10-Q 1 0001.txt FORM 10-Q SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM l0-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, 2000 ------------------------------------------------- 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 incorporation (I.R.S. employer 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 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 4, 2000 -------------- Class Outstanding --------------------------- ---------------- $.10 par value common stock 2,802,388 shares TF FINANCIAL CORPORATION AND SUBSIDIARIES FORM 1O-Q FOR THE QUARTER ENDED JUNE 30, 2000 INDEX Page Number ------ PART I - CONSOLIDATED FINANCIAL INFORMATION Item 1. Consolidated Financial Statements 3 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 8 Item 3. Quantitative and Qualitative Disclosures about Market Risk 16 PART II- OTHER INFORMATION Item 1. Legal Proceedings 17 Item 2. Changes in Securities and Use of Proceeds 17 Item 3. Defaults Upon Senior Securities 17 Item 4. Submission of Matters to a Vote of Security Holders 17 Item 5. Other Information 17 Item 6. Exhibits and Reports on Form 8-K 17 SIGNATURES 18 2 TF FINANCIAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (in thousands)
Unaudited Audited Unaudited June 30, December 31, June 30, 2000 1999 1999 ---- ---- ---- Assets Cash and cash equivalents $ 8,980 $ 16,715 $ 16,467 Certificates of deposit in other financial institutions 556 847 1,745 Investment securities available for sale - at fair value 22,366 21,930 22,692 Investment securities held to maturity (fair value of $71,037, $64,538 and 73,111 66,760 80,731 $81,126, respectively) Mortgage-backed securities available for sale - at fair value 138,908 132,515 95,273 Mortgage-backed securities held to maturity (fair value of $142,601, 148,145 159,888 179,670 $154,188, and $176,574, respectively) Loans receivable, net 293,330 287,979 291,363 Federal Home Loan Bank stock - at cost 13,042 13,042 12,668 Accrued interest receivable 4,880 4,958 5,114 Real estate held for investment --- --- 2,348 Goodwill and other intangible assets 6,183 6,570 6,972 Premises and equipment, net 9,326 9,177 8,765 Other assets 2,694 1,493 1,359 --------- --------- --------- Total assets $ 721,521 $ 721,874 $ 725,167 ========= ========= ========= Liabilities and stockholders' equity Liabilities Deposits $ 419,611 $ 401,698 $ 416,925 Advances from the Federal Home Loan Bank 208,359 248,533 248,359 Other borrowings 34,228 15,766 --- Advances from borrowers for taxes and insurance 1,441 1,198 1,304 Accrued interest payable 4,759 3,749 4,275 Other liabilities 3,846 2,483 3,088 --------- --------- --------- Total liabilities 672,244 673,427 673,951 --------- --------- --------- 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; 2,531,852, 2,576,160, and 2,763,318 shares outstanding at June 30, 2000, December 31, 1999 and June 30, 1999, net of treasury shares of 2,487,612, 2,437,226, and 2,243,990, respectively 529 529 529 Retained earnings 49,880 48,760 47,052 Additional paid-in capital 52,118 52,076 52,026 Unearned ESOP shares (2,705) (2,766) (2,827) Shares acquired by MSBP (38) (71) (255) Treasury stock - at cost (47,489) (46,996) (44,212) Accumulated other comprehensive income (loss) (3,018) (3,085) (1,097) --------- --------- --------- Total stockholders' equity 49,277 48,447 51,216 --------- --------- --------- Total liabilities and stockholders' equity $ 721,521 $ 721,874 $ 725,167 ========= ========= =========
See notes to consolidated financial statements 3 TF FINANCIAL CORPORATION AND SUBSIDIARIES UNAUDITED CONSOLIDATED STATEMENTS OF EARNINGS (in thousands, except per share data)
For the three months For the six months ended June 30, ended June 30, -------------- -------------- 2000 1999 2000 1999 ---- ---- ---- ---- Interest income Loans $ 5,851 $ 5,707 $11,407 $10,796 Mortgage-backed securities 4,841 4,199 9,711 8,296 Investment securities 1,541 1,817 3,072 3,398 Interest bearing deposits and other 93 221 165 547 ------- ------- ------- ------- Total interest income 12,326 11,944 24,355 23,037 ------- ------- ------- ------- Interest expense Deposits 3,812 3,707 7,388 7,564 Advances from the Federal Home Loan Bank and other borrowings 3,540 3,438 7,143 6,213 ------- ------- ------- ------- Total interest expense 7,352 7,145 14,531 13,777 ------- ------- ------- ------- Net interest income 4,974 4,799 9,824 9,260 Provision for loan losses 120 60 164 90 ------- ------- ------- ------- Net