek to enforce such order in
judicial proceedings and to impose civil monetary penalties.
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RESTRICTIONS UPON STATE-CHARTERED BANKS. Section 24 to the Federal
Deposit Insurance Act, as amended ("FDIA"), which was added by FDICIA, generally
limits the activities and investments of state-chartered FDIC insured banks and
their subsidiaries to those permissible for federally chartered national banks
and their subsidiaries, unless such activities and investments are specifically
exempted by Section 24 or approved by the FDIC.
Section 24 provides an exception for investments by a bank in common
and preferred stocks listed on a national securities exchange or the shares of
registered investment companies if (1) the bank held such types of investments
during the 14-month period from September 30, 1990 through November 26, 1991,
(2) the state in which the bank is chartered permitted such investments as of
September 30, 1991, and (3) the bank notifies the FDIC and obtains approval from
the FDIC to make or retain such investments. Upon receiving such FDIC approval,
an institution's investment in such equity securities will be subject to an
aggregate limit up to its Tier 1 capital. In March 1993, the Bank received
approval from the FDIC to retain and acquire such equity investments subject to
a maximum permissible investment equal to the lesser of 100% of the Bank's Tier
1 capital or the maximum permissible amount specified by the Banking Law.
Section 24 also contains an exception for certain majority owned subsidiaries,
but the activities of such subsidiaries are limited to those permissible for a
national bank or under Section 24 of the FDIA and the FDIC regulations issued
pursuant thereto, or as approved by the FDIC.
The FDIC has also adopted regulations relating to the activity
restrictions of Section 24. Pursuant to such regulations, insured banks
intending to engage in activities not permissible for a national bank must apply
for approval from the FDIC to do so. The FDIC will not approve the activity
unless such bank meets its minimum capital requirements and the FDIC determines
that the activity does not present a significant risk to the FDIC insurance
funds.
PROMPT CORRECTIVE ACTION. FDICIA also established a system of prompt
corrective actions to resolve the problems of undercapitalized institutions. The
FDIC, FRB, Office of the Comptroller of the Currency ("OCC") and Office of
Thrift Supervision ("OTS") each adopted final rules to require that certain
supervisory actions be taken against undercapitalized institutions, the severity
of which depends upon the institution's degree of capitalization. The rules
create five categories, consisting of "well capitalized," "adequately
capitalized," "undercapitalized," "significantly undercapitalized" and
"critically undercapitalized." Regulatory action taken will depend on the level
of capitalization of the institution and may range from restrictions on
dividends and other capital distributions to seizure of the institution.
Generally, subject to a narrow exception, FDICIA requires the banking regulator
to appoint a receiver or conservator for an institution that is critically
undercapitalized within 90 days after the institution becomes critically
undercapitalized. FDICIA authorizes the banking regulators to specify the ratio
of tangible capital to assets at which an institution becomes critically
undercapitalized and requires that ratio be no less than 2% of assets. FDICIA
also allows the regulator to downgrade an institution if the institution is
determined to be in an unsafe or unsound condition or to be engaging in unsafe
or unsound practices. Such a downgrading may result in an otherwise "adequately
capitalized" institution with other problems being subject to supervisory
actions as if it were classified as "undercapitalized."
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The FDIC's final rule implementing the prompt corrective action section
of FDICIA defines the five capital categories as follows: Generally, an
institution will be treated as "well capitalized" if its ratio of total capital
to risk-weighted assets is at least 10.0%, its ratio of Tier 1 capital to
risk-weighted assets is at least 6.0%, its ratio of Tier 1 capital to total
assets is at least 5.0%, and it is not subject to any order or directive by the
FDIC to meet a specific capital level. An institution will be treated as
"adequately capitalized" if its ratio of total capital to risk-weighted assets
is at least 8.0%, its ratio of Tier 1 capital to risk-weighted assets is at
least 4.0%, and its ratio of Tier 1 capital to total assets is at least 4.0%
(3.0% if the bank receives the highest rating under the Uniform Financial
Institutions Rating System). An institution that has total risk-based capital of
less than 8.0%, Tier 1 risk-based capital of less than 4.0% or a leverage ratio
that is less than 4.0% (or less than 3% if the institution is rated a composite
"1" under the Uniform Financial Institutions Rating System) would be considered
to be "undercapitalized." An institution that has total risk-based capital of
less than 6.0%, a Tier 1 risk-based capital ratio of less than 3.0% or a
leverage ratio that is less than 3.0% would be considered to be "significantly
undercapitalized," and an institution that has a tangible capital to assets
ratio equal to or less than 2.0% would be deemed to be "critically
undercapitalized." Generally, under the rule, an institution that is
"undercapitalized," "significantly undercapitalized" or "critically
undercapitalized" becomes immediately subject to certain regulatory
restrictions, including, but not limited to, restrictions on growth, investment
activities, capital distributions and affiliate transactions. The filing of a
capital restoration plan, which must be guaranteed by any parent holding
company, is also required. In addition, a "critically undercapitalized" bank
must receive prior written approval from the FDIC to engage in any material
transaction other than one in the normal course of business.
UNIFORM REAL ESTATE LENDING STANDARDS. Pursuant to FDICIA, the federal
banking agencies adopted joint regulations that require all financial
institutions to adopt and maintain written policies that establish appropriate
limits and standards for extensions of credit that are secured by liens or
interests in real estate or are made for the purpose of financing permanent
improvements to real estate. These policies must establish loan portfolio
diversification standards, prudent underwriting standards (including
loan-to-value limits) that are clear and measurable, loan administration
procedures, and documentation, approval and reporting requirements. The real
estate lending policies must reflect consideration of the interagency Guidelines
for Real Estate Lending Policies that have been adopted by the federal bank
regulators.
ANNUAL INDEPENDENT AUDIT AND REPORTING REQUIREMENTS. Pursuant to
Section 36 of the FDIA, as added by FDICIA, the FDIC adopted regulations and
related guidelines imposing certain requirements with respect to external audits
and audit committee and management reporting requirements. Each insured
depository institution with $500 million or more in total assets as of the
beginning of each fiscal year must have an audit of its annual financial
statements by an independent accountant in accordance with generally accepted
accounting principles and must file an annual report with the FDIC, its primary
federal regulator and any appropriate state banking agency. For an insured
depository institution that is a subsidiary of a holding company that meets
certain criteria, the independent audited financial statements requirement of
the rule may be satisfied by audited financial statements of the consolidated
holding company. The required annual report must contain: financial statements
audited by an independent public accountant; a statement of management's
responsibilities for preparing the annual financial statements, for establishing
and
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maintaining adequate internal controls and procedures for financial reporting,
and for complying with laws and regulations relating to safety and soundness
that are designated by the FDIC and the appropriate federal banking agency; a
separate assessment by management of the effectiveness of the internal controls
and procedures and the institution's compliance with the designated safety and
soundness laws and regulations; and the independent public accountant's report
on management's assertions concerning the internal controls and procedures. In
addition, an insured depository institution is required to establish an audit
committee comprised entirely of independent outside directors to review the
annual audit findings and reports with management and the independent public
accountant.
INSURANCE OF DEPOSIT ACCOUNTS
Pursuant to FDICIA, the FDIC established a system for setting deposit
insurance premiums based upon the risks a particular bank or savings association
posed to its deposit insurance funds. Under the risk-based deposit insurance
assessment system, the FDIC assigns an institution to one of three capital
categories based on the institution's financial information, as of the reporting
period ending six months before the assessment period, consisting of (1) "well
capitalized," (2) "adequately capitalized" or (3) "undercapitalized," and one of
three supervisory sub-categories within each capital group. With respect to the
capital ratios, institutions are classified as "well capitalized" or "adequately
capitalized" using ratios that are substantially similar to the prompt
corrective action capital ratios discussed above. Any institution that does not
meet these two definitions is deemed to be undercapitalized for this purpose.
The supervisory sub-group to which an institution is assigned is based on a
supervisory evaluation provided to the FDIC by the institution's primary federal
regulator and information which the FDIC determines to be relevant to the
institution's financial condition and the risk posed to the deposit insurance
funds (which may include, if applicable, information provided by the
institution's state supervisor). An institution's assessment rate depends on the
capital category and supervisory category to which it is assigned. Under the
final risk-based assessment system, there are nine assessment risk
classifications (i.e., combinations of capital groups and supervisory
sub-groups) to which different assessment rates are applied. Assessment rates
currently range from 0.0% of deposits for an institution in the highest category
(I.E., well-capitalized and financially sound, with no more than a few minor
weaknesses) to 0.27% of deposits for an institution in the lowest category
(I.E., undercapitalized and substantial supervisory concern). The FDIC is
authorized to raise the assessment rates as necessary to maintain the reserve
ratio of 1.25% required by the FDIA. As a result of the Deposit Insurance Funds
Act of 1996 (the "Funds Act"), both the BIF and the SAIF currently satisfy the
1.5% reserve ratio requirement. If the FDIC determines that assessment rates
should be increased, institutions in all risk categories could be affected. The
FDIC has exercised this authority several times in the past and could raise
insurance assessment rates in the future. Any increase in insurance assessments
could have an adverse effect on the earnings of the Bank.
The Funds Act also amended the FDIA to expand the assessment base for
the payments on the bonds ("FICO bonds") issued in the late 1980s by the
Financing Corporation to recapitalize the now defunct Federal Savings and Loan
Insurance Corporation. The Funds Act expanded the assessment base for the
payments on the FICO bonds to include, beginning January 1, 1997, the deposits
of both BIF- and SAIF-insured institutions. Until December 31, 1999, or such
earlier
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date on which the last savings association ceases to exist, the rate of
assessment for BIF-assessable deposits shall be one-fifth of the rate imposed on
SAIF-assessable deposits. The annual rate of assessments for the payments on the
FICO bonds for the semi-annual period beginning on January 1, 1997 was 0.0130%
for BIF-assessable deposits and 0.0648% for SAIF-assessable deposits. For the
semi-annual period beginning on July 1, 1997, the rates of assessment for the
FICO bonds was 0.0126% for BIF-assessable deposits and 0.0630% for
SAIF-assessable deposits.
As a result of the forgoing, the Bank's BIF deposit insurance
assessments and its FICO assessments for the year ended December 31, 1997
totaled $304,000, as compared to BIF deposit insurance assessments of $2,000 for
the year ended December 31, 1996.
The Funds Act provides that the FDIC cannot assess regular insurance
assessments for an insurance fund unless required to maintain or to achieve the
designated reserve ratio of 1.25%, except on those of its member institutions
that are not classified as "well capitalized" or that have been found to have
"moderately severe" or "unsatisfactory" financial, operational or compliance
weaknesses. The Bank has not been so classified by the FDIC. Accordingly,
assuming that the designated reserve ratio is maintained by the BIF and the Bank
maintains its regulatory status, the Bank will pay substantially lower regular
assessments on its deposits compared to those paid in the years prior to 1996.
The Funds Act also provides for the merger of the BIF and SAIF on January 1,
1999, with such merger being conditioned upon the prior elimination of the
thrift charter. Proposed legislation agreed to in March 1998 by the House
Committee on Banking and Financial Services and the House Committee on Commerce
provides for the retention of the thrift charter and for the merger of the BIF
and the SAIF on January 1, 2000.
Under the FDIA, insurance of deposits may be terminated by the FDIC
upon a finding that the institution has engaged in unsafe or unsound practices,
is in an unsafe or unsound condition to continue operations or has violated any
applicable law, regulation, rule, order or condition imposed by the FDIC. The
management of the Bank does not know of any practice, condition or violation
that might lead to termination of deposit insurance. At December 31, 1997, the
Bank's capital exceeded the capital requirements imposed by the FDIC.
CAPITAL MAINTENANCE
The FDIC has issued regulations that require BIF-insured banks, such as
the Bank, to maintain minimum levels of capital. The regulations establish a
minimum leverage capital requirement of not less than 3% Tier 1 capital to total
assets for banks in the strongest financial and managerial condition, with a
rating of 1 under the Uniform Financial Institutions Rating System (the highest
examination rating of the FDIC for banks). For all other banks, the minimum
leverage capital requirement is 3% plus an additional cushion of at least 100 to
200 basis points. The FDIC and the federal banking regulators have proposed
amendments to their minimum capital regulations to provide that the minimum
leverage capital ratio for a depository institution that has been assigned the
highest composite rating of 1 under the Uniform Financial Institutions System
will be 3% and that the minimum leverage capital ratio for any other depository
institution will be 4%, unless a higher leverage capital ratio is warranted by
the particular circumstances or risk profile of the depository institution. Tier
1 capital is comprised of the sum of common
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stockholders' equity (excluding the net unrealized appreciation or depreciation,
net of tax, from available for sale debt securities), non-cumulative perpetual
preferred stock (including any related surplus) and minority interests in
consolidated subsidiaries, minus all intangible assets (other than qualifying
servicing rights) and any net unrealized loss on marketable equity securities.
At December 31, 1997, the Bank's ratio of Tier 1 capital to total assets was
5.98%, which exceeded the minimum leverage requirement.
The FDIC also requires that banks meet a risk-based capital standard.
The risk-based capital standard requires the maintenance of total capital (which
is defined as Tier 1 capital and Tier 2 capital) to risk-weighted assets of 8%
and Tier 1 capital to risk-weighted assets of 4%. In determining the amount of
risk-weighted assets, all assets, plus certain off balance sheet items, are
multiplied by a risk-weight of 0% to 100%, based on the risks the FDIC believes
are inherent in the type of asset or item. The components of Tier 1 capital are
equivalent to those discussed above under the 3% leverage requirement. The
components of Tier 2 capital currently include cumulative perpetual preferred
stock, long-term preferred stock, mandatory convertible securities, subordinated
debt, intermediate preferred stock and allowance for possible loan and lease
losses. Allowance for possible loan and lease losses includable in Tier 2
capital is limited to a maximum of 1.25% of risk-weighted assets. Overall, the
amount of Tier 2 capital that may be included in total capital cannot exceed
100% of Tier 1 capital. At December 31, 1997, the Bank's total capital and Tier
1 capital to risk-weighted assets was 17.80% and 16.70%, respectively, which
exceeded the FDIC risk-based capital requirements.
FDICIA requires the federal banking agencies to revise their risk-based
capital guidelines to, among other things, take adequate account of interest
rate risk. The federal banking agencies, including the FDIC, have adopted a rule
to require an assessment of an institution's exposure to declines in the
economic value of the bank's capital due to changes in interest rates when
assessing the bank's capital adequacy. The federal banking agencies did not
codify a measurement framework for such assessment, nor did they establish any
explicit criteria to define whether a bank has an above "normal" level of
interest rate risk. The new regulations adopted a "risk assessment" approach
under which examiners will evaluate a bank's capital for interest rate risk on a
case-by-case basis, with consideration of both quantitative and qualitative
factors. The federal banking agencies also adopted a joint policy statement that
sets forth guidelines that each insured bank is to follow in developing its own
interest rate risk management program.
LOANS-TO-ONE-BORROWER LIMITATIONS
With certain limited exceptions, a New York chartered savings bank may
not make loans or extend credit for commercial, corporate or business purposes
(including lease financing) to a single borrower and to certain entities related
to the borrower, the aggregate amount of which would exceed 15% of the Bank's
net worth, plus an additional 10% of the bank's net worth if secured by the
requisite collateral. The Bank currently complies with all applicable
loans-to-one-borrower limitations.
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COMMUNITY REINVESTMENT ACT
FEDERAL REGULATION. Under the Community Reinvestment Act, as amended
("CRA"), as implemented by FDIC and FRB regulations, a bank has a continuing and
affirmative obligation, consistent with its safe and sound operation, to help
meet the credit needs of its entire community, including low and moderate income
neighborhoods. The CRA does not establish specific lending requirements or
programs, nor does it limit a bank's discretion to develop the types of products
and services that it believes are best suited to its particular community. The
CRA requires the FDIC, in connection with its examination of a bank, to assess
the bank's record of meeting the credit needs of its community and to take such
record into account in its evaluation of certain applications by such
institution. The Financial Institutions Reform, Recovery and Enforcement Act of
1989 ("FIRREA") amended the CRA to require public disclosure of a bank's CRA
rating and requires the FDIC to provide a written evaluation of a bank's CRA
performance utilizing a four-tiered descriptive rating system. The Bank's latest
CRA rating, received from the FDIC by letter dated September 16, 1996, was a
rating of "satisfactory."
The FDIC and the other federal banking agencies amended their CRA
regulations, generally effective July 1995. Among other things, the amended CRA
regulations substitute for the prior process-based assessment factors a new
evaluation system that rates a bank based on its actual performance in meeting
community needs. In particular, the proposed system would focus on three tests:
(a) a lending test, to evaluate the bank's record of making loans in its
assessment area; (b) an investment test, to evaluate the bank's record of
investing in community development projects, affordable housing, and programs
benefitting low or moderate income individuals and businesses; and (c) a service
test, to evaluate the bank's delivery of services through its branches, ATMs and
other offices. Small banks are assessed pursuant to a streamlined approach
focusing on a lesser range of information and performance standards. The amended
CRA regulations also clarify how a bank's CRA performance is considered in the
application process.
On April 18, 1997, the FDIC formally approved the Bank's 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 meeting the lending, investment
and services tests through December 31, 1998.
NEW YORK REGULATION. The Bank is also subject to provisions of the
Banking Law that impose continuing and affirmative obligations upon a banking
institution organized in the State of New York to serve the credit needs of its
local community ("NYCRA"). The obligations of the NYCRA are substantially
similar to those imposed by the CRA. Pursuant to the NYCRA, a bank must file
copies of all federal CRA reports with the Banking Department. The NYCRA also
requires the Superintendent to consider a bank's NYCRA rating when reviewing a
bank's application to engage in certain transactions, including mergers, asset
purchases and the establishment of branch offices or automated teller machines,
and provides that such assessment may serve as a basis for the denial of any
such application. The Banking Department has adopted, effective December 3,
1997, new regulations to implement the NYCRA. The Banking Department replaced
its prior process-focused regulations with performance-focused regulations that
were intended to parallel the current CRA regulations of the federal banking
agencies and to promote
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consistency in CRA evaluations by considering more objective criteria. The new
regulations require a biennial assessment of a bank's compliance with the NYCRA,
utilizing a four-tiered rating system, and require the Banking Department to
make available to the public such rating and a written summary of the assessment
results. The Bank's latest NYCRA rating, received by letter dated September 16,
1996 from the Banking Department, was a rating of "satisfactory."
FEDERAL RESERVE SYSTEM
Under FRB regulations, the Bank is required to maintain
non-interest-earning reserves against its transaction accounts (primarily NOW
and regular checking accounts). The FRB regulations generally require that
reserves of 3% must be maintained against aggregate transaction accounts of
$47.8 million or less (subject to adjustment by the FRB), plus 10% (subject to
adjustment by the FRB between 8% and 14%) against that portion of total
transaction accounts in excess of $47.8 million. The first $4.7 million of
otherwise reservable balances (subject to adjustments by the FRB) are exempted
from the reserve requirements. The Bank is in compliance with the foregoing
requirements. Because required reserves must be maintained in the form of either
vault cash, a non-interest-bearing account at a Federal Reserve Bank or a
pass-through account as defined by the FRB, the effect of this reserve
requirement is to reduce the Bank's interest-earning assets.
HOLDING COMPANY REGULATION
FEDERAL REGULATION. The Registrant is subject to examination,
regulation and periodic reporting under the BHCA, as administered by the FRB.
The FRB has adopted capital adequacy guidelines for bank holding companies on a
consolidated basis substantially similar to those of the FDIC for the Bank. The
Registrant's total and Tier 1 capital are well in excess of these requirements.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources -- Regulatory Capital Position"
included in the Registrant's 1997 Annual Report to Stockholders on page 24,
which is incorporated by reference herein.
The Registrant is required to obtain the prior approval of the FRB to
acquire all, or substantially all, of the assets of any bank or bank holding
company. Prior FRB approval is required for the Registrant to acquire direct or
indirect ownership or control of any voting securities of any bank or bank
holding company if, after giving effect to such acquisition, it would, directly
or indirectly, own or control more than 5% of any class of voting shares of such
bank or bank holding company.
A bank holding company is required to give the FRB prior written notice
of any purchase or redemption of its outstanding equity securities if the gross
consideration for the purchase or redemption, when combined with the net
consideration paid for all such purchases or redemptions during the preceding 12
months, is equal to 10% or more of the Registrant's consolidated net worth. The
FRB may disapprove such a purchase or redemption if it determines that the
proposal would constitute an unsafe and unsound practice, or would violate any
law, regulation, FRB order or directive, or any condition imposed by, or written
agreement with, the FRB. Such notice and
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approval is not required for a bank holding company that would be treated as
"well capitalized" under applicable regulations of the FRB, that has received a
composite "1" or "2" rating at its most recent bank holding company inspection
by the FRB, and that is not the subject of any unresolved supervisory issues.
The status of the Registrant as a registered bank holding company under
the BHCA does not exempt it from certain federal and state laws and regulations
applicable to corporations generally, including, without limitation, certain
provisions of the federal securities laws.
In addition, a bank holding company is generally prohibited from
engaging in, or acquiring 5% or more of any class of voting securities of any
company engaged in, non-banking activities. One of the principal exceptions to
this prohibition is for activities found by the FRB to be so closely related to
banking or managing or controlling banks as to be a proper incident thereto.
Some of the principal activities that the FRB has determined by regulation to be
so closely related to banking as to be a proper incident thereto are: (i) making
or servicing loans; (ii) performing certain data processing services; (iii)
providing discount brokerage services; (iv) acting as fiduciary, investment or
financial advisor; (v) leasing personal or real property; (vi) making
investments in corporations or projects designed primarily to promote community
welfare; and (vii) acquiring a savings and loan association.
Under FIRREA, depository institutions are liable to the FDIC for losses
suffered or anticipated by the FDIC in connection with the default of a commonly
controlled depository institution or any assistance provided by the FDIC to such
an institution in danger of default. This law would have potential applicability
if the Registrant ever acquired as a separate subsidiary a depository
institution in addition to the Bank. There are no current plans for such an
acquisition.
Subsidiary banks of a bank holding company are subject to certain
quantitative and qualitative restrictions imposed by the Federal Reserve Act on
any extension of credit to, or purchase of assets from, or letter of credit
issued on behalf of, the bank holding company or its subsidiaries, and on the
investment in or acceptance of stocks or securities of such holding company or
its subsidiaries as collateral for loans. In addition, provisions of the Federal
Reserve Act and FRB regulations limit the amounts of, and establish required
procedures and credit standards with respect to, loans and other extensions of
credit to officers, directors and principal shareholders of the Bank, the
Registrant, any subsidiary of the Registrant and related interests of such
persons. Moreover, subsidiaries of bank holding companies are prohibited from
engaging in certain tie-in arrangements (with the holding company or any of its
subsidiaries) in connection with any extension of credit, lease or sale of
property or furnishing of services.
NEW YORK REGULATION. In addition to the federal bank holding company
regulations, a bank holding company organized or doing business in the State of
New York may be also subject to regulation under the Banking Law. The term "bank
holding company" for the purposes of the Banking Law, is defined generally to
include any person, company or trust that directly or indirectly either controls
the election of a majority of the directors or owns, controls or holds with
power to vote more than 10% of the voting stock of a bank holding company or, if
the company is a banking institution, another banking institution, or 10% or
more of the voting stock of each
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of two or more banking institutions. In general, a bank holding company
controlling, directly or indirectly, only one banking institution will not be
deemed to be a bank holding company for the purposes of the Banking Law. Under
the Banking Law, the prior approval of the Banking Department is required
before: (1) any action is taken that causes any company to become a bank holding
company; (2) any action is taken that causes any banking institution to become
or to be merged or consolidated with a subsidiary of a bank holding company; (3)
any bank holding company acquires direct or indirect ownership or control of
more than 5% of the voting stock of a banking institution; (4) any bank holding
company or subsidiary thereof acquires all or substantially all of the assets of
a banking institution; or (5) any action is taken that causes any bank holding
company to merge or consolidate with another bank holding company. For these
purposes, the term "banking institution" refers to banking institutions located
in the State of New York. Additionally, certain restrictions apply to New York
bank holding companies regarding the acquisition of banking institutions that
have been chartered five years or less and are located in smaller communities.
Officers, directors and employees of New York bank holding companies are subject
to limitations regarding their affiliation with securities underwriting or
brokerage firms and other bank holding companies and limitations regarding loans
obtained from its subsidiaries. Although the Registrant is not currently a bank
holding company for purposes of New York law, any future acquisition of
ownership, control, or the power to vote 10% or more of the voting stock of
another bank or bank holding company located in the State of New York would
cause it to become such.
INTERSTATE BANKING AND BRANCHING
In the past, interstate banking has been limited under the BHCA and
various state laws to those states that permitted interstate banking by statute.
New York was one of a number of states that permitted, subject to the
reciprocity conditions of the Banking Law, out-of-state bank holding companies
to acquire New York banks. By 1995, many states had adopted statutes permitting
multi-state bank holding companies. The Riegle-Neal Interstate Banking and
Branching Efficiency Act of 1994 ("Interstate Banking Act") amended the BHCA,
effective on September 29, 1995, to permit approval under the BHCA of the
acquisition by a bank holding company that is adequately capitalized and
adequately managed of a bank outside of the holding company's home state
regardless of whether the acquisition was permitted under the law of the state
of the acquired bank. The FRB may not approve an acquisition under the BHCA that
would result in the acquiring holding company controlling more than 10% of the
deposits in the United States or more than 30% of the deposits in any particular
state.
In the past, branching across state lines was not generally available
to a state bank, such as the Bank. Out-of-state branches are authorized under
the Banking Law, but similar authority did not exist generally under the laws of
many other states. The Interstate Banking Act now permits the responsible
banking agencies to approve merger transactions between banks located in
different states, regardless of whether the merger would be prohibited under
state law. Accordingly, the Interstate Banking Act permits a bank to have
branches in more than one state.
Before any bank acquisition can be completed, prior approval thereof
may also be required to be obtained from other agencies having supervisory
jurisdiction over the bank to be acquired,
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including the respective state's banking department. See "Acquisition of the
Holding Company."
The Interstate Banking Act will facilitate the consolidation of the
banking industry that has taken place over recent years and will allow the
creation of larger, presumably more efficient, banking networks. The effect of
the Interstate Banking Act on the Bank, if any, is likely to occur as banking
institutions, state legislators, and bank regulators respond to the new federal
regulatory structure.
ACQUISITION OF THE HOLDING COMPANY
FEDERAL RESTRICTIONS. Under the Federal Change in Bank Control Act
("CBCA"), a notice must be submitted to the FRB if any person (including a
company), or group acting in concert, seeks to acquire 10% or more of the
Registrant's shares of Common Stock outstanding, unless the FRB has found that
the acquisition will not result in a change in control of the Registrant. Under
the CBCA, the FRB has 60 days within which to act on such notices, taking into
consideration certain factors, including the financial and managerial resources
of the acquiror, the convenience and needs of the communities served by the
Registrant and the Bank, and the anti-trust effects of the acquisition. Under
the BHCA, any company would be required to obtain prior approval from the FRB
before it may obtain "control" of the Registrant within the meaning of the BHCA.
Control generally is defined to mean the ownership or power to vote 25 percent
or more of any class of voting securities of the Registrant or the ability to
control in any manner the election of a majority of the Registrant's directors.
See "Holding Company Regulation."
NEW YORK CHANGE IN CONTROL RESTRICTIONS. In addition to the CBCA, the
Banking Law generally requires prior approval of the New York Banking Board
before any action is taken that causes any company to acquire direct or indirect
control of a banking institution that is organized in the State of New York. The
acquisition of 10% or more of the common stock of the Registrant would be
presumed to be an acquisition of control of the Registrant and, indirectly, the
Bank, unless the Superintendent determines that such acquisition did not result
in an acquisition of control.
-39-
<PAGE>
EXECUTIVE OFFICERS OF THE REGISTRANT AND THE BANK
The name, age, position, term of office as officer and period during
which he has served as an officer is provided below for each executive officer
of the Registrant and the Bank. All executive officers of the Registrant are
also executive officers of the Bank.
John M. Tsimbinos, Chairman of the Board and Chief Executive Officer
and a Director, joined the Bank in February 1982, became President and Chief
Executive Officer of the Bank in April 1983, and became Chairman and Chief
Executive Officer of the Bank in December 1992. Mr. Tsimbinos has been a
Director since July 1982 and he is 60 years of age.
A. Gordon Nutt, President and Chief Administrative Officer and a
Director, joined the Bank in 1983 as a Senior Vice President and Chief
Administrative Officer, became a Director in May 1991 and was elected President
and Chief Administrative Officer in December 1992. Mr. Nutt is 63 years of age.
Dennis E. Henchy, Executive Vice President, joined the Bank in 1975 and
serves as Executive Vice President and Chief Financial Officer. Mr. Henchy is 44
years of age.
William R. Kuhn, Executive Vice President, joined the Bank in 1974 and
serves as Executive Vice President and Chief Real Estate Lending Officer. Mr.
Kuhn is 51 years of age.
Ira H. Kramer, Senior Vice President, joined the Bank in 1983 and
serves as Senior Vice President and Corporate Secretary. Mr. Kramer is 47 years
of age.
John J. DeRusso, Senior Vice President, joined the Bank in 1994 and
serves as Senior Vice President and Officer for Strategic Planning/Special
Projects/Training & Development and MIS. Mr. DeRusso is 56 years of age.
ITEM 2. PROPERTIES
The Registrant's principal corporate offices are in a 52,800 square
foot facility located at 1122 Franklin Avenue, Garden City, New York. This
facility is owned and principally utilized for the operations of the Bank. The
Bank conducts its business through 15 full service banking offices as follows:
-40-
<PAGE>
Date Lease
Location Leased/Owned Eased/Acquired Expiration Date
------------ -------------- ---------------
Principal Banking Office/
Administrative Headquarters
1122 Franklin Avenue
Garden City, NY 11530............. Owned 1/1/76 N/A
1024 Gates Avenue
Brooklyn, NY 11221................ Owned 8/1/20 N/A
2925 Avenue U
Brooklyn, NY 11229................ Owned 1/1/55 N/A
4848 Merrick Road
Massapequa Park, NY 11762......... Owned 1/1/61 N/A
156-02 Cross Bay Blvd.(1)
Howard Beach, NY 11414............ Owned 1/1/65 N/A
224-04 Union Turnpike
Bayside, NY 11364................. Owned 1/1/69 N/A
254-09 Horace Harding Expwy.
Little Neck, NY 11362.............. Leased 9/1/71 5/31/17
1114 Jericho Turnpike
New Hyde Park, NY 11040............ Owned 1/1/75 N/A
247-53 Jamaica Avenue
Bellerose, NY 11426................ Owned 1/1/75 N/A
1280 Broadway
Hewlett, NY 11557.................. Owned 9/25/96 N/A
2790 Sunrise Highway
Bellmore, NY 11710................. Leased 7/1/80 6/30/10
1501 Deer Park Avenue
North Babylon, NY 11703............ Owned 5/9/91 N/A
1520 Deer Park Avenue
North Babylon, NY 11703............ Owned 5/1/94 N/A
108 Seventh Street
Garden City, NY 11530.............. Leased 2/1/95 01/31/25
699 Old Country Road
Dix Hills, NY 11746................ Leased 9/7/95 9/06/02
- ------------------
(1) Includes a leased accommodation facility adjacent to this branch office.
The lease on such facility expires December 2011.
The premises occupied by the Registrant and the Bank are considered to be well
located and suitably equipped to serve as banking facilities.
-41-
<PAGE>
ITEM 3. LEGAL PROCEEDINGS
On February 6, 1995, the Superintendent took possession of Nationar, a
check-clearing and trust company freezing all of its assets. The Bank used
Nationar for certain depository and collection services and maintained deposit
balances with Nationar in connection therewith. The Company also had certain
stock investments and subordinated capital debentures in Nationar. The Bank
filed claims to recover losses associated with the deposit balances, stocks and
subordinated debentures. As of December 31, 1997 the Bank has either fully
collected or charged-off its remaining Nationar claims. Additional information
regarding the Nationar claims appears on pages 49 and 50 of the 1997 Annual
Report to Stockholders on Note (19) of Notes to Consolidated Financial
Statements and is incorporated by reference herein.
The Company is not involved in any other pending legal proceedings
other than routine legal proceedings occurring in the ordinary course of
business, which in the aggregate involve amounts which management believes to be
immaterial to the financial condition and results of operations of the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDERS'
MATTERS
The information required by this item appears under the caption "Market
for Common Stock" on page 25 of the Registrant's Annual Report to Stockholders
for the year ended December 31, 1997 and is incorporated herein by reference.
ITEM 6. SELECTED FINANCIAL DATA
The information required by this item appears on pages 6 through 7,
inclusive, of the Registrant's Annual Report to Stockholders for the year ended
December 31, 1997 and is incorporated herein by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The information required by this item appears on pages 10 through 25,
inclusive, of the Registrant's Annual Report to Stockholders for the year ended
December 31, 1997 and is incorporated herein by reference.
-42-
<PAGE>
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The information required by this item appears on pages 12 through 15,
inclusive, of the Registrant's Annual Report to Stockholders for the year ended
December 31, 1997 and is incorporated herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required by this item appears on pages 26 through 53,
inclusive, of the Registrant's Annual Report to Stockholders for the year ended
December 31, 1997 and is incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND OFFICERS OF THE REGISTRANT
The information required by this item appears under the caption
"Executive Officers of the Registrant and the Bank" in Part I of this Form 10-K
and under the caption "Election of Directors" on pages 7 through 10, inclusive,
and under the caption "Compliance with Section 16(a) of the Exchange Act" on
page 24 of the Registrant's Proxy Statement for its 1998 Annual Meeting of
Stockholders to be held on April 27, 1998, and is incorporated herein by
reference.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item appears on pages 10 through 23,
inclusive, of the Registrant's Proxy Statement for its 1998 Annual Meeting of
Stockholders to be held on April 27, 1998, and is incorporated herein by
reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item appears under the captions "Stock
Ownership of Certain Beneficial Owners" on pages 3 and 4, inclusive, and "Stock
Ownership of Management" on pages 5 and 6, inclusive, of the Registrant's Proxy
Statement for its 1998 Annual Meeting of Stockholders to be held on April 27,
1998, and is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item appears under the caption
"Certain Relationships and Related Transactions" on page 25 of the Registrant's
Proxy Statement for its 1998 Annual Meeting of Stockholders to be held on April
27, 1998, and is incorporated herein by reference.
-43-
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) The following documents are filed as a part of this report:
1. The following consolidated financial statements of the Registrant and
its subsidiaries, and the independent auditors' report thereon,
included on pages 26 through 53, inclusive, of the Registrant's Annual
Report to Stockholders for the year ended December 31, 1997, are
incorporated herein by reference:
Consolidated Statements of Financial Condition -- December 31,
1997 and 1996;
Consolidated Statements of Income -- For the years ended December
31, 1997, 1996 and 1995;
Consolidated Statements of Changes in Stockholders' Equity -- For
the years ended December 31, 1997, 1996 and 1995;
Consolidated Statements of Cash Flows-- For the years ended
December 31, 1997, 1996 and 1995;
Notes to Consolidated Financial Statements
The remaining information appearing in the Registrant's Annual Report
to Stockholders is not deemed to be filed as part of this report,
except as expressly provided herein.
2. All schedules are omitted because they are not required or applicable,
or the required information is shown in the consolidated financial
statements or the notes thereto.
3. Exhibits
(a) The following exhibits are filed as part of this report, except as
otherwise indicated.
3.1 Certificate of Incorporation of T R Financial Corp. (1)
3.2 Bylaws of T R Financial Corp., as amended(2)
4.1 Certificate of Incorporation of T R Financial Corp. (See
Exhibit 3.1 hereto)
4.2 Bylaws of T R Financial Corp. (See Exhibit 3.2 hereto)
-44-
<PAGE>
4.3 Restated Organization Certificate of Roosevelt Savings Bank (1)
4.4 Bylaws of Roosevelt Savings Bank, as amended (2)
4.5 Amendments to Bylaws of Roosevelt Savings Bank (3)
4.6 Stock Certificate of T R Financial Corp. (1)
4.7 Rights Agreement between T R Financial Corp. and Chemical Bank,
dated as of July 19, 1994 (4)
4.8 Certificate of Designations, Preferences and Rights of Series A
Junior Participating Preferred Stock of T R Financial Corp.
(included as Exhibit A to the Rights Agreement set forth at
Exhibit 4.7)
10.1 Employment Agreement by and between Roosevelt Savings Bank and
John M. Tsimbinos, amended and restated as of January 23, 1997
(5)
10.2 Employment Agreement by and between Roosevelt Savings Bank and
A. Gordon Nutt, amended and restated as of January 23, 1997 (5)
10.3 Employment Agreement by and between Roosevelt Savings Bank and
William R. Kuhn, amended and restated as of January 23, 1997
(5)
10.4 Employment Agreement by and between Roosevelt Savings Bank and
Dennis E. Henchy, amended and restated as of January 23, 1997
(5)
10.5 Employment Agreement by and between Roosevelt Savings Bank and
John J. DeRusso, amended and restated as of January 23, 1997
(5)
10.6 Employment Agreement by and between Roosevelt Savings Bank and
Ira H. Kramer, amended and restated as of January 23, 1997 (5)
10.7 Employment Agreement by and between T R Financial Corp. and
John M. Tsimbinos, amended and restated as of January 23, 1997
(5)
10.8 Employment Agreement by and between T R Financial Corp. and A.
Gordon Nutt, amended and restated as of January 23, 1997 (5)
10.9 Employment Agreement by and between T R Financial Corp. and
William R. Kuhn, amended and restated as of January 23, 1997
(5)
10.10 Employment Agreement by and between T R Financial Corp. and
Dennis E. Henchy, amended and restated as of January 23, 1997
(5)
-45-
<PAGE>
10.11 Employment Agreement by and between T R Financial Corp. and
John J. DeRusso, amended and restated as of January 23, 1997
(5)
10.12 Employment Agreement by and between T R Financial Corp. and Ira
H. Kramer, amended and restated as of January 23, 1997 (5)
10.13 Roosevelt Savings Bank Severance Plan (3)
10.14 Indemnification Agreements (between Roosevelt Savings Bank and
Maureen E. Clancy, John M. Tsimbinos, A. Gordon Nutt, Peter A.
Baum, Robert J. Berkin, Kenneth P. Billhardt, Robert F. Eisen,
Michael P. Galgano, Edward J. Kowatch, James E. Orr, Jr.,
William R. Punt, William Singer, Ernest L. Loser, Spiros J.
Voutsinas, John C. Mesloh, Leonard Genovese, William R. Kuhn,
Dennis E. Henchy, Ira H. Kramer and William F. Shea, effective
as of May 18, 1993) (6)
10.15 Roosevelt Savings Bank Recognition and Retention Plan
for Outside Directors (terminated effective as of January 23,
1997) (7)
10.16 Roosevelt Savings Bank Recognition and Retention Plan for
Officers (7)
10.17 Roosevelt Savings Bank Performance Compensation Plan (8)
10.18 T R Financial Corp. 1993 Incentive Stock Option Plan, amended
and restated as of January 23, 1997 (8)
10.19 T R Financial Corp. 1993 Stock Option Plan for Outside
Directors, amended and restated effective as of January 23,
1997 (5)
10.20 T R Financial Corp. Employee Stock Ownership Plan, as amended
and restated (3)
10.21 First and Second Amendments to the T R Financial Corp. Employee
Stock Ownership Plan (3)
10.22 T R Financial Corp. Employee Stock Ownership Trust Loan and
Security Agreement, Promissory Note and Security Agreement Re
Instruments of Negotiable Documents to be Deposited (7)
10.23 Trust Agreement for the T R Financial Corp. Employee Stock
Ownership Plan (7)
10.24 Successor Trustee Agreement between State Street Bank & Trust
Company and T R Financial Corp. for the T R Financial Corp.
