-----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, LLpp7Mw3W9tu9ADQ+rJroSlpTJgw6FR8Kkv6XhjSKtL8D+w3WVMwLTffv67Z1Jj1 B2jrxgkQAhViBrSdXiilBQ== 0000946275-97-000451.txt : 19970815 0000946275-97-000451.hdr.sgml : 19970815 ACCESSION NUMBER: 0000946275-97-000451 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19970630 FILED AS OF DATE: 19970814 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: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-24168 FILM NUMBER: 97661059 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 FORM 10-Q 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, 1997 ----------------------------------- OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to ------------------ --------------------------- Commission file number 0-24168 ------- TF FINANCIAL CORPORATION - -------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) Delaware 74-2705050 - -------------------------------------------------------------------------------- (State or other jurisdiction of (I.R.S. employer incorporation or organization) identification no.) 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 e filed by shorter period that the registrant was required to file such reports), and (2) has been subject to such filing by 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 11, 1997 --------------- Class Outstanding - ----------------------------- ---------------- $.10 par value common stock 4,083,100 shares TF FINANCIAL CORPORATION AND SUBSIDIARIES FORM 1O-Q FOR THE QUARTER ENDED JUNE 30, 1997 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 (in thousands)
June 30, December 31, ASSETS 1997 1996 ------------ -------------- Cash and cash equivalents $ 25,725 $ 54,132 Securities purchased under agreements to resell 5,000 25,129 Certificates of deposit in other financial institutions 3,451 4,220 Investment securities available for sale - at market value 18,642 12,652 Investment securities held to maturity (market value of $56,912 and $38,393 56,488 43,462 respectively, for the periods shown) Mortgage-backed securities available for sale - at market value 35,957 22,027 Mortgage-backed securities held to maturity (market value of $156,536 and $153,269 respectively, for the periods shown) 156,690 153,758 Loans receivable, net 315,866 309,570 Accrued interest receivable 4,815 4,247 Goodwill/Core deposit intangible 8,743 9,232 Premises and equipment, net 7,838 8,002 Other assets 1,531 1,422 --------- --------- Total Assets $ 640,746 $ 647,853 ========= ========= LIABILITIES AND STOCKHOLDERS' EQUITY Liabilities Deposits $ 460,847 $ 469,088 Advances from the Federal Home Loan Bank 98,359 98,359 Advances from borrowers for taxes and insurance 2,564 2,364 Accrued interest payable 3,285 2,030 Other liabilities 4,464 3,437 --------- --------- Total Liabilities 569,519 575,278 --------- --------- 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; 3,776,815 and 3,962,544 shares outstanding at June 30, 1997 and December 31, 1996, net of treasury shares of 1,206,900 and 1,008,614 respectively 529 529 Additional paid-in capital 51,761 51,645 Net unrealized loss on investment securities available for sale (3) (127) Unearned ESOP shares-at cost (3,063) (3,188) Shares acquired by MSBP (1,109) (1,322) Treasury stock - at cost (18,299) (14,712) Retained earnings 41,411 39,750 --------- --------- Total Stockholders' Equity 71,227 72,575 --------- --------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 640,746 $ 647,853 ========= =========
See notes to consolidated financial statement 1 TF FINANCIAL CORPORATION AND SUBSIDIARIES UNAUDITED CONSOLIDATED STATEMENTS OF EARNINGS (in thousands, except per share data)
Six Months Three Months Ended June 30, Ended June 30, 1997 1996 1997 1996 ---- ---- ---- ---- Interest income Loans $12,413 $10,902 $ 6,221 $ 5,622 Mortgage-backed securities 6,379 5,366 3,271 2,597 Investment securities 2,955 1,228 1,388 596 Interest bearing deposits and other 534 577 226 268 ------- ------- ------- ------- TOTAL INTEREST INCOME 22,281 18,073 11,106 9,083 Interest expense Deposits 9,320 6,397 4,663 3,219 Borrowings 2,930 2,923 1,473 1,519 ------- ------- ------- ------- TOTAL INTEREST EXPENSE 12,250 9,320 6,136 4,738 NET INTEREST INCOME 10,031 8,753 4,970 4,345 Provision for loan losses 180 90 75 60 ------- ------- ------- ------- NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 9,851 8,663 4,895 4,285 Non-interest income Gain on sale of real estate acquired through foreclosure 0 114 0 0 Gain on sale of mortgage-backed securities 188 223 115 0 Gain on sale of loans 39 7 40 7 Service fees, charges and other operating income 651 650 333 296 ------- ------- ------- ------- TOTAL NON-INTEREST INCOME 878 994 488 303 Non-interest expense Employee compensation and