10-Q 1 f10q_063001-0084.txt FROM 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, 2001 ------------------------------------------------ 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: July 27, 2001 ------------- Class Outstanding ----------------------------- ---------------- $.10 par value common stock 2,710,312 shares TF FINANCIAL CORPORATION AND SUBSIDIARIES FORM 1O-Q FOR THE QUARTER ENDED JUNE 30, 2001 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 9 Item 3. Quantitative and Qualitative Disclosures about Market Risk 17 PART II- OTHER INFORMATION Item 1. Legal Proceedings 18 Item 2. Changes in Securities and Use of Proceeds 18 Item 3. Defaults Upon Senior Securities 18 Item 4. Submission of Matters to a Vote of Security Holders 18 Item 5. Other Information 18 Item 6. Exhibits and Reports on Form 8-K 18 SIGNATURES 19 2 TF FINANCIAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (in thousands)
Unaudited Audited Unaudited June 30, December 31, June 30, 2001 2000 2000 --------- --------- --------- Assets Cash and cash equivalents $ 59,196 $ 10,618 $ 8,980 Certificates of deposit in other financial institutions 190 191 556 Investment securities available for sale - at fair value 10,161 18,865 22,366 Investment securities held to maturity (fair value of $15,510, $61,919 and 15,460 63,461 73,111 $71,037, respectively) Mortgage-backed securities available for sale - at fair value 94,825 97,914 138,908 Mortgage-backed securities held to maturity (fair value of $117,923, 117,799 135,142 148,145 $133,458, and $142,601, respectively) Loans receivable, net 368,129 361,806 293,330 Federal Home Loan Bank stock - at cost 11,368 13,042 13,042 Accrued interest receivable 4,212 5,523 4,880 Goodwill and other intangible assets 5,448 5,809 6,183 Premises and equipment, net 7,932 9,410 9,326 Other assets 1,075 1,516 2,694 --------- --------- --------- Total assets $ 695,795 $ 723,297 $ 721,521 ========= ========= ========= Liabilities and stockholders' equity Liabilities Deposits $ 409,145 $ 400,851 $ 419,611 Advances from the Federal Home Loan Bank 222,359 244,859 208,359 Other borrowings -- 14,962 34,228 Advances from borrowers for taxes and insurance 1,281 1,158 1,441 Accrued interest payable 4,108 4,670 4,759 Other liabilities 3,625 3,688 3,846 --------- --------- --------- Total liabilities 640,518 670,188 672,244 --------- --------- --------- 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; 2,454,432, 2,491,454, and 2,531,852 shares Outstanding at June 30, 2001, December 31, 2000 and June 30, 2000, net of treasury shares of 2,577,188, 2,534,088, and 2,487,612, respectively 529 529 529 Retained earnings 53,846 51,604 49,880 Additional paid-in capital 52,210 52,161 52,118 Unearned ESOP shares (2,584) (2,644) (2,705) Shares acquired by MSBP -- (4) (38) Treasury stock - at cost (48,934) (48,173) (47,489) Accumulated other comprehensive income (loss) 210 (364) (3,018) --------- --------- --------- Total stockholders' equity 55,277 53,109 49,277 --------- --------- --------- Total liabilities and stockholders' equity $ 695,795 $ 723,297 $ 721,521 ========= ========= =========
See notes to consolidated financial statements 3 TF FINANCIAL CORPORATION AND SUBSIDIARIES UNAUDITED CONSOLIDATED STATEMENTS OF EARNINGS (in thousands, except per share data)
For Three Months For Six Months Ended June 30, Ended June 30, ------------------- -------------------- 2001 2000 2001 2000 -------- -------- -------- -------- Interest income Loans $ 7,147 $ 5,851 $ 14,313 $ 11,407 Mortgage-backed securities 3,568 4,841 7,348 9,711 Investment securities 671 1,541 1,910 3,072 Interest bearing deposits and other 431 93 576 165 -------- -------- -------- -------- Total interest income 11,817 12,326 24,147 24,355 -------- -------- -------- -------- Interest expense Deposits 3,577 3,812 7,168 7,388 Advances from the Federal Home Loan Bank and other borrowings 3,156 3,540 6,656 7,143 -------- -------- -------- -------- Total interest expense 6,733 7,352 13,824 14,531 -------- -------- -------- -------- Net interest income 5,084 4,974 10,323 9,824 Provision for loan losses 124 120 249 164 -------- -------- -------- -------- Net interest income after provision for loan losses 4,960 4,854 10,074 9,660 -------- -------- -------- -------- Non-interest