Employee Stock Ownership Plan (2)
-46-
<PAGE>
10.25 Supplemental Executive Retirement Plan of Roosevelt Savings
Bank, as amended and restated as of March 16, 1993 (7)
10.26 First Amendment to the Supplemental Executive Retirement Plan
of Roosevelt Savings Bank, as amended and restated (3)
10.27 Roosevelt Savings Bank Salary Reduction Plan in RSI Retirement
Trust, as amended and restated effective January 1, 1987,
including Amendments Number One, Two, Three and Four (9)
10.28 Trust Agreement between Roosevelt Savings Bank and Marine
Midland Bank, N.A. (for the Roosevelt Savings Bank Salary
Reduction Plan in RSI Retirement Trust) (7)
11.1 Statement re: Computation of per share earnings (10)
13.1 1997 Annual Report to Stockholders
21.1 Subsidiaries of the Registrant
23.1 Consent of KPMG Peat Marwick LLP
27.1 Financial Data Schedule (EDGAR filing only)
27.2 Restated Financial Data Schedule (EDGAR Filing only)
99.1 Proxy Statement for the 1998 Annual Meeting of Stockholders
- ------------------
(1) Incorporated herein by reference to the Exhibits to the Registrant's
Registration Statement on Form S-1, filed on March 5, 1993, Registration
No. 33-59174.
(2) Incorporated herein by reference to the Exhibits to the Registrant's Annual
Report on Form 10-K for fiscal year 1994.
(3) Incorporated herein by reference to the Exhibits to the Registrant's Annual
Report on Form 10-K for fiscal year 1995.
(4) Incorporated herein by reference to Exhibit 2 to the Registrant's
Registration Statement on Form 8-A, filed on July 19, 1994, Registration
No. 0-21386.
(5) Incorporated herein by reference to the Exhibits to the Registrant's Annual
Report on Form 10-K for fiscal year 1996.
(6) Incorporated herein by reference to the Exhibits to the Registrant's
Registration Statement on Form S-1, filed on March 5, 1993, Registration
No. 33-59174, except for Maureen E. Clancy, which is incorporated herein by
reference to the Exhibits to the Registrant's Annual Report on Form 10-K
for fiscal year 1993.
(7) Incorporated herein by reference to the Exhibits to the Registrant's Annual
Report on Form 10-K for fiscal year 1993.
(8) Incorporated herein by reference to the Registrant's definitive Proxy
Statement for its 1997 Annual Meeting of Stockholders.
(9) Incorporated herein by reference to the Exhibits to the Registrant's Annual
Report on Form 10-K for fiscal year 1993, except for Amendment Number Four,
which is incorporated herein by reference to the Exhibits to the
Registrant's Annual Report on Form 10-K for fiscal year 1994
(10) The computation of per share earnings appears on pages 27 and 34 of the
Registrant's Annual Report to Stockholders for the year ended December 31,
1997.
(b) No reports on Form 8-K have been filed during the last quarter of the period
covered by this report.
-47-
<PAGE>
Pursuant to the requirements of Section 13 or 15(d) 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.
Dated: March 30, 1998 BY:/s/ John M. Tsimbinos
----------------------------------
John M. Tsimbinos,
Chairman of the Board,
Chief Executive Officer
and Director
BY:/s/ Dennis E. Henchy
----------------------------------
Dennis E. Henchy,
Executive Vice President
and Chief Financial Officer
-48-
<PAGE>
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the date indicated.
Signature Title Date
/s/ John M. Tsimbinos Chairman of the Board, March 30, 1998
- --------------------------- Chief Executive Officer
John M. Tsimbinos and Director
/s/ A. Gordon Nutt President, Chief March 30, 1998
- --------------------------- Administrative
A. Gordon Nutt Officer and Director March 30, 1998
/s/ Maureen E. Clancy Director March 30, 1998
- ---------------------------
Maureen E. Clancy
/s/ Robert F. Eisen, Sr. Director March 30, 1998
- ---------------------------
Robert F. Eisen, Sr.
/s/ Michael P. Galgano Director March 30, 1998
- ---------------------------
Michael P. Galgano
/s/ Leonard Genovese Director March 30, 1998
- ---------------------------
Leonard Genovese
/s/ Edward J. Kowatch Director March 30, 1998
- ---------------------------
Edward J. Kowatch
/s/ Ernest L. Loser Director March 30, 1998
- ---------------------------
Ernest L. Loser
/s/ John C. Mesloh Director March 30, 1998
- ---------------------------
John C. Mesloh
/s/ James E. Orr, Jr. Director March 30, 1998
- ---------------------------
James E. Orr, Jr.
/s/ Spiros J. Voutsinas Director March 30, 1998
- ---------------------------
Spiros J. Voutsinas
-49-
Exhibit 13.1
------------
T R FINANCIAL CORP.
1997 ANNUAL REPORT
HOLDING COMPANY FOR
ROOSEVELT SAVINGS BANK
<PAGE>
BUILDING A LEGACY OF FINANCIAL STRENGTH
The Bank was incorporated on November 25, 1895 as the Eastern District
Savings Bank. On January 20, 1926, the Bank received permission from the
Roosevelt family to use its name and since then has been known as Roosevelt
Savings Bank.
The Bank uses a number of well known scenes associated with Theodore
Roosevelt in its public communications to convey its strength, code of conduct
and commitment to the communities it serves. Among these are the world famous
carving in Mount Rushmore which includes the images of United States Presidents
Washington. Jefferson, Lincoln and Roosevelt, and photographs of Colonel
Roosevelt with his Rough Riders.
The well known picture on the cover and on the table of contents is of
Theodore Roosevelt at Rock Creek Park, Chevy Chase, Maryland, 1902.
<PAGE>
================================================================================
Selected Financial Highlights
================================================================================
1997 was another year of record breaking performance for T R Financial
Corp. The year was marked by record breaking earnings, an 87% increase in stock
price, a stock split in the form of a 100% stock dividend and successive
increases in quarterly cash dividends.
<TABLE>
<CAPTION>
T R FINANCIAL CORP.
At or For the Year Ended December 31,
(DOLLARS IN THOUSANDS)
.................................................. ................... ................ .................
1997 1996 1995
.................................................. ................... ................ .................
<S> <C> <C> <C>
Total assets $3,843,056 $3,259,627 $2,904,623
Loans receivable, net 2,062,896 1,716,182 1,423,574
Total securities 1,695,965 1,450,779 1,386,619
Total deposits 2,202,353 2,343,513 2,038,341
Borrowed Funds 1,298,578 637,835 594,563
Net income 34,728 30,515 20,925
Stockholders' equity to total assets 6.27% 6.26% 6.87%
Return on average stockholders' equity 15.86% 16.03% 10.65%
</TABLE>
[Graphics Omitted]
Net Income
(Millions of dollars)
- ---------------------
`95 20.925
`96 30.515
`97 34.728
Total Assets
(Billions of dollars)
- ---------------------
`95 $2.90462
`96 $3.25963
`97 $3.64306
Total Deposits and Borrowings
(Billions of dollars)
`95 `96 `97
Total 2.632904 2.981348 3.500931
====================================================
Borrowings 0.594563 0.637835 1.298578
Deposits 2.038341 2.343513 2.202353
T R Financial Corp. & Subsidiaries 1
<PAGE>
================================================================================
A MESSAGE TO OUR SHAREHOLDERS
================================================================================
T R FINANCIAL CORP.
Holding Company for
Roosevelt Savings Bank
We have a wonderful success story to share with all of our stockholders
about the Company's earnings performance this past year. We too are
stockholders. This gives us the unique opportunity of viewing the Company's
performance from both the perspective of management as well as that of an
investor. It is from these dual vantage points we report to you the Company had
a banner year which surpassed all records in our 102-year history of business
operations. Stockholders benefitted from record breaking earnings, enhanced
dividend performance and a stock split in the form of a 100% stock dividend.
We look forward to presenting the details of our financial performance
to each of you at the Annual Meeting on April 27, 1998 at the Westbury Manor,
Westbury, New York. Until then, please enjoy reading the enclosed story of our
record breaking earnings performance and take a moment to relish your enhanced
shareholder value.
RECORD BREAKING PERFORMANCE INCREASES VALUE TO STOCKHOLDERS
Our record breaking performance contributed to both immediate capital
enrichment as well as long-term value for stockholders.
The Board of Directors declared a stock split in the form of a 100%
stock dividend, which was distributed on May 14, 1997. Performance following the
stock split helped to cause stock price to rise from $19.25 on May 14, 1997 to
$33.25 on December 31, 1997. Investors who were stockholders during this period
saw the value of their shares increase by over 70%. Earnings performance during
1997 exceeded all previous records and reached a new high level. A $1,000
investment at the Company's initial public offering on June 29, 1993 was worth
$7,389 at year end 1997.
CASH DIVIDENDS ENHANCE STOCKHOLDER VALUE
Due to the Company's strong performance, the Board declared four cash
dividends rewarding stockholders for their investment in the Company. Each
quarterly dividend was higher than the previous quarter and was paid on common
shares as follows: $0.11 - March 3, 1997, as adjusted for the 100% stock
dividend, which was paid on May 14, 1997, $0.13 - June 2, 1997, $0.15 -
September 2, 1997 and $0.16 - December 1, 1997. The Board of Directors will
continue to review the dividend regularly and intends to maintain a quarterly
dividend in the future consistent with the Company's earnings performance.
2 T R Financial Corp. & Subsidiaries
<PAGE>
SUMMARY OF OPERATING RESULTS, CAPITAL AND ASSET QUALITY
For the year 1997, operating results surpassed all prior year records.
Net income for the year ending December 31, 1997 rose 13.8% over the prior year
to $34.7 million, representing earnings of $1.96 per share. Stockholders' equity
in T R Financial Corp. was $241 million at December 31, 1997, representing 6.27%
of total assets and a book value of $14.54 per share.
At December 31, 1997, leverage and risk-based capital ratios of
Roosevelt Savings Bank were 5.98% and 17.80% respectively. The Bank's capital
ratios are well in excess of the Federal Deposit Insurance Corporation ("FDIC")
capital requirements of at least 4% for the leverage ratio and 8% for the
risk-based measure and qualify the Bank to be designated as a well-capitalized
institution by regularity agencies.
Non-performing assets decreased 7.0% from December 31, 1996 to $14.8
million or 0.38% of total assets, at December 31, 1997. The ratio of
non-performing loans to total loans decreased 7 basis points from 0.74% at
December 31, 1996 to 0.67% at December 31, 1997.
We continue to reserve for possible loan losses because of uncertainty
in the future economic environment and a growing loan portfolio. At December 31,
1997, the allowance for possible loan losses was $14.9 million, or 108.53% of
non-performing loans.
MANAGING THE COMPANY FOR PERFORMANCE
Management's strategy will continue to focus on performance to enhance
the long-term value of our Company to stockholders. Managing the Company with a
conservative investment strategy should achieve solid earnings performance and
maintain our financial strength. Capital will be managed to enable the Company
to grow notwithstanding changing economic conditions.
COMMUNITY REINVESTMENT
In addition to our record breaking financial performance, the Company
maintains its favorable reputation by continuing its commitment to the
communities it serves. We contribute to the growth, prosperity and overall
development of our communities by providing financial services and housing
outreach programs to residents. We have underwritten loans to provide safe and
decent housing for community members including low to moderate income families.
This involvement in community and housing development reinforces the Company's
goal of making the "American Dream" of home ownership a reality for many people.
The Company's performance as a community action oriented organization
has been highly recognized. The Company's housing partnership programs with
organizations such as Neighborhood
T R Financial Corp. & Subsidiaries 3
<PAGE>
Housing Services of New York City, Neighborhood Housing Services of
Bedford-Stuyvesant, the Federal Home Loan Bank of New York and the New York City
Housing Partnership continue to be the subject of favorable media coverage. The
Chairman, on behalf of the Company, has accepted awards for community
performance from the United Jewish Appeal Federation of New York City and the
United Cerebral Palsy Association of Nassau County, New York.
OUR PERSONAL MESSAGE TO OFFICERS AND STAFF
Thank you for making 1997 a year of record earning performance. It is each
Director, Senior Executive, Officer, Management Staff member and employee who
has enabled the Company to achieve the high level of performance that enhances
value to stockholders. You have done a great job and we are proud of you.
OUR PERSONAL MESSAGE TO STOCKHOLDERS
We extend our appreciation to our stockholders for their continued
confidence in our management of the Company. Your ongoing support contributes to
our Company's strength and our motivation to enhance stockholder value in 1998
and into the next millennium.
/s/ A. Gordon Nutt /s/ John M. Tsimbinos
A.Gordon Nutt John M. Tsimbinos
President and Chief Administrative Officer Chairman of the Board and
Chief Executive Officer
4 T R Financial Corp. & Subsidiaries
<PAGE>
TABLE OF CONTENTS
Selected Consolidated Financial and Other Data ............................ 6
Glossary of Financial Terms ............................................... 8
Management's Discussion and Analysis of Financial Condition and
Results of Operations ..................................................... 10
Consolidated Statements of Financial Condition ............................ 26
Consolidated Statements of Income ......................................... 27
Consolidated Statements of Changes in Stockholders' Equity ................ 28
Consolidated Statements of Cash Flows ..................................... 29
Notes to Consolidated Financial Statements ................................ 31
Independent Auditors' Report .............................................. 53
Directors and Officers .................................................... 54
Stockholder Information ................................................... 55
<PAGE>
Selected Consolidated Financial and Other Data
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
At December 31,
------------------------------------------------------------------------
(in thousands) 1997 1996 1995 1994 1993
- ------------------------------------------------------------------------------------------------------------------------------------
SELECTED FINANCIAL
CONDITION DATA
<S> <C> <C> <C> <C> <C>
Total assets $ 3,843,056 $ 3,259,627 $ 2,904,623 $ 2,563,949 $ 2,007,234
Loans receivable 2,062,896 1,716,182 1,423,574 1,197,340 1,072,584
Allowance for possible loan losses 14,917 14,370 13,267 12,045 13,760
Securities available for sale:
Bonds and equities 308,569 337,446 304,154 271,979 297,237
Mortgage-backed securities 168,096 104,401 226,842 150,551 137,214
Securities held to maturity/for investment, net:
Bonds and equities 42,092 53,632 98,792 322,800 210,233
Mortgage-backed securities 1,177,208 955,300 756,831 504,960 159,674
Other real estate owned, net 1,040 3,264 6,547 6,535 7,077
Due to depositors 2,202,353 2,343,513 2,038,341 1,696,359 1,217,745
Borrowed funds 1,298,578 637,835 594,563 625,200 545,200
Stockholders' equity 240,971 204,038 199,684 177,767 184,738
<CAPTION>
====================================================================================================================================
For the Year Ended December 31,
------------------------------------------------------------------------
(in thousands, except per share data) 1997 1996 1995 1994 1993
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
SELECTED OPERATING DATA
Interest income $ 255,412 $ 218,404 $ 194,690 $ 148,073 $ 119,404
Interest expense 163,766 137,170 124,305 88,321 68,148
- ------------------------------------------------------------------------------------------------------------------------------------
Net interest income 91,646 81,234 70,385 59,752 51,256
Provision for possible loan losses 800 1,400 3,050 2,250 6,100
Non-interest income:
Loan fees and other charges, net
and other income 7,224 8,406 7,621 6,596 8,514
Net gain on securities activities and sales of
whole loans 5,711 7,513 5,464 592 4,589
Non-interest expense 45,813 43,063 42,685 42,019 38,155
- ------------------------------------------------------------------------------------------------------------------------------------
Income before provision for income taxes,
extraordinary charges and net cumulative
effect of changes in accounting principles 57,968 52,690 37,735 22,671 20,104
Provision for income taxes 23,240 22,175 16,810 10,256 8,646
- ------------------------------------------------------------------------------------------------------------------------------------
Income before extraordinary charges and
net cumulative effect of changes in
accounting principles 34,728 30,515 20,925 12,415 11,458
Extraordinary charges from prepayments of
FHLB advances, net of taxes -- -- -- -- (2,287)
Net cumulative effect of changes in accounting
principles -- -- -- -- 500
- ------------------------------------------------------------------------------------------------------------------------------------
Net Income $ 34,728 $ 30,515 $ 20,925 $ 12,415 $ 9,671
====================================================================================================================================
Basic Earnings Per Share(1)(2) $2.11 $1.84 $1.16 $0.64 $0.23
Diluted Earnings Per Share(1)(2) $1.96 $1.72 $1.10 $0.62 $0.23
====================================================================================================================================
</TABLE>
6 T R Financial Corp. & Subsidiaries
<PAGE>
Selected Consolidated Financial and Other Data
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
At or For the Year Ended December 31,
----------------------------------------------------------------
1997 1996 1995 1994 1993
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
SELECTED FINANCIAL RATIOS
Return on average assets 0.98% 1.00% 0.76% 0.55% 0.54%
Return on average stockholders' equity 15.86% 16.03% 10.65% 6.84% 6.85%
Average stockholders' equity to average assets 6.16% 6.24% 7.14% 8.05% 7.89%
Stockholders' equity to total assets 6.27% 6.26% 6.87% 6.93% 9.20%
Interest rate spread 2.23% 2.34% 2.24% 2.31% 2.54%
Net interest margin 2.63% 2.72% 2.64% 2.73% 2.97%
Efficiency ratio(3) 46.34% 48.04% 54.72% 63.33% 63.84%
Non-interest expense to average assets 1.29% 1.41% 1.55% 1.86% 2.13%
Net interest income to non-interest expense 2.00x 1.89x 1.65x 1.42x 1.34x
Average earning assets to average interest-
bearing liabilities 1.08x 1.08x 1.08x 1.10x 1.11x
PER SHARE DATA(2)
Diluted earnings per share(1) $ 1.96 $ 1.72 $ 1.10 $ 0.62 $ 0.23
Book value per share $ 14.54 $ 12.50 $ 11.44 $ 9.59 $ 8.53
Dividends per share(4) $ 0.55 $ 0.34 $ 0.185 $ 0.025 --
Dividend payout ratio 28.06% 19.77% 16.82% 4.03% --
ASSET QUALITY RATIOS
Non-performing loans to total loans(5) 0.67% 0.74% 1.31% 3.01% 3.49%
Non-performing assets to total assets(5) 0.38% 0.49% 0.87% 1.67% 2.24%
Net charge-offs to average loans 0.01% 0.02% 0.14% 0.34% 0.35%
Allowance for possible loan losses to total loans 0.72% 0.84% 0.93% 1.01% 1.28%
Allowance for possible loan losses to
non-performing loans(5) 108.53% 113.79% 70.94% 33.46% 36.72%
REGULATORY CAPITAL RATIOS(6)
Leverage capital ratio 6.26% 6.43% 6.75% 7.60% 9.23%
Total risk-based capital ratio 18.61% 17.86% 18.20% 18.77% 19.74%
====================================================================================================================================
</TABLE>
(1) 1993 basic and diluted earnings per share are presented only for the
period subsequent to the conversion on June 29, 1993. Because
extraordinary charges and accounting changes occurred prior to June 29,
1993, basic and diluted earnings per share exclude the effects of these
items.
(2) Per share data has been restated to give effect to a 100% stock dividend
paid on May 14, 1997.
(3) The efficiency ratio measures non-interest expense as a percentage of the
sum of net interest income and non-interest income, excluding net gains on
asset sales.
(4) Dividends for the year ended December 31, 1994 are for one quarter.
(5) Non-performing loans exclude loans which have been restructured and are
accruing and performing in accordance with the restructured terms.
Restructured, accruing loans totaled $5,132,000, $5,297,000, $6,391,000,
$6,251,000 and $4,813,000 at December 31, 1997, 1996, 1995, 1994 and 1993,
respectively.
(6) The figures shown are for the Company. The Bank's leverage capital ratio
and total risk-based capital ratio was 5.98% and 17.80%, respectively, at
December 31, 1997, 6.07% and 16.86%, respectively, at December 31, 1996,
6.27% and 16.93%, respectively, at December 31, 1995, 6.68% and 16.49%,
respectively, at December 31, 1994 and 7.67% and 16.38%, respectively, at
December 31, 1993. See "Liquidity and Capital Resources -- Regulatory
Capital Position" for additional information regarding Bank capital
levels.
T R Financial Corp. & Subsidiaries 7
<PAGE>
Glossary of Financial Terms
Allowance for Possible Loan Losses
A balance sheet account which is an estimation of possible loan losses. The
provision for possible loan losses is added to the allowance account while
charge-offs decrease the account. Recoveries on loans previously charged off
increase the allowance.
Basis Point
The smallest measure used in quoting interest rate yields. One basis point is
0.01% of yield. Thus, a yield that moves from 7.00% to 7.50% moves up 50 basis
points.
Book Value Per Share
Total stockholders' equity divided by number of shares of common stock
outstanding. Common stock outstanding, for financial reporting purposes,
excludes stock held in treasury and may also exclude unallocated shares of
common stock held by a company's employee stock ownership plan.
Charge-Offs
Portions of loan balances or escrow advances written off against the allowance
for possible loan losses, rather than charged to current earnings, once a loan
is deemed to be uncollectible.
Core Deposits
Deposits that are traditionally stable, generally consisting of savings
accounts, NOW accounts and non-interest-bearing demand accounts.
Cost of Funds
The interest cost associated with interest-bearing liabilities. A cost of funds
ratio represents the ratio of interest expense to average interest-bearing
liabilities for the period.
Earning Assets
Interest- or dividend-bearing assets, including loans and securities.
Earnings Per Share (Basic and Diluted)
Net income divided by weighted average shares of common stock outstanding
represents basic earnings per share. When dilutive, common stock equivalents,
such as stock options, are added to the denominator, this ratio represents
diluted earnings per share. Common stock outstanding is reduced by stock held in
treasury and the unallocated shares of common stock held by a company's employee
stock ownership plan.
Efficiency Ratio
A ratio of non-interest expense as a percentage of the sum of net interest
income and non-interest income, excluding net gains on asset sales.
Employee Stock Ownership Plan (ESOP)
A type of tax-qualified retirement plan for employees that maintains individual
accounts on behalf of each plan participant and annually credits individual
accounts with contributions which are invested in company common stock.
Federal Funds
Generally one-day loans of excess reserves from one bank to another. When a bank
buys (borrows) federal funds, these funds are called "federal funds purchased."
When it sells (lends) them, they are called "federal funds sold."
Foreclosed Assets
Property acquired because the borrower defaulted on the loan.
Interest Rate Sensitivity Gap
Interest rate sensitivity gap is the difference between the estimated amount of
earning assets maturing or repricing within a specific time period and the
estimated amount of interest-bearing liabilities maturing or repricing within
that time period.
Leverage Ratio
A ratio of equity to assets, and defined as period-end Tier 1 capital less
goodwill as a percentage of average assets for the most recent quarter.
Liquidity
The ability of current assets to meet current liabilities when due. The degree
of liquidity of an asset is the period of time anticipated to elapse until the
asset is realized or is otherwise converted into cash. A liquid bank has less
risk of being unable to meet debt than an illiquid one. Also, a liquid bank
generally has more financial flexibility to take on new investment
opportunities. However, excess liquidity can reduce earnings.
8 T R Financial Corp. & Subsidiaries
<PAGE>
Mortgage Servicing Rights
The rights to service mortgage loans. Rights to service mortgage loans are
acquired through loan origination activities or may be purchased. Mortgage
banking enterprises may purchase and sell mortgage servicing rights.
Net Interest Income
The difference between interest and dividend income on earning assets and
interest expense on interest-bearing liabilities.
Net Interest Margin
Net interest income as a percentage of average earning assets for the period.
Net Interest Spread
The difference between the yield on earning assets and the cost of funds ratio.
Non-Performing Assets
Non-performing loans and securities plus foreclosed assets.
Non-Performing Loans
Loans upon which interest income is not currently recognized because of the
borrower's financial problems (non-accrual loans) and loans which are 90 days or
more delinquent and still accruing interest.
Other Real Estate Owned
Real estate which a bank takes or to which it assumes title in order to sell the
property as the result of a loan default.
Provision For Possible Loan Losses
A charge against current period earnings which reflects an estimation of
possible loan losses.
Return On Assets
Net income as a percentage of average total assets for the period. The return on
assets measures profitability in terms of how efficiently assets are being
utilized.
Return On Equity
Net income as a percentage of average total equity. The return on equity
measures profitability in terms of how efficiently equity or capital is being
invested.
Risk-Based Capital
The amount of capital (Tier 1 plus Tier 2 capital) required by federal
regulatory standards, based on a risk-weighting of assets. For example, more
capital is required for an unsecured loan than for investments in U.S.
Government Treasury securities. The required minimum ratio of capital to
risk-weighted assets is 8%.
Securities Sold Under Agreements To Repurchase
Refers to a transaction that is accounted for as a collateralized borrowing in
which a seller-borrower of securities sells those securities to a buyer-lender
with an agreement to repurchase them at a stated price plus interest at a
specified date or in specified circumstances. Such agreements may also be
referred to as security repurchase agreements.
Stock Option
A right to purchase or sell a stock at a specified price within a stated period.
Tier 1 Capital
Common stockholders' equity (excluding any net of tax adjustment for net
unrealized appreciation/ depreciation in certain securities), qualifying
non-cumulative perpetual preferred stock and minority interest in equity
accounts of consolidated subsidiaries, less any unrealized net loss in
marketable equity securities, goodwill and other disallowed intangibles.
Tier 2 Capital
The allowance for possible loan losses (limited to a certain percentage of
risk-weighted assets), perpetual and long-term preferred stock, hybrid capital
instruments (including perpetual debt and mandatory convertible securities) and
subordinated debt and intermediate-term preferred stock (subject to certain
limitations).
T R Financial Corp. & Subsidiaries 9
<PAGE>
Management's Discussion and Analysis of
Financial Condition and Results of Operations
General
T R Financial Corp. ("T R Financial") was formed in 1993 to serve as the bank
holding company for Roosevelt Savings Bank (the "Bank"), a New York State
chartered stock savings bank.
While the following discussion of financial condition and results of
operations includes the collective results of T R Financial and the Bank
(collectively the "Company"), this discussion reflects principally the Bank's
activities.
The Company's results of operations are dependent primarily on net
interest income, which is the difference between the interest and dividend
income earned on its loan and securities portfolios and its cost of funds,
consisting of the interest paid on its deposits and borrowings. The Company's
operating expenses principally consist of employee compensation, occupancy,
marketing and other real estate owned expenses and other operating expenses. The
Company's results of operations are also significantly affected by its periodic
provisions for possible loan losses, by write-downs of assets and net gains and
losses on sales of assets. Such results are also significantly affected by
general economic and competitive conditions, particularly changes in market
interest rates, government policies and actions of regulatory authorities.
Management Strategy
Management's strategy has been to prudently leverage its strong capital position
through asset growth, to increase profitability and to manage its exposure to
fluctuations in interest rates. To accomplish these strategies, the Bank (1)
emphasizes investments in one- to four-family residential, including co-op,
fixed rate mortgages, as well as adjustable rate mortgage ("ARM") products; (2)
emphasizes, as an alternative to the investment in loans, the purchase of U.S.
government agency mortgage-backed securities; (3) develops its retail banking
franchise by maintaining a stable base of cost effective deposits and by
offering deposit products which are cost effective funding sources; (4) utilizes
wholesale borrowing facilities such as securities sold under agreements to
repurchase to supplement the cost effective funding of asset growth; (5)
emphasizes productivity and cost efficiency in the conduct of its operations;
and (6) manages its interest rate risk to appropriately position the Bank in
changing interest rate environments.
Emphasizing Home Lending - The Bank experienced an increase in overall
real estate lending activity during 1997 with a favorable interest rate
environment and the continued success of correspondent loan programs with area
mortgage brokers and mortgage bankers. In addition, the Bank continues to
originate commercial real estate loans on a selective basis. For the year ended
December 31, 1997, 44.0% of the Bank's interest income was derived from one- to
four-family residential loans, including loans secured by shares representing
co-operative units ("co-op loans"), as compared to 41.9% in 1996. These
residential loans have outstanding balances amounting to $1.69 billion, or 82.0%
of total loans, net of deferred amounts, at December 31, 1997 and are generally
considered to involve less risk than other types of loans. The remaining $371.6
million, or 18.0% of total loans, net of deferred amounts, at December 31, 1997
consisted of $216.7 million of commercial real estate loans, $109.0 million of
other loans, $27.5 million of multi-family loans and $18.5 million of
construction and land development loans. Although these other types of loans
generally have higher yields than one- to four-family residential mortgage
loans, and shorter terms to maturity, which generally improve the Bank's
interest rate sensitivity, they are generally viewed as exposing a lender to a
greater risk of credit loss than one- to four-family residential mortgage loans
and, except for other loans, typically involve higher loan principal amounts.
[GRAPHIC OMITTED]
<TABLE>
<CAPTION>
Loan Portfolio Composition
- --------------------------
As of December 31, 1997
<S> <C>
Residential real estate 82.0%
Commercial real estate 10.5%
Other loans 5.3%
Multi-family 1.3%
Construction and land development 0.9%
</TABLE>
The Bank's ratio of non-performing loans to total loans was 0.67% and
0.74% at December 31, 1997 and 1996, respectively. The decrease in this ratio is
attributable to the Company's overall loan growth and is partially offset by an
increase in non-performing loans of $1.1 million. The ratio of the
10 T R Financial Corp. & Subsidiaries
<PAGE>
allowance for possible loan losses to total loans was 0.72% as of December 31,
1997 as compared to 0.84% as of December 31, 1996. A weakness or deterioration
in the economic conditions of the Bank's primary lending area in the future may
result in the Bank experiencing further increases in non-performing loans or
non-performing assets. Such increases would likely result in higher provisions
for possible loan losses and reduced levels of earning assets, which would lower
the level of net interest income and possibly result in higher levels of other
real estate owned expense.
Emphasizing Mortgage-Backed Securities - Consistent with management's
strategy of asset growth, the Bank has continued its emphasis on the purchase of
U.S. government agency mortgage-backed securities. For the year ended December
31, 1997, the Bank purchased $510.8 million of fixed rate mortgage-backed
securities which were issued by the Government National Mortgage Association
("GNMA").
[GRAPHIC OMITTED]
Total Mortgage-Backed Securities
- --------------------------------
Billions of dollars
Total 0.983673 1.059701 1,345304
======== ======== ========
Available for sale 0.226842 0.104401 0.168096
Held to maturity 0.756831 0.955300 1.177208
'95 '96 '97
At December 31, 1997, mortgage-backed securities held to maturity had an
amortized cost of $1.18 billion (estimated fair value of $1.20 billion) and a
weighted average yield and weighted average life of 7.87% and 6.30 years,
respectively. At December 31, 1997, mortgage-backed securities available for
sale had an amortized cost of $166.4 million (estimated fair value of $168.1
million) and a weighted average yield and weighted average life of 8.02% and
6.89 years, respectively. See "Interest Rate Sensitivity" for a discussion of
the potential impact of changes in interest rates on mortgage-backed securities
and other interest-earning assets.
Enhancing the Retail Banking Franchise - During 1997, management
emphasized the maintenance of its stable base of deposits and strategically
priced time deposit products to balance their competitiveness with their cost
effectiveness. For the year ended December 31, 1997, due to depositors decreased
$141.2 million to $2.2 billion and, as a result, the Bank's average deposits per
branch decreased from $156.2 million at December 31, 1996 to $146.8 million at
December 31, 1997. This decrease was attributable to the planned net outflow of
certain higher cost retail deposits. 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 maturing time deposit products and to reduce
the Company's overall interest rate sensitivity.
At December 31, 1997, the Bank had core deposits of $679.7 million as
compared to $651.5 million at December 31, 1996. Core deposits as a percentage
of total deposits increased during 1997 from 27.8% at December 31, 1996 to 30.9%
at December 31, 1997 due primarily to the $173.1 million decrease in
certificates of deposit to $1.44 billion. While not considered core deposits,
the Bank offers certificates of deposit with three to ten year maturities, which
management views as a stable source of funding. At December 31, 1997, the Bank
had $61.4 million of certificates of deposit with remaining terms to maturity of
more than three years. Additionally, although not considered to be a core
deposit, the Bank offers money market accounts which it believes also provide
the Bank with relatively stable lower cost deposits. At December 31, 1997 and
1996, the Bank's money market account balances were $80.9 million and $77.2
million, respectively, at a weighted average interest rate for both years of
2.21%. The Bank has not used brokered deposits as a source of funds.
Wholesale Funding Sources - During 1997, the Bank leveraged its asset
growth with security repurchase agreements which provide a significant source of
funds at a fixed cost to the Bank. At December 31, 1997 and 1996, the Bank had
$807.0 million and $55.0 million, respectively, of security repurchase
agreements with weighted average interest rates of 5.71% and 5.63% for 1997 and
1996, respectively, and weighted average number of years to maturity of 3.51 and
0.96 years, respectively. The majority of these security repurchase agreements
contain call features which can significantly reduce the weighted average terms
of these agreements, if called. In addition to security repurchase agreements,
the Bank also utilizes Federal Home Loan Bank of New York ("FHLB") advances as a
funding source. The dollar amount of these FHLB advances has decreased from
T R Financial Corp. & Subsidiaries 11
<PAGE>
$582.8 million at December 31, 1996 to $491.6 million at December 31, 1997. At
December 31, 1997 and 1996, FHLB advances had weighted average interest rates of
5.91% and 5.89%, respectively, and weighted average years to maturity of 2.02
and 2.28 years, respectively.
Productivity and Cost Efficiency - The Company's efficiency ratio and
ratio of non-interest expense to average assets are two measures used by the
Company to assess its productivity and cost efficiency. For the years ended
December 31, 1997, 1996 and 1995, the Company's efficiency ratio was 46.34%,
48.04% and 54.72%, respectively. The ratio of non-interest expense to average
assets was 1.29% for the year ended December 31, 1997 as compared to 1.41% and
1.55% for the years ended December 31, 1996 and 1995, respectively. The
Company's ratio of 1.29% compares favorably to its peer group average of 2.23%
as of September 30, 1997, the date of the latest available report by the Federal
Deposit Insurance Corporation ("FDIC"). The Company's improved efficiency ratios
reflect the ongoing evaluation and monitoring of expenses and the efficiencies
resulting from the growth in assets and net interest income.
Managing Interest Rate Risk - The Company's interest bearing liabilities
generally adjust more rapidly in a changing interest rate environment than its
interest earning assets (See "Interest Rate Sensitivity"). As a result, the
Company seeks to reduce its exposure to interest rate risk by increasing the
interest rate sensitivity of its assets and decreasing the interest rate
sensitivity of its liabilities. The Company manages the interest rate
sensitivity of its assets through the origination and purchase of adjustable
rate mortgage loans and, to a lesser extent, the purchase of fixed rate
mortgage-backed securities with intermediate-term estimated weighted average
remaining lives. At December 31, 1997, the Company's adjustable rate mortgage
loans comprised 41.3% of total mortgage loans on real estate. At December 31,
1997, the Company's mortgage-backed securities classified held to maturity had
an estimated weighted average remaining life of 6.30 years while such securities
classified available for sale had an estimated weighted average remaining life
of 6.89 years. The Company manages the interest rate sensitivity of its
liabilities by altering the mix of deposit products offered and by lengthening
the maturities of new borrowed funds.
In its securities portfolio, the Company has emphasized maintaining
adequate financial flexibility and liquidity by classifying certain securities
as available for sale and by maintaining a mix of short-term and
intermediate-term maturities. Management also utilizes its retail banking
franchise to provide a lower cost core deposit base which also limits interest
rate risk as these deposits are considered by management to have relatively low
volatility. Interest rate risk can also be managed through certain off-balance
sheet derivative financial instruments such as futures, forward, interest rate
swap or options contracts. Management has not engaged in such derivative
financial instruments in the management of its interest rate risk.
The Company uses earning simulations, as well as gap analysis, to analyze
and project future interest rate risk. Computer generated scenarios are based on
various assumptions, including expected changes in the level of interest rates
and the shape of the yield curve, pricing strategies, growth and volume and mix
alternatives for various funding and investment strategies. The Company monitors
its exposure to interest rate risk in accordance with its Board approved
guidelines. The specific results of interest rate simulation modeling are
reviewed at least annually with the Board of Directors.
Interest Rate Sensitivity
The matching of assets and liabilities may be analyzed by examining the extent
to which such assets and liabilities are "interest rate sensitive" and by
monitoring an institution's interest rate sensitivity gap. An asset or liability
is said to be interest rate sensitive within a specific time period if it will
mature or reprice within that time period. The interest rate sensitivity gap is
defined as the difference between the amount of earning assets maturing or
repricing within a specific time period and the amount of interest-bearing
liabilities maturing or repricing within that time period. A gap is considered
positive when the amount of earning assets maturing or repricing exceeds the
amount of interest-
12 T R Financial Corp. & Subsidiaries
<PAGE>
bearing liabilities maturing or repricing within the same period. A gap is
considered negative when the amount of interest-bearing liabilities maturing or
repricing exceeds the amount of earning assets maturing or repricing within the
same period.
As a result of the Company's one-year negative gap position at December
31, 1997 of 9.40%, the yield on earning assets of the Company will adjust to
changes in interest rates at a slower rate than the cost of the Company's
interest-bearing liabilities. As a consequence, any significant increase in
interest rates may have an adverse effect on the Company's results of
operations. Conversely, any significant decline in interest rates may have a
positive impact on the Company's results of operations as the cost of the
Company's interest-bearing liabilities will tend to reprice downward at a faster
rate than the Company's earning assets. Increases in the level of interest rates
also may adversely affect the value of the Company's debt securities and other
earning assets and the ability to sell such assets without realizing losses.
Generally, the value of fixed rate instruments fluctuates inversely with changes
in interest rates. As a result, increases in interest rates could result in
decreases in the carrying value of interest-earning assets which could adversely
affect the Company's results of operations if sold, or in the case of
interest-earning assets classified as available for sale, the Company's equity
if retained.
Increases in interest rates may also affect decisions by the Company to
retain certain securities, such as mortgage-backed securities, in available for
sale or to transfer such securities to held to maturity. While such transfers
would reduce the volatility that fluctuations in market values would have on
stockholders' equity under Statement of Financial Accounting Standards ("SFAS")
No. 115, "Accounting for Investments in Certain Debt and Equity Securities," it
would also reduce the ability of these securities to reprice through sales and
purchases of securities at the then current market rates. Reducing the repricing
ability of these securities could adversely affect the Company's results of
operations in view of the Company's negative gap position. However, such
transfers would also reduce the likelihood of significant losses from the sales
of such securities. Increases in interest rates can also affect the type (fixed
or adjustable rate) and amount of loans originated by the Company and the
average life of loans and securities, which can adversely impact the yields
earned on the Company's loan and securities portfolios.
Certain shortcomings are inherent in the method of analysis presented in
the following table ("Gap table"). For example, although certain assets and
liabilities may have similar periods of repricing, they may react in different
degrees to changes in market interest rates. Also, the interest rates on certain
types of assets and liabilities may fluctuate in advance of changes in market
interest rates, while interest rates on other types may lag behind such changes.
Additionally, certain assets, such as ARM loans, have features which
restrict changes in interest rates on a short-term basis and over the life of
the asset. Further, in the event of a change in interest rates, prepayment and
early withdrawal levels may deviate significantly from those assumed in
calculating the Gap table. For example, as interest rates decrease, borrowers
may be inclined to refinance their debt and lock in to lower fixed rate loans.
Finally, the ability of many borrowers to make payments on their adjustable rate
debt may decrease in the event of an interest rate increase.
The following Gap table sets forth the amounts of earning assets and
interest-bearing liabilities outstanding at December 31, 1997 that are
anticipated by the Company, based upon certain assumptions, to reprice or mature
in each of the future time periods shown. Except as stated below, the amount of
assets and liabilities shown which reprice or mature during a particular period
was determined in accordance with the earlier of the term to repricing or the
contractual terms of the asset or liability. Prepayment assumptions have been
applied in estimating the repricing of the Company's mortgage loans and
mortgage-backed securities classified as held to maturity. The estimated rates
of prepayment assumed for loans and mortgage-backed securities are based upon
coupon rates. The Company utilized historical deposit withdrawal patterns of the
Bank for its deposit decay rate assumptions. For passbook accounts, NOW accounts
and money market accounts in the one year or less category, such assumed rates
for the Bank were 12%, 4% and 20%, respectively. The assumptions used may not be
indicative of future withdrawals of deposits or prepayments of loans and
mortgage-backed securities.