benefits 3,299 2,806 1,626 1,383 Occupancy and equipment 904 657 459 307 Federal deposit insurance premium 153 390 76 194 Data processing 346 237 166 118 Professional fees 276 277 143 153 Goodwill and other intangible amortization 488 0 244 0 Provision for losses on real estate acquired through foreclosure 0 3 0 3 Advertising 188 155 90 80 Other operating 1,072 878 514 419 ------- ------- ------- ------- TOTAL NON-INTEREST EXPENSE 6,726 5,403 3,318 2,657 INCOME BEFORE INCOME TAXES 4,003 4,254 2,065 1,931 Income taxes 1,574 1,758 800 829 ------- ------- ------- ------- NET INCOME $ 2,429 $ 2,496 $ 1,265 $ 1,102 ======= ======= ======= ======= Per share data Earnings per share .60 .58 .31 .26 Weighted average number of shares outstanding 4,025 4,301 3,981 4,304
See notes to consolidated financial statement 2 TF FINANCIAL CORPORATION AND SUBSIDIARIES UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands)
Six Months Ended June 30 -------------------- 1997 1996 --------- -------- CASH FLOWS FROM OPERATING ACTIVITIES Net Income $ 2,429 $ 2,496 Adjustments to reconcile net income to net cash provided by operating activities: Amortization of: Mortgage loan servicing rights 47 0 Deferred loan origination fees (77) (87) Premiums and discounts on investment securities. net 25 (12) Premiums and discounts on mortgage-backed securities and loans. net 69 88 Amortization of goodwill and core deposit intangible 488 0 Provision for loan losses and provision for losses on real estate 180 93 Depreciation of premises and equipment 351 271 Recognition of ESOP and MSBP expenses 454 440 Gain (loss) on sale of mortgage-backed securities - available for sale (188) (223) Gain on sale of real estate acquired through foreclosure 0 (114) (Gain)/loss on sale of mortgage loans (39) 0 Decrease (increase) in Accrued interest receivable (568) 122 Other assets (65) (415) Increase (decrease) in Accrued interest payable 1,255 408 Other liabilities 1,154 986 ------ ------- NET CASH PROVIDED BY OPERATING ACTIVITIES 5,515 4,053 CASH FLOWS FROM INVESTING ACTIVITIES Loan originations and principal payments on loans. net (11,009) (22,347) Purchases of loans (12,663) (46,690) Proceeds from loan sales 16,970 1,008 Purchases and maturities of certificates of deposit in other financial institutions. net 769 800 Purchases and maturities of securities purchased under agreements to resell, net 20,129 0 Purchases of investment securities - available for sale (6,982) 0 Purchases of investment securities - held to maturity (68,081) (3,724) Purchases of mortgage-backed securities - available for sale (23,412) 0 Purchase of mortgage-backed securities - held to maturity (15,071) (4,882) Proceeds from maturities of investment securities held to maturity 54,680 7,464 Proceeds from maturities of investment securities available for sale 1,350 7,000 Principal repayments from maturities of mortgage-backed securities- held to maturity 12,144 14,044 Principal repayments from maturities of mortgage-backed securities- available for sale 1,189 1,851 Proceeds from the sale of mortgage-backed securities 8,648 5,338 Purchases and redemptions of Federal Home Loan Bank Stock. net 0 (1,500) Proceeds from sales of real estate acquired through foreclosure 0 439 Purchase of premises and equipment (187) (69) ------ ------- NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES 21,526) (41,268)
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 1997 1996 --------- --------- CASH FLOWS FROM FINANCING ACTIVITIES Net increase (decrease) in demand deposits/NOW accounts, passbook savings accounts and certificates of deposit $ (8,241) $ 4,803 Advances from Federal Home Loan Bank - net 0 30,000 Net (decrease) increase in advances from borrowers for taxes and insurance 200 856 Purchase of treasury stock (3,587) (0) Common stock cash dividend (768) (626) NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES (12,396) 35,033 NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (28,407) 2,182 Cash and cash equivalents at beginning of period 54,132 27,032 Cash and cash equivalents at end of period $ 25,725 $ 24,850 -------- -------- Supplemental disclosure of cash flow information Cash paid for Interest on deposits and advances $ 10,995 $ 8,192 Income taxes $ 801 $ 1,330 Non-cash transactions Transfers from loans to real estate acquired through foreclosure $ 78 $ 32