interest income after provision for loan losses 4,854 4,739 9,660 9,170 ------- ------- ------- ------- Non-interest income Service fees, charges and other operating income 376 307 750 625 ------- ------- ------- ------- Total non-interest income 376 307 750 625 ------- ------- ------- ------- Non-interest expense Compensation and benefits 1,969 1,692 3,796 3,332 Occupancy and equipment 619 511 1,245 1,005 Federal deposit insurance premium 21 65 43 133 Professional fees 100 184 287 349 Amortization of goodwill and other intangible assets 195 209 389 418 Advertising 168 91 338 181 Other operating 645 692 1,243 1,240 ------- ------- ------- ------- Total non-interest expense 3,717 3,444 7,341 6,658 ------- ------- ------- ------- Income before income taxes 1,513 1,602 3,069 3,137 Income taxes 456 577 983 1,128 ------- ------- ------- ------- Net income $ 1,057 $ 1,025 $ 2,086 $ 2,009 ======= ======= ======= ======= Basic earnings per share $0.42 $0.37 $0.82 $0.72 Diluted earnings per share $0.40 $0.35 $0.79 $0.67 Weighted average number of shares outstanding - basic 2,539 2,759 2,554 2,790 Weighted average number of shares outstanding - diluted 2,554 2,967 2,632 2,981
See notes to consolidated financial statements 4 TF FINANCIAL CORPORATION AND SUBSIDIARIES UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands)
For the six months ended June 30, 2000 1999 ---- ---- Cash flows from operating activities Net Income $ 2,086 $ 2,009 Adjustments to reconcile net income to net cash provided by operating activities: Mortgage loan servicing rights 7 7 Deferred loan origination fees (29) (39) Premiums and discounts on investment securities, net (44) 16 Premiums and discounts on mortgage-backed securities and loans, net (7) 379 Amortization of goodwill and other intangible assets 387 417 Provision for loan losses 208 90 Depreciation of premises and equipment 505 456 Recognition of ESOP and MSBP expenses 136 342 Gain on sale of real estate acquired through foreclosure 4 4 (Increase) decrease in: Accrued interest receivable 78 (556) Other assets (1,566) (270) Increase (decrease) in: Accrued interest payable 1,010 109 Other liabilities 1,362 (2,218) ------- ------- Net cash provided by operating activities 4,137 746 ------- ------- Cash flows from investing activities Loan origination and principal payments on loans, net 1,041 25,893 Purchases of loans (6,595) (76,553) Proceeds from loan sales --- --- Maturities of certificates of deposit in other financial institutions, net 291 493 Purchases of investment securities available for sale (429) (18,059) Purchases of investment securities held to maturity (11,316) (144,494) Purchases of mortgage-backed securities available for sale (11,079) (34,541) Purchase of mortgage-backed securities held to maturity --- (35,412) Proceeds from maturities of investment securities held to maturity 5,000 (147,447) Proceeds from maturities of investment securities available for sale --- 2,000 Principal repayments from mortgage-backed securities held to maturity 11,675 36,542 Principal repayments from mortgage-backed securities available for sale 4,853 12,779 Purchases and redemption of Federal Home Loan Bank Stock, net --- (3,500) Proceeds from sales of real estate acquired through foreclosure 354 61 Purchase of premises and equipment (654) (204) ------- ------- Net cash used in investing activities (6,859) (87,548) ------- -------
See notes to consolidated financial statements 5 TF FINANCIAL CORPORATION AND SUBSIDIARIES UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS (continued) (in thousands)
For the six months ended June 30, 2000 1999 ---- ---- Cash flows from financing activities Net increase (decrease ) in deposits 17,913 (21,988) Net increase (decrease) in advances from Federal Home Loan Bank (40,174) 85,000 Net increase in other borrowings 18,462 --- Net decrease in advances from borrowers for taxes and insurance 243 100 Exercise of stock options 437 97 Purchase of treasury stock, net (1,226) (1,970) Common stock cash dividend (668) (673) -------- -------- Net cash provided by financing activities (5,013) 60,566 -------- -------- Net decrease in cash and cash equivalents (7,735) (26,236) Cash and cash equivalents at beginning of period 16,715 42,703 -------- -------- Cash and cash equivalents at end of period $ 8,980 $ 16,467 ======== ======== Supplemental disclosure of cash flow information Cash paid for Interest on deposits and advances $ 13,521 $ 13,669 Income taxes $ 850 $ 911 Non-cash transactions Transfers from loans to real estate acquired through foreclosure $ 28 $---
