-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, CFTudNUE3/MZQXNi9B5izu3UyqwuJtkMrlXi4SFq6krk2pNUbqe2OEyxGuGdzfy5 FdIDfX8OAb8you9uSh1guA== 0000946275-96-000212.txt : 19960816 0000946275-96-000212.hdr.sgml : 19960816 ACCESSION NUMBER: 0000946275-96-000212 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19960630 FILED AS OF DATE: 19960814 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: TF FINANCIAL CORP CENTRAL INDEX KEY: 0000921051 STANDARD INDUSTRIAL CLASSIFICATION: SAVINGS INSTITUTION, FEDERALLY CHARTERED [6035] IRS NUMBER: 742705050 STATE OF INCORPORATION: DE FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-24168 FILM NUMBER: 96612260 BUSINESS ADDRESS: STREET 1: 3 PENNS TRAIL CITY: NEWTOWN STATE: PA ZIP: 18940 BUSINESS PHONE: 2155794000 MAIL ADDRESS: STREET 1: 3 PENNS TRAIL CITY: NEWTOWN STATE: PA ZIP: 18940 10-Q 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM lO-Q (Mark One) |X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 1996 OR |_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from __________________ to _____________________ Commission file number 0-24168 TF FINANCIAL CORPORATION (Exact name of registrant as specified in its charter) Delaware 74-2705050 State or other jurisdiction (I.R.S. employer of incorporation or organization) identification number) 3 Penns Trail, Newtown, Pennsylvania 18940 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code 215-579-4000 N/A Former name, former address and former fiscal year, if changed since last report. Indicate by check whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No _____ APPLICABLE ONLY TO CORPORATE ISSUERS: Indicate the number of shares outstanding of each of the issuer's classes of common stock as of the latest practicable date August 10, 1996 Class Outstanding $.10 par value common stock 4,297,386 shares TF FINANCIAL CORPORATION AND SUBSIDIARIES FORM 1O-Q FOR THE QUARTER ENDED JUNE 30, 1996 INDEX Page Number PART I - CONSOLIDATED FINANCIAL INFORMATION Item 1. Unaudited Consolidated Financial Statements 1 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 7 PART II- OTHER INFORMATION Item 1. Legal Proceedings 15 Item 2. Changes in Securities 15 Item 3. Defaults upon Senior Securities 15 Item 4. Submission of Matters to a Vote of Security Holders 15 Item 5. Other Materially Important Events 15 Item 6. Exhibits and Reports on Form 8-K 15 SIGNATURES TF FINANCIAL CORPORATION AND SUBSIDIARIES UNAUDITED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (dollars in thousands) June 30, December 31, ASSETS 1996 1995 --------- ----------- Cash and cash equivalents $ 24,850 $27,032 Certificates of deposit in other financial institutions 3,421 4,221 Investment securities available for sale - at market value 8,076 15,044 Investment securities held to maturity (market value of $19,741 and $23,880 respectively, for the periods shown) 19,905 23,640 Mortgage-backed securities available for sale - at market value 21,882 29,640 Mortgage-backed securities held to maturity (market value of $126,064 and $139,260 respectively, for the periods shown) 128,613 137,841 Loans receivable, net 306,224 238,275 Federal Home Loan Bank Stock - at cost 5,168 3,668 Accrued interest receivable 3,308 3,430 Real estate acquired through foreclosure, net 108 129 Premises and equipment, net 6,353 6,555 Other assets 1,002 883 ------- ------- Total Assets $528,910 $490,358 ======= ======= LIABILITIES AND STOCKHOLDERS' EQUITY Liabilities Deposits $341,872 $337,069 Advances from the Federal Home Loan Bank 103,359 73,359 Advances from borrowers for taxes and insurance 2,836 1,980 Accrued interest payable 2,171 1,763 Other liabilities 3,550 2,855 ------- ------- Total Liabilities 453,788 417,026 ------- ------- Commitments and contingencies - - Stockholders' Equity Preferred stock, no par value; 2,000,000 shares authorized and none issued - - Common stock, $0.10 par value; 10,000,000 shares authorized, 5,290,000 issued; 4,180,379, 4,164,942 shares outstanding at June 30, 1996 and December 31, 1995, net of treasury shares of 766,598 and 766,598 respectively. 529 529 Additional paid-in capital 51,545 51,475 Net unrealized (loss) gain on investment securities available for sale (384) 137 Unearned ESOP shares (333,678 and 349,161 shares respectively, for the periods shown) - at cost (3,337) (3,491) Shares acquired by MSBP (1,515) (1,731) Treasury stock - at cost (11,116) (11,116) Retained earnings 39,400 37,529 ------- ------- Total Stockholders' Equity 75,122 73,332 ------- ------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $528,910 $490,358 ======= ======= See notes to consolidated financial statement 1
TF FINANCIAL CORPORATION AND SUBSIDIARIES UNAUDITED CONSOLIDATED STATEMENTS OF EARNINGS (in thousands, except per share data) For Six Months For Quarter Ended June 30, Ended June 30, --------------- ---------------- 1996 1995 1996 1995 ---- ---- ---- ---- Interest income Loans $ 10,902 $ 4,790 $ 5,622 $ 2,430 Mortgage-backed securities 5,366 6,026 2,597 2,964 Investment securities 1,228 2,112 596 1,006 Interest bearing deposits and other 577 1,258 268 693 ------ ------ ----- ----- TOTAL INTEREST INCOME 18,073 14,186 9,083 7,093 Interest expense Deposits 6,397 6,578 3,219 3,376 Borrowings 2,923 46 1,519 46 ------ ------ ----- ----- TOTAL INTEREST EXPENSE 9,320 6,624 4,738 3,422 NET INTEREST INCOME 8,753 7,562 4,345 3,671 Provision for loan losses 90 30 60 15 ------ ------ ----- ----- NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 8,663 7,532 4,285 3,656 Non-interest income Gain on sale of real estate acquired through foreclosure 114 5 0 1 Gain (loss) on sale of mortgage-backed