T R Financial Corp. & Subsidiaries 13
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
More Than More Than
Due in One One Year Five Years More Than
(dollars in thousands) Year or Less To Five Years To Ten Years Ten Years Total
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
EARNING ASSETS
Mortgage loans(1) $ 374,888 $ 965,120 $ 484,560 $ 117,180 $ 1,941,748
Other loans(1) 54,149 49,949 4,014 586 108,698
Securities held to maturity 233,346 498,327 352,895 134,732 1,219,300
Securities available for sale(2) 429,441 47,224 -- -- 476,665
- ------------------------------------------------------------------------------------------------------------------------------------
Total earning assets 1,091,824 1,560,620 841,469 252,498 3,746,411
- ------------------------------------------------------------------------------------------------------------------------------------
INTEREST-BEARING LIABILITIES
Passbook accounts(3) 74,723 298,893 124,539 124,539 622,694
NOW accounts 545 7,625 2,724 2,724 13,618
Money market accounts 16,178 32,356 16,178 16,178 80,890
Certificate of deposit accounts 1,095,173 333,030 13,513 -- 1,441,716
Borrowed funds(4) 266,450 999,350 32,344 434 1,298,578
- ------------------------------------------------------------------------------------------------------------------------------------
Total interest-bearing liabilities(5) 1,453,069 1,671,254 189,298 143,875 3,457,496
- ------------------------------------------------------------------------------------------------------------------------------------
Interest rate sensitivity gap $ (361,245) $ (110,634) $ 652,171 $ 108,623 $ 288,915
- ------------------------------------------------------------------------------------------------------------------------------------
Cumulative interest rate sensitivity gap $ (361,245) $ (471,879) $ 180,292 $ 288,915
- ------------------------------------------------------------------------------------------------------------------------------------
Cumulative interest rate sensitivity gap
as a percentage of total assets -9.40% -12.28% 4.69% 7.52%
Cumulative earning assets as a
percentage of interest-bearing liabilities 75.14% 84.90% 105.44% 108.36%
====================================================================================================================================
</TABLE>
(1) For purposes of the gap analysis, mortgage and other loans, net of
deferred costs, are reduced for non-accrual loans.
(2) $121.2 million of securities classified as available for sale are used as
collateral in security repurchase agreements and are included in the
column in which the underlying borrowing matures. All other securities
classified as available for sale are included in the column "Due in One
Year or Less."
(3) Includes mortgagors' escrow deposits.
(4) $745.0 million of borrowed funds have callable or convertible features.
Such borrowed funds, however, are included above based upon their terms to
maturity.
(5) Does not include demand accounts, which are non-interest bearing, totaling
$65.2 million at December 31, 1997.
The Company's interest rate sensitivity is also monitored by management
through the use of a model which internally generates estimates of the change in
net portfolio value ("NPV") over a range of interest rate change scenarios. NPV
is the present value of expected cash flows from assets, liabilities and
off-balance sheet contracts. The NPV ratio, under any interest rate scenario, is
defined as the NPV in that scenario divided by the market value of assets in the
same scenario. For purposes of the NPV table, prepayment speeds similar to those
used in the Gap table were used, reinvestment rates were those in effect for
similar products currently being offered and rates on core deposits were
modified to reflect recent trends. The following table sets forth the Company's
NPV as of December 31, 1997, as calculated by the Company.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Net Portfolio Value Portfolio Value of Assets
- ------------------------------------------------------------------------------------------------------------------------------------
Rates in Basis Points (Rate Shock) (dollars in thousands) $ Amount $ Change % Change NPV Ratio % Change(1)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
200................................... $177,884 $(82,296) -31.63% 4.90% -26.88%
100................................... 231,098 (29,082) -11.18 6.15 -8.33
Static................................ 260,180 -- -- 6.71 --
(100)................................. 289,924 29,744 11.43 7.33 9.33
(200)................................. 305,222 45,042 17.31 7.60 13.33
====================================================================================================================================
</TABLE>
(1) Based on the portfolio value of the Company's assets assuming no change in
interest rates.
14 T R Financial Corp. & Subsidiaries
<PAGE>
As in the case with the Gap table, certain shortcomings are inherent in
the methodology used in the above interest rate risk measurements. Modeling
changes in NPV require the making of certain assumptions which may or may not
reflect the manner in which actual yields and costs respond to changes in 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.
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
relating to the Company's average statements of financial condition and its
statements of income for the years ended December 31, 1997, 1996 and 1995, and
reflects the average yield on earning assets and average cost of
interest-bearing liabilities for the periods indicated. Such yields and costs
are derived by dividing income or expense by the average balance of assets or
liabilities, respectively, for the periods shown. Average balances are derived
from average daily balances. Average balances and yields include non-accrual
loans.
T R Financial Corp. & Subsidiaries 15
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Year Ended December 31,
-------------------------------------------------------------------------------------------------
1997 1996 1995
-------------------------------------------------------------------------------------------------
Average Average Average
Average Yield/ Average Yield/ Average Yield/
(dollars in thousands) Balance Interest Cost Balance Interest Cost Balance Interest Cost
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Earning assets:
Mortgage loans, net(1) $1,753,751 $132,528 7.56% $1,482,027 $111,683 7.54% $1,222,184 $ 92,896 7.60%
Other loans(1) 108,206 8,249 7.62 85,833 6,941 8.09 57,107 4,847 8.49
Mortgage-backed securities(2) 1,178,304 88,226 7.49 1,007,721 75,799 7.52 841,933 63,829 7.58
Short-term securities(3) 15,875 884 5.57 4,983 267 5.36 6,003 359 6.00
Other securities(2) 426,315 25,525 5.99 402,384 23,714 5.89 542,247 32,759 6.04
- ------------------------------------------------------------------------------------------------------------------------------------
Total earning assets 3,482,451 255,412 7.33 2,982,948 218,404 7.32 2,669,474 194,690 7.29
Non-earning assets 71,188 68,604 80,941
- ------------------------------------------------------------------------------------------------------------------------------------
Total assets $3,553,639 $3,051,552 $2,750,415
====================================================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Interest-bearing liabilities:
Deposits:
Passbook accounts $ 634,516 $ 18,682 2.94% $ 564,315 $ 15,571 2.76% $ 501,698 $ 13,241 2.64%
NOW accounts 10,502 296 2.82 25,172 724 2.88 57,829 1,891 3.27
Money market accounts 76,486 2,098 2.74 80,840 2,228 2.76 57,585 1,778 3.09
Certificate of deposit accounts 1,588,485 89,966 5.66 1,478,403 83,738 5.66 1,244,198 73,118 5.88
- ------------------------------------------------------------------------------------------------------------------------------------
Total interest-bearing deposits 2,309,989 111,042 4.81 2,148,730 102,261 4.76 1,861,310 90,028 4.84
Borrowed funds 903,860 52,724 5.83 607,235 34,909 5.75 600,560 34,277 5.71
- ------------------------------------------------------------------------------------------------------------------------------------
Total interest-bearing liabilities 3,213,849 163,766 5.10 2,755,965 137,170 4.98 2,461,870 124,305 5.05
Other liabilities(4) 120,787 105,265 92,034
- ------------------------------------------------------------------------------------------------------------------------------------
Total liabilities 3,334,636 2,861,230 2,553,904
Stockholders' equity 219,003 190,322 196,511
- ------------------------------------------------------------------------------------------------------------------------------------
Total liabilities and
stockholders' equity $3,553,639 $3,051,552 $2,750,415
====================================================================================================================================
Net interest income/
interest rate spread $ 91,646 2.23% $ 81,234 2.34% $ 70,385 2.24%
- ------------------------------------------------------------------------------------------------------------------------------------
Net earning assets/
net interest margin $ 268,602 2.63% $ 226,983 2.72% $ 207,604 2.64%
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of earning assets
to interest-bearing liabilities 1.08x 1.08x 1.08x
====================================================================================================================================
</TABLE>
(1) In computing the average balance of loans, non-accrual loans have been
included.
(2) Includes, at amortized cost, securities available for sale, securities
held to maturity, net and, in the case of other securities, Federal Home
Loan Bank stock. Excludes net unrealized appreciation (depreciation) in
certain securities.
(3) Includes commercial paper, bankers' acceptances, interest-earning
deposits, money market instruments and federal funds sold.
(4) Includes $65.2 million, $62.1 million and $58.6 million of
non-interest-bearing demand deposit accounts for the years 1997, 1996 and
1995, respectively.
Rate/Volume Analysis
The following table presents the extent to which changes in interest rates and
changes in the volume of earning assets and interest-bearing liabilities have
affected the Company's interest income and interest expense during the periods
indicated. Information is provided in each category with respect to (i) changes
attributable to changes in volume (changes in volume multiplied by prior rate),
(ii) changes attributable to changes in rate (changes in rate multiplied by
prior volume), and (iii) the net change. The changes attributable to the
combined impact of volume and rate have been allocated proportionately to the
changes due to volume and the changes due to rate.
16 T R Financial Corp. & Subsidiaries
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Year Ended December 31, 1997 Year Ended December 31, 1996
Compared to Compared to
Year Ended December 31, 1996 Year Ended December 31, 1995
Increase (Decrease) Due to Increase (Decrease) Due to
-------------------------------------------------------------------------------
(in thousands) Volume Rate Net Volume Rate Net
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
EARNING ASSETS
Mortgage loans, net $ 20,488 $ 357 $ 20,845 $ 19,748 $ (961) $ 18,787
Other loans 1,810 (502) 1,308 2,439 (345) 2,094
Mortgage-backed securities 12,828 (401) 12,427 12,567 (597) 11,970
Short-term securities 584 33 617 (61) (31) (92)
Other securities 1,410 401 1,811 (8,448) (597) (9,045)
- ------------------------------------------------------------------------------------------------------------------------------------
Total 37,120 (112) 37,008 26,245 (2,531) 23,714
- ------------------------------------------------------------------------------------------------------------------------------------
INTEREST-BEARING LIABILITIES
Deposits:
Passbook accounts 1,938 1,173 3,111 1,653 677 2,330
NOW accounts (422) (6) (428) (1,068) (99) (1,167)
Money market accounts (120) (10) (130) 719 (269) 450
Certificate of deposit accounts 6,231 (3) 6,228 13,771 (3,151) 10,620
- ------------------------------------------------------------------------------------------------------------------------------------
Total deposits 7,627 1,154 8,781 15,075 (2,842) 12,233
- ------------------------------------------------------------------------------------------------------------------------------------
Borrowed funds 17,056 759 17,815 381 251 632
- ------------------------------------------------------------------------------------------------------------------------------------
Total 24,683 1,913 26,596 15,456 (2,591) 12,865
- ------------------------------------------------------------------------------------------------------------------------------------
Net change in net interest income $ 12,437 $ (2,025) $ 10,412 $ 10,789 $ 60 $ 10,849
====================================================================================================================================
</TABLE>
Financial Condition
Total assets increased $583.4 million, or 17.9%, to $3.84 billion at December
31, 1997 from $3.26 billion at December 31, 1996, primarily as a result of
management's strategy to leverage its capital position through asset growth.
This growth was funded primarily by an increase in borrowed funds.
Securities available for sale increased $34.8 million, or 7.9%, to $476.7
million at December 31, 1997 from $441.8 million at December 31, 1996.
Securities held to maturity, net increased $210.4 million, or 20.9%, to $1.22
billion at December 31, 1997 from $1.01 billion at December 31, 1996. In total,
for both securities available for sale and held to maturity, bonds and equities
decreased $40.4 million, or 10.3%, to $350.7 million at December 31, 1997 as
compared to $391.1 million at December 31, 1996, and mortgage-backed securities
increased $285.6 million, or 27.0%, to $1.35 billion at December 31, 1997 as
compared to $1.06 billion at December 31, 1996. The mortgage-backed securities
purchased in 1997 consisted entirely of fixed rate government agency backed
securities and reflect management's strategy of supplementing loan originations
with mortgage-backed security purchases to manage asset growth. Loans
receivable, net of the allowance for possible loan losses, increased $346.2
million, or 20.3%, to $2.05 billion at December 31, 1997 from $1.70 billion at
December 31, 1996. This increase reflects management's strategy of emphasizing
home lending. Mortgage loans on real estate, net of deferred amounts increased
$347.0 million during 1997, with originations and loan purchases aggregating
$574.3 million for 1997. Other loans, net decreased $285 thousand during 1997,
primarily due to a decline in automobile leases of $20.6 million which was
partially offset by a $17.1 million increase in consumer loans. In March 1997, a
third party leasing company which sold automobile leases to the Company
discontinued its sales program in connection with its acquisition by a
commercial bank.
Total deposits decreased $141.2 million, or 6.0%, to $2.20 billion at
December 31, 1997 from $2.34 billion at December 31, 1996. This decrease was
primarily attributable to the planned net outflow of certain higher cost retail
deposits and management's strategy to supplement funding of asset growth through
additional borrowed funds. Of the net deposit outflow experienced during 1997,
$109.6 million, or 77.7%, of the net outflow was attributable to certificate of
deposit accounts with maturities of one year or less. At December 31, 1997, the
maturity distribution and weighted average contract interest rates of the Bank's
time deposits were as follows: $1.10 billion, or 76.0%, of time deposits (5.6%
contract rate) mature in one year or less; $253.8 million,
T R Financial Corp. & Subsidiaries 17
<PAGE>
or 17.6%, of time deposits (6.1% contract rate) mature in over one to two years;
$31.3 million, or 2.2%, of time deposits (6.5% contract rate) mature in over two
to three years; $47.9 million, or 3.3%, of time deposits (6.4% contract rate)
mature in over three to five years; and $13.5 million, or 0.9%, of time deposits
(6.4% contract rate) mature in over five years. Borrowed funds increased $660.7
million, or 103.6%, to $1.30 billion at December 31, 1997 from $637.8 million at
December 31, 1996. This increase in borrowings is attributable to a $752.0
million net increase in securities sold under agreements to repurchase and a net
increase in overnight line of credit ("OLOC") borrowings from the FHLB of $8.0
million, and was offset by a $99.3 million decrease in FHLB term advances.
Stockholders' equity amounted to $241.0 million at December 31, 1997, or
6.27% of total assets, as compared to $204.0 million at December 31, 1996, or
6.26% of total assets. At December 31, 1997, stockholders' equity includes net
unrealized appreciation in certain securities, net of tax, of $5.1 million for
securities falling under the provisions of SFAS No. 115. At December 31, 1996,
stockholders' equity includes net unrealized depreciation in certain securities,
net of tax, of $1.5 million. Within each category of securities, management
routinely reviews the nature of any unrealized gains or losses and currently
believes that the factors identified as being attributable to the gross
unrealized losses in the Company's portfolios of securities are temporary.
Changes in market interest rates, however, also may affect decisions made by the
Company to retain for an extended period of time or transfer certain securities
from available for sale to held to maturity. See "Interest Rate Sensitivity."
During 1997, the Company repurchased 183,000 shares of the Company's
common stock ("Common Stock") at a total cost of $3.2 million. Stock repurchases
represent treasury stock and are reflected in the Company's consolidated
statements of financial condition as a reduction of stockholders' equity.
Non-performing assets decreased $1.1 million to $14.8 million at December
31, 1997, from $15.9 million at December 31, 1996 due primarily to a $2.2
million reduction in other real estate owned from $3.3 million at December 31,
1996 to $1.0 million at December 31, 1997. This reduction was partially offset
by an increase in non-performing loans of $1.1 million from $12.6 million at
December 31, 1996 to $13.7 million at December 31, 1997. The ratio of
non-performing assets to total assets decreased to 0.38% at December 31, 1997
from 0.49% at December 31, 1996. The ratio of non-performing loans to total
loans decreased to 0.67% at December 31, 1997 as compared to 0.74% at December
31, 1996. At December 31, 1997, assets identified as impaired under SFAS No.
114, "Accounting by Creditors for Impairment of a Loan," amounted to $8.6
million, all of which is included in non-accrual loans.
[GRAPHIC OMITTED]
<TABLE>
<CAPTION>
Ratio of Non-performing Assets to Total Assets
- ----------------------------------------------
<S> <C>
'95 0.87%
'96 0.49%
'97 0.38%
</TABLE>
Comparison of Operating Results for the Years Ended December 31, 1997 and 1996
General - The Company's net income for the year ended December 31, 1997
increased by $4.2 million, or 13.8%, to $34.7 million from $30.5 million for the
year ended December 31, 1996.
Interest Income - Interest income increased by $37.0 million, or 16.9%,
from $218.4 million for 1996 to $255.4 million for 1997 due primarily to an
increase in the average earning assets during the period, and, to a lesser
extent, an increase in the average yield on earning assets. Average earning
assets increased $499.5 million to $3.48 billion for the year ended December 31,
1997 from $2.98 billion for 1996, reflecting the Company's strategy to leverage
its capital position through asset growth. Of the increase in average earning
assets, $271.7 million was attributable to growth in mortgage loans, $170.6
million was attributable to growth in mortgage-backed securities, $34.8 was
attributable to growth in securities and $22.4 million was attributable to
growth in other loans. The average yield on earning assets increased to 7.33%
for the year ended December 31, 1997 as compared to 7.32% for 1996. This was
primarily due to increases in the average balances of mortgage loans, other
loans and mortgage-backed securities which have yields above the average yield
on earning assets.
Interest income from mortgage loans, which accounted for 51.9% and 51.1%
of total interest income in 1997 and 1996, respectively, increased by
18 T R Financial Corp. & Subsidiaries
<PAGE>
$20.8 million, or 18.7%, due to a $271.7 million, or 18.3%, increase in the
average balance of mortgage loans in addition to a 2 basis point increase in the
average yield on mortgage loans from 7.54% for 1996 to 7.56% for 1997. Interest
income on mortgage-backed securities, the average balance of which increased by
$170.6 million, or 16.9%, from 1996 to 1997, totaled $88.2 million in 1997, an
increase of $12.4 million, or 16.4%, from 1996, while the average yield
decreased 3 basis points to 7.49% for 1997. Interest income from bonds, equities
and other investments increased $2.4 million, or 10.1%, from $24.0 million for
1996, to $26.4 million for 1997, primarily due to an increase in the average
yield on such securities, including short-term securities, of 8 basis points
from 5.89% at December 31, 1996 to 5.97% at December 31, 1997.
Interest income from other loans, including consumer loans, increased by
$1.3 million from $6.9 million for 1996 to $8.2 million for 1997. This increase
resulted primarily from a $22.4 million, or 26.1%, increase in the average
balance of other loans which was partially offset by a 47 basis point decrease
in the average yield on such loans.
Interest Expense - Interest expense for 1997 increased $26.6 million, or
19.4%, from $137.2 million for 1996 to $163.8 million for 1997 due primarily to
a $296.6 million increase in average borrowings to $903.9 million for 1997 from
$607.2 million during 1996. This increase was also attributable to a 5 basis
point increase in the average rate paid on interest-bearing deposits to 4.81% in
1997 from 4.76% in 1996 and an 8 basis point increase in the 1997 average rate
paid on borrowed funds. Despite the generally lower market interest rates
prevailing during 1997, these increases reflect a change in the mix of
liabilities from shorter-term lower rate deposits into longer-term higher rate
borrowings.
Interest expense on passbook accounts increased $3.1 million, or 20.0%,
primarily as a result of an 18 basis point increase in the average cost of such
deposit accounts, and by a $70.2 million increase in the average balance of such
deposits. Interest expense on NOW accounts decreased $428 thousand, or 59.1%, in
1997 as a result of a 6 basis point decrease in the average cost of such
deposits and a $14.7 million, or 58.3%, decrease in the average balance of these
deposits. Interest expense on money market accounts decreased by $130 thousand,
or 5.8%, in 1997 primarily as a result of a decrease in the average balance of
these deposits of $4.4 million, or 5.4%. The interest expense on certificate of
deposit accounts increased $6.2 million, or 7.4%, in 1997 to $90.0 million, due
to a $110.1 million, or 7.4%, increase in the average balances of these
deposits. The average rate paid on such accounts was unchanged at 5.66%.
Interest expense on borrowed funds increased $17.8 million, or 51.0%, in
1997 to $52.7 million due to a $296.6 million, or 48.8%, increase in the average
balance of borrowed funds, and an 8 basis point increase in the average rate
paid on such funds to 5.83%. The increase in average balances in 1997 as
compared to 1996 was attributable, primarily, to additional borrowings during
1997 from securities sold under agreements to repurchase having an average
balance of $401.6 million in 1997 as compared to $7.4 million in 1996.
Net Interest Income - Net interest income for 1997 increased $10.4
million, or 12.8%, from $81.2 million for 1996 to $91.6 million for 1997. This
increase is the result of interest income earned on the higher level of earning
assets exceeding the interest expense on the interest-bearing liabilities used
to fund the growth in earning assets. This increase in net interest income was
partially offset by a decrease in the average interest rate spread to 2.23% for
the year ended December 31, 1997 as compared to 2.34% for the year ended
December 31, 1996.
[GRAPHIC OMITTED]
<TABLE>
<CAPTION>
Net Interest Income
- ---------------------
(Millions of dollars)
<S> <C>
'95 $70.4
'96 $81.2
'97 $91.6
</TABLE>
Provision for Possible Loan Losses - The provision for possible loan
losses for 1997 decreased $600 thousand from $1.4 million for 1996 to $800
thousand for 1997. This decrease resulted from management's assessment of the
loan portfolio, the level of the Bank's allowance for possible loan losses and
its assessment of the local economy and market conditions. For the years ended
December 31, 1997 and 1996, loan charge-offs, net of recoveries, totaled $253
thousand and $297 thousand, respectively. At December 31, 1997 and 1996, the
allowance for possible loan losses amounted to $14.9 million and $14.4 million,
respectively, and the ratio of such allowance to non-performing loans at
December 31, 1997 and 1996 was 108.53% and 113.79%, respectively.
T R Financial Corp. & Subsidiaries 19
<PAGE>
Non-Interest Income - Non-interest income for 1997 decreased $3.0 million
to $12.9 million as compared to $15.9 million in 1996. This decrease was
primarily attributable to a $2.0 million decrease in net gain on securities
activities. Proceeds on sales of securities decreased $170.1 million to $217.1
million in 1997 as compared to $387.3 million in 1996. Gain on sales of whole
loans increased $156 thousand to $158 thousand in 1997 as compared to $2
thousand in 1996. Loan fees and other charges, net, decreased $25 thousand.
Other income decreased $1.2 million, or 48.8%, due to a $1.1 million recapture
in 1996 of a previously established reserve for possible losses on the Bank's
claims against Nationar, and a decrease in gains and recoveries from the
disposition of other real estate owned of $407 thousand. These decreases were
partially offset by a $106 thousand increase in penalty interest on the early
withdrawal of time deposits by customers.
Non-Interest Expense - Non-interest expense increased $2.8 million, or
6.4%, from $43.1 million for 1996 to $45.8 million for 1997, while the Company's
ratio of non-interest expense to average assets decreased from 1.41% for 1996 to
1.29% for 1997.
Salaries and employee benefits expense increased $3.1 million, or 12.1%,
from 1997 to 1996, due to higher levels of expenses incurred with qualified
stock-based compensation plans and salary increases and partially offset by
lower costs associated with postretirement expense and restricted stock plans
which are now substantially vested. Occupancy and equipment expense increased
$209 thousand to $5.2 million for 1997 as compared to $5.0 million in 1996 due
primarily to a $330 thousand increase in depreciation due primarily to capital
expenditures on technology and building acquisition and renovation. This
increase was partially offset by a $100 thousand decrease in rent expense due to
the expiration of one of the branch lease agreements. Marketing expense
increased $80 thousand to $2.5 million in 1997 from $2.4 million in 1996. Other
real estate owned expense decreased $707 thousand to $244 thousand in 1997 due
to fewer foreclosed properties being held. FDIC assessment increased $302
thousand to $304 thousand. The Bank Insurance Fund ("BIF") assessment rates for
the year ended December 31, 1997 were $0.013 per $100 of insured deposits as
compared to zero per $100 of insured deposits plus a nominal annual charge for
the comparable prior year period. Other operating expense decreased $223
thousand to $8.9 million in 1997 as compared to $9.1 million in 1996 primarily
as a result of a decrease in computer processing charges, lower office supplies
and lower losses from limited partnership investments in certain housing
projects qualifying for low income housing tax credits and partially offset by
an increase in consulting costs.
Provision for Income Taxes - Provision for income taxes increased by $1.1
million from $22.2 million for 1996 to $23.2 million for 1997 due to an increase
in taxable income. As a percentage of income before provision for income taxes,
however, the provision for income taxes decreased from 42.1% of pre-tax earnings
in 1996 to 40.1% of pre-tax earnings in 1997. See Note 11 to the Company's Notes
to Consolidated Financial Statements.
Comparison of Operating Results for the Years Ended December 31, 1996 and 1995
General - The Company's net income for the year ended December 31, 1996
increased by $9.6 million, or 45.8%, to $30.5 million from $20.9 million for the
year ended December 31, 1995.
Interest Income - Interest income increased by $23.7 million, or 12.2%,
from $194.7 million for 1995 to $218.4 million for 1996 due primarily to an
increase in the average earning assets during the period, and an increase in the
average yield on earning assets. Average earning assets increased $313.5 million
to $2.98 billion for the year ended December 31, 1996 from $2.67 billion for
1995, reflecting the Company's strategy to leverage its capital position through
asset growth. Of the increase in average earning assets, $259.8 million was
attributable to growth in mortgage loans, $165.8 million was attributable to
growth in mortgage-backed securities and $28.7 million was attributable to
growth in other loans. These increases were partially offset by a $139.9 million
decrease in the average balance of other securities. The average yield on
earning assets increased to 7.32% for the year ended December 31, 1996 as
compared to 7.29% for 1995. This was primarily due to increases in the average
balances of mortgage loans, other loans and mortgage-backed securities which
have yields above the average yield on earning assets.
Interest income from mortgage loans, which accounted for 51.1% and 47.7%
of total interest income in 1996 and 1995, respectively, increased by
20 T R Financial Corp. & Subsidiaries
<PAGE>
$18.8 million, or 20.2%, due to a $259.8 million, or 21.3%, increase in the
average balance of mortgage loans which was slightly offset by a 6 basis point
decrease in the average yield on mortgage loans from 7.60% for 1995 to 7.54% for
1996. Interest income on mortgage-backed securities, the average balance of
which increased by $165.8 million, or 19.7%, from 1995 to 1996, totaled $75.8
million in 1996, an increase of $12.0 million, or 18.8%, from 1995, while the
average yield decreased 6 basis points to 7.52% for 1996. Interest income from
bonds, equities and other investments decreased $9.1 million, or 27.6%, from
$33.1 million for 1995, to $24.0 million for 1996, primarily due to a decrease
in the average yield on such securities of 15 basis points from 6.04% at
December 31, 1995 to 5.89% at December 31, 1996.
Interest income from other loans, including consumer loans, increased by
$2.1 million from $4.8 million for 1995 to $6.9 million for 1996. This increase
resulted primarily from a $28.7 million, or 50.3%, increase in the average
balance of other loans which was partially offset by a 40 basis point decrease
in the average yield on such loans.
Interest Expense - Interest expense for 1996 increased $12.9 million, or
10.3%, from $124.3 million for 1995 to $137.2 million for 1996 due primarily to
a $294.1 million increase in average interest-bearing liabilities to $2.76
billion for 1996 from $2.46 billion during 1995, consistent with the Company's
growth strategy, and partially offset by a 7 basis point decrease in the average
rate paid on interest-bearing liabilities to 4.98% in 1996 from 5.05% in 1995.
The decrease in the 1996 average rate paid on interest-bearing liabilities
resulted primarily from a 22 basis point decrease in the average rate paid on
certificate of deposit accounts. Despite the generally higher market interest
rates prevailing during 1996, this 22 basis point decrease reflects a change in
the mix of certificate of deposit account maturities into shorter-term lower
rate products.
Interest expense on passbook accounts increased $2.3 million, or 17.6%,
primarily as a result of a 12 basis point increase in the average cost of such
deposit accounts, and by a $62.6 million increase in the average balance of such
deposits. Interest expense on NOW accounts decreased $1.2 million, or 61.7%, in
1996 as a result of a 39 basis point decrease in the average cost of such
deposits and a $32.7 million, or 56.5%, decrease in the average balance of these
deposits. Interest expense on money market accounts increased by $450 thousand,
or 25.3%, in 1996 primarily as a result of an increase in the average balance of
these deposits of $23.3 million, or 40.4%. The interest expense on certificate
of deposit accounts increased $10.6 million, or 14.5%, in 1996 to $83.7 million,
primarily due to a $234.2 million, or 18.8%, increase in the average balances of
these deposits offset by a 22 basis point decrease in the average rate paid on
such accounts to 5.66%.
Interest expense on borrowed funds increased $632 thousand, or 1.8%, in
1996 to $34.9 million due to a $6.7 million, or 1.1%, increase in the average
balance of borrowed funds, and a 4 basis point increase in the average rate paid
on such funds to 5.75%. The increase in average balances in 1996 as compared to
1995 was attributable, in part, to additional borrowings during 1996 from
securities sold under agreements to repurchase having an average balance of $7.4
million.
Net Interest Income - Net interest income for 1996 increased $10.8
million, or 15.4%, from $70.4 million for 1995 to $81.2 million for 1996. This
increase is the result of the interest income earned on the higher level of
earning assets that resulted from the Company's year to year growth exceeding
the interest expense on the interest-bearing liabilities used to fund such
growth. This increase in net interest income was also influenced by an increase
in the average interest rate spread to 2.34% for the year ended December 31,
1996 as compared to 2.24% for the year ended December 31, 1995.
Provision for Possible Loan Losses - The provision for possible loan
losses for 1996 decreased $1.7 million from $3.1 million for 1995 to $1.4
million for 1996. This decrease resulted from management's assessment of the
loan portfolio, the level of the Bank's allowance for possible loan losses and
its assessment of the local economy and market conditions. For the years ended
December 31, 1996 and 1995, loan charge-offs, net of recoveries, aggregated $297
thousand and $1.8 million, respectively. At December 31, 1996 and 1995, the
allowance for possible loan losses amounted to $14.4 million and $13.3 million,
respectively, and the ratio of such allowance to non-performing loans was
113.79% at December 31, 1996 as compared to 70.94% at December 31, 1995.
Non-Interest Income - Non-interest income for 1996 increased $2.8 million
to $15.9 million as compared to $13.1 million in 1995. This increase was
T R Financial Corp. & Subsidiaries 21
<PAGE>
primarily attributable to a $2.2 million increase in net gain on securities
activities. Proceeds on sales of securities increased $26.6 million to $387.3
million in 1996 as compared to $360.7 million in 1995. Gain on sales of whole
loans decreased $153 thousand to $2 thousand in 1996 as compared to $155
thousand in 1995. Loan fees and other charges, net, increased $298 thousand, or
5.2%. Other income increased $487 thousand, or 25.9%, due to a $1.1 million
recapture of a previously established reserve for possible losses on the Bank's
claims against Nationar. See Note 19 to the Company's Notes to Consolidated
Financial Statements. This increase was partially offset by a $185 thousand
decrease in gains and recoveries from the disposition of other real estate owned
and a $38 thousand decrease in penalty interest on the early withdrawal of time
deposits by customers.
Non-Interest Expense - Non-interest expense increased $378 thousand, or
0.9%, from $42.7 million for 1995 to $43.1 million for 1996, while the Company's
ratio of non-interest expenses to average assets decreased from 1.55% for 1995
to 1.41% for 1996.
Salaries and employee benefits expense increased $2.0 million, or 8.6%,
from 1995 to 1996, due to higher levels of expenses incurred with certain
stock-based compensation plans and salary increases and partially offset by
lower costs associated with restricted stock plans which are now substantially
vested. Occupancy and equipment expense increased $669 thousand to $5.0 million
for 1996 as compared to $4.3 million in 1995 due primarily to a $319 thousand
increase in depreciation due primarily to capital expenditures on technology and
building renovation and increased facilities cost for buildings. Marketing
expense decreased $86 thousand to $2.4 million in 1996 from $2.5 million in 1995
due to lower levels of marketing activities. Other real estate owned expense
decreased $1.3 million to $1.0 million in 1996. FDIC assessment decreased $2.0
million to $2 thousand for 1996 due to a decrease in BIF assessment rates. For
the year ended December 31, 1995, such rates were $0.23 per $100 of insured
deposits for the Bank through June 1, 1995, at which time such rates decreased
to $0.04 per $100 of insured deposits. For 1996, the BIF assessment rate for the
Bank was reduced to zero per $100 of insured deposits plus a $2 thousand annual
fee. Other operating expense increased $1.0 million to $9.1 million in 1996 as
compared to $8.1 million in 1995 primarily as a result of higher costs
associated with loan origination activities and higher computer processing
charges.
Provision for Income Taxes - Provision for income taxes increased by $5.4
million from $16.8 million for 1995 to $22.2 million for 1996 due to the higher
level of taxable income in 1996 as compared to 1995. As a percentage of income
before provision for income taxes, however, the provision for income taxes
decreased from 44.6% of pre-tax earnings in 1995 to 42.1% of pre-tax earnings in
1996. This decrease resulted from Federal and New York State legislative changes
regarding tax bad debt reserves. See Note 11 to the Company's Notes to
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's liquidity is available to, among other things, support
future expansion of operations or diversification into other banking related
businesses, pay dividends or repurchase its common stock. On April 16, 1996, T R
Financial's Board of Directors authorized its sixth repurchase program covering
the repurchase of up to 1,789,618 shares of Common Stock, as adjusted to reflect
the 100% stock dividend paid on May 14, 1997. As of December 31, 1997, 617,000
of such shares had been repurchased. During 1997, T R Financial utilized $3.2
million of its liquidity to repurchase 183,000 shares of Common Stock, resulting
in cumulative aggregate repurchases since T R Financial's stock offering of
5,751,738 shares at a total cost of $56.4 million. As of February 28, 1998, T R
Financial repurchased an additional 165,000 shares of Common Stock at a total
cost of $4.9 million.
22 T R Financial Corp. & Subsidiaries
<PAGE>
During 1997, T R Financial's Board of Directors declared and paid to
stockholders four quarterly cash dividends aggregating $0.55 per share, or $9.0
million. Dividends paid on unallocated shares of Common Stock held by the ESOP
were used to reduce required Company contributions to the ESOP. On January 23,
1998, the Board of Directors of T R Financial declared a quarterly cash dividend
of $0.17 per share to stockholders of record on February 12, 1998 which was paid
on March 2, 1998.
[GRAPHIC OMITTED]
<TABLE>
<CAPTION>
Dividend History
- ----------------
(Per share)
<S> <C>
12/94 $0.025
3/95 $0.035
6/95 $0.040
9/95 $0.050
12/95 $0.060
3/96 $0.070
6/96 $0.080
9/96 $0.090
12/96 $0.100
3/97 $0.110
6/97 $0.130
9/97 $0.150
12/97 $0.160
3/98 $0.170
</TABLE>
Restrictions on the amount of dividends T R Financial and the Bank may
declare can affect T R Financial's liquidity and cash flow needs. Dividend
payments by T R Financial must be within certain guidelines of the Federal
Reserve Board which provide, among other things, that dividends generally should
be paid only from current earnings. In addition, under Delaware law, T R
Financial may only pay dividends from its capital surplus or, if no such surplus
exists, from its net profits for the current and preceding year.
The Bank's ability to pay dividends to T R Financial is also subject to
certain restrictions. Under the New York State Banking Law, dividends may be
declared and paid only out of the net profits of the Bank. The approval of the
Superintendent of Banks of the State of New York (the "Superintendent") is
required if the total of all dividends declared in any calendar year will exceed
the net profits for that year plus the retained net profits of the preceding two
years, less any required transfers. In addition, no dividends may be declared,
credited or paid if the effect thereof would cause the Bank's capital to be
reduced below the amount required by the Superintendent or the FDIC. During
1997, the Board of Directors of the Bank declared and paid four dividends
totalling $9.0 million. On January 22, 1998, the Board of Directors of the Bank
declared a cash dividend of $5.0 million. This dividend was paid to T R
Financial on February 2, 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 securities and debt securities.
Proceeds from the sale of securities available for sale and, to a lesser extent,
loans are also sources of funding. While maturities and scheduled amortization
of loans and investments are predictable sources of funds, deposit flows and
mortgage prepayments are greatly influenced by market 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. During the years ended December 31, 1997, 1996 and
1995, the Bank originated or purchased real estate loans totalling $574.3
million, $412.9 million and $352.5 million, respectively. During those same
periods, the Company purchased securities, including mortgage-backed securities,
totalling $667.3 million, $701.8 million and $759.4 million, respectively.
For the year ended December 31, 1997, the Bank experienced a net decrease
in deposits, including interest credited, of $141.2 million, due to the planned
net outflow of certain higher cost retail deposits. For the years ended December
31, 1996 and 1995 the Bank experienced net increases in deposits, including
interest credited, of $305.2 million and $342.0 million, respectively. For the
year ended December 31, 1997, the Bank received $624.7 million of proceeds from
sales and maturities of securities and principal collections on real estate
loans. For the years ended December 31, 1996 and 1995, such proceeds amounted to
$759.5 million and $743.8 million, respectively.
The Company's most liquid assets are cash and cash equivalents, short-term
securities and, as measured in the Gap table, securities available for sale and
held to maturity, with expected repayment within one year. The levels of these
assets are dependent on the Company's operating, financing, lending
T R Financial Corp. & Subsidiaries 23
<PAGE>
and investing activities during any given period. Such liquid assets at December
31, 1997 totaled $681.1 million, or 17.7% of total assets.
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 should require funds beyond its ability to generate them 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 variety of FHLB products
including a $100 million OLOC and a $100 million one-month borrowing facility
from the FHLB.
At December 31, 1997, the Bank had outstanding loan commitments of $123.8
million and $30.0 million of outstanding commitments to fund unused lines of
credit. The Bank anticipates that it will have sufficient funds available to
meet its current loan commitments. Certificates of deposit which are scheduled
to mature in one year or less from December 31, 1997 totaled $1.10 billion.
Based on its most recent experience and pricing strategy, management believes
that a significant portion of such deposits will remain with the Bank.
The Year 2000 Issue - The Company's banking operations are, by their
nature, dependent upon its own computer systems as well as those of other
companies. The Company has conducted a review of its computer systems to
identify systems that could be affected by the "Year 2000" issue and management
has developed an implementation plan to respond to this issue. The Year 2000
issue is the result of computer programs which were written using two digits
rather than four to define the applicable year. As a result, such programs may
recognize a date using "00" as the year 1900 instead of the year 2000 which
could result in system failures or miscalculations.
The Company utilizes a third party computer service bureau for most of its
computer processing. All other computer systems used by the Company are PC based
systems which operate using industry standard software systems that have been
developed and are supported by third party software companies. Accordingly, the
Company's costs to resolve Year 2000 issues are not expected to be material. The
Year 2000 issue, however, creates risk for the Company from unforeseen problems
in its computer processing and from the computer processing problems of other
third parties with whom the Company conducts financial transactions. As a
result, incomplete or untimely resolution of such Year 2000 problems may have an
adverse impact on the operations of the Company.
The FDIC and the other federal banking regulators have issued safety and
soundness guidelines to be followed by insured depository institutions, such as
the Bank, to assure resolution of any Year 2000 problems. Any institution's
failure to address appropriately the Year 2000 problem could result in
supervisory action.
As part of its implementation plan, management is monitoring the Year 2000
progress of its vendors and will be participating in the testing of systems
during 1998. Management is also developing appropriate contingency plans to deal
with problems as they may arise. There can be no assurance, however, that the
systems of other companies on which the Company's systems rely will also be
timely converted or that any such failure to convert by another company would
not have an adverse effect on the Company's systems.