See notes to consolidated financial statements 6 TF FINANCIAL CORPORATION AND SUBSIDIARIES NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS NOTE 1 - PRINCIPLES OF CONSOLIDATION The consolidated financial statements as of June 30, 2000, December 31, 1999, June 30, 1999 and for the three-month and six-month periods ended June 30, 2000 and 1999 include the accounts of TF Financial Corporation (the "Company") and its wholly owned subsidiaries Third Federal Savings Bank (the "Savings Bank"), TF Investments Corporation, Penns Trail Development Corporation and Teragon Financial Corporation. The Company'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 all of the disclosures or footnotes required by generally accepted accounting principles. In the opinion of management, all adjustments, consisting of normal recurring accruals, necessary for fair presentation of the consolidated financial statements have been included. The results of operations for the periods ended June 30, 2000 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 Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1999. NOTE 3 - CONTINGENCIES The Company, from time to time, is a party to routine litigation that arises in the normal course of business. In the opinion of management, the resolution of this litigation, if any, would not have a material adverse effect on the Company's consolidated financial condition or results of operations. NOTE 4 - OTHER COMPREHENSIVE INCOME The Company's other accumulated comprehensive income consists of net unrealized gains (losses) on investment securities and mortgage-backed securities available for sale. Total comprehensive income for the three-month periods ended June 30, 2000 and 1999 was $1,436,000 and $43,000, net of applicable income tax (benefit) of $651,000 and ($51,000), respectively. Total comprehensive income for the six-month periods ended June 30, 2000 and 1999 was $2,154,000 and $758,000, net of applicable income tax of $1,018,000 and $329,000, respectively. NOTE 5- RECLASSIFICATIONS Certain prior year amounts have been reclassified to conform to the current period presentation. 7 TF FINANCIAL CORPORATION AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS GENERAL TF Financial Corporation may from time to time make written or oral "forward-looking statements", including statements contained in the Company's filings with the Securities and Exchange Commission (including this Quarterly Report on Form 10-Q and the exhibits thereto), in its reports to stockholders and in other communications by the Company, which are made in good faith by the Company pursuant to the "Safe Harbor" Provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements involve risks and uncertainties, such as statements of the Company's plans, objectives, expectations, estimates and intentions, that are subject to change based on various important factors (some of which are beyond the Company's control). The following factors, among others, could cause the Company's financial performance to differ materially from the plans, objectives, expectations, estimates and intentions expressed in such forward-looking statements: the strength of the United States economy in general and the strength of the local economies in which the Company conducts operations; the effects of, and changes in, trade, monetary and fiscal policies and laws, including interest rate policies of the Board of Governors of the Federal Reserve System, inflation, interest rate, market and monetary fluctuations; the timely development of and acceptance of new products and services of the Company and the perceived overall value of these products and services by users, including the features, pricing and quality compared to competitors' products and services; the willingness of users to substitute competitors' products and services for the Company's products and services; the success of the Company in gaining regulatory approval of its products and services, when required; the impact of changes in financial services' laws and regulations (including laws concerning taxes, banking, securities and insurance); technological changes, acquisitions; changes in consumer spending and saving habits; and the success of the Company at managing the risks involved in the foregoing. The Company cautions that the foregoing list of important