income Service fees, charges and other operating income 355 376 770 750 Gain on sale of premises and equipment 444 -- 444 -- Gain (loss) on sale of loans and mortgage-backed securities available for sale 10 -- (5) -- -------- -------- -------- -------- Total non-interest income 809 376 1,209 750 -------- -------- -------- -------- Non-interest expense Compensation and benefits 1,900 1,969 3,836 3,796 Occupancy and equipment 580 619 1,225 1,245 Federal deposit insurance premium 18 21 39 43 Professional fees 124 100 317 287 Amortization of goodwill and other intangible assets 180 195 360 389 Advertising 126 168 252 338 Other operating 558 645 1,268 1,243 -------- -------- -------- -------- Total non-interest expense 3,486 3,717 7,297 7,341 -------- -------- -------- -------- Income before income taxes 2,283 1,513 3,986 3,069 Income taxes 595 456 1,040 983 -------- -------- -------- -------- Net income $ 1,688 $ 1,057 $ 2,946 $ 2,086 ======== ======== ======== ======== Basic earnings per share $ 0.69 $ 0.42 $ 1.19 $ 0.82 Diluted earnings per share $ 0.64 $ 0.40 $ 1.12 $ 0.79 Weighted average number of shares outstanding - basic 2,454 2,539 2,468 2,554 Weighted average number of shares outstanding - diluted 2,647 2,554 2,642 2,632
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, 2001 2000 -------- -------- Cash flows from operating activities Net Income $ 2,946 $ 2,086 Adjustments to reconcile net income to net cash provided by operating activities: Mortgage loan servicing rights 7 7 Deferred loan origination fees (86) (29) Premiums and discounts on investment securities, net (5) (44) Premiums and discounts on mortgage-backed securities and loans, net (142) (7) Amortization of goodwill and other intangible assets 361 387 Provision for loan losses 250 208 Depreciation of premises and equipment 431 505 Recognition of ESOP and MSBP expenses 114 136 Loss on sale of loans and mortgage-backed securities available for sale 5 -- Gain on sale of premises and equipment (444) -- (Gain) loss on sale of real estate acquired through foreclosure (27) 4 (Increase) decrease in: Accrued interest receivable 1,311 78 Other assets 229 (1,566) Increase (decrease) in: Accrued interest payable (562) 1,010 Other liabilities (327) 1,362 -------- -------- Net cash provided by operating activities 4,061 4,137 -------- -------- Cash flows from investing activities Loan origination and principal payments on loans, net 9,645 1,041 Purchases of loans (17,184) (6,595) Proceeds from loan sales 1,227 -- Maturities of certificates of deposit in other financial institutions, net -- 291 Purchases of investment securities held to maturity (11,316) Purchases of investment securities available for sale (3,030) (429) Proceeds from sale of mortgage-backed securities available for sale 4,309 -- Purchases of mortgage-backed securities available for sale (8,407) (11,079) Redemption of Federal Home Loan Bank stock 1,674 -- Proceeds from maturities of investment securities held to maturity 44,991 5,000 Proceeds from maturities of investment securities available for sale 15,000 -- Principal repayments from mortgage-backed securities held to maturity 17,335 11,675 Principal repayments from mortgage-backed securities available for sale 7,716 4,853 Proceeds from sales of premises and equipment 1,784 Proceeds from sales of real estate acquired through foreclosure 102 354 Purchase of premises and equipment (133) (654) -------- -------- Net cash used in investing activities 75,029 (6,859) -------- --------
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, 2001 2000 -------- -------- Cash flows from financing activities Net increase in deposits 8,294 17,913 Net decrease in advances from Federal Home Loan Bank (22,500) (40,174) Net increase (decrease) in other borrowings (14,962) 18,462 Net decrease in advances from borrowers for taxes and insurance 123 243 Exercise of stock options 26 437 Purchase of treasury stock, net (801) (1,226) Common stock cash dividend (692) (668) -------- -------- Net cash provided by financing activities (30,512) (5,013) -------- -------- Net increase (decrease) in cash and cash equivalents 48,578 (7,735) Cash and cash equivalents at beginning of period 10,618 16,715 -------- -------- Cash and cash equivalents at end of period $ 59,196 $ 8,980 ======== ======== Supplemental disclosure of cash flow information Cash paid for Interest on deposits and advances $ 14,386 $ 13,521 Income taxes $ 995 $ 850 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, 2001 (unaudited), December 31, 2000, June 30, 2000 (unaudited) and for the three-month and six-month periods ended June 30, 2001 and 2000 (unaudited) 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 accounting principles generally accepted in the United States of America. 