Regulatory Capital Position - The Bank is subject to minimum regulatory
capital requirements imposed by the FDIC which vary according to an
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 which 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 13 to the Notes to Consolidated Financial Statements for the Bank's and
T R Financial's regulatory capital requirements at December 31, 1997 and 1996.
24 T R Financial Corp. & Subsidiaries
<PAGE>
Impact of Inflation and Changing Prices
The Consolidated Financial Statements have been prepared in accordance with
generally accepted accounting principles, which require the measurement of
financial position and operating results in terms of historical dollars without
considering the changes in the relative purchasing power of money over time due
to inflation. The impact of inflation is reflected in the increased cost of the
Company's operations. Unlike most industrial companies, nearly all the assets
and liabilities of the Company are monetary in nature. As a result, interest
rates have a greater impact on the Company's performance than do the effects of
general levels of inflation. Interest rates do not necessarily move in the same
direction or to the same extent as the price of goods and services.
Impact of New Accounting Standards
In December 1996, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 127, "Deferral of the Effective Date of Certain Provisions of FASB Statement
No. 125." As amended, SFAS No. 125 is effective for transfers and servicing of
financial assets and extinguishments of liabilities occurring after December 31,
1996 except that its provisions with respect to securities lending, repurchase
agreements and dollar-roll transactions are effective for transfers occurring
after December 31, 1997. The adoption of SFAS No. 125, as amended, is not
expected to have a material effect on the Company's results of operations.
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income" which established standards for the reporting and displaying of
comprehensive income and its components in a full set of comparative general
purpose financial statements. The Company adopted the provisions of SFAS No. 130
and has restated financial statements for the three year period ended December
31, 1997 to give effect to this pronouncement. Under existing accounting
standards other comprehensive income is 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. See Note 1 (b) to
Notes to Consolidated Financial Statements.
The FASB also issued in June 1997, SFAS No. 131, "Disclosures about
Segments of an Enterprise and Related Information" which established 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
established standards for related disclosures about products, services,
geographic areas and major customers. 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. SFAS No. 131
is limited to additional disclosures and, accordingly, the adoption of this
statement will not have an impact on the Company's financial condition or
results of operations.
Market for Common Stock
The Board of Directors of T R Financial has declared quarterly cash dividends
since its first declaration on October 25, 1994. During 1997, the Board of
Directors declared four quarterly cash dividends as shown in the table below.
The Board will review the dividend regularly and hopes to maintain a regular
quarterly dividend in the future, based upon the Company's earnings, financial
condition and other factors. See "Liquidity and Capital Resources" and Note 12
to Notes to Consolidated Financial Statements for a discussion of restrictions
on the Company's ability to pay dividends.
As of February 28, 1998, there were 980 stockholders of record of the
Company. The following table sets forth for each of the periods the high and low
stock prices of T R Financial common stock as reported by the Nasdaq national
market system under the symbol "ROSE," as well as dividends declared during such
periods. The stock prices and dividend information set forth below have been
adjusted to reflect the 100% stock dividend paid on May 14, 1997. Price
information appears in major newspapers under the symbols "TRFinlCp" or "TRFin."
<TABLE>
<CAPTION>
For the Quarter Ended
------------------------------------------
12/31/97 9/30/97 6/30/97 3/31/97
- ---------------------------------------------------------------
<S> <C> <C> <C> <C>
High $36.00 $31.88 $26.50 $18.56
Low $28.13 $23.00 $16.56 $16.50
- ---------------------------------------------------------------
Dividends $0.16 $0.15 $0.13 $0.11
- ---------------------------------------------------------------
<CAPTION>
12/31/96 9/30/96 6/30/96 3/31/96
- ---------------------------------------------------------------
<S> <C> <C> <C> <C>
High $18.06 $14.94 $14.06 $13.38
Low $14.38 $13.00 $12.38 $11.63
- ---------------------------------------------------------------
Dividends $0.10 $0.09 $0.08 $0.07
===============================================================
</TABLE>
T R Financial Corp. & Subsidiaries 25
<PAGE>
Consolidated Statements of Financial Condition
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
(in thousands, except share amounts) December 31, 1997 December 31, 1996
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 18,307 $ 18,128
Securities available for sale:
Bonds and equities 308,569 337,446
Mortgage-backed securities 168,096 104,401
- ------------------------------------------------------------------------------------------------------------------------------------
Total securities available for sale 476,665 441,847
- ------------------------------------------------------------------------------------------------------------------------------------
Securities held to maturity, net (estimated fair value of $1,245,735
and $1,017,702 at December 31, 1997 and 1996, respectively):
Bonds 42,092 53,632
Mortgage-backed securities 1,177,208 955,300
- ------------------------------------------------------------------------------------------------------------------------------------
Total securities held to maturity, net 1,219,300 1,008,932
- ------------------------------------------------------------------------------------------------------------------------------------
Loans receivable 2,062,896 1,716,182
Allowance for possible loan losses (14,917) (14,370)
- ------------------------------------------------------------------------------------------------------------------------------------
Loans receivable, net 2,047,979 1,701,812
- ------------------------------------------------------------------------------------------------------------------------------------
Other real estate owned, net 1,040 3,264
Banking house and equipment, net 13,642 13,320
Accrued interest receivable 24,338 21,517
Federal Home Loan Bank of New York (FHLB) stock, at cost 33,390 33,390
Deferred tax asset, net 2,034 6,668
Other assets 6,361 10,749
- ------------------------------------------------------------------------------------------------------------------------------------
Total Assets $ 3,843,056 $ 3,259,627
====================================================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Due to depositors $ 2,202,353 $ 2,343,513
Securities sold under agreements to repurchase 807,000 55,000
FHLB borrowings 491,578 582,835
Mortgagors' escrow deposits 21,784 19,585
Accounts payable and accrued expenses 19,526 11,190
Official checks outstanding 27,989 24,251
Accrued taxes payable 15,620 --
Other liabilities 16,235 19,215
- ------------------------------------------------------------------------------------------------------------------------------------
Total Liabilities 3,602,085 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; 17,598,029 shares and 17,574,040 shares outstanding at December 31, 1997
and 1996, respectively 227 227
Additional paid-in-capital 110,962 104,880
Retained earnings 183,065 157,716
Accumulated other comprehensive income:
Net unrealized appreciation (depreciation) in certain securities, net of tax 5,057 (1,501)
Less:
Unallocated common stock held by Employee Stock Ownership Plan (ESOP) (4,604) (5,650)
Unearned common stock held by Bank's Recognition and Retention Plans and Trusts (RRPs) (103) (346)
Common stock held by Bank's Supplemental Executive Retirement Plan and Trust (SERP),
at cost (106,103 shares and 78,192 shares at December 31, 1997 and 1996, respectively) (1,225) (721)
Treasury stock, at cost (5,125,971 shares and 5,149,960 shares at
December 31, 1997 and 1996, respectively) (52,408) (50,567)
- ------------------------------------------------------------------------------------------------------------------------------------
Total Stockholders' Equity 240,971 204,038
- ------------------------------------------------------------------------------------------------------------------------------------
Total Liabilities and Stockholders' Equity $ 3,843,056 $ 3,259,627
====================================================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
26 T R Financial Corp. & Subsidiaries
<PAGE>
Consolidated Statements of Income
<TABLE>
<CAPTION>
For the Year Ended December 31,
--------------------------------------------
(in thousands, except per share amounts) 1997 1996 1995
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
INTEREST INCOME
Mortgage loans $132,528 $111,683 $ 92,896
Mortgage-backed securities 88,226 75,799 63,829
Bonds, equities and other investments 26,409 23,981 33,118
Other loans 8,249 6,941 4,847
- -----------------------------------------------------------------------------------------------------------------------------
Total interest income 255,412 218,404 194,690
- -----------------------------------------------------------------------------------------------------------------------------
INTEREST EXPENSE
Deposits 111,042 102,261 90,028
Borrowed funds 52,724 34,909 34,277
- -----------------------------------------------------------------------------------------------------------------------------
Total interest expense 163,766 137,170 124,305
- -----------------------------------------------------------------------------------------------------------------------------
Net interest income 91,646 81,234 70,385
Provision for possible loan losses 800 1,400 3,050
- -----------------------------------------------------------------------------------------------------------------------------
Net interest income after provision for possible loan losses 90,846 79,834 67,335
- -----------------------------------------------------------------------------------------------------------------------------
NON-INTEREST INCOME
Loan fees and other charges, net 6,011 6,036 5,738
Net gain on securities activities 5,553 7,511 5,309
Gain on sales of whole loans 158 2 155
Other income 1,213 2,370 1,883
- -----------------------------------------------------------------------------------------------------------------------------
Total non-interest income 12,935 15,919 13,085
- -----------------------------------------------------------------------------------------------------------------------------
NON-INTEREST EXPENSE
Salaries and employee benefits 28,650 25,561 23,545
Occupancy and equipment expense 5,225 5,016 4,347
Marketing expense 2,478 2,398 2,484
Other real estate owned expense 244 951 2,222
FDIC assessment 304 2 1,955
Other operating expense 8,912 9,135 8,132
- -----------------------------------------------------------------------------------------------------------------------------
Total non-interest expense 45,813 43,063 42,685
- -----------------------------------------------------------------------------------------------------------------------------
Income before provision for income taxes 57,968 52,690 37,735
Provision for income taxes 23,240 22,175 16,810
- -----------------------------------------------------------------------------------------------------------------------------
Net income $ 34,728 $ 30,515 $ 20,925
=============================================================================================================================
Basic earnings per share $ 2.11 $ 1.84 $ 1.16
=============================================================================================================================
Diluted earnings per share $ 1.96 $ 1.72 $ 1.10
=============================================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
T R Financial Corp. & Subsidiaries 27
<PAGE>
Consolidated Statements of
Changes in Stockholders' Equity
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Accum- Unallo- Unearned Common
ulated cated Common Stock
Common Other Common Stock held by
Stock Additional Compre- Stock held by Bank's Treasury
(Par Value: Paid-in Retained hensive held by Bank's SERP, Stock,
(in thousands, except share amounts) Total $.01) Capital Earnings Income ESOP RRPs at cost at cost
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1994 $177,767 $ 227 $ 98,963 $115,912 $ (9,839) $(7,956) $(1,988) $ (169) $(17,383)
Comprehensive income:
Net income 20,925 -- -- 20,925 -- -- -- -- --
Other comprehensive income, net of tax
Net unrealized appreciation on
certain securities, net of
reclassification adjustment(1) 14,069 -- -- -- 14,069 -- -- -- --
--------
Comprehensive income 34,994 -- -- -- -- -- -- -- --
--------
Cash dividends declared on common stock
($0.185 per share) (3,315) -- -- (3,315) -- -- -- -- --
Reissuances of treasury stock 1,002 -- -- (411) -- -- -- -- 1,413
Benefit plan adjustments, net of tax 4,079 -- 1,805 -- -- 1,193 1,081 -- --
Common stock acquired at cost (14,843) -- 182 -- -- -- -- (182) (14,843)
- ------------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1995 199,684 227 100,950 133,111 4,230 (6,763) (907) (351) (30,813)
Comprehensive income:
Net income 30,515 -- -- 30,515 -- -- -- -- --
Other comprehensive income, net of tax
Net unrealized depreciation on
certain securities, net of
reclassification adjustment(1) (5,731) -- -- -- (5,731) -- -- -- --
--------
Comprehensive income 24,784 -- -- -- -- -- -- -- --
--------
Cash dividends declared on common stock
($0.34 per share) (5,580) -- -- (5,580) -- -- -- -- --
Reissuances of treasury stock 795 -- -- (330) -- -- -- -- 1,125
Benefit plan adjustments, net of tax 5,234 -- 3,560 -- -- 1,113 561 -- --
Common stock acquired at cost (20,879) -- 370 -- -- -- -- (370) (20,879)
- ------------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1996 204,038 227 104,880 157,716 (1,501) (5,650) (346) (721) (50,567)
Comprehensive income:
Net income 34,728 -- -- 34,728 -- -- -- -- --
Other comprehensive income, net of tax
Net unrealized appreciation on
certain securities, net of
reclassification adjustment(1) 6,558 -- -- -- 6,558 -- -- -- --
--------
Comprehensive income 41,286 -- -- -- -- -- -- -- --
--------
Cash dividends declared on common stock
($0.55 per share) (8,980) -- -- (8,980) -- -- -- -- --
Reissuances of treasury stock 934 -- -- (399) -- -- -- -- 1,333
Benefit plan adjustments, net of tax 6,727 -- 5,578 -- -- 1,046 103 -- --
Sale of shares held in RRP trust to
treasury stock 140 -- -- -- -- -- 140 -- --
Common stock acquired at cost (3,174) -- 504 -- -- -- -- (504) (3,174)
- ------------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1997 $240,971 $ 227 $110,962 $183,065 $ 5,057 $(4,604) $ (103) $(1,225) $(52,408)
====================================================================================================================================
<S> <C> <C> <C>
(1) Disclosure of reclassification amount for the years ended: 1997 1996 1995
------- ------- -------
Net unrealized appreciation arising during period $12,103 $ 1,738 $19,345
Less: reclassification adjustment for net gains included
in net income (5,545) (7,469) (5,276)
--------------------------
Net unrealized appreciation (depreciation) on
certain securities $ 6,558 $(5,731) $14,069
===========================
</TABLE>
See accompanying notes to consolidated financial statements.
28 T R Financial Corp. & Subsidiaries
<PAGE>
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
For the Year Ended December 31,
--------------------------------------------
(in thousands) 1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 34,728 $ 30,515 $ 20,925
Adjustments to reconcile net income to net cash provided by operating
activities:
Provision for possible loan losses 800 1,400 3,050
Provision for possible other real estate owned losses 4 195 432
Depreciation of banking house and equipment 2,081 1,751 1,432
Gain on calls of securities (1) (38) (4)
Net gain on sales of securities available for sale (5,545) (7,469) (5,276)
Gain on sales of whole loans (158) (2) (155)
Net gain on sale of other real estate owned (387) (424) (724)
Amortization of net deferred loan origination costs 829 291 600
Amortization of premiums in excess of (less than)
accretion of discounts 2,217 1,133 (12)
Income taxes deferred and tax benefits attributable
to stock plans 584 3,501 1,801
Amortization relating to allocation and earned portions
of stock plans 5,783 3,979 3,675
Increase/decrease in:
Accrued interest receivable (2,821) (1,294) (1,978)
Accounts payable and accrued expenses 8,336 (1,797) (257)
Official checks outstanding 3,738 (851) 2,396
Other assets 4,388 (916) (5,061)
Accrued taxes payable 15,620 (3,095) 1,089
Other liabilities (2,980) 5,216 4,519
- ------------------------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 67,216 32,095 26,452
- ------------------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Payments for the purchase of:
Securities held to maturity and FHLB Capital Stock (389,277) (335,655) (419,609)
Securities available for sale (278,012) (366,166) (339,754)
Banking house and equipment (2,403) (3,194) (2,596)
Proceeds from:
Redemption of FHLB Capital Stock and calls of securities 27,315 29,541 16,600
Sales of securities available for sale 217,125 387,273 360,678
Repayments on securities 192,544 217,199 279,891
Sales of whole loans 10,002 550 19,978
Principal collected on real estate loans 215,054 155,012 103,273
Sales of other real estate owned 4,093 9,876 18,321
Principal collected on other loans 47,951 22,499 17,071
Real estate loans originated and purchased (574,328) (412,882) (352,526)
Other loans originated and purchased (47,803) (64,737) (40,247)
- ------------------------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (577,739) (360,684) (338,920)
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(continued)
T R Financial Corp. & Subsidiaries 29
<PAGE>
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
(continued)
For the Year Ended December 31,
--------------------------------------------
(in thousands) 1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES
Interest credited to deposits $ 86,779 $ 81,605 $ 69,528
Net (withdrawals from) deposits to savings accounts, certificates
of deposit accounts, money market accounts and checking accounts (227,939) 223,567 272,454
Net proceeds from exercise of stock options 934 795 1,002
Net deposits to (withdrawals from) escrow accounts 2,199 2,733 (335)
Net proceeds from (repayments of) short-term borrowed funds 29,315 63,685 (38,500)
Repayments of long-term borrowed funds (129,050) (77,113) (50,250)
Proceeds from long-term borrowed funds 760,478 56,700 58,113
Purchase of treasury stock (3,034) (20,879) (14,843)
Cash dividends paid (8,980) (5,580) (3,315)
- ------------------------------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 510,702 325,513 293,854
- ------------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents 179 (3,076) (18,614)
Cash and cash equivalents at beginning of year 18,128 21,204 39,818
- ------------------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year $ 18,307 $ 18,128 $ 21,204
====================================================================================================================================
SUPPLEMENTAL DISCLOSURE OF
CASH FLOW INFORMATION
Cash paid for:
Income taxes $ 4,202 $ 24,468 $ 13,930
Interest on deposits and borrowed funds $ 70,626 $ 55,565 $ 54,778
====================================================================================================================================
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING
AND FINANCING ACTIVITIES
Additions to other real estate owned, net $ 1,486 $ 6,364 $ 18,041
March 31, 1995 transfer of securities from available for sale to
held to maturity, at estimated fair value -- -- $ 97,948
December 15, 1995 transfer of securities from held to maturity to
available for sale, at amortized cost -- -- $ 282,762
Securitization of real estate loans into available for sale
mortgage-backed securities -- -- $ 5,903
====================================================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
30 T R Financial Corp. & Subsidiaries
<PAGE>
Notes to Consolidated Financial Statements
December 31, 1997, 1996 and 1995
NOTE 1
Summary of Significant Accounting Policies and Related Matters
T R Financial Corp. ("T R Financial" or the "Parent") is organized under
Delaware law and is the bank holding company for Roosevelt Savings Bank
("Roosevelt Savings") and its wholly-owned subsidiaries (collectively the
"Bank"). T R Financial's business consists primarily of the business of the
Bank.
The Bank is a New York State chartered stock savings bank and is subject
to comprehensive regulation, examination and supervision by the New York State
Banking Department ("NYSBD") and the Federal Deposit Insurance Corporation
("FDIC"). T R Financial is subject to comprehensive regulation, examination and
supervision by the Board of Governors of the Federal Reserve System.
The Bank's primary business activities include deposit gathering from the
general public, the origination and purchase of residential real estate loans
and, to a lesser extent, the origination of commercial real estate and consumer
loans. The Bank also supplements these activities with investments in debt and
equity securities, including mortgage-backed securities, and with borrowings,
including securities sold under agreements to repurchase. All of the Bank's
operations are domestic and are conducted principally within the New York
metropolitan region. In addition, a substantial portion of the Bank's loans are
secured primarily by properties located in the New York metropolitan area.
Accordingly, the ultimate collectibility of a substantial portion of the Bank's
loan portfolio is susceptible to changes in market conditions in that area.
(a) Principles of Consolidation and Basis of Financial Statement Presentation
The consolidated financial statements include the accounts of T R Financial and
the Bank (collectively the "Company"). The largest wholly-owned subsidiary of
Roosevelt Savings, Roosevelt Asset Funding Corp. ("RAFC"), is a real estate
investment trust which was incorporated in the State of Delaware on April 28,
1997 for the purpose of the investment and reinvestment of its assets in real
property, interests in real property, mortgage loans secured by real property,
interests in mortgage loans secured by real property, leasehold interests in
real property and mortgage-backed securities, including collateralized mortgage
obligations. All significant intercompany transactions and balances have been
eliminated in consolidation.
The consolidated financial statements have been prepared in conformity
with generally accepted accounting principles. In preparing the consolidated
financial statements, management is required to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosures of
contingent assets and liabilities as of the date of the financial statements and
the reported amounts of revenues and expenses for the respective periods. Actual
results could differ from those estimates.
Material estimates that are particularly susceptible to change in the
near-term relate to the determination of the allowance for possible loan losses.
In connection with the determination of the adequacy of the allowance for
possible loan losses, management makes periodic provisions for possible loan
losses based upon its evaluation of the Bank's loan portfolio. Management
believes that the amounts of allowance for possible loan losses as presented in
these consolidated financial statements are adequate. While management utilizes
available information to recognize losses on loans, future additions to the
allowance may be necessary based on unanticipated changes in economic
conditions, particularly in the New York metropolitan area. In addition, the
NYSBD and the FDIC, as integral parts of their examination processes,
periodically review the Bank's allowance for possible loan losses. Such agencies
may require the Bank to recognize additions to the allowance based on their
judgments about information available to them at the time of their examinations.
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
consolidated financial statements have been restated to give effect to the 100%
stock dividend. The new shares were distributed on May 14, 1997.
T R Financial Corp. & Subsidiaries 31
<PAGE>
(b) Comprehensive Income
In June 1997, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards ("SFAS") No. 130, "Reporting Comprehensive
Income" which established standards for the reporting and display of
comprehensive income and its components in a full set of comparative
general-purpose financial statements. The statement became effective for the
Company as of December 31, 1997. Comprehensive income is defined in this
statement as net income plus other comprehensive income, which, under existing
accounting standards includes foreign currency items, minimum pension liability
adjustments and unrealized gains and losses on certain investments in debt and
equity securities. Comprehensive income is reported by the Company in the
consolidated statements of changes in stockholders' equity.
(c) Disclosures about Fair Value of Financial Instruments
SFAS No. 119, "Disclosure About Derivative Financial Instruments and Fair Value
of Financial Instruments," requires disclosures about derivative financial
instruments such as futures, forward, interest rate swap or option contracts,
and other financial instruments with similar characteristics. The Company has
not utilized derivative financial instruments falling under the scope of SFAS
No. 119.
(d) Cash Flows
For the purpose of reporting cash flows, the Company considers all short-term
investments with a maturity of three months or less from the date of purchase to
be cash equivalents.
The Bank securitized portfolio mortgage loans of $5,903,000 during 1995
into Federal National Mortgage Association ("FNMA") mortgage-backed securities.
These transactions were not considered cash transactions and, accordingly, do
not appear on the consolidated statements of cash flows. There were no such
transactions during 1997 or 1996.
(e) Debt and Equity Securities
Gains and losses on the sales of securities are determined using the specific
identification method. With respect to unrealized gross losses in the securities
portfolios, the Company follows a policy of reserving for specific securities
when, in the opinion of the Company's management, the securities may have
experienced a decline in value that is other than temporary. Such losses are
reflected in non-interest income. The Company classifies its securities
purchases as either held to maturity, available for sale or trading based upon
determinations made at the time of purchase.
The amortized cost of debt securities (unpaid principal in the case of
mortgage-backed securities), is adjusted for amortization of premiums and
accretion of discounts. Premiums and discounts on these securities are
recognized in interest income using the level-yield method over the period to
maturity, adjusted in the case of mortgage-backed securities for anticipated
prepayments.
Securities Available for Sale - Securities classified available for sale
include marketable equity securities, bonds and other debt and mortgage-backed
securities to be held for indefinite periods of time, including securities that
management intends to use as part of its asset/liability strategy, or that may
be sold in response to changes in interest rates, changes in prepayment risk,
the need to increase regulatory capital or other similar factors. Securities
classified as available for sale are carried at estimated fair value with the
unrealized appreciation (depreciation) on such securities, net of tax, reported
as a separate component of stockholders' equity.
Securities Held to Maturity - Securities classified as held to maturity
are stated at amortized cost as the Company has the intent and ability to hold
these securities until maturity. For securities transferred from available for
sale to held to maturity, the estimated fair value of the securities on the date
of transfer represents the new cost basis of the securities.
Trading Account Securities - Securities that are bought and held
principally for the purpose of selling them in the near term are classified as
trading account securities and are carried at estimated fair value. Net
unrealized gains and losses are included in non-interest income. Interest on
trading account securities is included in interest income.
Federal Home Loan Bank Stock - In connection with the Bank's borrowings
from the Federal Home Loan Bank of New York ("FHLB"), the Bank is required to
purchase shares of FHLB non-marketable capital stock at par. Such shares are
redeemed by FHLB at par with reductions in the Bank's FHLB borrowing levels.
32 T R Financial Corp. & Subsidiaries
<PAGE>
(f) Securities Sold Under Agreements to Repurchase
The Company enters into sales of securities under agreements to repurchase only
with selected dealers and banks. Such agreements are treated as financings and
the obligations to repurchase securities sold are reflected as a liability in
the Company's consolidated statements of financial condition. The securities
underlying the agreements remain in the Company's asset accounts and are
delivered to the dealer with whom each transaction is executed. The dealers, who
may sell, loan or otherwise dispose of such securities to other parties in the
normal course of their operations, agree to resell to the Company the same
securities at the maturities of the agreements. The Company retains the right of
substitution of collateral throughout the terms of the agreements.
(g) Loans Receivable
Loans receivable are held for investment and are carried at unpaid principal
balances net of any deferred loan origination fees or costs and unearned income.
Effective January 1, 1995, the Company adopted SFAS No. 114, "Accounting by
Creditors for Impairment of a Loan," and SFAS No. 118, "Accounting by Creditors
for Impairment of a Loan-Income Recognition and Disclosures." In accordance with
the provisions of these statements, the Company measures and records all
impaired loans, as defined in SFAS No. 114, based upon the fair value of the
underlying collateral less estimated selling costs if liquidation of the
collateral is expected to collect the loan. Restructured loans, as defined in
SFAS No. 114, are measured and recorded at the present value of the expected
future cash flows discounted at the loan's original effective interest rate. The
adoption of SFAS Nos. 114 and 118 did not have a material effect on the
Company's consolidated financial condition or results of operations.
Discounts on other loans are recognized over the lives of the loans using
the level-yield method. Loan fees and certain direct loan origination costs are
deferred. Net deferred fees or costs are recognized in income using the
level-yield method over the contractual life of each loan. It is the Bank's
policy to cease amortizing net fees or costs on non-accruing loans.
Provisions for possible loan losses are estimated periodically and are
charged to operations based on management's evaluation of the loan portfolio.
The allowance for possible loan losses is based on a periodic analysis of the
loan portfolios and reflects amounts which, in management's judgment, are
adequate to provide for possible loan losses in the existing portfolios. In
evaluating the portfolios, management takes into consideration numerous factors
such as the Bank's loan growth, prior loss experience, present and potential
risks of the loan portfolio and current economic conditions. Loans are charged
off against the allowance for possible loan losses when the collectibility of
loan principal is unlikely. Recoveries of loans previously charged off are
credited to the allowance.
The Bank generally continues accruing interest on all delinquent secured
real estate loans until either foreclosure proceedings have been commenced or
the loan is 120 days past due. The Bank accrues interest on all other delinquent
loans until the loan is 120 days past due. The Bank reverses any previously
accrued interest upon the commencement of foreclosure proceedings when the
outstanding loan balance exceeds 90% of the appraised value of the property.
(h) Other Real Estate Owned, net
Real estate acquired through foreclosure is reported at the lower of cost or
estimated fair value at the time of foreclosure less estimated selling costs.
Subsequent declines in estimated fair value, certain costs relating to holding
properties, and gains or losses resulting from disposition of properties are
recognized in the current period's operations.
(i) Banking House and Equipment, net
Banking house and equipment are stated at cost, net of accumulated depreciation
and amortization. Depreciation and amortization are computed using the
straight-line method over the estimated useful life of each type of asset.
Improvements to banking houses are depreciated over the remaining estimated
useful life of the building. Leasehold improvements are amortized on the
straight-line method over the shorter of their estimated useful life or the term
of the lease.
(j) Income Taxes
The Company and its subsidiaries file a consolidated Federal income tax return.
Federal income tax expense or benefit is allocated among the consolidated group
on the basis of their individual taxable income or loss. Provisions for income
taxes are based
T R Financial Corp. & Subsidiaries 33
<PAGE>
upon results of operations reported for financial statement purposes. Deferred
income taxes are provided for significant temporary differences.
Under SFAS No. 109, "Accounting for Income Taxes," the Company utilizes an
asset and liability approach for accounting for income taxes. Deferred tax
assets and liabilities are measured based on enacted tax laws. Deferred tax
assets are reduced by a valuation allowance, if necessary, for the amount of
such benefits that are not expected to be realized based on available evidence.
(k) Stock-Based Compensation Plans
Compensation expense attributable to the Company's employee stock ownership plan
is computed on the basis of Company common stock ("Common Stock") allocated to
participant accounts multiplied by the average fair value of the allocated
shares during the period. Only shares which have been allocated to participant
accounts are considered outstanding for earnings per share computations.
Concurrent with its initial public offering in June 1993, the Company
granted stock options which are accounted for under the provisions of APB No.
25. In 1997, however, the Company made additional stock option grants which are
covered by the provisions of SFAS No. 123, "Accounting for Stock-based
Compensation." As permitted by SFAS No. 123, management has elected to continue
accounting for its stock-based compensation plans under the
intrinsic-value-based method which generally does not result in the recognition
of compensation expense.
(l) Earnings Per Share
Earnings per share is computed in accordance with the provisions of 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 (which for the Company equals its
recorded net income) by the weighted average number of common shares outstanding
during the period. For the years ended December 31, 1997, 1996 and 1995, the
weighted average number of shares of Common Stock outstanding was 16,442,188,
16,574,990 and 18,017,118, respectively. Such shares outstanding exclude the
weighted average number of unallocated shares of Common Stock held by the
Company's employee stock ownership plan ("ESOP") which totaled 1,138,982,
1,378,852 and 1,638,634 for the years ended December 31, 1997, 1996 and 1995,
respectively. 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. For the years ended December 31, 1997, 1996 and
1995, the average number of shares of diluted Common Stock outstanding was
17,734,627, 17,728,008 and 19,025,706, respectively, and includes 1,292,439,
1,153,018 and 1,008,588, respectively, of potentially dilutive stock options.
(m) Treasury Stock
Repurchases of Common Stock are accounted for under the cost method, whereby
shares repurchased are recorded as treasury stock at cost.
NOTE 2
Cash and Cash Equivalents
Cash and cash equivalents at December 31, 1997 and 1996 are summarized as
follows:
<TABLE>
<CAPTION>
- ------------------------------------------------------------
(in thousands) 1997 1996
- ------------------------------------------------------------
<S> <C> <C>
Cash and cash items $10,931 $12,189
Due from banks 7,376 5,939
- ------------------------------------------------------------
Total $18,307 $18,128
============================================================
</TABLE>
NOTE 3
Debt and Equity Securities
Included in the Company's available for sale and held to maturity securities
portfolios are mortgage-backed securities which, except for collateralized
mortgage obligations ("CMOs"), represent participating interests in pools of
first mortgage loans. These mortgage-backed securities have been issued and are
backed by Government National Mortgage Association ("GNMA"), Federal Home Loan
Mortgage Corporation ("FHLMC") or FNMA. The CMOs held by the Company represent
securities that are collateralized with FHLMC mortgage-backed securities.
34 T R Financial Corp. & Subsidiaries
<PAGE>
The following table sets forth certain information regarding the amortized
cost, estimated fair value and gross unrealized gains and losses on debt and
equity securities of the Company at December 31, 1997 and 1996:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
December 31, 1997 December 31, 1996
Amortized Estimated Gross Unrealized Amortized Estimated Gross Unrealized
(in thousands) Cost Fair Value Gains Losses Cost Fair Value Gains Losses
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Available for Sale:
Bonds and equities:
United States Government
obligations $ 200,348 $ 201,964 $ 1,743 $ (127) $ 214,989 $ 214,585 $ 448 $ (852)
Federal agency obligations 75,057 74,841 41 (257) 98,057 97,074 138 (1,121)
Industrial, financial
corporation and other
bonds 2,032 2,065 33 -- 4,059 4,126 67 --
Common and
preferred stocks 21,791 29,699 7,918 (10) 19,448 21,661 2,237 (24)
- ------------------------------------------------------------------------------------------------------------------------------------
Total bonds and equities 299,228 308,569 9,735 (394) 336,553 337,446 2,890 (1,997)
- ------------------------------------------------------------------------------------------------------------------------------------
Mortgage-backed securities:
FNMA, net(1) 6,758 6,912 154 -- 17,393 17,453 259 (199)
GNMA, net 155,103 156,683 1,609 (29) 60,259 60,552 422 (129)
FHLMC, net(1) 4,496 4,501 8 (3) 25,717 26,396 807 (128)
- ------------------------------------------------------------------------------------------------------------------------------------
Total mortgage-backed
securities 166,357 168,096 1,771 (32) 103,369 104,401 1,488 (456)
- ------------------------------------------------------------------------------------------------------------------------------------
Total available for sale $ 465,585 $ 476,665 $ 11,506 $ (426) $ 439,922 $ 441,847 $ 4,378 $ (2,453)
====================================================================================================================================
Held to Maturity, net:
Bonds:
Federal agency obligations $ 6,000 $ 5,997 $ 2 $ (5) $ 6,000 $ 5,926 $ -- $ (74)
Public utility bonds 901 872 -- (29) 1,001 947 -- (54)
Municipal bonds 6,318 6,518 200 -- 6,921 7,102 182 (1)
Industrial and financial
corporation bonds 28,873 28,796 73 (150) 39,710 39,690 169 (189)
- ------------------------------------------------------------------------------------------------------------------------------------
Total bonds 42,092 42,183 275 (184) 53,632 53,665 351 (318)
- ------------------------------------------------------------------------------------------------------------------------------------
Mortgage-backed securities:
FNMA, net 85,777 86,058 689 (408) 98,178 96,258 239 (2,159)
GNMA, net 1,002,553 1,025,316 23,088 (325) 755,479 764,530 13,296 (4,245)
FHLMC, net(2) 85,969 89,137 3,168 -- 98,737 100,211 1,474 --
CMO, net(2) 2,909 3,041 132 -- 2,906 3,038 132 --
- ------------------------------------------------------------------------------------------------------------------------------------
Total mortgage-backed
securities 1,177,208 1,203,552 27,077 (733) 955,300 964,037 15,141 (6,404)
- ------------------------------------------------------------------------------------------------------------------------------------
Total held to
maturity, net $1,219,300 $1,245,735 $ 27,352 $ (917) $1,008,932 $1,017,702 $ 15,492 $ (6,722)
====================================================================================================================================
</TABLE>
(1) At December 31, 1996, 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. The securities were transferred on December 15, 1995
based upon a one-time reassessment by management of all security
classifications as permitted by the FASB. As of December 31, 1996 the
amortized cost of these securities was reduced by $1,666,000 of gross
unrealized losses existing as of March 31, 1995, adjusted for subsequent
accretion. During 1997, the remaining balance of these securities were
sold.
(2) Includes securities which were transferred on March 31, 1995 from
available for sale to held to maturity. The Company transferred these
securities, which had a total amortized cost of $105,466,000 and
unrealized loss of $7,518,000, because it had no further intention of
possibly selling these securities. As of December 31, 1997 and 1996, the
amortized cost of these securities was reduced by $2,209,000 and
$2,940,000, respectively, of gross unrealized losses existing as of March
31, 1995, adjusted for subsequent accretion.
T R Financial Corp. & Subsidiaries 35
<PAGE>
The following table sets forth the gross realized gains and losses on the
sales and calls of securities for the years ended December 31:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
(in thousands) 1997 1996 1995
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Gross realized gains on:
Sales of available for sale
securities:
Bonds and equities $ 6,193 $ 5,654 $ 4,599
Mortgage-backed
securities 103 2,090 1,502
Sales of trading account
securities 7 4 29
Calls of held to maturity
securities 1 38 4
Gross realized losses on:
Sales of available for sale
securities:
Bonds and equities (106) (168) (226)
Mortgage-backed
securities (645) (107) --
Nationar securities -- -- (599)
- --------------------------------------------------------------------------------
Total $ 5,553 $ 7,511 $ 5,309
================================================================================
</TABLE>
At December 31, 1997, the maturities of debt securities available for sale and
held to maturity, excluding mortgage-backed securities, are as follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Available for Sale Held to Maturity
- --------------------------------------------------------------------------------
Estimated Estimated
Amortized Fair Amortized Fair
(in thousands) Cost Value Cost Value
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Within 1 year $ 18,944 $ 18,939 $ 25,898 $ 25,897
After 1 year
through 5 years 250,646 251,688 12,646 12,784
After 5 years
through 10 years 7,847 8,243 1,870 1,756
After 10 years -- -- 1,678 1,746
- --------------------------------------------------------------------------------
Total $277,437 $278,870 $ 42,092 $ 42,183
================================================================================
</TABLE>
At December 31, 1997 and 1996, the net unrealized appreciation
(depreciation) relating to certain securities that has been included as a
separate component of stockholders' equity amounted to a net unrealized gain of
$5,057,000, and a net unrealized loss of $1,501,000, respectively. Such amounts
are net of $3,814,000 and ($1,180,000), respectively, of related income tax
expense (benefit). While the Company maintains a trading account, there were no
open positions in this account at December 31, 1997 or 1996.
The Company's available for sale and held to maturity securities
portfolios may experience substantial volatility in estimated fair values.
Increases in the estimated fair values of securities at December 31, 1997, as
compared to the prior year, are attributable to appreciation in the Company's
equities holdings and the effects that declining interest rates during 1997 had
on the Company's portfolio of fixed rate debt securities.
Included in securities held to maturity at December 31, 1997 and 1996 are
callable stepup notes which represent general U.S. Government agency obligations
which provide annual fixed rate step ups of interest and are callable at par
after one year and in six month intervals thereafter. At December 31, 1997 and
1996, the amortized cost and estimated fair values of these notes aggregated
$6,000,000 and $5,997,000, respectively, in 1997 and $6,000,000 and $5,926,000
respectively, in 1996. The notes held as of December 31, 1997 mature in 1999 and
have a weighted average rate of 5.73%.
The Company loans U.S. Government obligations to specified brokerage
houses. These loaned securities are collateralized with cash at 102% of their
estimated fair value or with government securities. To protect the Company's
investment, the agreements contain provisions to increase the collateral
obtained, should the estimated fair value of the collateral received decline or
the estimated fair value of the security loaned increase. Upon termination of
the loan, the Company's securities are returned. Information regarding the
estimated fair value and maximum amount of securities loaned is as follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
(in thousands) 1997 1996
- --------------------------------------------------------------------------------
<S> <C> <C>
Estimated fair value of securities
loaned at December 31 $ 69,249 $136,413
Maximum amount of securities
loaned outstanding at any
month-end during the year
ended December 31 $133,593 $178,098
================================================================================
</TABLE>
Income on loaned securities of $93,000, $151,000 and $206,000 is included
in the determination of net income in 1997, 1996 and 1995, respectively.
36 T R Financial Corp. & Subsidiaries
<PAGE>
NOTE 4
Loans Receivable, net
Loans receivable, net as of December 31, 1997 and 1996 consist of the following:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
(in thousands) 1997 1996
- --------------------------------------------------------------------------------
<S> <C> <C>
Mortgage loans on real estate, net
One- to four-family $ 1,424,689 $ 1,156,944
Co-op 255,583 200,462
Commercial 216,663 208,689
Multi-family 27,519 24,324
Construction and land
development 18,511 12,309
- --------------------------------------------------------------------------------
Total mortgage loans on real estate 1,942,965 1,602,728
- --------------------------------------------------------------------------------
Deferred amounts:
Deferred income (9) (21)
Net deferred loan origination costs 10,986 4,236
- --------------------------------------------------------------------------------
Total mortgage loans on real estate,
net of deferred amounts 1,953,942 1,606,943
- --------------------------------------------------------------------------------
Other loans, net
Student loans 1,731 2,649
Consumer loans 40,963 23,909
Automobile leases 65,887 86,527
Loans on savings accounts 2,894 3,345
Overdraft loans 775 696
Property improvement loans 183 153
Business loans 338 222
- --------------------------------------------------------------------------------
Total other loans 112,771 117,501
- --------------------------------------------------------------------------------
Deferred and discount amounts:
Net deferred loan origination costs 497 --
Unearned discount (4,314) (8,262)
- --------------------------------------------------------------------------------
Total other loans, net of deferred
amounts 108,954 109,239
- --------------------------------------------------------------------------------
Loans receivable,
net of deferred amounts 2,062,896 1,716,182
Less:
Allowance for possible loan losses (14,917) (14,370)
- --------------------------------------------------------------------------------
Loans receivable, net $ 2,047,979 $ 1,701,812
================================================================================
</TABLE>
Mortgage loans on real estate include approximately $802,696,000 and
$735,607,000 of adjustable rate mortgage loans at December 31, 1997 and 1996,
respectively.