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, 1996 and as of and for the three and six month periods ended June 30, 1997 and 1996 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 and Teragon Financial 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 periods ended June 30, 1997 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, 1996. NOTE 3 - IMPAIRED LOANS On January 1, 1995 the Corporation adopted Statement of Financial Accounting Standards (SFAS) No. 114, "Accounting for Creditors for Impairment of a Loan," as amended by SFAS No. 118, "Accounting 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. 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 1997 ------------ Principal amount of impaired loans $ 625 Accrued interest - Deferred loan costs - Subtotal $ 625 --- Less valuation allowance 132 --- Total $ 493 === The average recorded investment in impaired loans during the quarter ended June 30, 1997 was $628,000. Total cash collected on impaired loans during the quarter ended June 30, 1997 was $7,000 of which $4,000 was credited to the principal balance outstanding on such loans and $3,000 was recognized as interest income. Interest that would have been accrued on impaired loans during the quarter was 5 $13,000. Interest income recognized during the quarter was $3,000. 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. 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, 1997 and December 31, 1996 totaled $640.7 million and $647.9 million, respectively, a decrease of $7.2 million or 1.1% for the six month period. This decrease was primarily as a result of an $8.2 million or 1.8% decrease in deposits which was funded by reductions in cash and cash equivalents. Savings deposits declined over the period as a result of general market conditions. Loans receivable increased by $6.3 million or 2.0% from $309.6 million at December 31, 1996 to $315.9 million at June 30, 1997. During this same period, investment securities increased $19.0 million or 33.9% and mortgage backed securities increased by $16.9 million or 9.6%. The increases in these asset categories was funded by the $48.5 million or 61.2% decrease in other interest earning assets (cash and cash equivalents and securities purchased under agreements to resell). Other interest earning assets totaled $30.7 million at June 30, 1997 as compared with $79.3 million at December 31, 1996. The decrease in other interest earning assets is a result of the reinvestment of $138 million received in September, 1996 as a result of the acquisition of deposits and three retail offices of Cenlar Federal Savings Bank ("Cenlar"). Investment securities at June 30, 1997, totaled $75.1 million, which represents an increase of $19.0 million or 33.9% as compared to December 31, 1996. The increase is primarily due to the reinvestment of cash received from the Cenlar acquisition. Mortgage-backed securities totaled $192.6 million at June 30, 1997 as compared to $175.8 million at December 31, 1996. This increase of $16.9 million or 9.6% is also attributed mainly to the reinvestment of cash received from the Cenlar acquisition. Other assets, inclusive of prepaid expenses, at June 30 1997, totaled $1.5 million, which represents an increase of $109,000 or 7.7% as compared to December 31, 1996. This increase is comprised primarily of an increase in accounts receivable due the Savings Bank. Total consolidated stockholders' equity of the Corporation decreased $1.3 million to $71.2 million or 11.1% of total assets at June 30, 1997, from $72.6 million or 11.2 % of total assets at December 31, 1996, primarily due to the payment of $767,000 in dividends to shareholders and $3.6 million in stock repurchases partially offset by earnings of $2.4 million for the six month period. Stockholders' equity also decreased as a result of a change in the net unrealized loss on investment securities available for sale of $124,000 at June 30, 1997 and amortization of stock incentive plans of $338,000. On October 23, 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 April 9, 1997, with a total of 214,869 shares, approximately 5% of outstanding common shares, repurchased at a total cost of $3.6 million. 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. 7
For Three Months Ended June 30 -------------------------------------------------------------------------------- 1997 (4) 1996(4) -------------------------------------- ------------------------------------- (Dollars in thousands) Average Average Average Average Balance Interest Yield/Cost Balance Interest Yield/Cost ------- -------- ---------- ------- -------- ---------- Assets: Interest earning assets: Loans receivable, net....................... $316,050 $ 6,221 7.87% $299,397 $ 5,622 7.51% Mortgage-backed securities.................. 196,144 3,271 6.67% 153,381 2,597 6.77% Investment securities....................... 81,281 1,388 6.83% 38,143 596 6.25% Other interest-earning assets(1)............ 22,563 226 4.01% 24,742 268 4.33% ------- --- ------ --- Total interest-earning assets............. $616,038 $11,106 7.21% $515,663 $9,083 7.05% ======= ======= ======== Non interest-earning assets................... 