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 period ended June 30, 2001 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, 2000. 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 (LOSS) The Company's other 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, 2001 and 2000 was $1,479,000 and $1,436,000, net of applicable income tax of $487,000 and $651,000, respectively. Total comprehensive income for the six-month periods ended June 30, 2001 and 2000 was $3,520,000 and $2,154,000, net of applicable income tax of $1,336,000 and $1,018,000, respectively. NOTE 5- RECLASSIFICATIONS Certain prior year amounts have been reclassified to conform to the current period presentation. NOTE 6- RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS On June 29, 2001, the Financial Accounting Standards Board (FASB) approved for issuance Statement of Financial Accounting Standards (SFAS) 141, Business Combinations, and SFAS 142, Goodwill and Intangible Assets. Major provisions of these Statements are as follows: all business combinations 7 initiated after June 30, 2001 must use the purchase method of accounting; the pooling of interest method of accounting is prohibited except for transactions initiated before July 1, 2001; intangible assets acquired in a business combination must recorded separately from goodwill if they arise from contractual or other legal rights or are separable from the acquired entity and can be sold, transferred, licensed, rented or exchanged, either individually or as part of a related contract, asset or liability; goodwill and intangible assets with indefinite lives are not amortized but are tested for impairment annually, except in certain circumstances, and whenever there is an impairment indicator; all acquired goodwill must be assigned to reporting units for purposes of impairment testing and segment reporting; effective January 1, 2002, goodwill will no longer be subject to amortization. Although it is still reviewing the provisions of these Statements, management's preliminary assessment is that these Statements will not have a material impact on the Company's financial position or results of operations. 8 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, 2001 and December 31, 2000 totaled $695.8 million and $723.2 million, respectively, a decrease of $27.4 million, or 3.8%, during the six-month period. The decrease is mainly the result of a $56.7 million decrease in investment securities due to the maturity or exercise of the call feature associated with these securities. In addition, there was a $19.6 million decrease in mortgage-backed securities, partly due to the sale of $4.3 million of such securities, and a $1.5 million decrease in premises and equipment due to the sale of vacant land that had originally been purchased by the Company during 1993 as a possible administrative location. Offsetting these decreases was a $48.6 million increase in cash and cash equivalents and a $6.3 million increase in loans receivable. Total liabilities decreased by $29.7 million during the first six months of 2001 primarily as a result of the use of excess cash to repay maturing advances from the Federal Home Loan Bank and other borrowings. 9 Total consolidated stockholders' equity of the Company was $55.3 million or 7.94% of assets at June 30, 2001, compared to $53.1 million or 7.34% of assets at December 31, 2000, and $49.3 million or 6.83% of assets at June 30, 2000. During the first half of 2001, the net increase in retained earnings, which is net income less dividends paid, plus the increase in accumulated other comprehensive income, 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 142,638 shares of the Company's stock in the open market. As of June 30, 2001, there were approximately 32,000 shares available for repurchase under this plan, and the Company will continue to repurchase shares as share availability and market conditions permit. 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, 2001. The following table sets forth information regarding the Company's asset quality (dollars in thousands):