The principal amount of non-accrual mortgage loans amounted to
approximately $12,194,000 and $11,964,000 at December 31, 1997 and 1996,
respectively. The principal amount of non-accrual other loans at December 31,
1997 and 1996 was $256,000 and $156,000, respectively. The contractual amount of
interest that would have been recorded on non-accrual loans during the years
ended December 31, 1997, 1996 and 1995 if the loans had been current in
accordance with their original terms was approximately $1,144,000, $1,181,000,
and $1,132,000, respectively. The amount of income actually recorded on such
loans was approximately $486,000, $584,000, and $88,000 in 1997, 1996 and 1995,
respectively.
As of December 31, 1997 and 1996, the recorded amount of loans identified
as impaired pursuant to SFAS No. 114 was $8,611,000 and $9,669,000,
respectively. Where the Company expects to rely on the underlying collateral for
collection of an impaired loan, the Company has written down the loan's recorded
amount by any excess of the loan's recorded investment over the estimated fair
value of the collateral less estimated selling costs. Therefore, the Company
does not maintain a reserve for impaired loans. All loans identified as impaired
loans at December 31, 1997 and 1996 are non-accrual loans. For the years ended
December 31, 1997 and 1996, the average balance of impaired loans was $8,459,000
and $7,778,000, respectively.
During 1997 and 1996, the Bank sold without recourse approximately
$9,844,000 and $548,000, respectively, of mortgage loans and retained the rights
to service these loans. Servicing fee income (net of the amortization of
mortgage servicing rights) of $493,000, $556,000 and $595,000 is included in
loan fees and other charges, net in the accompanying consolidated statements of
income for 1997, 1996 and 1995, respectively. At December 31, 1997 and 1996 the
Bank serviced approximately $131,107,000 and $137,554,000, respectively, of
mortgage loans which the Bank originated and which it now services for others.
The Bank has sold loans with recourse obligations and has retained
servicing on these loans which have outstanding principal balances of $8,554,000
at December 31, 1997. As of December 31, 1997, the maximum exposure under the
Bank's recourse obligation is $3,133,000. Under the Bank's recourse agreements,
the Bank is obligated to revert to the investor the amount of the contractual
principal and interest due (less a servicing fee), regardless of whether these
payments are actually received from the borrower and the Bank assumes within the
maximum exposure limits the risk of loss associated with any resulting
foreclosure actions. In connection with management's review of the adequacy of
the allowance for possible loan losses, management does not believe that there
is any material risk of loss associated with the Bank's recourse obligations.
T R Financial Corp. & Subsidiaries 37
<PAGE>
NOTE 5
Allowance for Possible Loan Losses
Activity in the allowance for possible loan losses is summarized as follows for
the years ended December 31:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
(in thousands) 1997 1996 1995
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance at beginning
of year $ 14,370 $ 13,267 $ 12,045
Provisions charged to
income 800 1,400 3,050
Charge-offs (592) (538) (3,019)
Recoveries 339 241 1,191
- --------------------------------------------------------------------------------
Balance at end of year $ 14,917 $ 14,370 $ 13,267
================================================================================
</TABLE>
NOTE 6
Other Real Estate Owned, net
Other real estate owned, net as of December 31, 1997 and 1996 consists of the
following:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
(in thousands) 1997 1996
- --------------------------------------------------------------------------------
<S> <C> <C>
Property type:
Co-op $ 118 $ 643
One- to four-family -- 892
Commercial 922 --
Land -- 1,898
- --------------------------------------------------------------------------------
Subtotal 1,040 3,433
Less valuation allowance -- 169
- --------------------------------------------------------------------------------
Total $1,040 $3,264
================================================================================
</TABLE>
NOTE 7
Banking House and Equipment, net
Banking house and equipment, at cost, net of accumulated depreciation and
amortization at December 31, 1997 and 1996 is as follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Estimated
(in thousands) Useful Life 1997 1996
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Banking house 40-60 years $ 8,361 $ 7,393
Furniture and
equipment 5-10 years 4,333 4,839
Automobiles 3 years 17 63
Leasehold
improvements Term of lease 931 1,025
- --------------------------------------------------------------------------------
Total $13,642 $13,320
================================================================================
</TABLE>
Depreciation and amortization of banking house and equipment, included in
occupancy and equipment expense, was approximately $2,081,000, $1,751,000 and
$1,432,000 for the years ended December 31, 1997, 1996 and 1995, respectively.
NOTE 8
Accrued Interest Receivable
Accrued interest receivable at December 31, 1997 and 1996 is as follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
(in thousands) 1997 1996
- --------------------------------------------------------------------------------
<S> <C> <C>
Bonds $ 5,172 $ 5,720
Mortgage-backed securities 8,750 6,896
Mortgage loans on real estate 10,070 8,604
Other loans 346 297
- --------------------------------------------------------------------------------
Total $24,338 $21,517
================================================================================
</TABLE>
<PAGE>
NOTE 9
Deposits
Deposit balances at December 31, 1997 and 1996 are summarized as follows:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
Weighted Weighted
Average Average
Interest Rate Interest Rate
(dollars in thousands) Dec. 31, 1997 Dec. 31, 1996 1997 1996
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Savings accounts 2.76% 2.92% $ 600,910 $ 581,074
Certificates of deposit 5.67 5.72 1,441,716 1,614,802
Money market accounts 2.21 2.21 80,890 77,229
- ------------------------------------------------------------------------------------------------------------------
Subtotal 4.71 4.88 2,123,516 2,273,105
Interest bearing demand deposits 2.73 2.97 13,618 8,292
Non-interest bearing demand deposits -- -- 65,219 62,116
- ------------------------------------------------------------------------------------------------------------------
Total $2,202,353 $2,343,513
==================================================================================================================
</TABLE>
38 T R Financial Corp. & Subsidiaries
<PAGE>
At December 31, 1997 and 1996, scheduled maturities of certificates of
deposit are as follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
(in thousands) 1997 1996
- --------------------------------------------------------------------------------
<S> <C> <C>
Within 12 months $1,095,173 $1,204,801
Beyond 12 months and within
36 months 285,113 341,057
Beyond 36 months 61,430 68,944
- --------------------------------------------------------------------------------
Total $1,441,716 $1,614,802
================================================================================
</TABLE>
Certificates of deposit with balances of $100,000 or more at December 31,
1997 and 1996 are summarized as follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
(in thousands) 1997 1996
- --------------------------------------------------------------------------------
<S> <C> <C>
Within 12 months $110,727 $109,708
Beyond 12 months 43,188 50,311
- --------------------------------------------------------------------------------
Total $153,915 $160,019
================================================================================
</TABLE>
The Bank Insurance Fund of the FDIC insures deposits of account holders
generally up to $100,000 per insured depositor. To provide for this insurance,
the Bank must pay a risk-based annual assessment which considers the Bank's
financial soundness and capitalization level. At December 31, 1997, the Bank, as
a well capitalized institution, was assessed at the FDIC's lowest assessment
level of $0.013 per $100 of insured deposits.
Interest expense on deposit balances is summarized as follows for the
years ended December 31:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
(in thousands) 1997 1996 1995
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Savings accounts $ 18,682 $ 15,571 $ 13,241
NOW accounts 296 724 1,891
Certificates of deposit and
money market accounts 92,064 85,966 74,896
- --------------------------------------------------------------------------------
Total $111,042 $102,261 $ 90,028
================================================================================
</TABLE>
NOTE 10
Borrowed Funds
At December 31, 1997 and 1996, borrowed funds are summarized as follows:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Weighted Weighted
Average Average
Interest Rate Interest Rate
(dollars in thousands) Dec. 31, 1997 Dec. 31, 1996 1997 1996
- ------------------------------------------------------------------------------------------------------------------------------------
Securities sold under agreements to repurchase:
<S> <C> <C> <C> <C>
Due within one year 5.78% 5.54% $ 72,000 $ 35,000
Due between one and five years 5.70 5.80 735,000 20,000
- ------------------------------------------------------------------------------------------------------------------------------------
Total securities sold under agreements to repurchase 5.71 5.63 807,000 55,000
- ------------------------------------------------------------------------------------------------------------------------------------
FHLB advances/overnight borrowings:
Due within one year 5.95 6.05 194,450 171,735
Due between one and five years 5.89 5.81 264,350 385,150
Due after five years 5.80 6.01 32,778 25,950
- ------------------------------------------------------------------------------------------------------------------------------------
Total FHLB borrowings 5.91 5.89 491,578 582,835
- ------------------------------------------------------------------------------------------------------------------------------------
Total 5.78% 5.86% $1,298,578 $ 637,835
====================================================================================================================================
</TABLE>
All securities sold under agreements to repurchase outstanding as of
December 31, 1997 and 1996, had original contractual maturities in excess of 90
days. The following is a summary of information relating to these agreements
(there were no such agreements during 1995):
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
(dollars in thousands) 1997 1996
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Book value of collateral (including accrued interest):
Available for sale:
U.S. Treasury Notes $ 95,971 $ 57,321
Mortgage-backed securities 25,284 --
Held to maturity:
Mortgage-backed securities 735,590 --
- ------------------------------------------------------------------------------------------------------------------------------------
Estimated fair value of collateral:
Available for sale:
U.S. Treasury Notes 94,956 56,141
Mortgage-backed securities 26,231 --
Held to maturity:
Mortgage-backed securities 742,308 --
- ------------------------------------------------------------------------------------------------------------------------------------
Average balance of outstanding agreements during the year 401,572 7,392
- ------------------------------------------------------------------------------------------------------------------------------------
Maximum balance of outstanding agreements at a month end during the year 807,000 55,000
- ------------------------------------------------------------------------------------------------------------------------------------
Average interest rate during the year 5.90% 5.56%
====================================================================================================================================
</TABLE>
T R Financial Corp. & Subsidiaries 39
<PAGE>
At December 31, 1997, outstanding agreements to repurchase had maturities
based on contractual and first call dates in the following years:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Contractual First
(in thousands) Maturity Call Date (1)
- --------------------------------------------------------------------------------
<S> <C> <C>
1998 $ 72,000 $397,000
1999 15,000 365,000
2000 250,000 45,000
2002 470,000 --
- --------------------------------------------------------------------------------
$807,000 $807,000
================================================================================
</TABLE>
(1) After the first call date such agreements generally remain callable by the
lender at quarterly intervals until their final contractual maturity.
$87,000,000 of these agreements have no callable provisions.
FHLB advances and FHLB overnight line of credit borrowings are secured under an
assignment arrangement of eligible collateral, primarily mortgage loans, in an
amount equal to 110% of outstanding advances.
The Bank maintains a $100,000,000 overnight line of credit with the FHLB.
Included in FHLB borrowings at December 31, 1997 and 1996 are $55,000,000 and
$47,000,000, respectively, of borrowings drawn under this line at an interest
rate of 6.625% at December 31, 1997 and 7.125% at December 31, 1996. In
addition, the Bank may access funds through a $100,000,000 one month facility
from the FHLB. Included in FHLB advances, due after five years, is a $25,000,000
advance which has a fixed rate of interest for five years and which rate may
become convertible by the FHLB in 2002, and quarterly thereafter.
NOTE 11
Income Taxes
The income tax provision for the years ended December 31, 1997, 1996 and 1995
was higher than the statutory United States federal income tax rate. The reasons
for the differences are as follows:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------------
% of % of % of
pre-tax pre-tax pre-tax
(dollars in thousands) Amount earnings Amount earnings Amount earnings
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Tax expense at statutory rate $ 20,289 35.0% $ 18,442 35.0% $ 13,207 35.0%
State and local taxes, net of federal
income tax benefit 1,631 2.8 3,084 5.9 2,557 6.8
ESOP expense 1,577 2.7 794 1.5 481 1.3
Tax exempt income (126) (0.2) (146) (0.3) (160) (0.4)
Dividends received deduction (186) (0.3) (132) (0.3) (117) (0.3)
Other, net 55 0.1 133 0.3 842 2.2
- ------------------------------------------------------------------------------------------------------------------------------------
Total $ 23,240 40.1% $ 22,175 42.1% $ 16,810 44.6%
====================================================================================================================================
</TABLE>
Total income tax expense for the years ended December 31, 1997, 1996 and
1995, are allocated as follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
(in thousands) 1997 1996 1995
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Provision for income tax
expense $ 23,240 $ 22,175 $ 16,810
Income tax expense
(benefit) attributable
to net unrealized
appreciation or
depreciation in
certain securities 4,994 (4,504) 11,214
Tax benefit attributable
to stock-based
compensation plans (944) (1,255) (404)
- --------------------------------------------------------------------------------
Total $ 27,290 $ 16,416 $ 27,620
================================================================================
</TABLE>
For the years ended December 31, 1997, 1996 and 1995, provisions for
income tax expense, included in the consolidated statements of income, are
comprised of the following amounts:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
(in thousands) 1997 1996 1995
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Current:
Federal $ 20,986 $ 15,114 $ 11,903
State and local 2,614 4,815 3,510
- --------------------------------------------------------------------------------
Total current 23,600 19,929 15,413
- --------------------------------------------------------------------------------
Deferred:
Federal (268) 1,582 973
State and local (92) 664 424
- --------------------------------------------------------------------------------
Total deferred (360) 2,246 1,397
- --------------------------------------------------------------------------------
Provision for income taxes $ 23,240 $ 22,175 $ 16,810
================================================================================
</TABLE>
Prior to enactment of the Small Business Job Protection Act of 1996 (the
"1996 Act") in August 1996, thrift institutions such as the Bank, which met
certain definitional tests, primarily relating to their assets and the nature of
their business, were permitted to establish a tax reserve for bad debts and to
make annual additions thereto, which additions could, within specified
limitations, be deducted in arriving at their taxable income. The Bank's
deduction with respect to "qualifying loans," which are generally loans secured
by certain interests in real property, was, prior to January 1, 1996, computed
using an amount based on the Bank's actual loss experience (the "Experience
Method"), or a percent-
40 T R Financial Corp. & Subsidiaries
<PAGE>
age equal to 8% of the Bank's taxable income (the "PTI Method"), computed
without regard to this deduction and with additional modifications and reduced
by the amount of any permitted additions to the non-qualifying reserve. Similar
deductions for additions to the Bank's bad debt reserve were permitted under the
New York State Bank Franchise Tax and the New York City Banking Corporation Tax;
however, for purposes of these taxes, the effective allowable percentage under
the PTI method was 32% rather than 8%.
Under the 1996 Act, the Bank, as a "large bank" (one with assets having an
adjusted basis of more than $500 million), is no longer permitted to make
additions to its tax bad debt reserve, is permitted to deduct bad debts only as
they occur and is required to recapture (that is, take into taxable income) over
a multi-year period, beginning with the Bank's taxable year beginning on January
1, 1996, the excess of the balance of its bad debt reserves (other than the
supplemental reserve) as of December 31, 1995 over the balance of such reserves
as of December 31, 1987, or over a lesser period if the Bank's loan portfolio
has decreased since December 31, 1987. However, such recapture requirements are
suspended for each of the two successive taxable years beginning January 1, 1996
in which the Bank originates a minimum amount of certain residential loans based
upon the average of the principal amounts of such loans made by the Bank during
its six taxable years preceding January 1, 1996. At December 31, 1995 the
balance of the Bank's federal bad debt reserves were $9,367,000 which exceeded
the balance of such amount at December 31, 1987 by $1,831,000. Since the Bank
has already provided a deferred income tax liability of this amount for
financial reporting purposes, there will be no adverse impact to the Bank's
financial condition or results of operations from the enactment of this
legislation. The New York State tax law was amended during 1996 to prevent a
similar recapture of the Bank's bad debt reserve, and to permit continued future
use of the bad debt reserve methods, for purposes of determining the Bank's New
York State tax liability. Similar amendments to the New York City tax law were
made in March 1997. The Company reduced its provision for income taxes for the
year ended December 31, 1997 and 1996 by $275,000 and $1,065,000, respectively,
principally as a result of these state and city bad debt tax legislation
changes.
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at December 31,
1997 and 1996 are presented below.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
(in thousands) 1997 1996
- --------------------------------------------------------------------------------
<S> <C> <C>
Deferred tax assets:
Provision for possible loan losses $ 5,679 $ 4,656
Mark to market adjustments on held
for sale securities 3,438 438
Net unrealized depreciation in
certain securities -- 1,180
Postretirement benefits 3,818 3,732
Premium amortization 801 599
Other expenses not currently deductible 1,390 377
Other 600 1,230
- --------------------------------------------------------------------------------
Total gross deferred tax assets 15,726 12,212
Less valuation allowance 1,600 1,600
- --------------------------------------------------------------------------------
Deferred tax assets 14,126 10,612
- --------------------------------------------------------------------------------
Deferred tax liabilities:
Net deferred origination costs 6,005 2,464
Accrued pension expense 760 831
Net unrealized appreciation in certain
securities 3,814 --
Recapture of tax bad debt reserve 795 --
Other 718 649
- --------------------------------------------------------------------------------
Deferred tax liabilities 12,092 3,944
- --------------------------------------------------------------------------------
Net deferred tax assets $ 2,034 $ 6,668
================================================================================
</TABLE>
NOTE 12
Stockholders' Equity
Retained Earnings - Prior to T R Financial's initial public offering and as part
of the subscription and community offerings, in order to grant priority to
eligible depositors in accordance with applicable law and regulation, the Bank
established a liquidation account at the time of conversion, in an amount equal
to the Bank's capital at December 31, 1992. In the unlikely event of a complete
liquidation of the Bank (and only in such an event), eligible depositors who
continue to maintain accounts shall be entitled to receive a distribution from
the liquidation account. The liquidation account is reduced annually to the
extent that eligible account holders have reduced their qualifying deposits as
of each anniversary date. Subsequent increases will not restore an eligible
account holder's interest in the liquidation account. The balance of the
liquidation account was $11,339,000 at December 31, 1997.
Dividend Restrictions - The ability of T R Financial to pay dividends
depends upon, among other things, dividend payments by the Bank to T R Financial
which is T R Financial's primary source of income. The Bank may not declare or
pay a cash dividend on, or repurchase any of, its Common Stock if the effect
thereof would cause its net worth to be reduced below the amount required for
the liquida-
T R Financial Corp. & Subsidiaries 41
<PAGE>
tion account or applicable regulatory capital maintenance requirements or if
such declaration and payment would otherwise violate regulatory requirements.
For the years ended December 31, 1997 and 1996, T R Financial paid
$8,980,000 and $5,580,000 of dividends, respectively, exclusive of dividends
paid on shares of unallocated Common Stock held by the Company's ESOP,
representing $0.55 and $0.34 per share of Common Stock outstanding,
respectively.
Treasury Stock - During the years ended December 31, 1997, 1996 and 1995,
T R Financial repurchased 183,000, 1,564,000 and 1,577,000 shares, respectively,
of Common Stock at a total cost of $3,174,000, $20,879,000 and $14,843,000,
respectively, in each year. These repurchases may be used to, among other
things, satisfy obligations arising from T R Financial's stock option plans.
NOTE 13
Regulatory Capital
The Company and the Bank are subject to various regulatory capital requirements
imposed and administered by the federal banking agencies. Failure to meet
minimum capital requirements will result in certain mandatory, and possibly
additional discretionary, actions by regulators that could have a direct
material effect on the Company's and the Bank's operations. Under the capital
adequacy guidelines and the regulatory framework for prompt corrective action,
the Bank must meet specific capital guidelines that involve quantitative
measures of the Bank's assets, liabilities and certain off-balance-sheet items
as calculated under regulatory accounting practices. The Company's and the
Bank's capital amounts and classifications are also subject to qualitative
judgments by the regulators about components, risk weightings and other factors.
Quantitative measures established by regulation to ensure capital adequacy
require the Company and the Bank to maintain minimum amounts and ratios (set
forth in the table below) of total and Tier I capital (as defined in the
regulations) to risk-weighted assets (as defined), and of Tier I capital (as
defined) to average assets (as defined). Management believes, as of December 31,
1997, that the Company and the Bank meet all capital adequacy requirements to
which each is subject.
At December 31, 1997, the Bank was a "well-capitalized" institution under
applicable regulatory standards and was in compliance with all regulatory
capital requirements. 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 the Company's amounts and ratios for required
and actual regulatory capital requirements at December 31, 1997 and 1996:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Bank Company
- ------------------------------------------------------------------------------------------------------------------------------------
Total Tier 1 Tier 1 Total Tier 1 Tier 1
Risk-Based Risk-Based Leverage Risk-Based Risk-Based Leverage
(dollars in thousands) Capital Capital Capital Capital Capital Capital
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
At December 31, 1997:
Actual:
Amount $ 239,755 $ 224,838 $ 224,838 $ 250,826 $ 235,909 $ 235,909
Ratio 17.80% 16.70% 5.98% 18.61% 17.50% 6.26%
Minimum requirement for
capital adequacy purposes:
Amount $ 107,733 $ 53,866 $ 112,751 $ 107,837 $ 53,919 $ 113,141
Ratio 8.00% 4.00% 3.00% 8.00% 4.00% 3.00%
To be "well-capitalized" under
prompt corrective action provisions(1):
Amount $ 134,666 $ 80,800 $ 187,918 -- -- --
Ratio 10.00% 6.00% 5.00% -- -- --
====================================================================================================================================
At December 31, 1996:
Actual:
Amount $ 207,334 $ 192,964 $ 192,964 $ 219,909 $ 205,539 $ 205,539
Ratio 16.86% 15.69% 6.07% 17.86% 16.69% 6.43%
Minimum requirement for
capital adequacy purposes:
Amount $ 98,391 $ 49,195 $ 95,421 $ 98,495 $ 49,248 $ 95,907
Ratio 8.00% 4.00% 3.00% 8.00% 4.00% 3.00%
To be "well-capitalized" under
prompt corrective action provisions(1):
Amount $ 122,989 $ 73,793 $ 159,036 -- -- --
Ratio 10.00% 6.00% 5.00% -- -- --
====================================================================================================================================
</TABLE>
(1) Such amounts are not applicable to the Company.
42 T R Financial Corp. & Subsidiaries
<PAGE>
NOTE 14
Retirement Plans
Pension Plan - The Bank maintains a qualified noncontributory defined benefit
pension plan (the "Plan") covering substantially all full-time employees that
satisfy the eligibility requirements. The Plan is administered by a committee
appointed by the Bank's Board of Directors. Contributions required to support
the Plan are actuarially determined.
The components of net pension expense as determined by the Plan's actuary
at the most recent September 30 valuation dates are as follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Sept. 30, Sept.30, Sept. 30,
(in thousands) 1997 1996 1995
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Service cost-benefits earned
during the period $ 795 $ 783 $ 675
Interest cost on projected
benefit obligation 1,278 1,224 1,152
Amortization of
unrecognized past
service liability (13) (13) (13)
Amortization of
unrecognized loss -- 91 176
Return on plan assets (4,069) (2,226) (2,717)
Amortization of
unrecognized
transition asset (72) (241) (241)
Deferred investment gain 2,428 771 1,521
- --------------------------------------------------------------------------------
Net pension expense $ 347 $ 389 $ 553
================================================================================
</TABLE>
A comparison of accumulated plan benefit obligation and plan net assets as
of the most recent actuarial valuation dates is as follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Sept. 30, Sept. 30,
(in thousands) 1997 1996
- --------------------------------------------------------------------------------
<S> <C> <C>
Actuarial present value of accumulated
plan benefit obligation:
Vested benefit obligation $ 16,016 $ 13,598
Nonvested benefit obligation 333 948
- --------------------------------------------------------------------------------
16,349 14,546
Effect of projected future
compensation levels 2,661 2,976
- --------------------------------------------------------------------------------
Projected benefit obligation for
service rendered to date 19,010 17,522
Market value of plan net assets,
consisting principally of mutual
fund investments 22,047 18,763
- --------------------------------------------------------------------------------
Plan assets in excess of projected
benefit obligation 3,037 1,241
Unrecognized transition asset being
amortized over ten years -- (72)
Unrecognized net (gain) loss from
past experience different from that
assumed and effects of changes
in assumptions (1,196) 1,032
Unrecognized past service cost (71) (83)
- --------------------------------------------------------------------------------
Prepaid pension expense included
in other assets $ 1,770 $ 2,118
================================================================================
Assumed rate of return on investments 9.00% 9.00%
Assumptions used to develop the
projected benefit obligation:
Rate of increase in salary scale 5.00% 5.50%
Discount rate 7.25% 7.75%
================================================================================
</TABLE>
The projected benefit obligation represents the obligation to plan members
for services already rendered increased for projected future compensation
levels.
Defined Contribution Plan - The Bank also maintains a qualified defined
contribution and thrift savings plan under Section 401(k) of the Internal
Revenue Code. All regular, full time employees are eligible for voluntary
participation after one year of continuous service. The plan is effectuated
through a trust established by the Bank. Under this plan, participants may
contribute from 2% to 6% of their base pay and the Bank makes 50% matching
discretionary contributions of up to 3% of the participant's base pay. The Bank
made matching contributions of $343,000, $332,000 and $306,000, for the years
ended December 31, 1997, 1996 and 1995, respectively.
NOTE 15
Postretirement Health Care and Life Insurance Benefits
The Bank currently provides postretirement health and life insurance benefits to
substantially all of its employees who were employed by the Bank prior to April
1, 1993. Retirees covered by this plan are eligible to receive medical coverage
for themselves and their spouses and are eligible to receive life insurance.
Retiree contributions cover approximately 25% of the required premiums.
The current cash cost per year of the medical coverage provided is approximately
$418,000. Employees who retired subsequent to January 1, 1979 and receive
benefits under the Bank's pension plan are eligible to be covered under the
Bank's Group Life Insurance Plan ("GLIP"). Retiree life insurance benefits are
calculated based upon the employee's basic annual earnings immediately preceding
the date of their retirement, subject to certain limitations included in the
benefits formula, as described in the GLIP. The current cost per year of these
benefits is approximately $42,000. The Bank may from time to time revise its
policies with respect to postretirement health and life insurance benefits,
including, among other things, provisions for eligibility and retiree
contributions.
T R Financial Corp. & Subsidiaries 43
<PAGE>
The unfunded status of the plan at December 31, 1997 and 1996 is as
follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
(in thousands) 1997 1996
- --------------------------------------------------------------------------------
<S> <C> <C>
Actuarial present value of accumulated
postretirement benefit obligation $ 9,808 $ 8,552
Unrecognized net loss (2,504) (2,832)
Unrecognized prior service benefit 1,360 2,804
- --------------------------------------------------------------------------------
Accrued postretirement benefit cost
recognized in other liabilities $ 8,664 $ 8,524
================================================================================
</TABLE>
Net periodic postretirement benefit cost included in salaries and employee
benefits in the accompanying consolidated statements of income for the years
ended December 31, 1997, 1996 and 1995 is comprised of the following components:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
(in thousands) 1997 1996 1995
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Service cost-benefits earned
during the year $ 194 $ 242 $ 233
Interest cost on accumulated
postretirement
benefit obligation 570 593 536
Amortization of unrecognized
net loss 115 241 121
Amortization of unrecognized
prior service benefit (369) (369) (369)
- --------------------------------------------------------------------------------
Net periodic postretirement
benefit cost $ 510 $ 707 $ 521
================================================================================
</TABLE>
For measurement purposes, a 9% annual rate of increase in the per capita
cost of covered benefits ("health care cost trend rate") was assumed for 1997;
with the rate assumed to gradually decrease to 5% by the year 2001 and remain at
that level thereafter. This rate assumption has a significant effect on the
estimate of the accumulated postretirement benefit obligation and aggregate
service and interest cost components of net periodic postretirement benefit
cost. A one percentage point increase in the health care cost trend rate would
increase the accumulated postretirement benefit obligation by 13.6% as of
December 31, 1997 while the aggregate of the service and interest cost
components of net periodic postretirement benefit cost for the year ended
December 31, 1997 would increase 15.0%. The discount rate used in determining
the accumulated postretirement benefit obligation was 7.0% and 7.5%,
respectively, at December 31, 1997 and 1996.
NOTE 16
Stock Plans
Stock Option Plans - In connection with the Bank's conversion to the stock form
of ownership and T R Financial's initial public offering on June 29, 1993, T R
Financial adopted and its stockholders ratified two stock option plans: the T R
Financial Corp. 1993 Incentive Stock Option Plan (the "ISO Plan") which reserved
1,376,550 shares of Common Stock for issuance and the T R Financial Corp. 1993
Stock Option Plan for Outside Directors (the "Directors' Plan") which reserved
808,448 shares of Common Stock for issuance. On April 21, 1997, stockholders
approved at its Annual Meeting amendments to the ISO Plan which increased the
shares reserved for issuance to 2,576,550.
On June 29, 1993, T R Financial granted options at an exercise price of
$4.50 per share (the initial public offering price of the Common Stock) covering
1,374,470 shares and 726,508 shares, pursuant to the ISO Plan and the Directors'
Plan, respectively. During 1997, options covering 254,200 shares of Common Stock
were granted pursuant to the ISO Plan at an average exercise price of $16.90 and
options covering 21,600 shares of Common Stock were granted pursuant to the
Directors' Plan at an exercise price of $17.25.
Under the ISO Plan, all officers and employees of the Company are eligible
to participate. The ISO Plan provides that the exercise price of options granted
may not be less than the fair market value of the Common Stock on the date of
grant and that options generally expire upon the earlier of ten years from the
date of the grant or from three to twelve months following an optionee's
termination of employment with the Company. Options granted under the plan may
be incentive stock options or non-statutory stock options.
While the options granted under the ISO Plan generally vest over a one to
five year period, certain events such as death, disability, retirement of an
optionee or change in control, result in immediate vesting. Under the Directors'
Plan, outside directors of T R Financial are eligible to receive non-statutory
options. The Directors' Plan provides that the exercise price of options granted
be equal to the fair market value on the date of grant and that the options
expire on the earlier of ten years from the date of the grant or one year
following the date on which an
44 T R Financial Corp. & Subsidiaries
<PAGE>
optionee ceases to be a Director. The following is a summary of transactions for
the ISO Plan and Directors' Plan for the years ended December 31, 1997, 1996 and
1995. All transactions noted below in 1996 and 1995 related to options with
exercise prices of $4.50 per share.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------------
Weighted
Number of Average Number of Number of
Options Exercise Price Options Options
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ISO Plan:
Outstanding at beginning of year 1,186,526 $ 4.50 1,226,358 1,330,824
Granted 254,200 16.90 -- --
Exercised (147,763) 4.50 (34,470) (99,876)
Forfeited (1,892) 4.50 (5,362) (4,590)
- ------------------------------------------------------------------------------------------------------------------------------------
Outstanding at end of year 1,291,071 $ 6.94 1,186,526 1,226,358
====================================================================================================================================
Currently exercisable at December 31, 1997 1,001,319 $ 4.52
====================================================================================================================================
Directors' Plan:
Outstanding at beginning of year 450,144 $ 4.50 592,600 715,108
Granted 21,600 17.25 -- --
Exercised (59,226) 4.50 (142,456) (122,508)
- ------------------------------------------------------------------------------------------------------------------------------------
Outstanding at end of year 412,518 $ 5.17 450,144 592,600
====================================================================================================================================
Currently exercisable at December 31, 1997 390,918 $ 4.50
====================================================================================================================================
</TABLE>
The following summarizes information about stock options outstanding at
December 31, 1997:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Options Outstanding Options Exercisable
- ------------------------------------------------------------------------------------------------------------------------------------
Weighted Average
Weighted Remaining Weighted
Number Average Contractual Life Number Average
Exercise Price Outstanding Exercise Price (in years) Exercisable Exercise Price
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$ 4.50 1,427,789 $ 4.50 5.49 1,390,237 $ 4.50
16.88 240,200 16.88 8.99 2,000 16.88
17.25 35,600 17.25 9.30 -- --
- ------------------------------------------------------------------------------------------------------------------------------------
$4.50 to $17.25 1,703,589 $ 6.51 6.06 1,392,237 $ 4.52
====================================================================================================================================
</TABLE>
The options granted by the Company after 1995 are accounted for under the
provisions of SFAS No. 123. As permitted by SFAS No. 123, management has elected
to continue to account for its compensation arrangements with employees using
the intrinsic-value-based method which generally does not result in the
recognition of compensation expense. Had the Company elected the
fair-value-based method, options granted in 1997 would have resulted in the
recognition of compensation expense and the Company's 1997 net income and
earnings per share amounts would have been reduced to the pro forma amounts
indicated below:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
1997
- --------------------------------------------------------------------------------
(in thousands, except Basic Earnings Diluted Earnings
per share amounts) Net income Per Share Per Share
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
As reported $34,728 $ 2.11 $ 1.96
Pro forma 34,353 2.09 1.94
================================================================================
</TABLE>
The fair value of each option granted during 1997 is estimated on the date
of grant using the Black-Scholes option pricing model with the following
assumptions: dividend yield of 2.90%, weighted average risk-free interest rate
of 6.45%, expected volatility of 21.6% and a weighted-average expected term of
7.56 years. The effects of applying SFAS No. 123 on the pro forma net income may
not be representative of the effects on pro forma net income in future years.
T R Financial Corp. & Subsidiaries 45
<PAGE>
On January 22, 1998, the Company granted options pursuant to the ISO Plan
covering 239,840 shares at an exercise price of $29.50 per share. Such options
vest annually over a three year period.
Employee Stock Ownership Plan and Trust - T R Financial maintains an ESOP
for full time employees of the Company having at least one year of credited
service. On June 29, 1993, the ESOP purchased 2,163,150 shares of Common Stock
at $4.50 per share, representing $9,734,175, from T R Financial in its initial
public offering. The shares are allocated to participants' accounts annually
through December 31, 2003 on the basis of compensation as defined in the ESOP.
Participants vest in the shares allocated to their respective accounts over a
seven year period. Any forfeited shares are allocated to the then remaining
participants in the same proportion as contributions. For the years ended
December 31, 1997, 1996 and 1995, 232,412, 247,368 and 265,168 shares,
respectively, were allocated to participants. As of December 31, 1997 and 1996,
1,023,094 and 1,255,506 shares remained unallocated, respectively. The trustee
for the ESOP must vote all allocated shares held in the ESOP trust in accordance
with the instructions of the participants. Unallocated shares held by the ESOP
trust are voted by the trustee in a manner calculated to most accurately reflect
the results of allocated ESOP shares voted, subject to the requirements of the
Employee Retirement Income Security Act of 1974, as amended.
The ESOP purchased shares of Common Stock using the proceeds from a
$9,734,175 promissory note payable to T R Financial (the "Promissory Note"). The
Promissory Note is collateralized by the unallocated shares of Common Stock held
by the ESOP and provides for forty equal quarterly principal installments plus
interest at prime plus 1.50% (10.00% and 9.75% at December 31, 1997 and 1996,
respectively) to be made to T R Financial commencing September 30, 1993. Under
the terms of the ESOP, the Company makes contributions to the ESOP trust
sufficient in amount to cover all payments of interest and principal as they
become due. These contributions are reduced, however, by any investment earnings
realized thereon and any dividends paid on unallocated shares of Common Stock
held by the ESOP trust. As a result, contributions to the ESOP were reduced in
1997, 1996 and 1995 by $693,000, $513,000 and $328,000, respectively. The number
of shares released annually is based upon the ratio of the current year's
principal and interest to the current and all projected future years' principal
and interest. The ESOP also provides that the Company may make additional
contributions at its sole discretion. For the years ended December 31, 1997,
1996 and 1995, the Company made contributions of $873,000, $1,144,000 and
$1,460,000, respectively, which were used by the ESOP to repay principal of
$973,000 in 1997, 1996 and 1995 and interest of $593,000, $684,000 and $815,000
in 1997, 1996 and 1995, respectively. The Company recognizes expense relating to
the ESOP on the basis of the shares allocated to participant accounts multiplied
by the average fair value of the Common Stock during the period. For the years
ended December 31, 1997, 1996 and 1995, the average quoted price of the Common
Stock was $24.25, $13.82 and $9.78 per share, respectively. Accordingly,
salaries and employee benefits in the accompanying consolidated statements of
income for the years ended December 31, 1997, 1996 and 1995 include $5,637,000,
$3,418,000 and $2,593,000, respectively, of expense relating to the benefits
provided under the ESOP. For the years ended December 31, 1997, 1996 and 1995,
the average interest rate under the Promissory Note was 9.92%, 9.82% and 10.30%,
respectively.
Recognition and Retention Plans - The Bank maintained two recognition and
retention plans: the Roosevelt Savings Bank Recognition and Retention Plan for
Officers (the "Officers' RRP"), which authorized the granting of up to 568,100
shares of Common Stock and the Roosevelt Savings Bank Recognition and Retention
Plan for Outside Directors (the "Directors' RRP"), which authorized the granting
of up to 305,900 shares of Common Stock. The purpose of these plans,
collectively the "RRPs," was to provide officers and outside directors of the
Bank with a proprietary interest in the Company in a manner designed to
encourage their retention with the Bank. On June 29, 1993, the Bank contributed
$3,933,000 to the RRPs to enable the RRPs to purchase an aggregate of 874,000
shares of Common Stock at T R Financial's initial public offering price of $4.50
per share. This contribution represented deferred compensation which was
initially recorded as a reduction of stockholders' equity and is ratably charged
to expense over the vesting period of the actual stock awards. On June 29, 1993,
568,100 shares and 274,900 shares of Common Stock, respectively, were awarded
under the Officers'
46 T R Financial Corp. & Subsidiaries
<PAGE>
RRP and Directors' RRP. Of the total shares awarded, 663,830 shares and 179,170
shares, respectively, vest annually on the anniversary date of the grant over
three years and five years, respectively. For the years ended December 31, 1997,
1996 and 1995, salaries and employee benefits in the accompanying consolidated
statements of income include $103,000, $561,000 and $1,081,000, respectively, of
expense relating to the awards under the RRPs. During 1997, 1996 and 1995,
29,002, 216,818 and 254,390 shares, respectively, were vested and distributed.
No awarded shares were forfeited during 1997, 1996, or 1995. In 1997, the
Company terminated the Directors' RRP and its related trust and repurchased,
into treasury stock, the remaining 31,000 unallocated shares in the Directors'
RRP trust.
Supplemental Executive Retirement Plan and Trust - The Company maintains a
non-qualified executive retirement plan, the Supplemental Executive Retirement
Plan and Trust (the "SERP"), to compensate executives in the Company's benefit
plans that are limited by sections 401, 402 and 415 of the Internal Revenue
Code. At December 31, 1997 and 1996, the SERP maintains $1,873,000 and
$1,343,000, respectively, of trust held assets. Trust held assets at December
31, 1997 and 1996 include $1,225,000 and $721,000, respectively, of Common
Stock, at cost. This represents 106,103 shares and 78,192 shares of Common Stock
at December 31, 1997 and 1996, respectively. The cost of such shares are
reflected as contra-equity and additional paid-in-capital in the accompanying
consolidated statements of financial condition. The remaining assets in the SERP
at December 31, 1997 and 1996 of $648,000 and $622,000, respectively, are
reflected as other assets and other liabilities in the accompanying consolidated
statements of financial condition.
NOTE 17
Recent Accounting Pronouncements
In December 1996 FASB issued SFAS No. 127, "Deferral of the Effective Date of
Certain Provisions of FASB Statement No. 125." As amended, SFAS No. 125 is
effective for transfers and servicing of financial assets and extinguishments of
liabilities occurring after December 31, 1996 except that its provisions with
respect to securities lending, repurchase agreements and dollar-roll
transactions are effective for transfers occurring after December 31, 1997. The
adoption of the deferred provision of SFAS No. 125, as amended, is not expected
to have a material effect on the Company's results of operations.