factors is not exclusive. The Company does not undertake to update any forward-looking statement, whether written or oral, that may be made from time to time by or on behalf of the Company. Financial Condition The Company's total assets at June 30, 2000 and December 31, 1999 totaled $721.5 million and $721.9 million, respectively. Loans receivable grew by $5.3 million while cash and cash equivalents decreased by $7.7 million. The Company's present objectives include growth in the loan portfolio through both originated and purchased loans, and a corresponding decrease in lower-yielding investment securities and mortgage-backed securities. Total assets are expected to remain at approximately their present levels in the immediate future and the expected growth in the Company's net interest income is expected to come from a combination of loan growth funded by lower cost retail deposit growth. Total liabilities decreased by $1.2 million during the first six months of 2000. Deposits increased by $17.9 while advances from the Federal Home Loan Bank and other borrowings decreased by a combined $21.7 million. The decrease in advances from the Federal Home Loan Bank occurred in part due to the conversion of $35 million of fixed rate advances that were convertible into LIBOR-based floating rate at the option of the Federal Home Loan Bank. Subsequent to conversion a portion of these advances were replaced with lower cost funds from other sources. 8 Total consolidated stockholders' equity of the Company was $49.3 million at June 30, 2000, an increase of $830,000 from December 31, 1999. During the first six months of 2000, the net increase in retained earnings, which is net income less dividends paid, was partially offset by the net cost of treasury shares purchased. During January of 2000 management announced that the Company's board of directors had authorized the purchase of up to 142,368 additional shares of the Company's stock in the open market during the subsequent twelve months. As of June 30, 2000 there were approximately 112,600 shares available for repurchase under this repurchase program. Asset Quality Management of the Company believes that there has been no material adverse change in the Company's asset quality during the six-month period ended June 30, 2000. Non-performing loans include $305,000 in student loans that are guaranteed by the United States Department of Education, through the Pennsylvania Higher Education Assistance Association, unless the Savings Bank is notified that it has failed to perform all the necessary procedures to preserve the guarantee. In such a situation, the Savings Bank would attempt to have the guarantee reinstated; if unsuccessful, these loans become unsecured loans that the Savings Bank will attempt to collect or charge-off. The following table sets forth information regarding the Company's asset quality (dollars in thousands):
June 30, December 31, June 30, -------- ------------ -------- 2000 1999 1999 ---- ---- ---- Non-performing loans $1,322 $1,356 $2,199 Ratio of non-performing loans to gross loans 0.45% 0.47% 0.66% Ratio of non-performing loans to total assets 0.18% 0.19% 0.30% Foreclosed property $188 $546 $243 Foreclosed property to total assets 0.03% 0.08% 0.03% Ratio of total non-performing assets to total assets 0.21% 0.26% 0.34%
Management maintains an allowance for loan losses at levels that are believed to be adequate; however, there can be no assurances that further additions will not be necessary or that losses inherent in the existing loan portfolios will not exceed the allowance. The following table sets forth the activity in the allowance for loan losses during the periods indicated (in thousands): 2000 1999 ---- ---- Beginning balance, January 1, $1,970 $1,909 Provision 164 90 Less: charge-off's (recoveries), net 232 83 --------- --------- Ending balance, June 30, $1,902 $1,916 ====== ====== 9 RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED JUNE 30, 2000 AND 1999 Net Income. The Company recorded net income of $1,057,000, or $0.40 per diluted share, for the three months ended June 30, 2000 as compared to $1,025,000, or $0.35 per diluted share, for the three months ended June 30, 1999. Average Balance Sheet The following table sets forth information relating to the Company'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 average balance of interest-earning assets or interest-bearing liabilities, respectively for the periods indicated.