June 30, December 31, June 30, --------- ------------ --------- 2001 2000 2000 --------- --------- --------- Non-performing loans $ 1,288 $ 1,478 $ 1,322 Ratio of non-performing loans to gross loans 0.35% 0.41% 0.45% Ratio of non-performing loans to total assets 0.19% 0.20% 0.18% Foreclosed property $ 101 $ 176 $ 188 Foreclosed property to total assets 0.01% 0.02% 0.03% Ratio of total non-performing assets to total assets 0.20% 0.23% 0.21%
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): 2001 2000 ------ ------ Beginning balance, January 1, $1,714 $1,970 Provision 249 164 Less: charge-off's (recoveries), net 155 232 ------ ------ Ending balance, June 30, $1,808 $1,902 ====== ====== 10 RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED JUNE 30, 2001 AND 2000 Net Income. The Company recorded net income of $1,688,000, or $0.64 per diluted share, for the three months ended June 30, 2001 as compared to $1,057,000, or $0.40 per diluted share, for the three months ended June 30, 2000. 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, -------------------------------------------------------------------------- 2001 2000 ---------------------------------- ---------------------------------- Average Average Average Average Balance Interest Yld/Cost Balance Interest Yld/Cost ------- -------- -------- ------- -------- -------- (dollars in thousands) Assets: Interest-earning assets: Loans receivable (4) $362,295 $ 7,147 7.91% $294,372 $ 5,851 7.99% Mortgage-backed securities 220,103 3,568 6.50% 290,922 4,841 6.69% Investment securities 46,795 671 5.75% 99,385 1,541 6.24% Other interest-earning assets(1) 39,904 431 4.33% 11,072 93 3.38% -------- ------- -------- -- Total interest-earning assets 669,097 11,817 7.08% 695,751 12,326 7.13% ------- ------- on interest-earning assets 25,235 25,352 -------- -------- Total assets 694,332 721,103 ======== ======== Liabilities and stockholders' equity: Interest-bearing liabilities Deposits 403,810 3,577 3.55% 414,940 3,812 3.69% Advances from the FHLB and other borrowings 227,345 3,156 5.57% 248,437 3,540 5.73% -------- ------- -------- ------- Total interest-bearing liabilities 631,155 6,733 4.28% 663,377 7,352 4.46% ------- ------- on interest-bearing liabilities 8,778 9,805 -------- -------- Total liabilities 639,933 673,182 Stockholders' equity 54,399 47,921 -------- -------- Total liabilities and stockholders' equity $694,332 $721,103 ======== ======== Net interest income $ 5,084 $ 4,974 ======= ======= Interest rate spread (2) 2.81% 2.67% Net yield on interest-earning assets (3) 3.05% 2.88% Ratio of average interest-earning assets to average interest bearing liabilities 106% 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. 11 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, 2001 vs. 2000 --------------------------- Increase (decrease) due to --------------------------- Volume Rate Net --------------------------- Interest income: Loans receivable, net $ 1,694 (398) $ 1,296 Mortgage-backed securities (1,140) (133) (1,273) Investment securities (758) (112) (870) Other interest-earning assets 305 33 338 --------------------------- Total interest-earning assets 101 (610) (509) =========================== Interest expense: Deposits (97) (138) (235) Advances from the FHLB and other borrowings (289) (95) (384) --------------------------- Total interest-bearing liabilities (386) (233) (619) =========================== Net change in net interest income $ 487 (377) $ 110 =========================== Total Interest Income. Total interest income decreased by $509,000 or 4.3% to $11.8 million for the three months ended June 30, 2001 compared with the second quarter of 2000. Average earning assets decreased by $26.5 million during the same periods. However, because of the change in the mix of the Company's interest-earning assets the Company's interest income experienced a positive $101,000 volume-based improvement. During