The FASB also issued in June 1997, SFAS No. 131, "Disclosure about
Segments of an Enterprise and Related Information" which established 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
established standard for related disclosures about products and services,
geographic areas and major customers. 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. 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.
NOTE 18
Disclosures About Fair Value of Financial Instruments
SFAS No. 107, "Disclosure about Fair Value of Financial Instruments," requires
that the Company disclose estimated fair values for its financial instruments.
Fair value estimates, methods, and assumptions are set forth below.
Cash, Cash Equivalents and Securities
The carrying amounts for cash and cash equivalents approximate fair value as
they mature in 90 days or less and do not present unanticipated credit concerns.
The fair values of held to maturity securities and available for sale securities
are estimated based on bid quotations received from securities dealers or from
prices obtained from firms specializing in
T R Financial Corp. & Subsidiaries 47
<PAGE>
providing securities pricing services. The following table represents the
amortized cost and estimated fair values of cash, cash equivalents, and
securities at December 31, 1997 and 1996:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------
1997 1996
- --------------------------------------------------------------------------------------------------------
Amortized Estimated Amortized Estimated
(in thousands) Cost Fair Value Cost Fair Value
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Cash and cash equivalents $ 18,307 $ 18,307 $ 18,128 $ 18,128
Held to maturity securities, net 1,219,300 1,245,735 1,008,932 1,017,702
Available for sale securities 465,585 476,665 439,922 441,847
- --------------------------------------------------------------------------------------------------------
Total $1,703,192 $1,740,707 $1,466,982 $1,477,677
========================================================================================================
</TABLE>
Loans
Fair values are estimated for portfolios of loans with similar financial
characteristics. Loans are segregated by type, such as commercial real estate
and residential mortgage loans. Each loan category is further segmented into
fixed and adjustable rate interest terms and by performing and non-performing
categories. For performing residential mortgage loans, fair values are estimated
by discounting contractual cash flows through the estimated maturity using
discount rates and prepayment estimates based on secondary market sources
adjusted to reflect differences in servicing and credit costs. The estimated
fair value of remaining performing loans is calculated by discounting scheduled
cash flows using estimated market discount rates that reflect the credit and
interest rate risk inherent in the loan. Fair values for non-performing real
estate loans are based on recent appraisals.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------
December 31, 1997 December 31, 1996
- --------------------------------------------------------------------------------------
Carrying Estimated Carrying Estimated
(in thousands) Amount Fair Value Amount Fair Value
- --------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Mortgage loans $1,953,942 $1,964,704 $1,606,943 $1,602,123
Other loans 108,954 108,776 109,239 108,851
- --------------------------------------------------------------------------------------
Total $2,062,896 $2,073,480 $1,716,182 $1,710,974
======================================================================================
</TABLE>
Deposit Liabilities
All interest-bearing deposits, except certificates of deposit, are subject to
rate changes at any time, and therefore are considered to be carried at
estimated fair value. The fair value of certificates of deposit at December 31,
1997 and 1996 was estimated by computing the present value of contractual future
cash flows for each certificate. The present value rate utilized was the rate
offered by the Bank at December 31, 1997 and 1996 on certificates with an
initial maturity equal to the remaining term to maturity of the existing
certificates. At December 31, 1997 the carrying amount and estimated fair value
of the Company's certificates of deposit were $1,441,716,000 and $1,448,222,000,
respectively. At December 31, 1996, the carrying amount and estimated fair value
of the Company's certificates of deposit were $1,614,802,000 and $1,620,074,000,
respectively.
Borrowed Funds
The fair value of borrowings was estimated at $1,297,989,000 and $631,899,000,
respectively, at December 31, 1997 and 1996 representing the amount estimated to
be required to extinguish the borrowings as of those dates. The estimated fair
values of borrowings are valued using estimated discounted cash flow analyses
based on the current incremental borrowing rates for similar types of borrowing
arrangements. At December 31, 1997 and 1996, the carrying amount of borrowed
funds were $1,298,578,000 and $637,835,000, respectively.
Limitations
SFAS No. 107 requires disclosures of the estimated fair value of financial
instruments. Fair value estimates are made at a specific point in time, based on
relevant market information about the financial instrument. These estimates do
not reflect any premium or discount that could result from offering for sale at
one time the Company's entire holdings of a
48 T R Financial Corp. & Subsidiaries
<PAGE>
particular financial instrument nor the resultant tax ramifications or
transaction costs. Because no market exists for a significant portion of the
Company's financial instruments, fair value estimates are based on judgments
regarding current economic conditions, risk characteristics of various financial
instruments, and other factors. These estimates are subjective in nature and
involve uncertainties and matters of significant judgment and therefore cannot
be determined with precision. Changes in assumptions could significantly affect
the estimates.
Fair value estimates are based on existing on and off balance sheet
financial instruments without attempting to estimate the value of anticipated
future business and the value of assets and liabilities that are not considered
financial instruments. For example, the Company has a mortgage servicing
department that contributes fee income annually. The mortgage servicing
department is not considered a financial instrument, and as such its value has
not been incorporated into the fair value estimates. Other significant assets of
the Company that are not considered financial assets include banking house and
equipment and deferred tax assets. In addition, the tax ramifications related to
the unrealized gains and losses can have a significant effect on fair value
estimates and have not been considered.
Commitments
The fair value of commitments is estimated using the fees currently charged to
enter into similar agreements, taking into account the remaining terms of the
agreements and the present creditworthiness of the counterparties. For fixed
rate loan commitments, fair value also considers the difference between current
levels of interest rates and the committed rates.
The commitments existing at December 31, 1997 would be offered at
substantially the same rates and under substantially the same terms that would
be offered by the Bank at December 31, 1997 to the counterparties. Therefore,
the carrying value of existing commitments is considered to be equivalent to the
estimated fair value as of December 31, 1997.
NOTE 19
Commitments and Contingencies
Commitments
At December 31, 1997, commitments to originate mortgage loans at fixed rates
were approximately $57,960,000 with stated rates ranging from 6.4% to 9.5% and
commitments to originate adjustable rate mortgages were approximately
$63,434,000 at stated rates ranging from 5.9% to 9.25%. In connection with
certain of its loan products, the Company had, at December 31, 1997, $30,049,000
of outstanding commitments to fund unused lines of credit. In addition, at
December 31, 1997, the Company had two commitments totaling $2,445,000 to
participate in the funding of community development housing. The interest rate
at which these commitments will be funded has not yet been determined. At
December 31, 1997, the Company had commitments to purchase $119,000,000 par
value of GNMA mortgage-backed securities. These securities were settled in
January 1998.
The Company also has lease commitments on banking house premises. Total
rental expense relating to these commitments for the years ended December 31,
1997, 1996 and 1995 was approximately $437,000, $537,000 and $457,000,
respectively.
The aggregate minimum annual rental commitments at December 31, 1997 are
as follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Years ending December 31, (in thousands)
- --------------------------------------------------------------------------------
<S> <C>
1998 $ 407
1999 412
2000 366
2001 319
2002 166
Thereafter 221
- --------------------------------------------------------------------------------
Total $1,891
================================================================================
</TABLE>
Nationar Contingency
On February 6, 1995, the Superintendent of Banks of the State of New York took
possession of Nationar, a check-clearing and trust company, freezing all of
Nationar's assets. The Company used Nationar for certain depository and
collection services. As a result, the Company maintained deposit balances with
Nationar and had certain stock investments and subordinated capital debentures
in Nationar.
For the year ending December 31, 1995, the consolidated statements of income
included in net gain on securities activities, a loss of $599,000 relating to
possible losses on the Company's Nationar investments and included in other
operating expense $660,000 in possible losses relating to the ultimate recovery
of frozen balances in Nationar. In 1996, the Company received three liquidating
distributions totaling $3,572,000. These distributions covered 100% of the
Company's deposit claim balances and 100% of the collateral portion of the
Company's
T R Financial Corp. & Subsidiaries 49
<PAGE>
subordinated capital debenture claims. In December 1996, as a result of these
distributions, the Company reversed $1,100,000 of its reserves and recognized
this amount in other income in the consolidated statement of income. In 1997,
the Company collected $195,000 against remaining claims. Because all claims had
been either fully collected or charged-off, this distribution increased recorded
income and future distributions, if any, which are not expected to be material,
may also increase recorded income.
Other Contingencies
In the normal course of business, there are various outstanding legal
proceedings. In the opinion of management, after consultation with legal
counsel, the financial position of the Company will not be affected materially
by the outcome of such legal proceedings.
NOTE 20
Parent Company Only Financial Information
T R Financial Corp. was formed on February 12, 1993 and operates a wholly-owned
subsidiary, the Bank. The earnings of the Bank are recognized by T R Financial
using the equity method of accounting. Accordingly, earnings of the Bank are
recorded as increases in T R Financial's investment in the Bank. The following
are the condensed financial statements for T R Financial Corp. (Parent Company
only) as of December 31, 1997 and 1996, and for the years ended December 31,
1997, 1996 and 1995.
Condensed Statements of Financial Condition
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
(in thousands) December 31, 1997 December 31, 1996
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Assets:
Deposits with the Bank $ 2,094 $ 3,825
Deposits with other financial institutions 449 98
Securities available for sale:
U.S. Government obligations (amortized cost of $1,995 and $2,004, respectively) 2,007 2,002
Mortgage-backed securities:
FHLMC (amortized cost of $3,800 and $4,351, respectively) 3,797 4,223
GNMA (amortized cost of $2,211 and $1,547, respectively) 2,213 1,472
- ------------------------------------------------------------------------------------------------------------------------------------
Total securities available for sale 8,017 7,697
- ------------------------------------------------------------------------------------------------------------------------------------
Accrued interest receivable 50 74
Investment in the Bank 229,894 191,577
Receivable from the Bank 757 814
Other assets 44 182
- ------------------------------------------------------------------------------------------------------------------------------------
Total assets $241,305 $204,267
====================================================================================================================================
Liabilities and stockholders' equity:
Accrued taxes payable $ 91 $ 60
Accrued expenses 243 169
- ------------------------------------------------------------------------------------------------------------------------------------
Total liabilities 334 229
- ------------------------------------------------------------------------------------------------------------------------------------
Stockholders' equity 240,971 204,038
- ------------------------------------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $241,305 $204,267
====================================================================================================================================
</TABLE>
50 T R Financial Corp. & Subsidiaries
<PAGE>
Condensed Statements of Income
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
For the Year Ended December 31,
- ------------------------------------------------------------------------------------------------------------------------------------
(in thousands) 1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Income:
Interest income $ 1,276 $ 1,401 $ 2,018
Dividend received from the Bank 9,000 22,000 5,250
Other fee income 3 1 4
Gain on sale of securities -- 76 --
- ------------------------------------------------------------------------------------------------------------------------------------
Total income 10,279 23,478 7,272
- ------------------------------------------------------------------------------------------------------------------------------------
Interest expense:
Interest on borrowings -- 20 --
- ------------------------------------------------------------------------------------------------------------------------------------
Total interest expense -- 20 --
- ------------------------------------------------------------------------------------------------------------------------------------
General and administrative expense:
Salaries and employee benefits 68 68 81
Equipment expense 16 15 15
Other operating expense 1,046 947 1,160
- ------------------------------------------------------------------------------------------------------------------------------------
Total general and administrative expense 1,130 1,050 1,256
- ------------------------------------------------------------------------------------------------------------------------------------
Income before income taxes and equity in undistributed earnings of the Bank 9,149 22,428 6,016
Provision for income taxes 63 186 342
- ------------------------------------------------------------------------------------------------------------------------------------
Income before equity in undistributed earnings of the Bank 9,086 22,242 5,674
- ------------------------------------------------------------------------------------------------------------------------------------
Equity in undistributed earnings of the Bank 25,642 8,273 15,251
- ------------------------------------------------------------------------------------------------------------------------------------
Net income $34,728 $30,515 $20,925
====================================================================================================================================
</TABLE>
Condensed Statements of Cash Flows
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
For the Year Ended December 31,
- ------------------------------------------------------------------------------------------------------------------------------------
(in thousands) 1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income: $ 34,728 $ 30,515 $ 20,925
Adjustments to reconcile net income to net cash provided by operating
activities:
Equity in undistributed earnings of the Bank (25,642) (8,273) (15,251)
Amortization of premiums in excess of accretion of discounts 30 19 78
Gain on sales of securities -- (76) --
Increase in liabilities 104 71 158
Decrease (increase) in receivables and other assets 67 (25) (13)
- ------------------------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 9,287 22,231 5,897
- ------------------------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Purchases of securities available for sale (2,997) (5,004) (20,165)
Maturities of securities available for sale 2,863 3,969 27,730
Sale of securities available for sale -- 6,146 --
Net repayment of advances to the Bank 1,102 847 970
- ------------------------------------------------------------------------------------------------------------------------------------
Net cash provided by investing activities 968 5,958 8,535
- ------------------------------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Net proceeds from the exercise of stock options 934 795 1,002
Purchase of treasury stock (3,589) (20,879) (14,843)
Cash dividend paid (8,980) (5,580) (3,315)
- ------------------------------------------------------------------------------------------------------------------------------------
Net cash used by financing activities (11,635) (25,664) (17,156)
- ------------------------------------------------------------------------------------------------------------------------------------
Net (decrease) increase in cash and cash equivalents (1,380) 2,525 (2,724)
Cash and cash equivalents at beginning of period 3,923 1,398 4,122
- ------------------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period $ 2,543 $ 3,923 $ 1,398
====================================================================================================================================
</TABLE>
T R Financial Corp. & Subsidiaries 51
<PAGE>
NOTE 21
Selected Quarterly Financial Data (Unaudited)
The following table is a summary of operations by quarter for the years ended
December 31, 1997 and 1996:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
For the Quarter Ended
- ------------------------------------------------------------------------------------------------------------------------------------
(in thousands, except per share amounts) 12/31/97 9/30/97 6/30/97 3/31/97 12/31/96 9/30/96 6/30/96 3/31/96
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Interest income $67,779 $65,052 $63,124 $59,457 $57,031 $55,295 $53,920 $52,158
Interest expense 43,539 42,163 40,622 37,442 36,209 35,033 33,348 32,580
- ------------------------------------------------------------------------------------------------------------------------------------
Net interest income 24,240 22,889 22,502 22,015 20,822 20,262 20,572 19,578
Provision for possible loan losses 125 125 200 350 200 200 500 500
- ------------------------------------------------------------------------------------------------------------------------------------
Net interest income after provision
for possible loan losses 24,115 22,764 22,302 21,665 20,622 20,062 20,072 19,078
Non-interest income (expense):
Loan fees and other charges, net 1,347 1,622 1,592 1,450 1,640 1,405 1,544 1,447
Net gain on securities activities 1,769 1,804 1,014 966 985 1,767 2,004 2,755
Gain (loss) on sales of whole loans -- -- 27 131 (1) -- 2 1
Other income 242 185 353 433 1,285 410 258 417
Salaries and employee benefits (7,382) (7,581) (6,921) (6,766) (6,660) (6,397) (6,178) (6,326)
Occupancy and
equipment expense (1,267) (1,354) (1,239) (1,365) (1,288) (1,235) (1,196) (1,297)
Marketing expense (452) (671) (705) (650) (567) (560) (603) (668)
Other real estate owned expense (61) (50) (56) (77) (109) (181) (292) (369)
FDIC assessment (77) (76) (77) (74) -- (1) -- (1)
Other operating expense (2,183) (1,731) (2,502) (2,496) (2,211) (2,162) (2,611) (2,151)
- ------------------------------------------------------------------------------------------------------------------------------------
Income before provision for income taxes 16,051 14,912 13,788 13,217 13,696 13,108 13,000 12,886
Provision for income taxes(1) 6,533 5,880 5,374 5,453 5,893 4,794 5,786 5,702
- ------------------------------------------------------------------------------------------------------------------------------------
Net income $ 9,518 $ 9,032 $ 8,414 $ 7,764 $ 7,803 $ 8,314 $ 7,214 $ 7,184
====================================================================================================================================
Basic earnings per share $0.58 $0.55 $0.51 $0.47 $0.47 $0.50 $0.44 $0.43
Diluted earning per share $0.53 $0.51 $0.48 $0.44 $0.44 $0.47 $0.41 $0.40
====================================================================================================================================
</TABLE>
(1) For the three months ended March 31, 1997 and September 30, 1996, the
provision for income taxes was reduced by $275,000 and $1,065,000,
respectively, as a result of a change in tax legislation relating to bad
debts (Note 11).
52 T R Financial Corp. & Subsidiaries
<PAGE>
Independent Auditors' Report
To the Board of Directors and Stockholders of T R Financial Corp.:
We have audited the accompanying consolidated statements of financial condition
of T R Financial Corp. and subsidiaries ("Company") as of December 31, 1997 and
1996 and the related consolidated statements of income, changes in stockholders'
equity and cash flows for each of the years in the three-year period ended
December 31, 1997. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of the Company
at December 31, 1997 and 1996, and the results of their operations and their
cash flows for each of the years in the three-year period ended December 31,
1997 in conformity with generally accepted accounting principles.
/s/ KPMG Peat Marwick LLP
Jericho, New York
January 22, 1998
T R Financial Corp. & Subsidiaries 53
<PAGE>
DIRECTORS AND OFFICERS
BOARD OF DIRECTORS
MAUREEN E. CLANCY
SECRETARY, TREASURER AND PARTNER,
Clancy & Clancy Brokerage Ltd.
ROBERT F. EISEN, SR.
RETIRED PRESIDENT,
Greenwood Mills, Inc.
MICHAEL P. GALGANO
RETIRED SENIOR VICE PRESIDENT,
Dorman & Wilson, Inc.
LEONARD GENOVESE
CHAIRMAN, PRESIDENT AND CEO,
Genovese Drug Stores, Inc.
EDWARD J. KOWATCH
RETIRED CHAIRMAN AND CEO,
Retirement System for Savings Instutions
ERNEST L. LOSER
RETIRED SENIOR VICE PRESIDENT,
The Chase Manhattan Bank, N.A.
JOHN C. MESLOH
RETIRED VICE PRESIDENT,
Pfizer, Inc.
A. GORDON NUTT
PRESIDENT AND CHIEF ADMINISTRATIVE OFFICER
JAMES E. ORR, JR.
RETIRED CHAIRMAN AND CEO,
Busby Metals, Inc.
JOHN M. TSIMBINOS
CHAIRMAN OF THE BOARD AND
CHIEF EXECUTIVE OFFICER
SPIROS J. VOUTSINAS
PRESIDENT,
Omega Capital Inc.
OFFICE OF THE CHAIRMAN
JOHN M. TSIMBINOS
CHAIRMAN OF THE BOARD AND
CHIEF EXECUTIVE OFFICER
A. GORDON NUTT
PRESIDENT AND CHIEF ADMINISTRATIVE OFFICER
DENNIS E. HENCHY
EXECUTIVE VICE PRESIDENT AND CHIEF FINANCIAL OFFICER
WILLIAM R. KUHN
EXECUTIVE VICE PRESIDENT AND CHIEF REAL ESTATE LENDING OFFICER
JOHN J. DERUSSO
SENIOR VICE PRESIDENT AND OFFICER FOR STRATEGIC
PLANNING/SPECIAL PROJECTS/TRAINING & DEVELOPMENT/ MIS
IRA H. KRAMER
SENIOR VICE PRESIDENT AND CORPORATE SECRETARY
SENIOR VICE PRESIDENTS
DAPHNE E. HESLOP, INTERNAL AUDIT
JOSEPH T. JAVITZ, MORTGAGE ORIGINATIONS/MORTGAGE SERVICING
ANTHONY P. MALLIA, RETAIL BANKING
DIVISION/CUSTOMER SERVICE/SECURITY
WALTER G. MULLINS, MARKETING/
CENTRALIZED SERVICES
GERARD L. TREGLIA, SYSTEMS/LEGAL RESEARCH
VICE PRESIDENTS
THEODORE S. AYVAS, INVESTOR RELATIONS
PETER M. BOGER, COMMERCIAL REAL ESTATE
ELAINE E. CORDIELLO, HUMAN RESOURCES
JANETH DUQUE SACHS, COMPLIANCE
JOHN P. FORSBERG, COMMERCIAL REAL ESTATE
ALBERT F. INTREGLIA, SECURITIES & INVESTMENTS
EDWIN J. LAWRENCE, SECURITIES & INVESTMENTS
WILLIAM P. MACKEY, FINANCIAL BUDGETING & REPORTING
DANIEL E. MARTIN, CRA/COMMUNITY DEVELOPMENT
MARTIN W. MCALEER, JR., MIS
KENNETH D. MOLFETTA, INTERNAL AUDIT
ROSEMARY ROSER, ACCOUNTING
THOMAS SAVOCA, CONSUMER LENDING
CHRISTINE M. THIEL, MORTGAGE SERVICING
54 T R Financial Corp. & Subsidiaries
<PAGE>
STOCKHOLDER INFORMATION
EXECUTIVE OFFICE
T R FINANCIAL CORP.
1122 Franklin Avenue
Garden City, New York 11530
(516) 742-9300
INVESTOR RELATIONS
Stockholders, investors and analysts
interested in additional information about
T R Financial Corp. are invited to contact:
THEODORE S. AYVAS
Vice President
Investor Relations
1122 Franklin Avenue
Garden City, New York 11530
(516) 739-4219
TRANSFER AGENT AND REGISTRAR
Stockholders are asked to contact the Bank's transfer agent,
Chase Mellon Shareholder Services, L.L.C. for consolidation
of accounts, changes of registration, address corrections or
replacement of lost certificates.
CHASE MELLON SHAREHOLDER SERVICES, L.L.C.
Overpeck Centre
85 Challenger Road
Ridgefield Park, NJ 07660
1-800-851-9677
STOCK LISTING
T R Financial Corp., the holding company for Roosevelt
Savings Bank, is traded and quoted on the Nasdaq National
Market System under the symbol "Rose". Price information
appears daily in the Wall Street Journal under "T R FinlCp"
and in other newspapers as "T R Fin".
T R FINANCIAL CORP. ON THE INTERNET
T R Financial information can be accessed through our
internet web site located at www.trfin.com. Access is
provided to our most recent news and earnings releases,
stock report, mid year reports, 10K and 10Q regulatory
filings, investor research coverage, stock quotes, and 180
day market performance charts. The site also allows access
into Roosevelt Savings Bank product offerings.
INDEPENDENT AUDITORS
KPMG PEAT MARWICK LLP
One Jericho Plaza
Jericho, New York 11753
ANNUAL MEETING
The 1998 Annual Meeting of Stockholders will be held on
April 27, 1998 at 9:30 a.m. at the Westbury Manor, Jericho
Turnpike, Westbury, New York.
55 T R Financial Corp. & Subsidiaries
<PAGE>
ROOSEVELT SAVINGS BANK LOCATIONS
[Map of Bank Locations in Long Island]
<TABLE>
<CAPTION>
ADMINISTRATIVE HEADQUARTERS CUSTOMER SERVICE AND INFORMATION
1122 Franklin Avenue (516) 877-1010 or
Garden City, New York 11530 (718) 347-1010
<S> <C> <C> <C>
NASSAU COUNTY BROOKLYN QUEENS COUNTY SUFFOLK COUNTY
GARDEN CITY GATES AVENUE UNION TURNPIKE DEER PARK
1122 Franklin Ave. Gates Avenue at Broadway Springfield Blvd. at Deer Park Avenue
Union Turnpike at Bay Shore Road
108 Seventh St.
Deer Park Avenue at
Fairview Avenue
BELLMORE MARINE PARK BELLEROSE DIX HILLS
Sunrise Highway at Bellmore Avenue U at Nostrand Avenue 247-53 Jamaica Ave. 699 Old Country Road
Avenue
MASSAPEQUA PARK HOWARD BEACH
4848 Merrick Road 156-02 Cross Bay Boulevard
NEW HYDE PARK DEEPDALE
Jericho Turnpike at South Long Island Expressway at
12th Street 254th Street
HEWLETT
1280 Broadway
</TABLE>
EXHIBIT 21.1
------------
T R FINANCIAL CORP.
ORGANIZATION CHART
DECEMBER 31, 1997
T R FINANCIAL CORP. (ACTIVE)
- owns 100% of Roosevelt Savings Bank
ROOSEVELT SAVINGS BANK (ACTIVE)
- owns 100% of the following subsidiary corporations
Roosevelt Asset Funding Corp. (active)
Anaconda Enterprises, Inc. (active*)
BSR, Inc. (active)
Bellingham Corp. (inactive)
155 East 33rd Street Corp. (inactive)
Oyster Bay Holding Corp. (inactive)
Rokings Holding Corp. (inactive)
Roosevelt Abstract Corp. (inactive)
Roosevelt Land Corp. (inactive)
Roosevelt Service Corp. (active)
Rosouth Holding Corp. (inactive)
VBF Holding Corp. (inactive)
All companies listed above are located at:
1122 Franklin Avenue
Garden City, New York 11530
* As of March 2, 1998, Anaconda Enterprises, Inc. is inactive.
EXHIBIT 23.1
------------
KPMG Peat Marwick LLP
INDEPENDENT AUDITORS' CONSENT
The Stockholders and the Board of Directors of T R Financial Corp.:
We consent to incorporation by reference in the Registration Statements
(Nos. 33-65134, 33-77992, 33-77994, 33-65136, 333-25561 and 33-96152) on Form
S-8 of T R Financial Corp. of our report dated January 22, 1998, relating to the
consolidated statements of financial condition of T R Financial Corp. and
subsidiaries as of December 31, 1997 and 1996, and the related consolidated
statements of income, changes in stockholders' equity and cash flows for each of
the years in the three-year period ended December 31, 1997, which report is
incorporated by reference to the December 31, 1997 Annual Report on Form 10-K of
T R Financial Corp.
/s/ KPMG PEAT MARWICK LLP
Jericho, New York
March 27, 1998
<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>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 18,307
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 476,665
<INVESTMENTS-CARRYING> 1,219,300
<INVESTMENTS-MARKET> 1,245,735
<LOANS> 2,062,896
<ALLOWANCE> 14,917
<TOTAL-ASSETS> 3,843,056
<DEPOSITS> 2,202,353
<SHORT-TERM> 112,000
<LIABILITIES-OTHER> 101,154
<LONG-TERM> 1,186,578
0
0
<COMMON> 227
<OTHER-SE> 240,744
<TOTAL-LIABILITIES-AND-EQUITY> 3,843,056
<INTEREST-LOAN> 140,777
<INTEREST-INVEST> 114,635
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 255,412
<INTEREST-DEPOSIT> 111,042
<INTEREST-EXPENSE> 163,766
<INTEREST-INCOME-NET> 91,646
<LOAN-LOSSES> 800
<SECURITIES-GAINS> 5,553
<EXPENSE-OTHER> 45,813
<INCOME-PRETAX> 57,968
<INCOME-PRE-EXTRAORDINARY> 34,728
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 34,728
<EPS-PRIMARY> 2.11
<EPS-DILUTED> 1.96
<YIELD-ACTUAL> 2.63
<LOANS-NON> 12,450
<LOANS-PAST> 1,295
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 14,370
<CHARGE-OFFS> 592
<RECOVERIES> 339
<ALLOWANCE-CLOSE> 14,917
<ALLOWANCE-DOMESTIC> 14,917
<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>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 18,128
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 441,847
<INVESTMENTS-CARRYING> 1,008,932
<INVESTMENTS-MARKET> 1,017,702
<LOANS> 1,716,182
<ALLOWANCE> 14,370
<TOTAL-ASSETS> 3,259,627
<DEPOSITS> 2,343,513
<SHORT-TERM> 47,685
<LIABILITIES-OTHER> 74,241
<LONG-TERM> 590,150
0
0
<COMMON> 114
<OTHER-SE> 203,924
<TOTAL-LIABILITIES-AND-EQUITY> 3,259,627
<INTEREST-LOAN> 118,624
<INTEREST-INVEST> 99,780
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 218,404
<INTEREST-DEPOSIT> 102,261
<INTEREST-EXPENSE> 137,170
<INTEREST-INCOME-NET> 81,234
<LOAN-LOSSES> 1,400
<SECURITIES-GAINS> 7,511
<EXPENSE-OTHER> 43,063
<INCOME-PRETAX> 52,690
<INCOME-PRE-EXTRAORDINARY> 30,515
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 30,515
<EPS-PRIMARY> 1.84
<EPS-DILUTED> 1.72
<YIELD-ACTUAL> 2.72
<LOANS-NON> 12,120
<LOANS-PAST> 509
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 3,707
<ALLOWANCE-OPEN> 13,267
<CHARGE-OFFS> 538
<RECOVERIES> 241
<ALLOWANCE-CLOSE> 14,370
<ALLOWANCE-DOMESTIC> 14,370
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
Exhibit 99.1
------------
LOGO
1122 FRANKLIN AVENUE
GARDEN CITY, NEW YORK 11530
(516) 742-9300
March 30, 1998
Dear Stockholder:
You are invited to attend the 1998 Annual Meeting of Stockholders (the
"Annual Meeting") of T R Financial Corp. (the "Company"), which will be held on
Monday, April 27, 1998 at 9:30 a.m. New York time at the Westbury Manor, Jericho
Turnpike, Westbury, New York. Enclosed are a Notice of the 1998 Annual Meeting
of Stockholders, Proxy Statement for the Annual Meeting, Proxy Card and 1997
Annual Report to Stockholders of the Company.
At the Annual Meeting you will be asked to consider and vote upon: (1)
the election of three directors, each to serve for a three-year term expiring in
2001; (2) the ratification of the appointment of the firm of KPMG Peat Marwick
LLP as independent auditors for the Company for the year ending December 31,
1998; and (3) the approval of the amendment to the Certificate of Incorporation
of the Company to increase the number of shares of common stock that the Company
is authorized to issue. In addition, management will report on the operations
and activities of the Company, and there will be an opportunity for you to ask
questions about the Company's business.
The Board of Directors of the Company has determined that an
affirmative vote on each proposal to be considered at the Annual Meeting is in
the best interests of the Company and unanimously recommends a vote "FOR" each
proposal.
YOUR VOTE IS IMPORTANT REGARDLESS OF THE NUMBER OF SHARES YOU OWN.
WHETHER OR NOT YOU PLAN TO ATTEND THE ANNUAL MEETING, THE BOARD OF DIRECTORS
URGES YOU TO COMPLETE, SIGN, DATE AND RETURN THE ENCLOSED PROXY CARD AS SOON AS
POSSIBLE IN THE ENCLOSED POSTAGE-PAID ENVELOPE. THIS WILL NOT PREVENT YOU FROM
VOTING IN PERSON AT THE ANNUAL MEETING, BUT WILL ASSURE THAT YOUR VOTE IS
COUNTED IF YOU ARE UNABLE TO ATTEND. IF YOU ARE A STOCKHOLDER WHOSE SHARES ARE
NOT REGISTERED IN YOUR OWN NAME, YOU WILL NEED ADDITIONAL DOCUMENTATION FROM
YOUR RECORD HOLDER IN ORDER TO BE ADMITTED TO THE ANNUAL MEETING AND TO VOTE AT
THE ANNUAL MEETING. Examples of such documentation include a broker's statement,
letter or other document confirming your ownership of shares of the Company.
On behalf of the Board of Directors and the employees of T R Financial
Corp. and Roosevelt Savings Bank, thank you for your continued support.
Sincerely,
[Facsimile signature]
John M. Tsimbinos
Chairman of the Board and
Chief Executive Officer
<PAGE>
LOGO
1122 FRANKLIN AVENUE
GARDEN CITY, NEW YORK 11530
(516) 742-9300
NOTICE OF THE 1998 ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON APRIL 27, 1998
NOTICE IS HEREBY GIVEN that the 1998 Annual Meeting of Stockholders
(the "Annual Meeting") of T R Financial Corp. (the "Company") will be held on
Monday, April 27, 1998 at 9:30 a.m. New York time at the Westbury Manor, Jericho
Turnpike, Westbury, New York for the following purposes:
1. To elect three directors, each to serve for a three-year term
expiring at the 2001 annual meeting and until their respective
successors have been duly elected and qualified;
2. To ratify the appointment of the firm of KPMG Peat Marwick LLP
as independent auditors for the Company for the year ending
December 31, 1998;
3. To approve the amendment to the Certificate of Incorporation
of the Company to increase the number of shares of common
stock that the Company is authorized to issue; and
4. To transact such other business as may properly come before
the Annual Meeting or any adjournment or postponement thereof.
As of the date hereof, the Board of Directors of the Company
is not aware of any such other business.
Pursuant to the Bylaws of the Company, the Board of Directors has fixed
the close of business on March 12, 1998 as the record date for the determination
of stockholders entitled to notice of and to vote at the Annual Meeting and at
any adjournment or postponement thereof. A list of stockholders entitled to vote
at the Annual Meeting will be available for inspection at 1122 Franklin Avenue,
Garden City, New York, for a period of ten days prior to the Annual Meeting and
will also be available at the Annual Meeting.
A copy of the 1997 Annual Report to Stockholders of the Company, which
for purposes of the regulations of the Federal Deposit Insurance Corporation
serves as the Annual Disclosure Statement of Roosevelt Savings Bank, a wholly
owned subsidiary of the Company, accompanies this Notice of the 1998 Annual
Meeting of Stockholders. Stockholders may obtain, free of charge, an additional
copy of the Annual Report by writing to Theodore S. Ayvas, Vice President,
Roosevelt Savings Bank, 1122 Franklin Avenue, Garden City, New York 11530, or
calling (516) 739-4219.
YOUR VOTE IS IMPORTANT REGARDLESS OF THE NUMBER OF SHARES YOU OWN.
WHETHER OR NOT YOU PLAN TO ATTEND THE ANNUAL MEETING, THE BOARD OF DIRECTORS
URGES YOU TO COMPLETE, SIGN, DATE AND RETURN THE ENCLOSED PROXY CARD AS SOON AS
POSSIBLE IN THE ENCLOSED POSTAGE-PAID ENVELOPE.
By Order of the Board of Directors,
[Facsimile signature]
Ira H. Kramer
Corporate Secretary
Dated: March 30, 1998
<PAGE>
LOGO
1122 FRANKLIN AVENUE
GARDEN CITY, NEW YORK 11530
(516) 742-9300
------------------------
PROXY STATEMENT FOR THE
1998 ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON MONDAY, APRIL 27, 1998
GENERAL INFORMATION
GENERAL
This Proxy Statement and the accompanying Proxy Card and 1997 Annual
Report to Stockholders ("Annual Report") are being mailed to stockholders of T R
Financial Corp. ("T R Financial" or the "Company") on or about March 30, 1998 in
connection with the solicitation of proxies by the Board of Directors of the
Company to be used at the 1998 Annual Meeting of Stockholders (the "Annual
Meeting") to be held on Monday, April 27, 1998 at 9:30 a.m. New York time at the
Westbury Manor, Jericho Turnpike, Westbury, New York, and at any adjournment or
postponement thereof.
As more fully described in this Proxy Statement, the purpose of the
Annual Meeting is (1) to elect three directors, each to serve for a three-year
term expiring at the 2001 annual meeting and until their respective successors
have been duly elected and qualified; (2) to ratify the appointment of the firm
of KPMG Peat Marwick LLP as independent auditors for the Company for the year
ending December 31, 1998; (3) to approve the amendment to the Certificate of
Incorporation of the Company to increase the number of shares of common stock
that the Company is authorized to issue; and (4) to transact such other business
as may properly come before the Annual Meeting or any adjournment or
postponement thereof. As of the date hereof, the Board of Directors of the
Company is not aware of any such other business.
RECORD DATE AND VOTING
The Board of Directors of the Company has fixed the close of business
on March 12, 1998 as the record date (the "Record Date") for the determination
of the holders of the Company's issued and outstanding common stock, par value
$.01 per share (the "Common Stock") entitled to receive notice of and to vote at
the Annual Meeting. Only holders of Common Stock at the close of business on the
Record Date will be entitled to vote at the Annual Meeting and at any
adjournment or postponement thereof. At the close of business on the Record
Date, there were 17,529,929 shares of Common Stock outstanding. The presence, in
person or by proxy, of the holders of at least a majority of the total number of
outstanding shares of Common Stock entitled to vote at the Annual Meeting is
necessary to constitute a quorum thereat.
Each holder of shares of Common Stock outstanding on the Record Date
will be entitled to one vote for each share held of record (except for shares
held in excess of the Limit, as defined below) upon each matter
<PAGE>
properly submitted at the Annual Meeting and at any adjournment or postponement
thereof. As provided in the Company's Certificate of Incorporation, record
holders of Common Stock who beneficially own in excess of 10% of the outstanding
shares of Common Stock (the "Limit") are not entitled to any vote with respect
to the shares held in excess of the Limit. A person or entity is deemed to
beneficially own shares owned by an affiliate as well as persons acting in
concert with such person or entity. The Company's Certificate of Incorporation
authorizes the Board of Directors (i) to make all determinations necessary to
implement and apply the Limit, including determining whether persons or entities
are acting in concert and (ii) to demand that any person who is reasonably
believed to beneficially own Common Stock in excess of the Limit supply
information to the Company to enable the Board of Directors to implement and
apply the Limit.
If the enclosed Proxy Card is properly executed and received by the
Company in time to be voted at the Annual Meeting, the shares represented
thereby will be voted in accordance with the instructions indicated thereon. IF
NO INSTRUCTIONS ARE GIVEN, EXECUTED PROXIES WILL BE VOTED FOR ELECTION OF EACH
OF THE THREE NOMINEES FOR DIRECTOR, AND FOR EACH OF THE OTHER PROPOSALS SET
FORTH IN THE ACCOMPANYING NOTICE OF THE 1998 ANNUAL MEETING OF STOCKHOLDERS.
Management is not aware of any matters other than those set forth in
the Notice of the 1998 Annual Meeting of Stockholders that may be brought before
the Annual Meeting. If any other matters properly come before the Annual
Meeting, the persons named in the accompanying Proxy Card will vote the shares
represented by all properly executed proxies on such matters in such manner as
shall be determined by a majority of the Board of Directors of the Company.
VOTE REQUIRED
Directors are elected by a plurality of the votes cast in person or by
proxy at the Annual Meeting. The holders of Common Stock may not vote their
shares cumulatively for the election of directors. Ratification of the
appointment of KPMG Peat Marwick LLP as the Company's independent auditors
requires the affirmative vote of the holders of a majority of the outstanding
shares of Common Stock represented in person or by proxy at the Annual Meeting
and entitled to vote thereon. ACCORDINGLY, SHARES AS TO WHICH THE "ABSTAIN" BOX
HAS BEEN SELECTED ON THE PROXY CARD WITH RESPECT TO THE APPOINTMENT OF KPMG PEAT
MARWICK LLP AS INDEPENDENT AUDITORS FOR THE COMPANY WILL BE COUNTED AS PRESENT
AND ENTITLED TO VOTE AND WILL HAVE THE EFFECT OF A VOTE AGAINST THAT PROPOSAL.
IN CONTRAST, SHARES UNDERLYING BROKER NON-VOTES OR HELD IN EXCESS OF THE LIMIT
WILL NOT BE COUNTED AS PRESENT AND ENTITLED TO VOTE AND WILL HAVE NO EFFECT ON
THE VOTE FOR SUCH PROPOSAL.
The approval of the amendment to the Certificate of Incorporation of
the Company requires the affirmative vote of the holders of a majority of the
issued and outstanding shares of Common Stock entitled to vote at the Annual
Meeting. ACCORDINGLY, ABSTENTIONS FROM VOTING AND SHARES AS TO WHICH THE
"ABSTAIN" BOX HAS BEEN SELECTED ON THE PROXY CARD WITH RESPECT TO THE APPROVAL
OF THE AMENDMENT TO THE CERTIFICATE OF INCORPORATION WILL HAVE THE EFFECT OF A
VOTE AGAINST SUCH PROPOSAL. SHARES UNDERLYING BROKER NON-VOTES OR HELD IN EXCESS
OF THE LIMIT WILL ALSO BE COUNTED AS VOTES AGAINST SUCH PROPOSAL.