securities 223 0 0 0 Gain (loss) on sale of loans 7 0 7 0 Service fees, charges and other operating income 650 493 296 251 ------ ------ ----- ----- TOTAL NON-INTEREST INCOME 994 498 303 252 Non-interest expense Employee compensation and benefits 2,806 2,553 1,383 1,272 Occupancy and equipment 657 670 307 349 Federal deposit insurance premium 390 400 194 200 Data processing 237 222 118 108 Professional fees 277 184 153 94 Provision for losses on real estate acquired through foreclosure 3 2 3 0 Advertising 155 142 80 71 Other operating 878 641 419 316 ------ ------ ----- ----- TOTAL NON-INTEREST EXPENSE 5,403 4,814 2,657 2,410 INCOME BEFORE INCOME TAXES 4,254 3,216 1,931 1,498 Income taxes 1,758 1,308 829 599 ------ ------ ----- ----- NET INCOME $ 2,496 $ 1,908 $ 1,102 $ 899 ====== ====== ===== ===== Per share data Earnings per share .58 .40 .26 .19 Weighted average number of shares outstanding 4,301 4,785 4,304 4,702
See notes to consolidated financial statement 2 TF FINANCIAL CORPORATION AND SUBSIDIARIES UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS) For the Six Months Ended June 30 ------------------- 1996 1995 ------- ------ CASH FLOWS FROM OPERATING ACTIVITIES Net Income $ 2,496 $ 1,908 Adjustments to reconcile net income to net cash provided by operating activities: Amortization of: Deferred loan origination fees (87) (69) Premiums and discounts on investment securities, net (12) (23) Premiums and discounts on mortgage-backed securities and loans, net 88 65 Provision for loan losses and provision for losses on real estate 93 32 Depreciation of premises and equipment 271 159 Recognition of ESOP and MSBP expenses 440 480 Gain (loss) on sale of mortgage-backed securities - available for sale (223) 0 Gain on sale of real estate acquired through foreclosure (114) (5) Decrease (increase) in Accrued interest receivable 122 224 Other assets (415) (193) Increase (decrease) in Accrued interest payable 408 572 Other liabilities 986 (236) ------- ------- NET CASH PROVIDED BY OPERATING ACTIVITIES 4,053 2,914 CASH FLOWS FROM INVESTING ACTIVITIES Loan originations and principal payments on loans, net (22,347) (14,816) Purchases of loans (46,690) 0 Proceeds from loan sales 1,008 0 Purchases and maturities of certificates of deposit in other financial institutions, net 800 (5,109) Purchases of investment securities held to maturity (3,724) (4,202) Purchase of mortgage-backed securities - held to maturity (4,882) 0 Proceeds from maturities of investment securities held to maturity 7,464 12,000 Proceeds from maturities of investment securities available for sale 7,000 7,000 Principal repayments from maturities of mortgage- backed securities - held to maturity 14,044 9,917 Principal repayments from maturities of mortgage- backed securitie - available for sale 1,851 0 Proceeds from the sale of mortgage-backed securities 5,338 0 Proceeds from the sale of investment securities available for sale 0 3,783 Purchases and redemptions of Federal Home Loan Bank Stock, net (1,500) (468) Proceeds from sales of real estate acquired through foreclosure 439 100 Purchase of premises and equipment (69) (53) ------- ------- NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES (41,268) 8,152 See notes to consolidated financial statement 3 TF FINANCIAL CORPORATION AND SUBSIDIARIES UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED) (IN THOUSANDS) For the Six Months Ended June 30 ------------------- 1996 1995 ---- ---- CASH FLOWS FROM FINANCING ACTIVITIES Net increase (decrease) in demand deposits/NOW accounts, passbook savings accounts and certificates of deposit $ 4,803 $ (6,932) Advances from Federal Home Loan Bank - net 30,000 10,000 Net (decrease) increase in advances from borrowers for taxes and insurance 856 (181) Purchase of treasury stock (0) (3,273) Common stock cash dividend (626) (475) NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 35,033 (861) NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (2,182) 10,205 Cash and cash equivalents at beginning of period 27,032 42,376 Cash and cash equivalents at end of period $24,850 $52,581 ------ ------ Supplemental disclosure of cash flow information Cash paid for Interest on deposits and advances $ 8,192 $ 6,052 Income taxes $ 1,330 $ 993 Non-cash transactions Transfers from loans to real estate acquired through foreclosure $ 32 $ 23 See notes to consolidated financial statement 4 TF FINANCIAL CORPORATION AND SUBSIDIARIES NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS NOTE 1 - PRINCIPLES OF CONSOLIDATION The consolidated financial statements as of December 31, 1995 and as of and for the three and six month periods ended June 30, 1996 and 1995 include the accounts of TF Financial Corporation (the "Corporation") and its wholly owned subsidiaries Third Federal Savings Bank (the "Savings Bank"), TF Investments Corporation and Penns Trail Development Corporation. The Corporation's business is conducted principally through the Savings Bank. All significant intercompany accounts and transactions have been eliminated in consolidation. NOTE 2 - BASIS OF PRESENTATION The accompanying unaudited consolidated financial statements were prepared in accordance with instructions for Form 10-Q and, therefore, do not include information or footnotes necessary for a complete presentation of consolidated financial condition, results of operations, and cash flows in conformity with generally accepted accounting principles. However, all adjustments, consisting of normal recurring accruals, which, in the opinion of management, are necessary for fair presentation of the consolidated financial statements have been included. The