23,029 10,827 ------- ------- Total assets.............................. $639,067 $526,490 ======= ======= Liabilities and Stockholders' Equity: Interest-bearing liabilities: Savings deposits.......................... $459,122 $4,663 4.06% $338,511 $3,219 3.80% Borrowed money............................ 98,359 1,473 5.99% 103,359 1,519 5.88% -------- ----- ------- ----- Total interest-bearing liabilities...... $557,481 $6,136 4.40% $441,870 $4,738 4.29% ======= ====== ======== Non interest-bearing liabilities.............. 11,025 9,744 ------- Total liabilities....................... $568,506 $451,614 ======== Stockholders' equity.......................... 70,561 74,876 Total liabilities and stockholders' equity $639,067 $526,490 ======= ======== Net interest income........................... $4,970 $4,345 ====== ===== Interest rate spread (2)...................... 2.81% 2.76% Net yield on interest-earning assets (3)...... 3.23% 3.37% Ratio of average interest-earning assets to average interest-bearing liabilities................ 111% 117%
- ---------------------------------------- (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 ------------------------------------------------------------------------------ 1997 (4) 1996(4) ------------------------------------ ------------------------------------- (Dollars in thousands) Average Average Average Average Balance Interest Yield/Cost Balance Interest Yield/Cost ------- -------- ---------- ------- -------- ---------- Assets: Interest earning assets: Loans receivable, net.............................. $313,220 $12,413 7.93% $290,154 $10,902 7.51% Mortgage-backed securities......................... 190,656 6,379 6.69% 156,205 5,366 6.87% Investment securities.............................. 91,152 2,955 6.48% 39,997 1,228 6.14% Other interest-earning assets(1)................... 23,347 534 4.57% 25,344 577 4.55% ------ --- ------ --- Total interest-earning assets.................... $618,375 $22,281 7.21% $511,700 $18,073 7.06% ======== ======== Non interest-earning assets.......................... 22,783 9,310 ------ ----- Total assets..................................... $641,158 $521,010 ======== ======== Liabilities and Stockholders' Equity: Interest-bearing liabilities: Savings deposits................................. $460,847 $9,320 4.04% $336,833 $6,397 3.80% Borrowed money................................... 99,192 2,930 5.91% 100,859 2,923 5.80% ------ ----- ------- ----- Total interest-bearing liabilities............. $560,039 $12,250 4.37% $437,692 $9,320 4.26% ======== ======== Non interest-bearing liabilities..................... 10,176 8,861 Total liabilities.............................. $570,215 $446,553 ======== Stockholders' equity................................. 70,943 74,457 ------ ------- Total liabilities and stockholders' equity..... $641,158 $521,010 ======== ======= Net interest income.................................. $10,031 $8,753 ======= ===== Interest rate spread (2)............................. 2.84% 2.80% Net yield on interest-earning assets (3)............. 3.24% 3.42% Ratio of average interest-earning assets to average interest-bearing liabilities....................... 110% 117%
- ---------------------------------------- (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 $1.3 million for the three months ended June 30, 1997 as compared to net income of $1.1 million for the three months ended June 30, 1996. Earnings for the three months ended June 30, 1997 represent an increase of $.2 million or 14.8% compared to earnings reported for the same period in 1996. The increase in earnings for this period is attributable to an increase in core earnings. Net interest income before provisions for loan losses was $5.0 million for the three month periods ended June 30, 1997 as compared to $4.3 million for the same period in 1996. For these same periods, total interest expense was $6.1 million and $4.7 million, respectively. Non-interest income was $488,000 and $303,000, respectively, for these same periods. Operating expenses (non-interest expense) were $3.3 million and $2.7 million for the three month periods ended June 30, 1997 and June 30, 1996, respectively. Net Income of $2.4 million for the six months ended June 30, 1997 showed a $67,000 decrease over net income of $2.5 million for the six months ended June 30, 1996. The decrease in earnings for this period is attributable to an increase in non-interest expense partially offset by gains on the sale of real estate and investment securities. Net interest income before provisions for loan losses was $10.0 million for the six month period ended June 30, 1997 as compared to $8.8 million for the same period in 1996. For these same periods, total interest expense was $12.3 million and $9.3 million, respectively. Non-interest income was $878,000 and $994,000, respectively for these same periods. The decrease in non-interest income was attributed to the reduction in gains on the sale of the real estate and investment securities in the six month period ended June 30, 1997 than in the corresponding period ended June 30, 1996. Operating expenses (non-interest expense) were $6.7 million and $5.4 million for the six month periods ended June 30, 1997 and June 30, 1996, respectively. Total Interest Income. Total interest income increased by $2.0 million or 22.3% to $11.1 million for the three months ended June 30, 1997, from $9.1 million for the three months ended June 30, 1996 due primarily to increases in the average balance of loans receivable, mortgage-backed securities and investment securities, offset somewhat by decreases in the average balances of other interest-earning assets. The average balance of loans receivable increased 5.6% to $316.0 million from $299.4 million for the three months ended June 30, 1997 and 1996, respectively. Interest attributable to loans receivable increased $599,000 or 10.7% to $6.2 million from $5.6 million for these same periods. This increase is primarily attributed to the increase in the average balance of loans receivable as well as an increase in the average yield on loans receivable from 7.51% for the period end June 30, 1996, to 7.87% for the period ended June 30, 1997. Interest on mortgage-backed securities increased $674,000 (26.0%) primarily as a result of increases in the average balances of these securities offset partially by decreases in the average yield. The average yield on mortgage-backed securities decreased to 6.67% for the three month period ended June 30, 1997 compared to 6.77% for the similar period in 1996 while the average balance of mortgage-backed securities increased by $42.8 million or 27.9% when comparing these two periods. Interest on investment securities increased by $792,000 or 132.9% for the three month period ended June 30, 1997 as compared to the similar period in 1996. Interest on other interest earning assets declined by $42,000 for the three month period ended June 30, 1997 compared to the similar period ended June 30, 1996 primarily as a result of the average balance declining by $2.2 million to $22.6 million, coupled with a decrease in the average yield to 4.01% at June 30, 1997 from 4.33% at June 30, 1996. The increases in the average balances of loans receivable, mortgage-backed securities and investment securities are a result of the reinvestment of $138 million in deposits received from the Cenlar acquisition. For the six months ended June 30, 1997, total interest income increased to $22.3 million from $18.1 million for the six months ended June 30, 1996. This increase of $4.2 million, or 23.3%, is due primarily to the increase in income on loans receivable, mortgage-backed securities and investment securities, somewhat offset by the decrease in income on other interest earning assets. Interest on loans receivable increased by $1.5 million, or 13.9%, to $12.4 million at June 30, 1997, from $10.9 million at June 30, 1996. During the same time periods, the average balance of loans receivable increased by $23.1 to $313.2 million from $290.2 million. Interest on mortgage-backed securities increased $1.0 million (18.9%) from June 30, 1996 to June 30, 1997, primarily as a result of increases in the average balances of these securities. The average yield on mortgage-backed securities decreased to 6.69% for the six month period ended June 30, 10 1997 compared to 6.87% for the similar period in 1996 while the average balance of mortgage-backed securities increased by $34.5 million when comparing these two periods. Interest on investment securities increased by $1.7 million for the six month period ended June 30, 1997 as compared to the similar period in 1996 as a result of increases in the average balances and average yields of these securities. The average yield on investment securities increased to 6.48% for the six month period ended June 30, 1997 compared to 6.14% for the similar period in 1996 while the average balance of investment securities increased by $51.2 million when comparing these two periods. Interest on other interest earning assets declined by $43,000 for the six month period ended June 30, 1997 compared to the similar period ended June 30, 1996 primarily as a result of the average balance declining by $2.0 million to $23.3 million, coupled with an increase in the average yield to 4.57% at June 30, 1997 from 4.55% at June 30, 1996. The increases in the average balances of loans receivable, mortgage-backed securities and investment securities are a result of the reinvestment of $138 million in deposits