REVOCABILITY OF PROXIES
The presence of a stockholder at the Annual Meeting will not
automatically revoke such stockholder's proxy. However, a stockholder may revoke
a proxy at any time prior to its exercise by (1) filing a written notice of
revocation with the Corporate Secretary of the Company prior to the Annual
Meeting, (2) delivering to the Corporate Secretary of the Company prior to the
Annual Meeting a duly executed proxy bearing a later date or (3) attending the
Annual Meeting, filing a written notice of revocation with the secretary of the
meeting
2
<PAGE>
and voting in person. IF YOU ARE A STOCKHOLDER WHOSE SHARES ARE NOT
REGISTERED IN YOUR OWN NAME, YOU WILL NEED ADDITIONAL DOCUMENTATION FROM YOUR
RECORD HOLDER IN ORDER TO BE ADMITTED TO THE ANNUAL MEETING AND TO VOTE AT THE
ANNUAL MEETING. Examples of such documentation include a broker's statement,
letter or other document confirming your ownership of shares of the Company.
SOLICITATION OF PROXIES
The Company will bear the cost of soliciting proxies from its
stockholders. In addition to the solicitation of proxies by mail, D.F. King &
Co., Inc., a proxy solicitation firm, will assist the Company in soliciting
proxies for the Annual Meeting and will be paid a fee estimated to be $4,500,
plus out-of-pocket expenses. Proxies may also be solicited personally, by
telephone, facsimile or other means by directors, officers and employees of the
Company or its subsidiaries, without additional compensation. The Company will
also request persons, firms and corporations holding shares in their names or in
the name of their nominees, which are beneficially owned by others, to forward
proxy materials to and obtain proxies from such beneficial owners, and will
reimburse such record holders for their reasonable expenses incurred in
connection therewith.
STOCK OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The following table sets forth certain information as to those persons
believed by management to be beneficial owners of more than 5% of the Company's
outstanding shares of Common Stock as of February 28, 1998. Other than those
persons listed below, the Company is not aware of any person who is the
beneficial owner of more than 5% of the Company's outstanding shares of Common
Stock as of February 28, 1998. For the purposes of the following table and the
table set forth under "Stock Ownership of Management," in accordance with Rule
13d-3 under the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), a person is deemed to "beneficially own" any shares of Common Stock (a)
over which such person has, directly or indirectly, sole or shared voting or
investment power, or (b) of which such person has the right to acquire
beneficial ownership, including the right to acquire beneficial ownership by the
exercise of stock options, within 60 days after February 28, 1998. As used
herein, "voting power" includes the power to vote, or direct the voting of, such
shares, and "investment power" includes the power to dispose, or direct the
disposition of, such shares.
<TABLE>
<CAPTION>
AMOUNT AND PERCENT
NATURE OF OWNERSHIP OF
TITLE OF CLASS NAME AND ADDRESS BENEFICIAL COMMON STOCK
OF SECURITY OF BENEFICIAL OWNER OWNERSHIP(1) OUTSTANDING(2)
<S> <C> <C> <C>
Common Stock T R Financial Corp. 2,073,462(3) 11.8%
Employee Stock Ownership Plan
and Trust (the "ESOP")
1122 Franklin Avenue
Garden City, New York 11530
Common Stock John M. Tsimbinos 1,207,537(4) 6.7%
Chairman of the Board and
Chief Executive Officer
T R Financial Corp.
1122 Franklin Avenue
Garden City, New York 11530
</TABLE>
(TABLE CONTINUED AND FOOTNOTES ON NEXT PAGE)
3
<PAGE>
<TABLE>
<CAPTION>
AMOUNT AND PERCENT
NATURE OF OWNERSHIP OF
TITLE OF CLASS NAME AND ADDRESS BENEFICIAL COMMON STOCK
OF SECURITY OF BENEFICIAL OWNER OWNERSHIP(1) OUTSTANDING(2)
<S> <C> <C> <C>
Common Stock Thomson Horstmann & Bryant, Inc. 1,156,500(5) 6.6%
Park 80 West, Plaza Two
Saddle Brook, New Jersey 07663
</TABLE>
(1) Share amounts have been adjusted to reflect the stock split in the form
of a 100% stock dividend of one share of Common Stock for each share of
Common Stock outstanding paid on May 14, 1997 to all stockholders of
record at the close of business on May 1, 1997 ("Stock Split").
(2) Calculated based upon 17,529,621 shares of Common Stock outstanding as
of February 28, 1998, except that the percentage with respect to Mr.
Tsimbinos has been calculated on the basis of such number of shares
outstanding, plus 522,360 shares which Mr. Tsimbinos has the right to
acquire within 60 days after February 28, 1998 by the exercise of stock
options granted pursuant to the T R Financial Corp. 1993 Incentive
Stock Option Plan (the "Option Plan").
(3) The Administrative Committee of the Company, consisting of Messrs.
Eisen, Galgano, Genovese, Kowatch, Loser, Orr and Voutsinas, all of
whom are non-employee directors, administers the ESOP as a committee.
The Administrative Committee has delegated authority over routine
administrative matters concerning the ESOP to the Roosevelt Savings
Bank (the "Bank") Employee Benefits Committee, which consists of four
officers of the Bank. An unrelated third party, State Street Bank and
Trust Company, is the trustee for the ESOP (the "ESOP Trustee"). The
Administrative Committee may instruct the ESOP Trustee regarding
investment of funds contributed to the ESOP. Each member of the
Administrative Committee disclaims beneficial ownership of the shares
of Common Stock held in the ESOP. Common Stock purchased by the ESOP is
released from a suspense account and allocated to participants annually
based on contributions made to the ESOP by the Company. Shares released
from the suspense account are allocated among participants in
proportion to their compensation, as defined in the ESOP, for the year
the contributions are made, up to the limits permitted under the
Internal Revenue Code of 1986, as amended (the "Code"). The ESOP
Trustee must vote all allocated shares held in the ESOP in accordance
with the instructions of participants. Shares of Common Stock are
allocated to participants under the ESOP as of December 31st of each
year. As of December 31, 1997, 1,050,368 shares of Common Stock in the
ESOP had been allocated, but not distributed, to the accounts of
participants, former participants and beneficiaries thereof. Under the
ESOP, unallocated shares will be voted by the ESOP Trustee in a manner
calculated to most accurately reflect the voting instructions received
from participants regarding the allocated shares so long as such vote
is in accordance with the requirements of the Employee Retirement
Income Security Act of 1974, as amended.
(4) Includes 522,360 shares which Mr. Tsimbinos has the right to acquire
beneficial ownership of by the exercise of stock options granted
pursuant to the Option Plan at the time of the Company's initial public
offering in 1993 and on January 23, 1997. Also includes (a) 18,524
shares held in trust pursuant to the ESOP that have been allocated to
Mr. Tsimbinos's account and as to which he has sole voting power but no
investment power, except in limited circumstances, (b) 57,650 shares
held in the Employer Stock Fund of the Roosevelt Savings Bank Salary
Reduction Plan in RSI Retirement Trust (the "401(k) Plan") as to which
he has shared voting and investment power, (c) 77,543 shares held in
the Supplemental Executive Retirement Plan of Roosevelt Savings Bank
(the "SERP") as to which he has sole investment but no voting power and
(d) 51,300 shares as to which he otherwise shares voting and investment
power. See "Election of Directors -- Executive Compensation -- 1993
INCENTIVE STOCK OPTION PLAN," "-- 401(K) PLAN" and "-- EMPLOYEE STOCK
OWNERSHIP PLAN" and "-- Retirement Plan and Supplemental Executive
Retirement Plan -- SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN."
(5) Based upon information in a Schedule 13G, dated January 28, 1998.
Thomson Horstmann & Bryant, Inc. is an investment advisor registered
under Section 203 of the Investment Advisors Act of 1940, as amended.
The figure shown includes 743,600 shares with respect to which Thomson
Horstmann & Bryant, Inc. has sole voting power, 15,600 shares as to
which it has shared voting power and 1,156,500 shares as to which it
has sole dispositive power.
4
<PAGE>
STOCK OWNERSHIP OF MANAGEMENT
The following table sets forth information with respect to the shares
of Common Stock beneficially owned by each director of the Company, by each
Named Executive Officer of the Company identified in the Summary Compensation
Table included on page 15 of this Proxy Statement and by all directors and
executive officers of the Company as a group as of February 28, 1998. Except as
otherwise indicated, each person and each group shown in the table has sole
voting and investment power with respect to the shares of Common Stock
indicated.
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF PERCENT OWNERSHIP
BENEFICIAL OWNERSHIP OF COMMON
NAME TITLE(1) (2)(3)(4)(5)(6)(7)(8) STOCK OUTSTANDING (9)
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
John M. Tsimbinos Chairman of the Board, Chief 1,207,537 6.7%
Executive Officer and Director
A. Gordon Nutt President, Chief Administrative 267,076 1.5%
Officer and Director
Maureen E. Clancy Director 67,484 *
Robert F. Eisen, Sr. Director 83,944 *
Michael P. Galgano Director 99,448 *
Leonard Genovese Director 65,270 *
Edward J. Kowatch Director 17,738 *
Ernest L. Loser Director 63,102 *
John C. Mesloh Director 66,104 *
James E. Orr, Jr. Director 108,670 *
Spiros J. Voutsinas Director 75,772 *
William R. Kuhn Executive Vice President and 221,291 1.3%
Chief Real Estate Lending Officer
Dennis E. Henchy Executive Vice President and 220,476 1.2%
Chief Financial Officer
Ira H. Kramer Senior Vice President and 105,696 *
Corporate Secretary
John J. DeRusso Senior Vice President 21,818 *
All directors and
executive officers as a
group
(15 persons) 2,691,426 (10) 14.3%
</TABLE>
* Less than 1% of outstanding Common Stock.
(1) Titles are for both the Bank and the Company.
(2) Share amounts have been adjusted to reflect the Stock Split.
(3) The figures shown include shares which individuals have the right to
acquire beneficial ownership of by the exercise of stock options
pursuant to the Option Plan or the T R Financial Corp. 1993 Stock
Option Plan for Outside Directors (the "Directors' Option Plan"), as
follows: Mr. Tsimbinos, 522,360 shares; Mr. Nutt, 141,432 shares; Ms.
Clancy, 41,770 shares; Mr. Eisen, 41,694 shares; Mr. Galgano, 51,494
shares; Mr. Genovese, 41,770 shares; Mr. Kowatch, 12,300 shares; Mr.
Loser, 41,770 shares; Mr. Mesloh, 41,770 shares; Mr. Orr, 64,080
shares; Mr. Voutsinas, 800 shares; Mr. Kuhn, 135,766 shares; Mr.
Henchy, 135,766 shares; Mr. Kramer, 62,462 shares; Mr. DeRusso, 6,666
shares; and all directors and executive officers as a group, 1,341,900
shares. See "Election of Directors -- Directors' Compensation --
DIRECTORS' OPTION PLAN" and "-- Executive Compensation -- 1993
INCENTIVE STOCK OPTION PLAN."
(FOOTNOTES CONTINUED ON NEXT PAGE)
5
<PAGE>
(4) The figures shown include shares held in trust pursuant to the ESOP
that have been allocated as of December 31, 1997 to individual
accounts as follows: Mr. Tsimbinos, 18,524 shares; Mr. Nutt, 18,524
shares; Mr. Kuhn, 18,313 shares; Mr. Henchy, 18,126 shares; Mr.
Kramer, 16,530 shares; Mr. DeRusso, 6,912 shares; and all executive
officers as a group, 96,929 shares. Such persons have sole voting
power but no investment power, except in limited circumstances, as to
such shares. The figures shown do not include 1,023,094 shares held in
trust pursuant to the ESOP that have not been allocated to any
individual's account and as to which the members of the Company's
Administrative Committee (consisting of Messrs. Eisen, Galgano,
Genovese, Kowatch, Loser, Orr and Voutsinas) may be deemed to share
investment power, and as to which each of the participants identified
in the table may be deemed to share voting power, thereby causing each
such person to be deemed a beneficial owner of such shares. Each of
the members of the Administrative Committee and the participants
included in the table disclaims beneficial ownership of the
unallocated shares in the ESOP. See "Election of Directors --
Executive Compensation -- EMPLOYEE STOCK OWNERSHIP PLAN."
(5) The figures shown include shares held in the Employer Stock Fund of the
401(k) Plan as to which each person identified has shared voting and
investment power as follows: Mr. Tsimbinos, 57,650 shares; Mr. Nutt,
28,260 shares; Mr. Kuhn, 25,764 shares; Mr. Henchy, 25,898 shares; Mr.
Kramer, 9,828 shares; Mr. DeRusso, 1,568 shares; and all executive
officers as a group, 148,968 shares. See "Election of Directors --
Executive Compensation -- 401(K) PLAN."
(6) The figures shown include shares held in the SERP as to which each
person identified has sole investment but no voting power as follows:
Mr. Tsimbinos, 77,543 shares; Mr. Nutt, 12,048 shares; Mr. Kuhn, 8,256
shares; Mr. Henchy, 7,706 shares; Mr. Kramer, 523 shares; Mr. DeRusso,
672 shares; and all executive officers as a group, 106,748 shares. See
"Election of Directors -- Retirement Plan and Supplemental Executive
Retirement Plan -- SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN."
(7) The figures shown include shares held under the Roosevelt Savings Bank
Recognition and Retention Plan for Officers (the "Officers' RRP"), over
which each individual has sole voting power but no investment power, as
follows: Mr. Kramer, 7,100 shares. See "Election of Directors --
Executive Compensation -- BANK RECOGNITION AND RETENTION PLAN FOR
OFFICERS."
(8) The figures shown include shares over which individuals share voting
and investment power (other than as disclosed in notes 4, 5, 6 and 7)
as follows: Mr. Tsimbinos, 51,300 shares; Mr. Nutt, 10,000 shares; Ms.
Clancy, 10,214 shares; Mr. Eisen, 8,757 shares; Mr. Galgano, 16,600
shares; Mr. Loser, 5,832 shares; Mr. Orr, 12,950 shares; Mr. Voutsinas,
3,032 shares; Mr. Kuhn, 33,191 shares; Mr. Henchy, 17,240 shares; Mr.
Kramer, 1,394 shares; and all directors and executive officers as a
group, 170,510 shares.
(9) Percentages with respect to each person or group of persons have been
calculated on the basis of 17,529,621 shares of Common Stock, the
number of shares of Common Stock outstanding as of February 28, 1998,
plus the number of shares of Common Stock which such person or group of
persons has the right to acquire within 60 days after February 28, 1998
by the exercise of stock options.
(10) The figure shown includes 170,510 shares over which the Company's
directors and executive officers share voting and investment power
(other than as disclosed in notes 4, 5 and 6). The figure shown also
includes 7,100 shares allocated to Mr. Kramer and held in trust
pursuant to the Officers' RRP, as to which such executive officer has
sole voting power but no investment power. The figure shown does not
include 11,580 shares of unallocated stock held in trust pursuant to
the Officers' RRP, as to which the officers with unvested restricted
stock awards have shared voting power but no investment power, thereby
causing each such person to be deemed a beneficial owner of such
unallocated shares. Each of the directors and executive officers
included in the table disclaims beneficial ownership of the unallocated
shares under the Officers' RRP. See "Election of Directors -- Executive
Compensation -- BANK RECOGNITION AND RETENTION PLAN FOR OFFICERS."
6
<PAGE>
PROPOSAL ONE
ELECTION OF DIRECTORS
GENERAL
The Certificate of Incorporation and Bylaws of the Company provide that
the Board of Directors shall be divided into three classes. The directors of
each class serve for a term of three years, with one class elected each year. In
all cases, directors serve until their successors are elected and qualified.
Currently, the Board of Directors of the Company consists of 11 members.
The terms of three directors expire at the Annual Meeting. Each of the
three incumbent directors, A. Gordon Nutt, Michael P. Galgano and John C.
Mesloh, has been nominated by the Board of Directors, acting as the Nominating
Committee, to be re-elected at the Annual Meeting, each to serve for a
three-year term expiring at the 2001 annual meeting and until their successors
are otherwise duly elected and qualified. Each nominee has consented to being
named in this Proxy Statement and to serve if elected. However, if any nominee
should become unable to serve, the proxies received in response to this
solicitation that were voted in favor of such nominee will be voted for the
election of such other person as shall be designated by the Board of Directors
of the Company, unless the Board of Directors shall determine to further reduce
the number of directors pursuant to the Bylaws of the Company. In any event,
proxies cannot be voted for a greater number of persons than the three nominees
named.
INFORMATION AS TO NOMINEES AND CONTINUING DIRECTORS
The following table sets forth certain information with respect to each
nominee for election as a director and each continuing director whose term does
not expire at the Annual Meeting. There are no arrangements or understandings
between the Company and any director or nominee pursuant to which such person
was elected or nominated to be a director of the Company. For information with
respect to security ownership of directors, see "General Information -- Stock
Ownership of Management."
<TABLE>
<CAPTION>
END OF DIRECTOR
NAME AGE(1) TERM POSITION HELD WITH THE COMPANY SINCE(2)
<S> <C> <C> <C> <C>
NOMINEES FOR A THREE-YEAR
TERM EXPIRING IN 2001
A. Gordon Nutt 63 1998 President, Chief Administrative 1991
Officer and Director
Michael P. Galgano 72 1998 Director 1986
John C. Mesloh 63 1998 Director 1992
CONTINUING DIRECTORS
John M. Tsimbinos 60 2000 Chairman of the Board, Chief 1982
Executive Officer and Director
Maureen E. Clancy 65 1999 Director 1993
Robert F. Eisen, Sr. 77 1999 Director 1987
Leonard Genovese 63 1999 Director 1992
Edward J. Kowatch 73 2000 Director 1988
Ernest L. Loser 72 1999 Director 1992
James E. Orr, Jr. 74 2000 Director 1978
Spiros J. Voutsinas 64 2000 Director 1992
</TABLE>
7
<PAGE>
(FOOTNOTES ON NEXT PAGE)
(1) At February 28, 1998.
(2) Includes terms as trustee of the Bank and of predecessor affiliated
institutions prior to the incorporation of the Company on February 12,
1993.
The principal occupation and business experience of each nominee for
election as director and each continuing director are set forth below.
NOMINEES FOR ELECTION AS DIRECTORS
A. GORDON NUTT, President and Chief Administrative Officer of the
Company, has been a Director of Roosevelt Savings Bank (the "Bank") since May
21, 1991, and was elected President and Chief Administrative Officer of the Bank
on December 15, 1992. In 1983, Mr. Nutt joined the Bank as a Senior Vice
President and Chief Administrative Officer. Mr. Nutt has over 35 years
experience in the banking industry and has held a variety of senior level
management positions. He has a B.A. from Brooklyn College and has completed the
Graduate School of Savings Banking program at Brown University.
MICHAEL P. GALGANO has been a Director of the Bank since February 18,
1986. Mr. Galgano was a principal with Dorman & Wilson, Inc., a mortgage banking
firm, and retired as a Senior Vice President and regional manager of the Long
Island office after having been employed at such company for over 24 years. He
currently has his own real estate financial consulting practice. He is an MAI
designated member of the Appraisal Institute and has the designation of CRE in
the American Society of Real Estate Counselors. Mr. Galgano is a past Chairman
of the Real Estate Practitioners' Institute at Long Island University and also
served as mayor of the Incorporated Village of Brookville, New York for over 15
years.
JOHN C. MESLOH has been a Director of the Bank since July 21, 1992. Mr.
Mesloh currently serves as Chairperson of the Planning Committee of the Bank. He
retired as a Vice President from the New York City office of Pfizer, Inc., a
pharmaceutical manufacturer, after 23 years of service. Mr. Mesloh is a
certified public accountant and is a member of the Financial Executives
Institute. He is a past President of the board of the Lutheran Church of
Resurrection, Garden City. He is currently President of T&C Restorations, Inc.
in Mineola, a board member of Wartburg Lutheran Services, Treasurer and a board
member of the Atlantic District of the Lutheran Church, Missouri Synod and
liaison between the Lutheran Church, Missouri Synod (the parent body located in
St. Louis) and the Nehemiah project in Brooklyn, a community housing project.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS
VOTE "FOR" THE NOMINEES FOR ELECTION AS DIRECTORS.
CONTINUING DIRECTORS
JOHN M. TSIMBINOS, Chairman of the Board and Chief Executive Officer of
the Company, has been a Director of the Bank since July 20, 1982, having
commenced his employment with the Bank on February 24, 1982. On April 1, 1983,
he became President and Chief Executive Officer, serving in such capacity until
December 15, 1992, when he was elected Chairman of the Board and Chief Executive
Officer of the Bank. Mr. Tsimbinos has over 35 years of experience in the
banking industry. He serves on various committees of the Community Bankers
Association of New York State. Mr. Tsimbinos is a director of Institutional
Investors Capital Appreciation Fund, Inc., which is a registered investment
company under the Investment Company Act of 1940, as amended. He also serves on
the boards of various other business, professional, community and philanthropic
organizations, such as Golden Eagle Sales Corp., a wholly owned subsidiary of
Columbian Mutual Life Insurance Company, and the Advisory Board of the
Neighborhood Housing Services of New York City, Inc. Mr. Tsimbinos is a former
director and Vice Chairman of the Federal Home Loan Bank of New York and
8
<PAGE>
a former Chairman of its Executive Committee. Mr. Tsimbinos was an adjunct
professor at Queens College and taught evening and Saturday courses in money and
banking, corporate finance and economics from 1964 to 1972. He has a B.A. from
The City College of New York, and an M.B.A. in Finance and Investments from the
Baruch School of Business and Public Administration. He has also completed the
Graduate School of Savings Banking program at Brown University and the Program
for Management Development at the Harvard Business School.
MAUREEN E. CLANCY has been a Director of the Bank since May 18, 1993.
She has been a licensed insurance broker since 1959. Ms. Clancy is the
Secretary-Treasurer of Clancy & Clancy Brokerage Ltd., an insurance agency
established in 1956. Ms. Clancy served as Trustee of the Village of Garden City
from 1986 to 1990 and was deputy mayor from 1989 to 1990. She is a past
President of the Mineola-Garden City Rotary Club and served as President of the
Garden City Chamber of Commerce for the 1995-1997 term.
ROBERT F. EISEN, SR. has been a Director of the Bank since June 16,
1987. He serves as Chairperson of the Audit Committee of the Bank and the
Company. Mr. Eisen retired as President of Greenwood Mills, Inc., a textile
manufacturer and was a registered lobbyist representing the textile industry in
Washington, D.C. Mr. Eisen served as a trustee for a major savings institution
and also as a director of Londontown Manufacturing Company before joining the
Board of Roosevelt Savings Bank. He holds an Honorary Doctorate Degree in
Commercial Science from St. John's University.
LEONARD GENOVESE has been a Director of the Bank since June 16, 1992.
He is currently Chairman, President and Chief Executive Officer of Genovese Drug
Stores, Inc. He is a board member of St. Christopher-Ottilie Services for
Children and Families, the National Association of Chain Drug Stores, Kellwood
Company, AID Auto Stores, The Stephan Company and the National Center for
Disability Services.
EDWARD J. KOWATCH has been a Director of the Bank since February 16,
1988. Mr. Kowatch currently serves as Chairperson of the Loan and Investment
Committee of the Bank. Mr. Kowatch retired as Chief Executive Officer of the
Retirement System for Savings Institutions. He is presently a director of and
consultant for Retirement System Group, Inc., which provides retirement and
investment related services. Mr. Kowatch is a former director of Ban Ser Corp.,
which provides insurance products and services.
ERNEST L. LOSER has been a Director of the Bank since March 17, 1992.
Mr. Loser serves as Chairperson of the Human Resources Committee and the
Compensation Committee of the Bank and the Company. He retired as a Senior Vice
President in charge of the Institutional Trust Group for The Chase Manhattan
Bank, N.A., where he had been employed for 35 years.
JAMES E. ORR, JR. has been a Director of the Bank since June 14,
1978. Mr. Orr currently serves as Chairperson of the Executive Committee of the
Bank. He is the retired Chairman and Chief Executive Officer of Busby Metals,
Inc. of Hauppauge, New York, a distributor of metal products. He continues as a
director and consultant to Busby Metals. He is a former Trustee of the Copper
and Brass Servicenter Association, and a former Chairman of Zoning Appeals of
the Incorporated Village of Garden City, New York.
SPIROS J. VOUTSINAS has been a Director of the Bank since February 18,
1992. He is currently President of Omega Capital, Inc., a real estate
development and syndication firm, and a general partner of Omega Partners LP, a
money management firm specializing in bank stocks. He is a member of the board
of the Hellenic American Chamber of Commerce. Mr. Voutsinas retired in 1988 as
an executive vice president and director of a major New York savings institution
with over 28 years of experience in the banking industry.
9
<PAGE>
BOARD AND COMMITTEE MEETINGS
The Company's Board of Directors met five times during 1997. The Board
of Directors has appointed the Administrative Committee, Audit Committee and
Compensation Committee as standing committees. The Board of Directors serves as
the Nominating Committee. Additional committees may be authorized by the Board
of Directors. During 1997, all directors of the Bank and the Company attended at
least 75% of the total meetings held during the period of their service on the
Board of Directors of each of the Bank and the Company and committees thereof.
The principal responsibilities of the standing committees of the Company and the
number of meetings held during 1997 appear below.
ADMINISTRATIVE COMMITTEE. The Administrative Committee is responsible
for administering the T R Financial Corp. 1993 Incentive Stock Option Plan (the
"Option Plan"), including determining grants of options under the Option Plan,
for administering certain parts of the ESOP and for administering the Roosevelt
Savings Bank Recognition and Retention Plan for Officers (the "Officers' RRP").
The Administrative Committee met three times during 1997. Messrs. Eisen,
Galgano, Genovese, Kowatch, Loser, Orr and Voutsinas currently comprise the
Administrative Committee.
AUDIT COMMITTEE. The Audit Committee is charged with the responsibility
of annually examining the records and affairs of the Company to assess its
financial condition and presenting a report of examination to the Board of
Directors. The Audit Committee also conducts other examinations directed by the
Board of Directors. The Audit Committee met four times during 1997. Messrs.
Eisen, Genovese, Loser, Mesloh, Orr and Voutsinas and Ms. Clancy currently
comprise the Audit Committee.
COMPENSATION COMMITTEE. The Compensation Committee annually reviews and
makes recommendations to the Board of Directors regarding the compensation of
the Company's senior officers, including the Chairman of the Board and Chief
Executive Officer. The Compensation Committee met two times during 1997. Messrs.
Eisen, Galgano, Genovese, Kowatch, Loser, Orr and Voutsinas currently comprise
the Compensation Committee.
NOMINATING COMMITTEE. The Board of Directors, acting as the Nominating
Committee, met in January 1998 to select the nominees for election as directors
at the Annual Meeting. In accordance with the Bylaws of the Company, no
nominations for election as directors, except those made by the Board of
Directors acting as the Nominating Committee, shall be voted upon at the Annual
Meeting unless properly made by a stockholder in accordance with the procedures
set forth below under "Additional Information -- Stockholder's Notice of
Business to be Conducted at the Annual Meeting." No nominations for directors
were received from stockholders for the elections to be held at the Annual
Meeting.
DIRECTORS' COMPENSATION
RETAINER AND FEES. In 1997, Directors of the Bank who were not
employees of the Bank or the Company received a retainer at an annualized rate
of $20,000 and a fee of $750 for each Board of Directors meeting of the Bank
attended and $350 for each committee meeting of the Bank attended (other than
the Administrative Committee and the Compensation Committee). Directors of the
Company who were not employees of the Company or the Bank received a retainer at
an annualized rate of $5,000 and a fee of $500 for each Board of Directors
meeting of the Company attended. Directors of the Company do not receive a fee
for attending committee meetings of the Company.
DIRECTORS' OPTION PLAN. Directors are eligible to receive options to
purchase shares of Common Stock pursuant to the T R Financial Corp. 1993 Stock
Option Plan for Outside Directors (the "Directors' Option Plan"). The Directors'
Option Plan authorizes the grant of stock options to purchase Company Common
Stock equal to 808,448 shares (as adjusted to reflect the Stock Split). Under
the Directors' Option Plan, at the time of the Bank's conversion to stock form
and the Company's initial public offering in 1993, each non-officer
10
<PAGE>
director who served on the Board of the Bank was granted a fixed number of
options. The exercise price of such options was $4.50 per share (as adjusted to
reflect the Stock Split), and the options became exercisable on June 29, 1994
(one year following the date of the grant). All options granted under the
Directors' Option Plan expire on the tenth anniversary of the date of grant, or,
if earlier, one year following termination of service for any reason other than
removal for cause.
In January 1997, the Directors' Option Plan was amended and restated to
provide for annual grants to each outside director of non-statutory stock
options ("Non-statutory Options") to purchase 2,400 shares of Common Stock (as
adjusted to reflect the Stock Split), or such lesser number of shares as remain
under the Directors' Option Plan, with such annual grants to be made as of the
day following each annual meeting of stockholders of the Company, beginning in
April 1997. The exercise price of such options is equal to the fair market value
of the shares of Common Stock on the date of the grant, and such options vest at
a rate of 33 % per year after the date of the grant, with full vesting in the
event of death, disability, change in control or retirement, as defined in such
plan.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
THE FOLLOWING REPORT OF THE COMPANY'S COMPENSATION COMMITTEE IS
PROVIDED IN ACCORDANCE WITH THE RULES AND REGULATIONS OF THE SECURITIES AND
EXCHANGE COMMISSION (THE "SEC"). PURSUANT TO SUCH RULES AND REGULATIONS, THIS
REPORT SHALL NOT BE DEEMED "SOLICITING MATERIAL" FILED WITH THE SEC SUBJECT TO
REGULATION 14A OR 14C OF THE SEC OR SUBJECT TO SECTION 18 OF THE EXCHANGE ACT.
The Human Resources Committee of the Bank (the "Human Resources
Committee") is responsible for establishing the policies that govern employee
compensation and stock ownership programs. The Compensation Committee of the
Company (the "Compensation Committee") is comprised of the Human Resources
Committee members who are not officers of the Bank or the Company. The
Compensation Committee annually reviews and makes recommendations to the Board
of Directors regarding the compensation of the Company's executive officers,
including the compensation of Mr. Tsimbinos, the Chairman of the Board and Chief
Executive Officer ("CEO") of the Company. Messrs. Tsimbinos, Nutt, Kuhn, Henchy,
Kramer and DeRusso are the executive officers of both the Bank and the Company.
They receive no additional compensation for their service with the Company.
The overall compensation structure of the Company is aimed at
establishing a total compensation package that rewards both strong individual
performance and Company performance and is competitive with compensation levels
at comparable banking institutions. In connection with the conversion of the
Bank from mutual to stock form and the initial public offering of the Company in
1993, the Bank, as part of its ongoing management of executive compensation,
utilized the services of its outside compensation consulting firm to advise the
Compensation Committee with respect to the Company's compensation programs for
executive officers adopted at the time of the conversion. As part of the
Compensation Committee's review of the Company's compensation programs in 1996,
the Bank utilized the services of the same compensation consulting firm. Their
1996 report and recommendations were taken into consideration by the
Compensation Committee in the development and implementation of the overall
compensation program for 1997 and will also be considered in the future.
In 1997, as a continuation of that process, senior management, in
conjunction with the Bank's outside counsel, prepared a detailed report
comparing the performance of the Bank to that of a peer group of twelve other
New York based public banking institutions each having total assets in excess of
$1 billion. The peer group and the methodology utilized in the preparation of
the report paralleled that used by the Bank's outside compensation consulting
firm in 1996. The relative performance was measured using key financial
performance factors for the years 1994, 1995, 1996 and the first six months of
1997. The peer group selected is different than the companies included in the
Nasdaq Composite Index and Nasdaq Bank Composite Index used in the Performance
Graph on page 14 of this Proxy Statement since these two indices reflect the
stock performance
11
<PAGE>
of a significantly broader group of companies and financial institutions, in
terms of the number and geographic location of such financial institutions.
Based upon its review of the facts, the Compensation Committee
concluded that, in order to give the Company's executive officers incentives to
keep performing at their current and higher levels, the Company's compensation
programs should continue to be aligned with the level of performance achieved by
the Bank relative to the peer group. In addition, the Compensation Committee
concluded that the compensation programs should take into account the officer's
individual responsibility and performance as well. The Compensation Committee
believes that an executive's total pay level should continue to be considered
when making individual changes to annual salary, annual incentive compensation
or long-term incentive compensation.
INCENTIVE COMPENSATION. The Compensation Committee believes that
incentive compensation should be an integral component of the Company's total
compensation package. In this regard, the Bank maintains a performance
compensation program (the "Performance Compensation Program") which provides for
cash payments based upon the annual performance of the Bank in comparison to a
pre-established target goal and, in the case of certain executive officers, the
individual performance of the executive officer. In order to assure that
incentive awards to Messrs. Tsimbinos, Nutt, Kuhn and Henchy are tax deductible
by the Company as "performance-based" compensation under Section 162(m) of the
Internal Revenue Code of 1986, as amended (the "Code"), the Bank adopted,
effective January 23, 1997, the Performance Compensation Plan, which was
approved by the Company's stockholders on April 21, 1997. The Performance
Compensation Plan is a written plan that is substantively equivalent to the
existing Performance Compensation Program, except for certain limitations,
requirements and provisions required under Section 162(m) of the Code in order
to assure that the Company may take tax deductions for the payments made under
the Performance Compensation Plan.
STOCK OWNERSHIP PROGRAMS. The Compensation Committee believes that
providing executive officers with significant stock ownership and stock options
aligns the interests of executive officers with the interests of stockholders.
In this regard, the Company adopted the ESOP and the Option Plan and the Bank
adopted the Officers' RRP at the time of the Company's initial public offering
in 1993. The Option Plan and the Officers' RRP were ratified by the Company's
stockholders on December 13, 1993.
In June 1993, the Company granted stock options under the Option Plan
at an exercise price equal to the actual purchase price of the shares issued in
the initial public offering. These grants were awarded to provide an incentive
for future performance by giving full and part-time employees, including the
executive officers, equity interests in the Company. The size of the grants to
executive officers were based in part on the practices of other similar
institutions and in part on the performance and position of the executive
officer in the organization.
In January 1997, the Company amended the Option Plan, which was
approved by the Company's stockholders on April 21, 1997, to increase the number
of shares of Common Stock available for option awards and to assure that
Non-statutory Options awarded pursuant to the Option Plan are tax deductible by
the Company as "performance-based" compensation under Section 162(m) of the
Code. Consistent with the recommendation of the Bank's compensation consultant,
the Administrative Committee which administers the Option Plan granted stock
options to certain officers of the Bank in January 1997 and April 1997, and,
pursuant to the Option Plan, indicated that annual grants of stock options would
be considered in the future. Accordingly, the Administrative Committee granted
stock options to certain officers of the Bank in January 1998. In each case, the
exercise price of the stock option is equal to the fair market value of the
stock on the day the stock option was granted.
The Officers' RRP is designed to encourage executive officers to remain
with the Company. In June 1993, the Company made awards under the Officers' RRP
to certain officers, including Messrs. Tsimbinos, Nutt, Kuhn, Henchy and Kramer.
Since these awards, no further shares under the Officers' RRP have been awarded
to the Company's executive officers.
12
<PAGE>
CHIEF EXECUTIVE OFFICER. The Compensation Committee reviewed the
performance of Mr. Tsimbinos as CEO of the Bank and the Company over the past
year. The Compensation Committee concluded that his performance was outstanding,
in terms of the development and achievement of the Bank's and the Company's
overall strategic goals and objectives as set forth in the Bank's strategic
operating plan, the record level of profits attained for 1997, the building of a
solid and talented management team and the management of the Bank's growth since
the successful conversion of the Bank and the initial public offering of the
Company. Mr. Tsimbinos also actively participated in a variety of outside
organizations and causes, including various community organizations, which
served to benefit the Company and the banking industry.
Based upon the report presented to the Compensation Committee and the
outstanding financial performance of the Bank and the Company during 1997, the
Compensation Committee recommended, and the Board of Directors approved, a 10%
incentive award for Mr. Tsimbinos for 1997. This award is in addition to the
targeted performance award of the Performance Compensation Plan of 50% for Mr.
Tsimbinos for 1997. As previously noted, the Performance Compensation Plan does
not differ substantively from the previously described Performance Compensation
Program, except for certain limitations, requirements and provisions required
under Section 162(m) of the Code. The Compensation Committee also recommended,
and the Board of Directors approved, an increase in Mr. Tsimbinos's annual
salary from $600,000 to $675,000 for 1998. These actions were consistent with
the data contained in the report presented to the Compensation Committee
regarding the mix of incentive compensation to annual salary and result in a
compensation level appropriate to industry standards.
Ernest L. Loser, Chairperson Leonard Genovese
Edward J. Kowatch, Vice Chairperson James E. Orr, Jr.
Robert F. Eisen, Sr. Spiros J. Voutsinas
Michael P. Galgano
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
One of the responsibilities of the Compensation Committee of the Board
of Directors of the Company is to determine the level of compensation for
executive officers of the Bank. The members of the Human Resources Committee who
are not officers of the Bank or the Company acted as the Compensation Committee
for 1997 and consisted of Messrs. Eisen, Galgano, Genovese, Kowatch, Loser, Orr
and Voutsinas. There are no interlocks, as defined under the rules and
regulations of the SEC, between members of the Compensation Committee or
executive officers of the Company and corporations with respect to which such
persons are affiliated, or otherwise.
13
<PAGE>
PERFORMANCE GRAPH
Pursuant to the rules and regulations of the SEC, the graph below
compares the performance of the Company's Common Stock with that of the Nasdaq
Composite Index (U.S. Companies) and the Nasdaq Bank Composite Index (banks and
bank holding companies, over 99% of which are based in the United States) from
June 29, 1993, the date of the Company's initial public offering, through
December 31, 1997. The graph is based on an investment of $100 in the Company's
Common Stock at its closing price on June 29, 1993 and assumes the reinvestment
of all dividends paid in additional shares of the same class of equity
securities as those below.
[GRAPHIC OMITTED]
<TABLE>
<CAPTION>
Period Ending
-----------------------------------------------------------------------------
Index 6/29/93 12/31/93 12/31/94 12/31/95 12/31/96 12/31/97
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
T R Financial Corp. $100.00 $130.38 $133.43 $264.19 $376.99 $723.11
Nasdaq - Total US 100.00 111.00 108.50 153.45 188.74 231.61
Nasdaq - Banks 100.00 107.25 106.86 159.14 210.10 354.95
</TABLE>
Note: There can be no assurance that the performance of the Company's Common
Stock will continue into the future with the same or similar trends
depicted in the graph above.
14
<PAGE>
EXECUTIVE COMPENSATION
The following Summary Compensation Table includes individual
compensation information on the CEO and the next five most highly paid executive
officers whose base salary and bonus exceeded $100,000 in 1997 (the "Named
Executive Officers") for services rendered in all capacities to the Bank and the
Company during the years ended December 31, 1997, 1996 and 1995.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
ANNUAL LONG TERM
COMPENSATION(1) COMPENSATION AWARDS(2)
--------------- ----------------------
RESTRICTED ALL OTHER
STOCK COMPEN-
SALARY(3) BONUS(4) AWARDS(5) OPTIONS(6) SATION(7)
NAME AND PRINCIPAL POSITION YEAR ($) ($) ($) (#) ($)
- --------------------------- ---- --- --- --- --- ---
<S> <C> <C> <C> <C> <C> <C>
John M. Tsimbinos 1997 600,000 424,800 -- 70,000 621,322
Chairman of the Board and 1996 570,000 319,200 -- -- 354,529
Chief Executive Officer 1995 570,000 323,190 -- -- 278,526
A. Gordon Nutt 1997 260,000 138,060 -- 31,000 261,398
President and Chief 1996 230,000 103,040 -- -- 134,112
Administrative Officer 1995 215,000 94,815 -- -- 102,916
William R. Kuhn 1997 205,000 72,570 -- 14,000 199,333
Executive Vice President and 1996 200,000 67,200 -- -- 109,111
Chief Real Estate Lending Officer 1995 195,000 61,425 -- -- 90,459
Dennis E. Henchy 1997 200,000 70,800 -- 14,000 194,162
Executive Vice President 1996 192,500 64,680 -- -- 104,829
and Chief Financial Officer 1995 185,000 58,275 -- -- 85,926
Ira H. Kramer 1997 155,000 45,725 -- 10,000 139,845
Senior Vice President 1996 140,000 31,360 -- -- 72,771
and Corporate Secretary 1995 125,000 31,500 -- -- 55,796
John J. DeRusso (8) 1997 150,000 44,250 -- 20,000 137,068
Senior Vice President 1996 145,000 32,480 -- -- 76,132
1995 140,000 35,280 -- -- --
</TABLE>
- ------------------
(1) For 1995, 1996 and 1997, there were no (a) perquisites over the lesser of
$50,000 or 10% of the individual's total salary and bonus for the year; (b)
payments of above-market or preferential earnings on deferred compensation;
(c) payments of earnings with respect to long-term incentive plans prior to
settlement; (d) tax payment reimbursements; or (e) preferential discounts
on stock.