results of operations for the period ended June 30, 1996 are not necessarily indicative of the results which may be expected for the entire fiscal year or any other period. For further information, refer to consolidated financial statements and footnotes thereto included in the Corporations Annual Report on Form 10-K for the fiscal year ended December 31, 1995. NOTE 3 - IMPAIRED LOANS On January 1, 1995 the corporation adopted Statement of Financial Accounting Standards (SFAS) No. 114, "Accounting for Creditors for by Creditors for Impairment of a Loan - Income Recognition and Disclosures." SFAS No. 114 requires that a creditor measure impairment based on the present value of expected future cash flows discounted at the loan's effective interest rate, except that as a practical expedient, a creditor may measure impairment based on a loan's observable market price, or the fair value of the collateral if the loan is collateral dependent. Regardless of the measurement method, a creditor must measure impairment based on the fair value of the collateral when the creditor determines that foreclosure is probable: SFAS No. 118 allows creditors to use existing methods for recognizing interest income on impaired loans. The Savings Bank has identified a loan as impaired when it is probable that interest and principal will not be collected according to the contractual terms of the loan agreement. The accrual of interest is discontinued on such loans, and cash payments received are applied to reduce principal to the extent necessary to eliminate any doubt as to the ultimate collectibility of principal either in whole or in part. 5 Loan impairment is measured by estimating the expected future cash flows and discounting them at the respective effective interest rate, or by valuing the underlying collateral. An allowance for credit losses has been established for all loans identified as impaired. The recorded investment in impaired loans and the valuation for credit losses are as follows: (in thousands) June 30 1996 ------------ Principal amount of impaired loans $ 313 Accrued interest - Deferred loan costs - Subtotal $ 313 -------- Less valuation allowance 47 Total $ 266 ======== The average recorded investment in impaired loans during the quarter ended June 30, 1996 was $310,000. Total cash collected on impaired loans during the quarter ended June 30, 1996 was $157,000 of which $155,000 was credited to the principal balance outstanding on such loans and $2,000 was recognized as interest income. Interest that would have been accrued on impaired loans during the quarter was $7,000. Interest income recognized during the quarter was $2,000. NOTE 4 - CONTINGENCIES The Corporation, from time to time, is a party to routine litigation, which arise in the normal course of business. In the opinion of management, the resolution of these lawsuits would not have a material adverse effect on the Corporation's consolidated financial condition or results of operations. A petition for resettlement has been filed by the Savings Bank protesting assessment of certain prior years' Pennsylvania Mutual Thrift Institutions Tax. Management believes that the resolution of this liability, if any, would not have a material adverse effect on the Corporation's financial position or results of operations. NOTE 5 - CONVERSION FROM MUTUAL SAVINGS AND LOAN ASSOCIATION TO STOCK SAVINGS BANK AND FORMATION OF SAVINGS AND LOAN HOLDING COMPANY On July 13, 1994 Third Federal Savings and Loan Association consummated its conversion from a federally chartered mutual savings and loan association to a stock savings bank pursuant to a Plan of Conversion (the "Conversion ) via the issuance of common stock. In connection with the Conversion, the Corporation sold 5,290,000 shares of common stock which, after giving effect to offering expenses of $1.2 million, resulted in net proceeds of $51.7 million. Pursuant to the Conversion, the Savings Bank transferred all of its outstanding shares to a newly organized holding company, TF Financial Corporation, in exchange for 50% of net proceeds. Upon consummation of the Conversion, the preexisting liquidation rights of the depositors of the Savings Bank were unchanged. Specifically, such rights were retained and will be accounted for by the Savings Bank for the benefit of such depositors in proportion to their liquidation interests as of the Eligibility Record Date. 6 TF FINANCIAL CORPORATION AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS GENERAL The Corporation's total assets at June 30, 1996 and December 31, 1995 totaled $528.9 million and $490.4 million, respectively, an increase of $38.5 million or 7.9% for the six month period. This increase was primarily as a result of the $67.9 million or 28.5% increase in loans receivable which was partially offset by decreases in mortgage-backed securities and investment securities. This asset growth was primarily funded by the $30.0 million increase in Federal Home Loan Bank advances coupled with repayments of mortgage-backed securities and maturities of investment securities, supplemented by increases in total savings deposits at June 30, 1996 of $4.8 million or 1.4% to $341.9 million as compared to savings deposits of $337.1 million as of December 31, 1995. Other interest earning assets (cash and cash equivalents) totaled $24.9 million at June 30, 1996 which represents a decrease of $2.2 million or 8.1% as compared with December 31, 1995. Other earning assets remained level throughout the period since amortized payments, as well as the maturities, of investment securities, mortgage-backed securities and loans were reinvested