received from the Cenlar acquisition. Total Interest Expense. Total interest expense increased to $6.1 million for the three month period ended June 30, 1997 from $4.4 million at June 30, 1996. This increase in total interest expense is a result of the increases in the average balance and average rate of savings deposits. The average balance of savings deposits increased from $338.5 million at June 30, 1996 to $459.1 million at June 30, 1997. The average rate paid on savings deposits increased from 3.80% in the June 30, 1996 period to 4.06% in the June 30, 1997 period. This increase was mainly attributable to the acquisition of deposits from the Cenlar acquisition. The average balance of total interest bearing liabilities increased to $557.5 million during the three months ended June 30, 1997 from $441.9 million during the three months ended June 30, 1996 as a result of the increase in savings deposits partially offset by decreases in the average balance and rate of Federal Home Loan Bank advances. Total interest expense of $12.3 million increased $2.9 million for the six month period ended June 30, 1997 compared to $9.3 million for the six months ended June 30, 1996. This increase in total interest expense is a result of the increases in the average balance and average rate of savings deposits. The average balance of total interest bearing liabilities increased to $560.0 million during the six months ended June 30, 1997 from $437.7 million during the six months ended June 30, 1996 as a result of the increase in savings deposits. Net Interest Income. Net interest income for the three month period ended June 30, 1997 increased by $625,000 or 14.4% to $5.0 million from $4.3 million for the same period in 1996. 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 $616.0 million for the three months ended June 30, 1997 from $515.7 million for the similar period in 1996. During these same periods, the average balances on interest-bearing liabilities increased to $557.5 million from $441.9 million. The cost of interest bearing liabilities increased from 4.29% to 4.40% while the yield on interest earning assets increased from 7.05% to 7.21% for the three month periods ended June 30, 1996 and 1997 respectively. Net interest income for the six month period ended June 30, 1997 increased by $1.3 million or 14.6% to $10.0 million from $8.8 million for the same period in 1996. 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 $618.4 million for the six months ended June 30, 1997 from $511.7 million for the similar period in 1996. During these same periods, the average balances on interest bearing liabilities increased to $560.0 million from $437.7 million. The cost of interest bearing liabilities increased from 4.26% to 4.37% while the yield on interest earning assets increased from 7.06% to 7.21% for the six month periods ended June 30, 1996 and 1997 respectively. Allowance for Loan Losses. The allowance for loan losses increased at June 30, 1997 to $2.0 million from $1.7 million at June 30, 1996. Such totals correlate to non-performing loans of $2.0 million at June 30, 1997 and $1.8 million at June 30, 1996. The increase in the allowance for loan losses of $417,000 resulted from the addition of $420,000 to the provision for loan losses and the deduction of $3,000 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 $75,000 for the three months ended June 30, 1997. At June 30, 1997, the allowance for loan losses was 102.6% of non-performing loans as compared to 79.4% of non-performing loans at June 30, 1996. While management maintains its allowance for 11 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. Non-interest Income. Total non-interest income increased to $488,000 for the three months ended June 30, 1997 from $303,000 for the same period in 1996. This increase can be attributed to the increase in income from the sale of investment securities and loans. Total non-interest income decreased to $878,000 for the six month period ended June 30, 1997 from $994,000 for the similar period in 1996. This decrease can be attributed to the decrease in the net gain on the sale of real estate acquired through foreclosure of $114,000. Non-interest Expense. Total non-interest expense increased by $661,000 to $3.3 million for the three months ended June 30, 1997 as compared to $2.7 million for the similar period in 1996. This increase is primarily attributed to the $243,000 increase in employee compensation and benefits, a $152,000 increase in occupancy and equipment, a $48,000 increase in data processing expense, a $244,000 increase in amortization of goodwill and other intangibles, and a $95,000 increase in other operating costs. These increased costs were offset partially by decreases of $118,000 in Federal deposit insurance premiums and $10,000 in professional fees. The increases in compensation and benefit costs were primarily as a result of increased staffing necessary to support three additional retail offices which were acquired through the Cenlar acquisition. 