(2) For 1995, 1996 and 1997, there were no payouts or awards under any
long-term incentive plan because the Bank and the Company did not maintain
any long-term incentive plans.
(3) Salary includes the amount of each individual's contributions to the 401(k)
Plan.
(FOOTNOTES CONTINUED ON NEXT PAGE)
15
<PAGE>
(4) Bonus consists of payments under the Bank's Performance Compensation
Program and reflects amounts earned for each year, although such bonus is
paid in the subsequent year. For a description of this plan, see "--
PERFORMANCE COMPENSATION PROGRAM." Beginning in 1997, bonuses to the four
most highly compensated executive officers are awarded under the Bank's
Performance Compensation Plan. For a description of this plan, see "--
PERFORMANCE COMPENSATION PLAN."
(5) Upon the Company's initial public offering in 1993, Messrs. Tsimbinos,
Nutt, Kuhn, Henchy and Kramer were awarded 218,500, 56,810, 56,810, 56,810
and 35,476 shares of Common Stock (as adjusted to reflect the Stock Split),
respectively, under the Officers' RRP. The awards to Messrs. Tsimbinos,
Nutt, Kuhn and Henchy vested at a rate of 33 % per year commencing on June
29, 1994. The award to Mr. Kramer vests at a rate of 20% per year
commencing on June 29, 1994. As of December 31, 1997, the awards to Messrs.
Tsimbinos, Nutt, Kuhn and Henchy had fully vested, and the number of shares
held under the Officers' RRP for Mr. Kramer was 7,100 (as adjusted to
reflect the Stock Split). The value of these shares at December 31, 1997
was $236,075. This 1997 dollar amount is based upon $33.25 per share, the
closing price of the Common Stock as reported on the Nasdaq Stock Market on
December 31, 1997. Dividends are paid on shares awarded pursuant to the
Officers' RRP to the same extent as paid on the Company's outstanding
shares of Common Stock.
(6) Options were granted pursuant to the Option Plan in 1997 and vest at a rate
of 33 % per year commencing on January 23, 1998. No options were earned or
granted pursuant to the Option Plan in 1995 or 1996. For a discussion of
the terms of the grants and vesting of options, see "-- 1993 INCENTIVE
STOCK OPTION PLAN" and the corresponding table.
(7) Includes the value of allocations under the Company's ESOP, which for 1997
totalled $117,240 for each of Messrs. Tsimbinos, Nutt, Kuhn, Henchy, Kramer
and DeRusso. Also includes the Bank's matching contributions to the 401(k)
Plan, a cash or deferred plan designed to be qualified under Sections
401(a) and 401(k) of the Code, which for 1997, totalled $4,750 for each of
Messrs. Tsimbinos, Nutt, Kuhn and Henchy, $4,650 for Mr. Kramer and $4,500
for Mr. DeRusso. Also includes the Bank's contributions to the trust
established for the SERP (excluding amounts contributed with respect to
supplemental retirement benefits thereunder) with respect to supplemental
401(k) plan benefits and supplemental ESOP benefits, which for 1997
totalled $499,332 for Mr. Tsimbinos, $139,408 for Mr. Nutt, $77,343 for Mr.
Kuhn, $72,172 for Mr. Henchy, $17,955 for Mr. Kramer and $15,328 for Mr.
DeRusso. The 1997 dollar amounts are based on $33.25 per share, the closing
price of the Common Stock as reported on the Nasdaq Stock Market on
December 31, 1997. See "-- 401(K) PLAN," "-- EMPLOYEE STOCK OWNERSHIP PLAN"
and "Retirement Plan and Supplemental Executive Retirement Plan --
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN."
(8) Mr. DeRusso commenced employment with the Bank in November 1994 and,
therefore, did not receive any awards, grants or allocations pursuant to
the Officers' RRP, the Option Plan, the ESOP and the 401(k) Plan for 1995.
EMPLOYMENT AGREEMENTS. The Bank and the Company have entered into
employment agreements with Messrs. Tsimbinos, Nutt, Kuhn, Henchy, Kramer and
DeRusso. The employment agreements are intended to ensure that the Bank and the
Company will be able to continue to maintain a stable and competent management
base. The continued success of the Bank and the Company depends to a significant
degree on the skills and competence of these executive officers.
The Bank's employment agreements, as amended, and the Company's
employment agreements, as amended (collectively, the "Employment Agreements"),
are substantially similar. The Employment Agreements provide for initial
three-year terms with respect to Messrs. Tsimbinos and Nutt, two-year terms with
respect to Messrs. Kuhn, Henchy and Kramer and a one-year term with respect to
Mr. DeRusso (each an "Executive"). Each contract provides fordaily extensions
such that the term of the contract will always be three years for Messrs.
Tsimbinos and Nutt, two years for Messrs. Kuhn, Henchy and Kramer and one year
for Mr. DeRusso unless written notice of termination of such extensions is
provided by either party, but in no event may the term of the agreement extend
beyond the last day of the month in which the Executive attains the age of 65,
or, for Messrs. Tsimbinos and Nutt, the age of 68. The Employment Agreements
provide for a base salary which is reviewed at least annually. The Employment
Agreements do not preclude termination of the Executive's employment by the Bank
or the Company for "cause" at any time. In the event the Bank or the Company
chooses to terminate the Executive's employment for reasons other than for
cause, retirement, disability or death or, unless consented to by the Executive,
in the event of the Executive's resignation from the Bank or the Company upon
(i) failure to re-elect the Executive to his current office or offices (or a
more senior office) or, if currently a member of the Board of
16
<PAGE>
Directors, to renominate the Executive for election to the Board of Directors,
(ii) a material adverse change in the Executive's functions, duties or
responsibilities, or relocation of his principal place of employment, or (iii)
liquidation or dissolution of the Bank or the Company, the Executive, or in the
event of death, his beneficiaries, would be entitled to receive payments and
benefits under the Employment Agreement. Such payments and benefits would
generally include a lump sum payment equal to (a) his earned but unpaid salary
as of the date of termination, (b) the present value of the amount the Executive
would have earned in salary had he continued working through the unexpired term
of the Employment Agreement and (c) the present value of the additional benefits
to which he would have been entitled under all of the Bank's or the Company's
employee benefit plans had he continued working through the unexpired term of
the Employment Agreement at the rate of salary in effect on his date of
termination, including, in the case of Messrs. Tsimbinos and Nutt, an additional
two years of service credit under the supplemental retirement benefit portion of
the Supplemental Executive Retirement Plan of Roosevelt Savings Bank (the
"SERP"). Each Executive would also be entitled to continued group insurance
coverage through the unexpired term of the Employment Agreement at the same
level as of his date of termination, except that for Messrs. Tsimbinos and Nutt,
the insurance coverage would continue for their lifetimes. Each Executive would
also be entitled to the payments that would have been paid under any incentive
plan as if he had continued working through the unexpired term of the Employment
Agreement and had earned an incentive award in each calendar year that ends
during the unexpired term of the Employment Agreement in an amount equal to the
product of the average rate for the four highest compensated officers of the
Company and the salary that would have been paid during such calendar year.
If termination of employment, whether voluntary or involuntary, follows
a change in control of the Bank or the Company, the Executive or, in the event
of death, his beneficiaries, would be entitled to the severance pay as described
above, except that the unexpired term of the Employment Agreement would be five
years from the date of the change in control for Messrs. Tsimbinos and Nutt,
three years from the date of the change in control for Messrs. Kuhn, Henchy and
Kramer, and one year from the date of the change in control for Mr. DeRusso, and
that the payments under any incentive plan would be based on the maximum
attainable rate under such plan. The payments made to an Executive upon or
following a change in control of the Bank or the Company may result in an
"excess parachute payment" as defined under Section 280G of the Code, which may
result in the imposition of a 20% federal excise tax on the Executive and a
denial of the deduction for such excess amounts to the Bank and the Company or
to an acquiror of the Bank or the Company. Under the Employment Agreements, the
Company would indemnify the Executive for any such excise tax and for any
additional income, excise and employment taxes imposed as a result of such
indemnification. A "change in control" is generally defined to mean, during the
term of the Employment Agreement, an event that would be reported in response to
Item 1(a) of the Current Report on Form 8-K, or the acquisition of Company or
Bank stock that would require Federal Reserve Board approval under the Bank
Holding Company Act of 1956, as amended, or approval under the Change in Bank
Control Act, as amended, or the acquisition by a person or group of persons of
20% or more of the Bank's or the Company's Common Stock or a tender offer,
exchange offer, merger or other form of business combination, sale of assets, or
contested election of directors which results in a change of a majority of the
Board of Directors. Payments to the Executives under the Bank's Employment
Agreements are guaranteed by the Company in the event that payments or benefits
are not paid by the Bank.
1993 INCENTIVE STOCK OPTION PLAN. The Option Plan was initially adopted
on June 29, 1993 and ratified by the stockholders of the Company on December 13,
1993. The Board of Directors of the Company amended the Option Plan in January
1997 to increase the number of shares of Common Stock available for option
awards, to assure that Non-statutory Options awarded pursuant to the Option Plan
are tax deductible by the Company as "performance-based" compensation under
Section 162(m) of the Code and to include certain other changes. The Company's
stockholders approved the amended and restated Option Plan on April 21, 1997.
All officers and employees of the Company and its affiliates are
eligible to participate in the Option Plan. The Option Plan authorizes the grant
of stock options to purchase Company Common Stock (and Limited Rights as defined
below) equal to 2,576,550 shares (as adjusted to reflect the Stock Split). The
options may either be (i) options intended to qualify as incentive stock options
under Section 422 of the Code ("incentive
17
<PAGE>
stock options") or (ii) options that do not so qualify (Non-statutory Options).
Such options may have related stock appreciation rights ("SARs") which are
exercisable only upon a change in control of the Bank or the Company (the
"Limited Rights"). The exercise price at the time of the grant will be at least
100% of the fair market value of the underlying Common Stock and may be paid
either in cash or Common Stock. The Administrative Committees of the Bank and
the Company determine the term during which an option may be exercised, but in
no event will this be more than ten years from the date of the grant of the
option; provided, however, that all options will be 100% exercisable in the
event the optionee terminates his employment due to death, disability or
retirement or in the event of a change in control of the Bank or the Company.
No incentive stock options granted in connection with the Option Plan
will be exercisable more than three months after the date on which the optionee
ceases to perform services for the Bank or the Company, except that in the event
of death, disability, retirement or a change in control of the Bank or the
Company, incentive stock options may be exercisable for up to one year
thereafter or such longer period as determined by the Administrative Committee;
provided, that incentive stock options may not be exercised more than ten years
from the date of grant; and provided further, that if an optionee ceases to
perform services for the Bank or the Company due to retirement or following a
change in control of the Bank or the Company, any incentive stock options
exercised more than three months following the date the optionee ceases to
perform services shall be treated as a Non-statutory Option as described above.
Non-statutory Options may be exercised up to one year following cessation of
employment. A change in control is defined in the Option Plan generally to occur
upon: an event that would be reported in response to Item 1(a) of the Current
Report on Form 8-K; the acquisition of Company or Bank stock that would require
the approval of the Board of Governors of the Federal Reserve System under the
Bank Holding Company Act of 1956, as amended, or the approval of the Federal
Deposit Insurance Corporation under the Change in Bank Control Act, as amended;
the acquisition by a person or group of persons of 20% or more of the Bank's or
the Company's stock; or a tender offer or exchange offer, merger or other form
of business combination, sale of assets or contested election of directors which
results in a change in control of a majority of the Board of Directors.
Upon exercise of Limited Rights in the event of a change in control of
the Bank or the Company, the optionee will be entitled to receive a lump sum
cash payment equal to the difference between the exercise price of the related
option and the fair market value of the shares of Common Stock, subject to the
terms of the option on the date of exercise of the right and in lieu of
purchasing the Common Stock underlying the option. In the event of death,
disability or retirement, the Company, if requested by the employee or his
representative, may elect, in exchange for the option, to pay the employee, or
beneficiary in the event of death, the amount by which the fair market value of
the Common Stock exceeds the exercise price of the option on the date of the
employee's termination of employment.
18
<PAGE>
The following table summarizes the grants of stock options that were
made to the CEO and the Named Executive Officers during 1997.
<TABLE>
<CAPTION>
OPTION/SAR GRANTS IN 1997
INDIVIDUAL GRANTS
---------------------------------------------------------------------
POTENTIAL REALIZABLE
PERCENT OF VALUE AT ASSUMED
TOTAL ANNUAL RATE OF STOCK
NUMBER OF OPTIONS/ PRICE APPRECIATION FOR
SECURITIES SARS OPTION TERM
UNDERLYING GRANTED TO ----------------------
OPTIONS/SARS EMPLOYEES IN EXERCISE OR
GRANTED FISCAL YEAR BASE PRICE EXPIRATION 5% 10%
NAME (#)(1) (%) ($ PER SHARE) DATE ($) ($)
---- ------------ ------------ ------------- ---------- ------- ---------
<S> <C> <C> <C> <C> <C> <C>
John M. Tsimbinos 70,000 29.1 16.875 01/23/07 742,910 1,882,580
A. Gordon Nutt 31,000 12.9 16.875 01/23/07 329,003 833,714
William R. Kuhn 14,000 5.8 16.875 01/23/07 148,582 376,516
Dennis E. Henchy 14,000 5.8 16.875 01/23/07 148,582 376,516
Ira H. Kramer 10,000 4.2 16.875 01/23/07 106,130 268,940
John J. DeRusso 20,000 8.3 16.875 01/23/07 212,260 537,880
</TABLE>
- ---------------------------
(1) All Options granted vest at a rate of 331/3% per year beginning on the
first anniversary of the grant date and generally remain exercisable
until the tenth anniversary of the grant date, subject to earlier
expiration upon termination of employment. In the case of termination
due to death, disability, retirement or a change in control of the
Company, all Options granted become immediately exercisable.
The following table provides information on the number of shares of
Common Stock acquired during 1997 through the exercise of options or SARs, or
represented by unexercised options or SARs held by the CEO and the Named
Executive Officers as of December 31, 1997.
<TABLE>
<CAPTION>
AGGREGATED OPTION/SAR EXERCISES DURING 1997
AND 1997 YEAR-END OPTION/SAR VALUES
-------------------------------------------
SHARES VALUE NUMBER OF
ACQUIRED REALIZED SECURITIES UNDERLYING VALUE OF UNEXERCISED
ON ON UNEXERCISED OPTIONS/SARS IN-THE-MONEY OPTIONS/SARS
EXERCISE EXERCISE AT YEAR-END 1997 AT YEAR-END 1997
NAME (#) ($) (#) ($)
---- --- --- EXERCISABLE UNEXERCISABLE EXERCISABLE(1) UNEXERCISABLE(2)
----------- ------------- -------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
John M. Tsimbinos -- -- 524,028 70,000 15,065,805 1,146,250
A. Gordon Nutt -- -- 131,100 31,000 3,769,125 507,625
William R. Kuhn -- -- 131,100 14,000 3,769,125 229,250
Dennis E. Henchy -- -- 131,100 14,000 3,769,125 229,250
Ira H. Kramer -- -- 59,130 10,000 1,699,988 163,750
John J. DeRusso -- -- 0 20,000 0 327,500
</TABLE>
- ---------------------------
(1) Based upon the difference between $33.25, the closing price of the
Common Stock as reported on the Nasdaq Stock Market on December 31,
1997, and the $4.50 exercise price of the options.
(2) Based upon the difference between $33.25, the closing price of the
Common Stock as reported on the Nasdaq Stock Market on December 31,
1997, and the $16.875 exercise price of the options.
19
<PAGE>
PERFORMANCE COMPENSATION PROGRAM. The Bank maintains the Performance
Compensation Program, which is a discretionary program covering all employees of
the Bank, except for certain executive officers covered by the Performance
Compensation Plan discussed below. The Performance Compensation Program provides
generally for cash awards to individual employees based upon the annual
performance of the Bank in comparison to its pre-established goal and the
individual performance of such employees. Prior to the Board's adoption of the
Performance Compensation Plan in January 1997, Messrs. Tsimbinos, Nutt, Kuhn and
Henchy were also covered under the Performance Compensation Program. Any awards
such officers received under the Performance Compensation Program were based
entirely on the Bank's achievement of its annual performance goal.
PERFORMANCE COMPENSATION PLAN. The Board of Directors of the Bank
adopted the Performance Compensation Plan, effective in January 1997, in order
to assure that the incentive payment awards to Messrs. Tsimbinos, Nutt, Kuhn and
Henchy are tax deductible by the Company as "performance-based" compensation
under Section 162(m) of the Code. The Performance Compensation Plan is a written
plan that is substantively equivalent to the Performance Compensation Program,
except for certain limitations and provisions required under Section 162(m) of
the Code.
BANK RECOGNITION AND RETENTION PLAN FOR OFFICERS. Executive officers of
the Bank are eligible to receive awards of shares of Common Stock pursuant to
the Officers' RRP. The awards are granted at the discretion of the
Administrative Committee. Awards to officers become vested over a period of
years as determined under the Officers' RRP. Awards become 100% vested upon
termination of employment due to death, disability or retirement of the officer,
or following a change in control of the Bank or the Company. In the event that,
before reaching retirement, an officer terminates employment with the Bank or
the Company, the unvested portion of the officer's award will be forfeited. When
awards become vested and shares of Common Stock are distributed in accordance
with the Officers' RRP, the participants also receive amounts equal to any
accrued dividends with respect thereto. Prior to vesting, recipients of awards
may direct the voting of the shares allocated to them. Unallocated shares will
be voted by the trustee of the Officers' RRP in the same proportion as the
shares that have been awarded. Vested shares are distributed to recipients as
soon as practicable following the day on which they vested.
At the time of the Company's initial public offering in 1993, awards
under the Officers' RRP were granted to certain officers, including Messrs.
Tsimbinos, Nutt, Kuhn, Henchy and Kramer. Since these awards, no further awards
have been granted to the Company's executive officers under the Officers' RRP.
401(K) PLAN. The Bank maintains the Roosevelt Savings Bank Salary
Reduction Plan in RSI Retirement Trust (the "401(k) Plan"), which is a
tax-qualified, defined contribution plan designed to be qualified under Section
401(a) and Section 401(k) of the Code. Full-time salaried employees of the Bank
become eligible to join the 401(k) Plan following the completion of one year of
service with the Bank. Under the 401(k) Plan, subject to the limitations imposed
under Section 401(a)(17), Section 401(k) and Section 415 of the Code, a
participant may elect to defer not less than 2% and not more than 6% of his or
her compensation by directing the Bank to contribute such amount to the 401(k)
Plan on his or her behalf. No after-tax voluntary contributions may currently be
made to the 401(k) Plan. The Bank makes matching contributions to the 401(k)
Plan equal to 50% of a participant's elective deferrals, up to a maximum of 3%
of the participant's compensation for the plan year. A participant's
"compensation" for purposes of the 401(k) Plan is generally defined as a
participant's base compensation from the Bank, including salary reduction
contributions to the 401(k) Plan and wage continuation payments to an employee
who is absent due to an illness or disability of a short-term nature, but
excluding overtime pay, bonuses, commissions and contributions made by the Bank
to any other pension, insurance, welfare or any other employee benefit or
deferred compensation plan. Participants are always 100% vested in their
contributions, in matching contributions and in the earnings thereon. The 401(k)
Plan provides for in-service hardship distributions, and for in-service
non-hardship distributions of certain after-tax contributions made prior to
January 1, 1989. Distributions from the 401(k) Plan are made upon or after
termination of service in a lump sum or over a period not to exceed 20 years.
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<PAGE>
The 401(k) Plan includes a fund that invests primarily in shares of the
Company's Common Stock (the "Employer Stock Fund"). Participants investing in
the Employer Stock Fund direct the trustee how to vote the shares of the Common
Stock held by such fund, based on their proportionate interests in the fund.
Upon distribution of the participant's account, the participant will have the
choice of having his or her account paid to him or her in Common Stock (to the
extent invested in the Employer Stock Fund) or in cash. As of December 31, 1997,
the 401(k) Plan had $26,085,865 in total assets, of which $19,298,932 was
invested in the Employer Stock Fund.
EMPLOYEE STOCK OWNERSHIP PLAN. The Company has established the ESOP for
eligible employees of the Company and its affiliates, including the Bank.
Full-time salaried employees become eligible for participation in the ESOP on
the entry date following the completion of one year of service. As part of the
Company's initial public offering, the ESOP borrowed funds from the Company to
purchase 2,163,150 shares (as adjusted to reflect the Stock Split) of the Common
Stock issued in the Company's initial public offering in 1993. Collateral for
the loan was the Common Stock purchased by the ESOP. The loan is being repaid
principally from employer cash contributions to the ESOP over a period of
approximately ten years. The interest rate for the loan is equal to the average
prime interest rate as published by THE WALL STREET JOURNAL during the
applicable quarter plus 150 basis points. Shares of Common Stock purchased by
the ESOP and pledged as collateral for the loan are held in a suspense account
and released for allocation among participants annually in amounts proportionate
to the repayment of the loan.
Shares released annually from the suspense account and discretionary
contributions, if any, are allocated among ESOP participants on the basis of
compensation for the year of allocation, subject to the limitations imposed
under Section 401(a)(17) and Section 415 of the Code. A participant's
"compensation" for purposes of the ESOP is generally defined as a participant's
base compensation from the Bank, including salary reduction contributions to the
401(k) Plan and wage continuation payments to an employee who is absent due to
an illness or disability of a short-term nature, plus bonuses and overtime pay,
but excluding commissions and contributions made by the Bank to any other
pension, insurance, welfare or any other employee benefit or deferred
compensation plan. Benefits generally become vested over a seven-year period
with 10% becoming vested after the first year of credited service and an
additional 10% becoming vested for the second, third and fourth years of
credited service. An additional 20% of the benefit will become vested each year
thereafter until participants are 100% vested after seven years. However, in the
event of a change in control, as defined by the ESOP, any unvested portion of
benefits shall vest immediately. The ESOP generally provides that, upon certain
changes in control as described in the ESOP, unallocated shares in the ESOP will
be sold to repay any outstanding loan and all remaining unallocated shares or
proceeds thereof will be allocated among participants who were employed
immediately preceding the change in control in proportion to compensation for
that part of the year prior to the change in control. In the event of a change
in control, the ESOP provides that no amount credited to a participant's account
as a result of the repayment of any outstanding loan will be treated as an
annual addition for purposes of the limitations under Section 415 of the Code
and, if any amount cannot be allocated in the year of the change in control
because of these limitations, it will be allocated in subsequent years to those
persons who were participants immediately preceding the change in control and
who continue to be participants.
Prior to the completion of a year of credited service, a participant
who terminates employment for reasons other than death, retirement, or
disability will not receive any benefit under the ESOP. Forfeitures are
reallocated annually among remaining participating employees in the same
proportion as the annual allocation that is made on the basis of compensation.
Benefits are generally payable in the form of stock upon death, retirement,
disability or termination of service.
RETIREMENT PLAN AND SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
RETIREMENT PLAN. The Bank maintains the Retirement Plan of Roosevelt
Savings Bank in RSI Retirement Trust (the "Retirement Plan"), which is a
tax-qualified, defined benefit plan designed to be qualified
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<PAGE>
under Section 401(a) of the Code. The Retirement Plan generally covers full-time
salaried employees who have attained the age of 21 and have completed one year
of service. Employees compensated on an hourly or on a contract basis, leased
employees and employees who work outside the Bank's offices in connection with
the operation and maintenance of buildings or other properties acquired through
foreclosure or deed, are not eligible to participate in the Retirement Plan. The
Bank makes quarterly contributions to the Retirement Plan in amounts necessary
to satisfy the minimum funding requirements under the Employee Retirement Income
Security Act of 1974, as amended.
A participant is fully vested in his or her benefit under the
Retirement Plan upon retirement at the age of 65, or if later, the fifth
anniversary of the participant's initial participation in the Retirement Plan.
The annual benefit provided to a participant under the Retirement Plan, subject
to the limitations imposed under Section 401(a)(17) and Section 415 of the Code,
is equal to 2% of the participant's average annual earnings, multiplied by the
number of years, and any fraction thereof, of service credited to the
participant for benefit purposes not in excess of 30 years, plus l% of average
annual earnings multiplied by the number of years, and any fraction thereof, of
credited service in excess of 30 years. A participant's "average annual
earnings" for purposes of the Retirement Plan is the average of his or her
annual compensation for the 36 consecutive calendar months with the highest
average during his or her final 120 months of credited service (or the total
number of months of credited service if the total is less than 120 months). A
participant's "compensation" for purposes of the Retirement Plan is generally
defined as a participant's base compensation, including salary reduction
contributions to the 401(k) Plan and wage continuation payments to an employee
who is absent due to an illness or disability of a short-term nature, but
excluding overtime pay, bonuses, commissions and contributions made by the Bank
to any other pension, insurance, welfare or any other employee benefit or
deferred compensation plan. A participant's annual benefit under the Retirement
Plan is limited to 60% of his or her average annual earnings. Retirement Plan
benefits are also payable upon termination due to disability and death.
At December 31, 1997 the market value of the Retirement Plan trust fund
was $21,494,060. The Bank's contribution to the Retirement Plan for 1997 was $0,
as a result of the actuarial valuation of the liabilities and assets under the
Retirement Plan.
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN. The Bank maintains the SERP for
designated salaried executive officers of the Bank to compensate such
individuals who participate in the Bank's Retirement Plan, ESOP and the 401(k)
Plan, but whose benefits otherwise receivable under such benefit plans are
limited by Sections 402(g), 401(a)(17) and 415 of the Code. Payment of benefits
under the SERP is triggered by the same events triggering payment under the
Bank's Retirement Plan, ESOP and 401(k) Plan. The SERP also provides that, if
allocations under the ESOP in the case of a change in control are limited by
Section 415 of the Code, the SERP benefit with respect to the ESOP for all
eligible employees will be determined by taking into account the allocation of
the unallocated shares and cash in accordance with the amendment to the ESOP.
This additional SERP benefit will not be reduced by any subsequent allocation of
unallocated shares or cash in the years following the change in control.
The SERP is an unfunded plan. All obligations arising under the SERP
are payable from the general assets of the Bank. However, the Bank has
established a trust (the "SERP Trust"), the assets of which will be used to pay
the benefits under the SERP, except in the event of the insolvency of the Bank,
in which case the assets of the SERP Trust would be used to satisfy the claims
of the Bank's general creditors.
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<PAGE>
PENSION PLAN TABLE. The following table sets forth the estimated annual
benefits payable under the Retirement Plan and the retirement benefit portion of
the SERP upon retirement at age 65 in calendar year 1997, expressed in the form
of a single life annuity (with no offset for Social Security benefits), for the
average annual earnings and years of credited service specified.
<TABLE>
<CAPTION>
PENSION PLAN TABLE(1)
YEARS OF CREDITED SERVICE
AVERAGE -------------------------
ANNUAL
EARNINGS 15 20 25 30 35(2)
-------- -- -- -- -- -----
<S> <C> <C> <C> <C> <C>
$ 100,000 $ 30,000 $ 40,000 $ 50,000 $ 60,000 $ 60,000
200,000(4) 60,000 80,000 100,000 120,000(3) 120,000(3)
300,000(4) 90,000 120,000(3) 150,000(3) 180,000(3) 180,000(3)
400,000(4) 120,000(3) 160,000(3) 200,000(3) 240,000(3) 240,000(3)
500,000(4) 150,000(3) 200,000(3) 250,000(3) 300,000(3) 300,000(3)
700,000(4) 210,000(3) 280,000(3) 350,000(3) 420,000(3) 420,000(3)
900,000(4) 270,000(3) 360,000(3) 450,000(3) 540,000(3) 540,000(3)
</TABLE>
- ---------------------------
(1) The annual benefits shown in the table above assume the participant
would receive his retirement benefits under the Retirement Plan and the
SERP in the form of a straight life annuity at normal retirement age.
(2) Normal retirement benefits are limited to 60% of average annual
earnings.
(3) These are hypothetical benefits based upon the Retirement Plan's normal
retirement benefit formula. The maximum annual benefit permitted under
Section 415 of the Code in 1997 is $125,000 and in 1998 is $130,000, or
if higher, a member's current accrued benefit as of December 31, 1982
(but not more than $136,425). The $130,000 ceiling will be adjusted to
reflect cost of living increases after 1998 in accordance with Section
415 of the Code. The SERP will provide the difference between the
amounts appearing in this table and the maximum amount allowed by the
Code.
(4) The benefits shown corresponding to these compensation ranges are
hypothetical benefits based upon the Retirement Plan's normal retirement
benefit formula. Under Section 401(a)(17) of the Code, a participant's
compensation in excess of $200,000 (as adjusted to reflect
cost-of-living increases) is disregarded for purposes of determining
average annual earnings in plan years beginning in or after 1989 but
before 1994. Benefits accrued as of the last day of the plan year
beginning in 1988 on the basis of compensation in excess of $200,000 are
preserved. The $200,000 limit was increased to $209,200 in 1990,
$222,220 in 1991, $228,860 in 1992, and $235,840 in 1993. The limitation
was reduced to $150,000 for plan years beginning in 1994 through 1996
and is $160,000 for plan years beginning in 1997 and 1998. The
limitation will be adjusted to reflect cost of living increases after
1997 in accordance with Section 401(a)(17) of the Code. The table
reflects amounts payable in conjunction with the SERP.
The following table sets forth the years of credited service (i.e.,
benefit service) as of December 31, 1997 for each of the individuals named in
the Summary Compensation Table.
CREDITED SERVICE
----------------
YEARS MONTHS
----- ------
John M. Tsimbinos 15 10
A. Gordon Nutt 14 6
William R. Kuhn 23 6
Dennis E. Henchy 22 8
Ira H. Kramer 14 7
John J. DeRusso 3 1
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<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
From time to time the Bank makes mortgage loans to its executive
officers and mortgage loans and consumer loans to members of the immediate
families of its executive officers and directors, to the extent consistent with
applicable laws and regulations. Such loans are made in the ordinary course of
business and on the same terms, including interest rates and collateral, as
those prevailing at the time for comparable transactions with other persons, and
do not and will not involve more than the normal risk of collectibility or
present other unfavorable features. The outstanding principal balance of such
loans to executive officers and family members of executive officers and
directors totaled $70,306 as of December 31, 1997.
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
Under the securities laws of the United States, the Company's
directors, its executive officers, and any person holding more than ten percent
of the Company's Common Stock are required to file initial reports of ownership
of the Company's Common Stock and reports of changes in that ownership to the
SEC. Specific due dates for these reports have been established and the Company
is required to disclose in this Proxy Statement any failure to file by these
dates during 1997. All of such filing requirements of the Company's directors
and executive officers were satisfied during 1997, based upon their written
representations and copies of the reports that they have filed with the SEC.
PROPOSAL TWO
RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS
The Board of Directors has appointed the firm of KPMG Peat Marwick LLP
to continue as independent auditors for the Company for the year ending December
31, 1998, subject to ratification of such appointment by the Company's
stockholders. Representatives of KPMG Peat Marwick LLP are expected to be
present at the Annual Meeting. The representatives will have an opportunity to
make a statement if they desire to do so and will be available to respond to
questions.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" THE
RATIFICATION OF THE APPOINTMENT OF KPMG PEAT MARWICK LLP
AS INDEPENDENT AUDITORS FOR THE COMPANY.
PROPOSAL THREE
AMENDMENT TO THE CERTIFICATE OF INCORPORATION
By resolutions adopted on March 10, 1998, the Board of Directors of the
Company declared it advisable and in the best interests of the Company to amend
the Company's Certificate of Incorporation to increase the number of shares of
stock that the Company has the authority to issue to an aggregate of 65,000,000
shares, of which 60,000,000 would be Common Stock and 5,000,000 would be
Preferred Stock, and directed that the Certificate of Incorporation be submitted
to a vote of the stockholders at the Annual Meeting. If the proposal
24
<PAGE>
is adopted, Article FOURTH, Section A of the Certificate of Incorporation is
hereby amended to read as follows:
"FOURTH: A. The total number of shares of all classes of stock which
the Corporation shall have authority to issue is sixty-five million
(65,000,000) consisting of:
1. Five million (5,000,000) shares of Preferred Stock, par value
one cent ($.01) per share (the "Preferred Stock"); and
2. Sixty million (60,000,000) shares of Common Stock par value
one cent ($.01) per share (the "Common Stock")."
The Certificate of Incorporation of the Company currently authorizes
the issuance of up to 35,000,000 shares, consisting of 30,000,000 shares of
Common Stock and 5,000,000 shares of Preferred Stock. As of March 12, 1998, the
Company had 17,529,929 shares of Common Stock outstanding. No shares of
Preferred Stock are outstanding. As of March 12, 1998, the Company had 7,276,000
authorized but unissued shares of Common Stock and an additional 5,194,071
shares of Common Stock held as treasury stock.
The Board of Directors believes that it is in the best interest of the
Company and its stockholders to increase the number of authorized shares of
Common Stock in order to have additional shares available for issuance to meet
various business needs as they may arise and to enhance the Company's
flexibility in connection with possible future actions. These business needs and
actions may include stock dividends, stock splits, employee benefit programs,
corporate business combinations, funding of business acquisitions and other
corporate purposes. Although the Board periodically considers transactions such
as those listed above, it currently does not have plans to issue any significant
amount of such Common Stock, except as reserved for issuance under the Company's
stock option plans and the Rights Agreement, dated as of July 19, 1994, between
the Company and The Chase Manhattan Bank, as Rights Agent.
The authorization of additional shares of Common Stock pursuant to this
proposal will have no dilutive effect upon the proportionate voting power of the
present shareholders of the Company. However, to the extent that shares are
subsequently issued in connection with any corporate action to persons other
than the present shareholders, such issuance could have a dilutive effect on the
earnings per share and voting power of present shareholders. The Company would
expect that the dilutive effect on earnings per share would be relatively
short-term in duration.
In addition, although the issuance of shares of Common Stock in certain
instances may have the effect of forestalling a hostile takeover, the Board does
not intend or view the increase in authorized Common Stock as an anti-takeover
measure. The Company is not aware of any proposed or contemplated transaction of
this type, and this amendment to the Certificate of Incorporation is not being
recommended in response to any specific effort of which the Company is aware to
obtain control of the Company. The authorized shares of Common Stock in excess
of those presently authorized and issued will be available for issuance at such
times and for such purposes as the Board of Directors may deem advisable without
further action by the Company's stockholders, except as may be required by
applicable laws or regulations.
Approval of the amendment to the Certificate of Incorporation of the
Company requires the affirmative vote of the holders of at least a majority of
the issued and outstanding shares of Common Stock entitled to vote at the Annual
Meeting. Accordingly, abstentions from voting and shares as to which the
"ABSTAIN" box has been selected on the Proxy Card with respect to the approval
of the amendment to the Certificate of Incorporation will have the effect of a
vote against such proposal. Shares underlying broker non-votes or held in excess
of the Limit will also be counted as votes against this proposal.
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<PAGE>
In connection with this proposal, the Company recommends that each
stockholder consider the financial statements of the Company as set forth in the
Company's 1997 Annual Report to Stockholders, a copy of which is being furnished
to each stockholder together with this proxy statement.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT THE
STOCKHOLDERS VOTE FOR THE APPROVAL OF THE AMENDMENT
TO THE CERTIFICATE OF INCORPORATION.
ADDITIONAL INFORMATION
STOCKHOLDER'S NOTICE OF BUSINESS TO BE CONDUCTED AT THE ANNUAL MEETING
The Bylaws of the Company provide an advance notice procedure for a
stockholder to properly bring business before an annual meeting or to nominate
any person for election to the Board of Directors. To properly bring business
before an annual meeting or to nominate any person for election to the Board of
Directors, a stockholder must be a stockholder of record entitled to vote with
respect thereto, and the stockholder must give timely notice thereof in writing
to the Corporate Secretary of the Company.
To be timely, a stockholder's notice must be delivered to and received
by the Corporate Secretary not less than 90 days prior to the date of the annual
meeting. However, if less than 100 days notice or prior disclosure of the date
of the meeting is given to stockholders, notice must be received not later than
the close of business on the tenth day following the day on which such notice of
the annual meeting was mailed or such public disclosure was made. A
stockholder's notice to the Corporate Secretary shall set forth such information
as required by the Bylaws of the Company. Nothing in this paragraph shall be
deemed to require the Company to include in its proxy statement and proxy card
relating to an annual meeting any stockholder proposal or nomination which does
not meet all of the requirements for inclusion established by the SEC in effect
at the time such proposal or nomination is received.
DATE FOR SUBMISSION OF STOCKHOLDER PROPOSALS FOR THE 1999 ANNUAL MEETING
Any stockholder wishing to have a proposal considered for inclusion in
the Company's proxy statement and proxy card relating to the 1999 annual meeting
of stockholders must, in addition to other applicable requirements, set forth
such proposal in writing and file it with the Corporate Secretary of the Company
on or before [December 1, 1998], pursuant to the proxy soliciting regulations
of the SEC. Any such proposal will be subject to 17 C.F.R. ss.240.14a-8 of the
rules and regulations promulgated by the SEC under the Exchange Act.
OTHER MATTERS
As of the date of this Proxy Statement, the Board of Directors does not
know of any other matters to be brought before the stockholders at the Annual
Meeting. If, however, any other matters not now known are properly brought
before the meeting, the persons named in the accompanying Proxy Card will vote
the shares represented by all properly executed proxies on such matters in such
manner as shall be determined by a majority of the Board of Directors.
26
<PAGE>
FINANCIAL STATEMENTS
A copy of the 1997 Annual Report to Stockholders for the year ended
December 31, 1997, containing consolidated statements of financial condition as
of December 31, 1997 and December 31, 1996 and related consolidated statements
of income, changes in stockholders' equity and cash flows for each of the years
ended December 31, 1997, 1996 and 1995, prepared in conformity with generally
accepted accounting principles, accompanies this Proxy Statement. The
consolidated financial statements have been audited by KPMG Peat Marwick LLP
whose report thereon appears in the Annual Report. The Annual Report serves as
the Bank's Annual Disclosure Statement for purposes of the regulations of the
Federal Deposit Insurance Corporation. Upon request, stockholders will be
furnished, free of charge, an additional copy of the Annual Report.
The Company is required to file an annual report on Form 10-K for the
year ended December 31, 1997 with the SEC. Stockholders may obtain, free of
charge, a copy of such annual report (excluding exhibits) by writing to Theodore
S. Ayvas, Vice President, Roosevelt Savings Bank, 1122 Franklin Avenue, Garden
City, New York 11530. A copy of the Form 10-K is also available on the SEC's
Electronic Data Gathering Analysis and Retrieval ("EDGAR") System at the SEC's
website, www.sec.gov.
TO ASSURE THAT YOUR SHARES ARE REPRESENTED AT THE ANNUAL
MEETING, PLEASE COMPLETE, SIGN, DATE AND PROMPTLY
RETURN THE ACCOMPANYING PROXY CARD IN THE
POSTAGE-PAID ENVELOPE PROVIDED.
27