in equivalent investments. Investment securities at June 30, 1996, totaled $28.0 million, which represents a decrease of $10.7 million or 27.7% as compared to December 31, 1995. The decrease is primarily due to the use of maturing securities to fund increases in loans receivable as an alternative to borrowing money. Mortgage-backed securities totaled $150.5 million at June 30, 1996 as compared to $167.5 million at December 31, 1995. This decrease of $17.0 million or 10.1% is attributed mainly to management's decision to increase liquidity to insure the availability of funds for current and anticipated future increases in mortgage lending. Other assets, inclusive of prepaid expenses, at June 30 1996, totaled $1.0 million, which represents an increase of $119,000 or 13.5% as compared to December 31, 1995. This increase is comprised primarily of an increase in accounts receivable due the Savings Bank. Total consolidated stockholders' equity of the Corporation increased $1.8 million to $75.1 million or 14.2% of total assets at June 30, 1996, from $73.3 million or 15.0% of total assets at December 31, 1995, primarily due to the addition of $2.5 million of net income for the period ended June 30, 1996, partially offset by the payment of $626,000 in dividends to shareholders coupled with the net unrealized loss on investment securities available for sale of $384,000 at June 30, 1996. On June 21, 1996 the Corporation announced its intent to repurchase up to 5% of its outstanding common stock in the open market. The repurchase was completed on July 8, 1996, with a total of 226,000 shares, approximately 5% of outstanding common shares, repurchased at a total cost of $3.3 million. Total stockholders' equity of $75.1 million reported at June 30, 1996, does not reflect the cost of the repurchase as the repurchase commenced, and was completed, after the end of the reporting period. On January 1,1995, the Corporation adopted the provisions of Statement of Financial Accounting Standards No. 114 and 118 (SFAS 114 & 118) "Accounting by Creditors for Impairment of a Loan" which generally applies to all loans including loans that are restructured as a troubled debt restructuring involving a modification of terms. The adoption of SFAS 114 & 118 was mandated by the Statement of Financial Accounting Standards Board. According to SFAS 114 and 118, impairment of a loan occurs when it is probable that the Savings Bank will not be able to collect all amounts due according to the contractual terms of the loan agreements. 7 The measurement of impaired loans is generally based upon the present value of expected future cash flows discounted at the historical effective interest rate, except that all collateral dependent loans may be measured for impairment based upon the fair value of the collateral. The accounting of SFAS 114 and 118 did not have a material impact on the financial position or results of operations of the Corporation during the three or six month period ended June 30, 1996. Average Balance Sheet The following tables set forth information relating to the Corporation's average balance sheet and reflects the average yield on assets and average cost of liabilities for the periods indicated. The yields and costs are computed by dividing income or expense by the monthly average balance of interest-earning assets or interest-bearing liabilities, respectively for the periods indicated.
For Three Months Ended June 30 --------------------------------------------------------------- 1996 (4) 1995(4) ----------------------------- --------------------------------- (Dollars in thousands) Average Average Average Average Balance Interest Yield/Cost Balance Interest Yield/Cost ------- -------- ---------- --------- -------- ---------- Assets: Interest earning assets: Loans receivable, net........... $299,397 $ 5,622 7.51% $119,693 $ 2,430 8.12% Mortgage-backed securities...... 153,381 2,597 6.77% 172,586 2,964 6.87% Investment securities........... 38,143 596 6.25% 70,669 1,006 5.69% Other interest-earning assets(1) 26,288 268 4.08% 50,207 693 5.52% ------- ----- ------- ----- Total interest-earning assets. $517,209 $9,083 7.02% $413,155 $7,093 6.87% ======= ===== ======= ===== Non interest-earning assets....... 9,281 12,125 ------- ------- Total assets.................. $526,490 $425,280 ======= ======= Liabilities and Stockholders' Equity: Interest-bearing liabilities: Savings deposits.............. $338,511 $3,219 3.80% $336,819 $3,376 4.01% Borrowed money................ 103,359 1,519 5.88% 3,333 46 5.52% ------- ----- ------- ----- Total interest-bearing liabilities................ $441,870 $4,738 4.29% $340,152 $3,422 4.02% ======= ===== ======= ===== Non interest-bearing liabilities.. 9,745 6,422 Total liabilities........... 451,615 346,574 Stockholders' equity.............. 74,875 78,706 Total liabilities and stockholders' equity....... $526,490 $425,280 ======= ======= Net interest income............... $4,345 $3,671 ===== ===== Interest rate spread (2).......... 2.73% 2.85% Net yield on interest-earning assets (3)....................... 3.36% 3.55% Ratio of average interest-earning assets to average interest-bearing liabilities...................... 117% 121% - ---------------------------------------- (1) Includes interest-bearing deposits in other banks. (2) Interest-rate spread represents the difference between the average yield on interest-earning assets and the average cost of interest-bearing liabilities. (3) Net yield on interest-earning assets represents net interest income as a percentage of average interest-earning assets. (4) Ratios have been annualized where applicable.