Three months ended June 30, Three Months Ended March, 2000 1999 -------------------------------- --------------------------------- Average Average Average Average Balance Interest Yld/Cost Balance Interest Yld/Cost ------- -------- -------- ------- -------- -------- (dollars in thousands) Assets: Interest-earning assets: Loans receivable (4) .................... $294,372 $ 5,851 7.99% $300,809 $ 5,707 7.59% Mortgage-backed securities .............. 290,922 4,841 6.69% 264,431 4,199 6.35% Investment securities ................... 99,385 1,541 6.24% 116,534 1,817 6.24% Other interest-earning assets(1) ........ 11,072 93 3.38% 21,783 221 4.06% ------- -------- -------- ------ Total interest-earning assets ......... 695,751 12,326 7.13% 703,557 11,944 6.79% -------- ------ Non interest-earning assets ................. 25,352 34,760 -------- ------- Total assets .......................... 721,103 738,317 ======== ======= Liabilities and stockholders' equity: Interest-bearing liabilities Deposits ................................ 414,940 3,812 3.69% 423,038 3,707 3.51% Advances from the FHLB and other Borrowings ................... 248,437 3,540 5.73% 250,027 3,438 5.50% -------- --------- ------- ----- Total interest-bearing liabilities .... 663,377 7,352 4.46% 673,065 7,145 4.25% --------- ----- Non interest-bearing liabilities ............ 9,805 13,725 -------- ------- Total liabilities ..................... 673,182 686,790 Stockholders' equity ........................ 47,921 51,527 -------- ------- Total liabilities and stockholders' equity $721,103 $738,317 ======== ======== Net interest income ......................... $ 4,974 $4,799 ======== ====== Interest rate spread (2) .................... 2.67% 2.54% Net yield on interest-earning assets (3) .... 2.88% 2.73% Ratio of average interest-earning assets to average interest bearing liabilities ........ 105% 105%
(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) Nonaccrual loans have been included in the appropriate average loan balance category, but interest on nonaccrual loans has not been included for purposes of determining interest income. 10 Rate/Volume Analysis The following table presents, for the periods indicated, the change in interest income and interest expense (in thousands) attributed to (i) changes in volume (changes in the weighted average balance of the total interest earning asset and interest bearing liability portfolios multiplied by the prior year rate), and (ii) changes in rate (changes in rate multiplied by prior year volume). Changes attributable to the combined impact of volume and rate have been allocated proportionately based on the absolute value of changes due to volume and changes due to rate.
Three months ended June 30, 2000 vs. 1999 ------------------------------------------------------ Increase (decrease) due to ------------------------------------------------------ Volume Rate Net ------------------------------------------------------ Interest income: Loans receivable, net $(653) $797 $144 Mortgage-backed securities 418 224 642 Investment securities (276) 0 (276) Other interest-earning assets (95) (33) (128) ------------------------------------------------------ Total interest-earning assets (606) 988 382 ====================================================== Interest expense: Deposits (385) 490 105 Advances from the FHLB and other borrowings (138) 240 102 ------------------------------------------------------ Total interest-bearing liabilities (523) 730 207 ====================================================== Net change in net interest income $(83) $258 $175 ======================================================
Total Interest Income. Total interest income increased by $382,000 or 3.2% to $12.3 million for the three months ended June 30, 2000 compared with the second quarter of 1999 primarily because of an increase in interest income on mortgage-backed securities. This increase has occurred because during the second quarter of 1999 the Company increased its purchases of higher yielding mortgage-backed securities and reduced its purchases of lower yielding investment securities. In addition, the rise in certain market interest rates since June 30, 1999 has resulted in both higher interest rates on the Company's new loans and higher interest rates on the Company's adjustable rate portfolio loans. Total Interest Expense. Total interest expense increased to $7.4 million for the three-month period ended June 30, 2000 from $7.1 million for the same period in 1999 primarily because of higher market interest rates. Non-interest income. Total non-interest income was $376,000 for the three-month period ended June 30, 2000 compared with $307,000 for the same period in 1999. The increase is primarily due to an increase the number of commercial loan and demand deposit accounts and the related increase in late charges collected on commercial loans and increase in overdraft fees collected on demand deposit accounts. Non-interest expense. Total non-interest expense increased by $273,000 to $3.7 million for the three months ended June 30, 2000 compared to the same period in 1999. Compensation and benefits expenses increased by $277,000 during the second quarter of 2000 compared to the year earlier period due in large part to the increase in full time equivalent employees from 150 at June 30, 1999 to 174 at June 30, 2000. These additional employees were related to the two additional branch offices open during the second quarter of 2000 compared to the second quarter of 1999, and additional staff in the lending and servicing areas of the Company. 11 In addition, these additional branch offices are largely the cause of the increases in occupancy and equipment expenses. The increase in advertising expense is the result of a planned increase in the Company's advertising expenses in order to attract new retail banking customers. Professional fees have decreased from higher than normal levels during the second quarter of 1999 because of the "Year 2000" costs that were incurred during the second quarter of 1999. Income taxes. The Company's effective tax rate was 30.1% during the second quarter of 2000 compared with 36.0% during the second quarter of 1999. The decrease is attributable to investment strategies that are expected to reduce the Company's income taxes. 12 RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 2000 AND 1999 Net Income. The Company recorded net income of $2,086,000, or $0.79 per diluted share, for the six months ended June 30, 2000 as compared to $2,009,000, or $0.67 per diluted share, for the six months ended June 30, 1999. Average Balance Sheet The following table sets forth information relating to the Company'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 average balance of interest-earning assets or interest-bearing liabilities, respectively for the periods indicated.