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). Data processing, occupancy and equipment, and other operating expenses were also increased due to this acquisition. The cost of the acquisition of the three retail offices is being amortized over a 15 year period and this amortization resulted in additional expenses of $244,000 for the period ended June 30, 1997. Total non-interest expense has increased to $6.7 million for the six months ended June 30, 1997 as compared to $5.4 million for the similar period in 1996. This increase of $1.3 million is primarily attributable to a $493,000 increase in employee compensation and benefits, the $247,000 increase in occupancy and equipment, a $109,000 increase in data processing costs, a $488,000 increase in goodwill and other intangible amortization, and a $194,000 increase in other operating costs. These increases were partially offset by the $237,000 decrease in Federal deposit insurance premiums. The increases were mainly due to the increased costs associated with the Cenlar acquisition. 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). Income Tax Expense. Income taxes decreased by $29,000 to $800,000 for the three month period ended June 30, 1997, from $829,000 for the three months ended June 30, 1996. The primary reason for this decrease was the change in the effective state tax rate as a result of tax savings strategies. For the six month period ended June 30, 1997, income taxes decreased to $1.6 million from $1.8 million for the six months ended June 30, 1996. This decrease of $184,000 is primarily attributed to the decrease in net income before taxes to $4.0 million from $4.3 million for the six month periods ended June 30, 1997 and 1996, respectively coupled with a decrease in the effective state tax rate as a result of tax savings strategies. 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. On June 30, 1997, the Savings Bank was in compliance with its three regulatory capital requirements as follows: Amount Percent ------ ------- (dollars in thousands) Tangible capital $57,501 9.0% Tangible capital requirement 9,532 1.5 ------- ---- Excess over requirement $47,969 7.5% ======= ==== Core capital $57,501 9.0% Core capital requirement 19,064 3.0 ------- ---- Excess over requirement $38,437 6.0% ======= ==== Risk based capital $59,484 20.8% Risk based capital requirement 22,830 8.0 ------- ---- Excess over requirement $36,654 12.8% ======= ==== 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, 1997, such borrowed funds total $98.4 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 14.5% and 12.3% at June 30, 1997 and 1996, respectively, and its short term liquidity was 6.5% and 8.3%, at such dates, respectively. The amount of certificate accounts which are scheduled to mature during the twelve months ending June 30 1998, is approximately $134.9 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. 13 At June 30, 1997, the Savings Bank had outstanding commitments to originate loans of $8.1 million. Also outstanding at June 30, 1997 were commitments to purchase $334,000 of loans. Funds required to fill these commitments are derived primarily from current excess liquidity, deposit inflows or loan and security repayments. At June 30, 1997, the Savings Bank had outstanding commitments to sell loans of $11.7 million. 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, 1997. 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 Not applicable ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits None (b) Reports on Form 8-K On April 19, 1997, the Corporation filed a Current Report on Form 8-K dated April 9, 1997, to report the completion of the repurchase of 214,869 shares of the Corporation's common stock 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 12, 1997 By: /s/ John R. Stranford ------------------------- ---------------------- John R. Stranford President and CEO (Principal Executive Officer) Date: August 12, 1997 By: /s/ William C. Niemczura ------------------------- ------------------------- William C. Niemczura Senior Vice President and Chief Financial Officer (Principal Financial & Accounting Officer) 16 EX-27 2 FDS 10-Q
9 1,000 6-MOS DEC-31-1996 JUN-30-1997 25,725 3,451 0 0 54,599 267,777 268,047 317,855 1,989 640,746 460,847 0 10,313 98,359 0 0 529 70,698 640,746 12,413 9,334 534 22,281 9,320 12,250 10,031 180 188 6,726 4,003 4,003 0 0 2,429 .60 .60 3.23 0 1,933 0 0 1,806 3 0 1,983 1,983 0 1,983
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