8
Average Balance Sheet (continued) For Six Months Ended June 30 ------------------------------------------------------------- 1996 (4) 1995(4) ----------------------------- ------------------------------ (Dollars in thousands) Average Average Average Average Balance Interest Yield/Cost Balance Interest Yield/Cost -------- -------- ---------- ------- -------- ---------- Assets: Interest earning assets: Loans receivable, net............... $290,154 $ 10,902 7.51% $115,881 $ 4,790 8.27% Mortgage-backed securities.......... 156,205 5,366 6.87% 175,153 6,026 6.88% Investment securities............... 39,997 1,228 6.14% 72,359 2,112 5.84% Other interest-earning assets(1).... 25,344 577 4.55% 48,397 1,258 5.20% ------- ------ ------- ------ Total interest-earning assets..... $511,700 $18,073 7.06% $411,790 $14,186 6.89% ======= ====== ======= ====== Non interest-earning assets........... 9,310 13,206 ------- ------- Total assets...................... $521,010 $424,996 ======= ======= Liabilities and Stockholders' Equity: Interest-bearing liabilities: Savings deposits.................. $336,833 $ 6,397 3.80% $338,170 $ 6,578 3.89% Borrowed money.................... 100,859 2,923 5.80% 1,667 46 5.52% ------- ------ ------- ----- Total interest-bearing liabilities: $437,692 $ 9,320 4.26% $339,837 $6,624 3.90% ======= ===== ======= ===== Non interest-bearing liabilities...... 8,861 5,825 Total liabilities............... 446,553 345,662 Stockholders' equity.................. 74,457 79,334 Total liabilities and stockholders' equity........... $521,010 $424,996 ======= ======= Net interest income................... $8,753 $7,562 ====== ===== Interest rate spread (2).............. 2.80% 2.99% Net yield on interest-earning assets (3) 3.42% 3.67% Ratio of average interest-earning assets to average interest-bearing liabilities 117% 121% - ---------------------------------------- (1) Includes interest-bearing deposits in other banks. (2) Interest-rate spread represents the difference between the average yield on interest-earning assets and the average cost of interest-bearing liabilities. (3) Net yield on interest-earning assets represents net interest income as a percentage of average interest-earning assets. (4) Ratios have been annualized where applicable.
9 RESULTS OF OPERATIONS Net Income. The Corporation recorded net income of $1.1 million for the three months ended June 30, 1996 as compared to net income of $.9 million for the three months ended June 30, 1995. Earnings for the three months ended June 30, 1996 represent an increase of $.2 million compared to earnings reported for the same period in 1995. The increase in earnings for this period is attributable to an increase in core earnings. Net interest income before provisions for loan losses was $4.3 million for the three month periods ended June 30, 1996 as compared to $3.7 million for the same period in 1995. For these same periods, total interest expense was $4.7 million and $3.4 million, respectively. Non-interest income was $303,000 and $252,000, respectively, for these same periods. Operating expenses (non-interest expense) were $2.7 million and $2.4 million for the three month periods ending June 30, 1996 and June 30, 1995, respectively. Net Income of $2.5 million for the six months ended June 30, 1996 showed a $588,000 increase over net income of $1.9 million for the six months ended June 30, 1995. The increase in earnings for this period is attributable to an increase in core earnings in conjunction with gains associated with the sale of real estate and investment securities. Net interest income before provisions for loan losses was $8.8 million for the six month period ended June 30, 1996 as compared to $7.6 million for the same period in 1995. For these same periods, total interest expense was $9.3 million and $6.6 million, respectively. Non-interest income was $994,000 and $498,000, respectively for these same periods. The increase in non-interest income was attributed to the gains associated with the sale of the real estate and investment securities previously mentioned. Operating expenses (non-interest expense) were $5.4 million and $4.8 million for the six month periods ending June 30, 1996 and June 30, 1995, respectively. Total Interest Income. Total interest income increased by $2.0 million or 28.1% to $9.1 million for the three months ended June 30, 1996, from $7.1 million for the three months ended June 30, 1995 due primarily to increases in the average balance of loans receivable offset somewhat by decreases in the average balances of investment securities, mortgage backed securities and other interest earning assets. The average balance of loans receivable increased 150.1% to $299.4 million from $119.7 million for the three months ended June 30, 1996 and 1995, respectively. Interest attributable to loans receivable increased $3.2 million or 131.4% to $5.6 million from $2.4 million for these same periods. This increase is primarily attributed to the increase in the average balance of loans receivable partially offset by a decrease in the average yield on loans receivable from 8.12% for the period end June 30, 1995, to 7.51% for the period ending June 30, 1996. Interest on mortgage-backed securities decreased $367,000 (12.4%) primarily as a result of principal repayment of these securities. The average yield on mortgage-backed securities decreased to 6.77% for the three month period ended June 30, 1996 compared to 6.87% for the similar period in 1995 while the average balance of mortgage-backed securities declined by $19.2 million when comparing these two periods. Interest on investment securities declined by $410,000 for the three month period ended June 30, 1996 as compared to the similar period in 1995 as a result of declining balances due to maturities. Interest on other interest earning assets declined by $425,000 for the three month period ended June 30, 1996 compared to the similar period ended June 30, 1995 primarily as a result of the average balance declining by $23.9 million to $26.2 million, coupled with a decrease in the average yield to 4.08% at June 30, 1996 from 5.52% at June 30, 1995. The increases in the average balances of loans receivable and the decreases in the average balances of mortgage-backed securities, investment securities and other interest earning assets are a result of management's decision to increase mortgage lending. For