Six months ended June 30, Three Months Ended March, 2000 1999 -------------------------------- ------------------------------- Average Average Average Average Balance Interest Yld/Cost Balance Interest Yld/Cost ------- -------- -------- ------- -------- -------- (dollars in thousands) Assets: Interest-earning assets: Loans receivable (4)....................... $292,016 $11,407 7.86% $282,033 $10,796 7.66% Mortgage-backed securities................. 291,838 9,711 6.69% 263,025 8,296 6.31% Investment securities...................... 100,656 3,072 6.14% 110,459 3,398 6.15% Other interest-earning assets(1)........... 9,263 165 3.58% 25,416 547 4.30% -------- ------- -------- ------- Total interest-earning assets............ 693,773 24,355 7.06% 680,933 23,037 6.77% ------- ------- Non interest-earning assets.................... 26,487 33,682 -------- -------- Total assets............................. 720,260 714,615 ======== ======== Liabilities and stockholders' equity: Interest-bearing liabilities Deposits................................... 409,516 7,388 3.63% 427,373 7,564 3.54% Advances from the FHLB and other borrowings...................... 254,057 7,143 5.58% 224,630 6,213 5.53% -------- ------- -------- ------- Total interest-bearing liabilities....... 663,573 14,531 4.23% 652,003 13,777 4.23% ------- ------- Non interest-bearing liabilities............... 8,821 10,742 -------- -------- Total liabilities.......................... 672,394 662,745 Stockholders' equity........................... 47,866 51,870 -------- -------- Total liabilities and stockholders' equity.... $720,260 $714,615 ======== ======== Net interest income............................ $9,824 $9,260 ====== ====== Interest rate spread (2)....................... 2.54% 2.54% Net yield on interest-earning assets (3)....... 2.72% 2.72% Ratio of average interest-earning assets to average interest bearing liabilities........... 105% 104%
(5) Includes interest-bearing deposits in other banks. (6) Interest-rate spread represents the difference between the average yield on interest-earning assets and the average cost of interest-bearing liabilities. (7) Net yield on interest-earning assets represents net interest income as a percentage of average interest-earning assets. (8) Nonaccrual loans have been included in the appropriate average loan balance category, but interest on nonaccrual loans has not been included for purposes of determining interest income. 13 Rate/Volume Analysis The following table presents, for the periods indicated, the change in interest income and interest expense (in thousands) attributed to (i) changes in volume (changes in the weighted average balance of the total interest earning asset and interest bearing liability portfolios multiplied by the prior year rate), and (ii) changes in rate (changes in rate multiplied by prior year volume). Changes attributable to the combined impact of volume and rate have been allocated proportionately based on the absolute value of changes due to volume and changes due to rate.
Six months ended June 30, 2000 vs. 1999 ------------------------------------------- Increase (decrease) due to ------------------------------------------- Volume Rate Net ------------------------------------------- Interest income: Loans receivable, net $352 $259 $611 Mortgage-backed securities 913 502 1,415 Investment securities (320) (6) (326) Other interest-earning assets (302) (80) (382) ------------------------------------------- Total interest-earning assets 643 675 1,318 =========================================== Interest expense: Deposits (588) 412 (176) Advances from the FHLB and other borrowings 798 132 930 ------------------------------------------- Total interest-bearing liabilities 210 544 754 =========================================== Net change in net interest income $433 $131 $564 ===========================================
Total Interest Income. Total interest income increased by $1,318,000 or 5.7% to $24.4 million for the six months ended June 30, 2000 compared with the six months ended June 30, 1999. The increase in the interest earned on loans receivable occurred mainly because the Company purchased $76.6 million in loans receivable late in the first quarter of 1999 at yields that were higher than the current portfolio yields. The increase in interest earned on mortgage-backed securities also occurred as a result of the Company's purchases of such securities, throughout the last three quarters of 1999, with yields higher than the existing portfolio because of higher market interest rates. In addition, the Company shifted its securities mix away from lower yielding investment securities and into higher yielding mortgage-backed securities. Total Interest Expense. Total interest expense increased to $14.5 million for the six-month period ended June 30, 2000 from $13.8 million for the same period in 1999 primarily due to increased advances from the Federal Home Loan Bank and other borrowings which were used to fund asset growth and deposit outflows. The average rate paid on Federal Home Loan Bank advances and other borrowings increased due to the effect of higher market interest rates on new borrowings. Interest expense on deposits decreased during the first six months of 2000 compared to the first six months of 1999 because the average balance of deposits decreased $17.9 million or 4.2%, from $430.0 million to $404.1 million. The decrease in the average balance of deposits resulted from rate sensitive deposit outflows associated with management's efforts to price deposits at lower interest rates during the first six months of 1999. Nevertheless, the average rate paid on deposits has increased steadily since mid-1999 due to increases in market interest rates. 