the six months ended June 30, 1996, total interest income increased to $18.1 million from $14.2 million for the six months ended June 30, 1995. This increase of $3.9 million, or 27.4%, is due primarily to the increase in income on loans receivable, somewhat offset by the decrease in income on mortgage-backed securities, investment securities and other interest earning assets. Interest on loans receivable increased by $6.1 million, or 127.6%, to $10.9 million at June 30, 1996, from $4.8 million at June 30, 1995. During the same time periods the average balance of loans receivable increased by $174.3 to $290.2 million from $115.9 million. Interest on mortgage-backed securities decreased $660,000 (11.0%) from June 30, 1995 to June 30, 1996, primarily as a result of principal repayment of these securities. The average yield on mortgage-backed securities decreased to 6.87% for 10 the six month period ended June 30, 1996 compared to 6.88% for the similar period in 1995 while the average balance of mortgage-backed securities declined by $18.9 million when comparing these two periods. Interest on investment securities declined by $884,000 for the six month period ended June 30, 1996 as compared to the similar period in 1995 as a result of declining balances due to maturities. Interest on other interest earning assets declined by $681,000 for the six month period ended June 30, 1996 compared to the similar period ended June 30, 1995 primarily as a result of the average balance declining by $23.1 million to $25.3 million, coupled with a decrease in the average yield to 4.55% at June 30, 1996 from 5.20% at June 30, 1995. The increases in the average balances of loans receivable and the decreases in the average balances of mortgage-backed securities, investment securities and other interest earning assets are a result of management's decision to increase mortgage lending. Total Interest Expense. Total interest expense increased to $4.7 million for the three month period ended June 30, 1996 from $3.4 million at June 30, 1995. This increase in total interest expense is a result of the increases in the average balance of Federal Home Loan Bank advances. Federal Home Loan Bank advances increased from $3.3 million at June 30, 1995 to $103.4 million at June 30, 1996. The average balance of total interest bearing liabilities increased to $441.9 million during the three months ended June 30, 1996 from $340.2 million during the three months ended June 30, 1995 as a result of the increase in Federal Home Loan Bank borrowings. Total interest expense of $9.3 million increased $2.7 million for the six month period ended June 30, 1996 compared to $6.6 million for the six months ended June 30, 1995. This increase in total interest expense is a result of the increases in the average balance of Federal Home Loan Bank advances. The average balance of total interest bearing liabilities increased to $437.7 million during the six months ended June 30, 1996 from $339.8 million during the six months ended June 30, 1995 as a result of the increase in Federal Home Loan Bank borrowings. Net Interest Income. Net interest income for the three month period ended June 30, 1996 increased by $674,000 or 18.3% to $4.4 million from $3.7 million for the same period in 1995. This increase is primarily due to the increase in interest earning assets offset by the increase to interest bearing liabilities. The average balances of interest-earning assets increased to $517.2 million for the three months ended June 30, 1996 from $413.1 million for the similar period in 1995. During these same periods, the average balances on interest-bearing liabilities increased to $441.8 million from $340.1 million. The cost of interest-bearing liabilities increased from 4.02% to 4.29% while the yield on interest-earning assets increased from 6.87% to 7.02% for the three month periods ended June 30, 1995 and 1996 respectively. Net interest income for the six month period ended June 30, 1996 increased by $1.2 million or 15.8% to $8.8 million from $7.6 million for the same period in 1995. This increase is primarily due to the increase in interest earning assets partially offset by the increase to interest earning liabilities. The average balances of interest-earning assets increased to $511.7 million for the six months ended June 30, 1996 from $411.8 million for the similar period in 1995. During these same periods, the average balances on interest-bearing liabilities increased to $437.7 million from $339.8 million. The cost of interest-bearing liabilities increased from 3.90% to 4.26% while the yield on interest-earning assets increased from 6.89% to 7.06% for the six month periods ended June 30, 1995 and 1996 respectively. Allowance for Loan Losses. The allowance for loan losses remained stable at June 30, 1996 and June 30, 1995 at approximately $1.6 and $1.5 million respectively. Such totals correlate to non-performing loans of $2.0 million at June 30, 1996 and $1.8 million at June 30, 1995. The increase in the allowance for loan losses of $107,000 resulted from the addition of $132,000 to the provision for loan losses and the deduction of $25,000 of net charge offs for losses on loans. The provision for losses on loans is the method by which the allowance for losses is adjusted during the period. The provision for losses on loans was $60,000 for the three months ended June 30, 1996. At June 30, 1996, the allowance for loan losses was 79.4% of non-performing loans as compared to 79.9% of non-performing loans at June 30, 1995. While management maintains its allowance for losses at a level which it considers to be adequate to provide for potential losses, there can be no assurance that further additions will not be made to the allowance and that such losses will not exceed the estimated amounts. 11 Non-interest Income. Total non-interest income increased to $303,000 for the three months ended June 30, 1996 from $252,000 for the same period in 1995. This increase can be attributed to the increase in service fee income, which was a result of increased loan origination activity during the period. Total non-interest income increased to $994,000 for the six month period ended June 30, 1996 from $498,000 for the similar period in 1995. This increase can be attributed to the increase in the net gain on the sale of real estate acquired through foreclosure of $114,000 in conjunction with the net gain on the sale of investment securities totalling $223,000. The remainder of the increase can be attributed to an increase of $157,000 in service fee income, which was a result of increased loan origination activity during the period. Non-interest Expense. Total non-interest expense increased by $247,000 to $2.7 million for the three months ended June 30, 1996 as compared to $2.4 million for the similar period in 1995. This increase is primarily attributed to the $111,000 increase in employee compensation and benefits, the $59,000 increase in professional fees and the $103,000 increase in other operating costs. The increases in compensation and benefit costs were primarily as a result of increases to staffing necessary to support increased lending activity, coupled with salary increases resulting from annual performance reviews. Benefit costs were also increased due to the increases in costs associated with benefit plans utilizing Corporation stock (portions of the costs of benefit plans utilizing Corporation stock change as the market value of the stock changes). The increase in other operating expenses are due to increases in the costs associated with current lending activities. Total non-interest expense has increased to $5.4 million for the six months ended June 30, 1996 as compared to $4.8 million for the similar period in 1995. This increase of $589,000 is primarily attributable to a $253,000 increase in employee compensation and benefits, the $93,000 increase in professional fees and the $237,000 increase in other operating costs. The increases in compensation and benefit costs were primarily as a result of increases to staffing necessary to support increased lending activity, coupled with salary increases resulting from annual performance reviews. Benefit costs were also increased due to the increases in costs associated with benefit plans utilizing Corporation stock (portions of the costs of benefit plans utilizing Corporation stock change as the market value of the stock changes). The increase in other operating expenses are due to increases in the costs associated with current lending activities. Income Tax Expense. Income taxes increased by $230,000 to $829,000 for the three month period ended June 30, 1996, from $599,000 for the three months ended June 30, 1995. The primary reason for this increase was the increase in net income before taxes to $1.9 million from $1.5 million for the three month periods ended June 30, 1996 and 1995, respectively. For the six month period ended June 30, 1996, income taxes increased to $1.8 million from $1.3 million for the six months ended June 30, 1995. This increase of $450,000 is primarily attributed to the increase in net income before taxes to $4.3 million from $3.2 million for the six month periods ended June 30, 1996 and 1995, respectively. 12 Liquidity and Capital Resources Under current Office of Thrift Supervision (OTS) regulations, the Savings Bank must have core capital equal to 3% of total assets and risk-based capital equal to 8% of risk-weighted assets, of which 1.5% must be tangible capital, excluding goodwill and certain other intangible assets. The OTS has proposed amending its regulations in such a manner that would increase the core capital requirements for most thrift institutions from 3% to 4% or 5%, depending upon the institutions financial condition and other factors. Although the final form of the regulation cannot be foreseen, if adopted as proposed, the Savings Bank would expect its core capital requirements to increase to at least 4%. On June 30, 1996, the Savings Bank was in compliance with its three regulatory capital requirements as follows: Amount Percent (dollars in thousands) Tangible capital $58,137 11.0% Tangible capital requirement 7,949 1.5 ------ ----- Excess over requirement $50,188 9.5% ====== ===== Core capital $58,137 11.0% Core capital requirement 15,898 3.0 ------ ----- Excess over requirement $42,239 8.0% ====== ===== Risk based capital $59,703 25.61% Risk based capital requirement 18,652 8.0 ------ ----- Excess over requirement $41,051 17.61% ====== ===== Management believes that under current regulations, the Savings Bank will continue to meet its minimum capital requirements in the foreseeable future. Events beyond the control of the Savings Bank, such as increased interest rates or a downturn in the economy in areas in which the Savings Bank operates, could adversely affect future earnings and as a result, the ability of the Savings Bank to meet its future minimum capital requirements. The Savings Bank's liquidity is a measure of its ability to fund loans, pay withdrawals of deposits, and other cash outflows in an efficient, cost effective manner. The Savings Bank's primary source of funds are deposits and scheduled amortization and prepayment of loan and mortgage backed principal. During the past several years, the Savings Bank has used such funds primarily to fund maturing time deposits, pay savings withdrawals, fund lending commitments, purchase new investments, and increase liquidity. The Savings Bank is currently able to fund its operations internally but has, when deemed prudent, borrowed funds from the Federal Home Loan Bank of Pittsburgh. As of June 30, 1996, such borrowed funds total $103.4 million. Loan payments, maturing investments and mortgage-backed security prepayments are greatly influenced by general interest rates, economic conditions and competition. The Savings Bank is required under federal regulations to maintain certain specified levels of "liquid investments", which include certain United States government obligations and other approved investments. Current regulations require the Savings Bank to maintain liquid assets of not less than 5% of its net withdrawable accounts plus short term borrowings. Short term liquid assets must consist of not less than 1% of such accounts and borrowings, which amount is also included within the 5% requirement. These levels may be changed from time to time by the regulators to reflect current economic conditions. The Savings Bank has generally maintained liquidity far in excess of regulatory requirements. The Savings Bank's regulatory liquidity was 12.34% and 24.4% at June 30, 1996 and 1995, respectively, and its short term liquidity was 8.32% and 18.0%, at such dates, respectively. 