14 Non-interest income. Total non-interest income was $750,000 for the six-month period ended June 30, 2000 compared with $625,000 for the same period in 1999. The increase is primarily due to an increase the number of commercial loan and demand deposit accounts and the related increase in late charges collected on commercial loans and increase in overdraft fees collected on demand deposit accounts. The increase is also due to $33,000 of non-recurring loan prepayment fees received during the first quarter of 2000. Non-interest expense. Total non-interest expense increased by $683,000 to $7.3 million for the six months ended June 30, 2000 compared to the same period in 1999. Compensation and benefits expenses increased by $464,000 during the first half of 2000 compared to the year earlier period due in large part to the increase in full time equivalent employees from 150 at June 30, 1999 to 174 at June 30, 2000. These additional employees were related to the two additional branch offices open during the first half of 2000 compared to the first half of 1999, and additional staff in the lending and servicing areas of the Company. In addition, these additional branch offices are largely the cause of the increases in occupancy and equipment expenses. The increase in advertising expense is the result of a planned increase in the Company's advertising expenses in order to attract new retail banking customers. Professional fees have decreased from higher than normal levels during the first half of 1999 because of the "Year 2000" costs that were incurred during the first half of 1999. Income taxes. The Company's effective tax rate was 32.0% during the first half of 2000 compared with 36.0% during the first half of 1999. The decrease is attributable to investment strategies that are expected to reduce the Company's income taxes. 15 LIQUIDITY AND CAPITAL RESOURCES Liquidity The Company'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 Company's short-term sources of liquidity include maturity, repayment and sales of assets, excess cash and cash equivalents, new deposits, broker deposits, other borrowings, and new advances from the Federal Home Loan Bank. There has been no material adverse change during six-month period ended June 30, 2000 in the ability of the Company and its subsidiaries to fund their operations. 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 4% 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 4% requirement. These levels may be changed from time to time by the regulators to reflect current economic conditions. The Savings Bank had regulatory liquidity ratios of 19.9% and 22.6% at June 30, 2000 and 1999, respectively. At June 30, 2000, the Company had commitments outstanding under letters of credit of $3.7 million, commitments to originate loans of $15.0 million, and commitments to fund undisbursed balances of closed loans and unused lines of credit of $28.3 million. Capital Requirements The Savings Bank is in compliance with all of its capital requirements as of June 30, 2000. YEAR 2000 Risk Assessment There has been no information that has come to the Company's attention during the six-months ended June 30, 2000 to indicate that there are any adverse consequences that might affect the Company in the future related to the "Year 2000" problem. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Asset and Liability Management The Company's market risk exposure is predominately caused by interest rate risk, which is defined as the sensitivity of the Company's current and future earnings, the values of its assets and liabilities, and the value of its capital to changes in the level of market interest rates. Management of the Company believes that there has not been a material adverse change in market risk during the six months ended June 30, 2000. 16 TF FINANCIAL CORPORATION AND SUBSIDIARIES PART II ITEM 1. LEGAL PROCEEDINGS Not applicable. ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS Not applicable. ITEM 3. DEFAULTS UPON SENIOR SECURITIES Not applicable. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS Not applicable ITEM 5. OTHER INFORMATION None ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits Exhibit 27 - Financial data schedule (in electronic filing only) (b) Reports on Form 8-K None 17 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 /s/ John R. Stranford --------------------- Date: August 10, 2000 John R. Stranford ----------------------- President and CEO (Principal Executive Officer) /s/ Dennis R. Stewart --------------------- Date: August 10, 2000 Dennis R. Stewart ---------------------- Senior Vice President and Chief Financial Officer (Principal Financial & Accounting Officer) 18