13 The amount of certificate accounts which are scheduled to mature during the twelve months ending June 30 1997, is approximately $78.3 million. To the extent that these deposits do not remain at the Savings Bank upon maturity, the Savings Bank believes that it can replace these funds with deposits, excess liquidity, FHLB advances or outside borrowings. It has been the Savings Bank's experience that a substantial portion of such maturing deposits remain at the Savings Bank. At June 30, 1996, the Savings Bank had outstanding commitments to originate loans of $10.8 million. Also outstanding at June 30, 1996 were commitments to purchase $9.9 million of loans from correspondents along with commitments to purchase $4.9 million of mortgage-backed securities. Funds required to fill these commitments are derived primarily from current excess liquidity, deposit inflows or loan and security repayments. At June 30, 1996, the Savings Bank had outstanding commitments to sell loans of $1.8 million. Recent Developments - Disparity in Insurance Premiums Due to a disparity in the capitalization of federal deposit insurance funds, effective September 30, 1995, the Federal Deposit Insurance Corporation ("FDIC") lowered the insurance premium for members of the Bank Insurance Fund ("BIF") to a range of between 0.04% and 0.31% of deposits while maintaining the current range of between 0.23% and 0.31% of deposits for members of the Savings Association Insurance Fund ("SAIF"). In November 1995, the FDIC again lowered BIF premiums further whereby most BIF insured institutions would pay only the statutory minimum of $2,000 annually. These reductions in insurance premiums for BIF members could place SAIF members, including the Savings Bank at a material competitive disadvantage to BIF members which could have a material adverse effect on the results of operations and financial condition of the Savings Bank, and the competition, in future periods. Several alternatives to mitigate the effect of the BIF/SAIF insurance premium disparity have recently been proposed with one plan being introduced in the United State Congress which would require all SAIF member institutions, including the Bank, to pay a one-time fee of up to 0.85% on the amount of deposits held, on a date to be determined, by the member institution to complete the recapitalization of the SAIF. If this proposal is enacted by Congress, based on deposit balances as of June 30, 1996, for example, management estimates that an 0.85% assessment would result in a pre-tax expense of $2.9 million and $1.8 million after tax. Management is unable to predict whether this proposal or any similar proposal will be enacted or whether future SAIF premiums will be reduced to a level equal to that of BIF premiums. On August 2, 1996 U. S. Congress passed the Small Business Job Protection Act of 1996. If signed by the President and enacted into law, this bill would, among other things, equalize the taxation of thrifts and banks. Previously, thrifts had been able to deduct a portion of their bad-debt reserves set aside to cover potential loan losses ("bad-debt reserves"). Furthermore, the bill will repeal current law mandating recapture of thrifts' bad debt reserves if they convert to banks. Bad debt reserves set aside through 1987 will not be taxed, however, any reserves taken since January 1, 1988, will be taxed over a six year period beginning in 1997. Institutions can delay theses taxes for two years if they meet a residential-lending test. At June 30, 1996, the Savings Bank had $326,000 of post 1987 bad-debt reserves. If this bill were to become law as currently drafted, it is not expected to have a material adverse effect on the financial condition or results of operations of the Corporation taken as a whole. 14 TF FINANCIAL CORPORATION AND SUBSIDIARIES PART II ITEM 1. LEGAL PROCEEDINGS Neither the Corporation nor the Savings Bank was engaged in any legal proceeding of a material nature at June 30, 1996. From time to time, the Corporation is a party to legal proceedings in the ordinary course of business wherein it enforces its security interest in loans. ITEM 2. CHANGES IN SECURITIES Not applicable. ITEM 3. DEFAULTS ON SENIOR SECURITIES Not applicable. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS Not applicable. ITEM 5. OTHER MATERIALLY IMPORTANT EVENTS On June 7, 1996 the Savings Bank announced that it had entered into a branch purchase and deposit assumption agreement with Cenlar Federal Savings Bank of Trenton, New Jersey to acquire three branch offices and their related deposits. The branch offices are located in Ewing, Hamilton Square and Princeton, New Jersey and have combined deposits of approximately $143 million. The transaction is expected to close in the latter half of September 1996 and currently is awaiting final regulatory approvals. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits None (b) Reports on Form 8-K (i) The Corporation filed a Current Report on Form 8-K with the Securities and Exchange Commission ("SEC") dated June 7, 1996, to report that the Savings Bank had entered into a Branch Purchase and Deposit Assumption Agreement to acquire three branch offices and $143 million of deposits from Cenlar Federal Savings Bank, Trenton, New Jersey. (ii) The Corporation filed a Current Report on Form 8-K with the SEC dated June 21, 1996, to report the issuance of a press release announcing the Corporation's intent to repurchase up to 5% of its outstanding common stock in the open market. (iii) The Corporation filed a Current Report on Form 8-K with the SEC dated July 8, 1996, to report the repurchase in the open market of 226,000 shares of the Corporation's common stock totalling approximately 5% of its outstanding shares. 15 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized. TF FINANCIAL CORPORATION Date: August 10, 1996 By: /s/ John R. Stranford John R. Stranford President and CEO (Principal Executive Officer) Date: August 10, 1996 By: /s/ William C. Niemczura William C. Niemczura Senior Vice President and Chief Financial Officer (Principal Financial & Accounting Officer) 16 EX-27 2 ARTICLE 9 FDS FOR 10-Q
9 1000 6-MOS DEC-31-1996 JUN-30-1996 24,850 3,421 0 0 29,958 148,518 145,805 307,790 1,566 528,910 341,872 5,000 8,557 98,359 0 0 529 74,583 528,910 10,902 6,594 577 18,073 6,397 9,320 8,753 90 223 5,403 4,254 4,254 0 0 2,496 0.58 0.58 3.42 36 1,805 0 0 1,484 8 0 1,566 1,566 0 1,566
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