the second quarter of 2001, loans receivable, which carried higher yields than other earning assets, were 54.1% of total interest-earning assets compared to 42.3% during the second quarter of 2000. The increase in loans is the direct result of the Company's successful efforts to increase its purchases of seasoned, single-family residential loans. Offsetting the volume-based interest income increase was a $610,000 rate-based decrease in interest income, primarily the direct result of generally lower market interest rates and the lowering by the Federal Reserve Board of the fed funds rate during 2001 by 275 basis points. A lower fed funds rate resulted in a lowering of the prime rate, and thus the interest income earned on the Company's prime rate-based loans. Total Interest Expense. Total interest expense decreased to $6.7 million for the three-month period ended June 30, 2001 from $7.4 million for the same period in 2000 primarily due to decreased advances from the Federal Home Loan Bank and other borrowings, which resulted in an overall decrease in average interest-bearing liabilities. In addition, generally lower market interest rates resulted in a lowering of the Company's deposit interest expense. Non-interest income. Total non-interest income was $809,000 for the three-month period ended June 30, 2001 compared with $376,000 for the same period in 2000. The increase is due to a $444,000 gain on the sale of vacant land that the Company had purchased during 1993 for potential use as an administrative location. 12 Non-interest expense. Total non-interest expense decreased by $231,000 to $3.5 million for the three months ended June 30, 2001 compared to the same period in 2000. Operating expenses decreased in part due to the consolidation of one branch during the first quarter of 2001, thus enabling the Company to avoid the personnel, occupancy, and other costs associated with operating that branch. In addition, the Company spent less for its marketing and sales personnel, and reduced its expenditures for direct advertising. 13 RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 2001 AND 2000 Net Income. The Company recorded net income of $2,946,000, or $1.12 per diluted share, for the six months ended June 30, 2001 as compared to $2,086,000, or $0.40 per diluted share, for the six months ended June 30, 2000. 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, -------------------------------------------------------------------------- 2001 2000 ---------------------------------- ---------------------------------- Average Average Average Average Balance Interest Yld/Cost Balance Interest Yld/Cost ------- -------- -------- ------- -------- -------- (dollars in thousands) Assets: Interest-earning assets: Loans receivable (4) $360,169 $14,313 8.01% $292,016 $11,407 7.86% Mortgage-backed securities 224,934 7,348 6.59% 291,838 9,711 6.69% Investment securities 64,849 1,910 5.94% 100,656 3,072 6.14% Other interest-earning assets(1) 25,237 576 4.60% 9,263 165 3.58% -------- ------- -------- ------- Total interest-earning assets 675,189 24,147 7.21% 693,773 24,355 7.06% ------- ------- Non interest-earning assets 26,712 26,487 -------- -------- Total assets 701,901 720,260 ======== ======== Liabilities and stockholders' equity: Interest-bearing liabilities Deposits 401,938 7,168 3.60% 409,516 7,388 3.63% Advances from the FHLB and other borrowings 237,994 6,656 5.64% 254,057 7,143 5.58% -------- ------- -------- ------- Total interest-bearing liabilities 639,932 13,824 4.36% 663,573 14,531 4.23% ------- ------- on interest-bearing liabilities 8,275 8,821 -------- -------- Total liabilities 648,207 672,394 tockholders' equity 53,694 47,866 -------- -------- Total liabilities and stockholders' equity $701,901 $720,260 ======== ======== Net interest income $10,323 $9,824 ======= ====== Interest rate spread (2) 2.86% 2.54% Net yield on interest-earning assets (3) 3.08% 2.72% Ratio of average interest-earning assets to average interest bearing liabilities 106% 105%
(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. 14 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, 2001 vs. 2000 ---------------------------- Increase (decrease) due to ---------------------------- Volume Rate Net ---------------------------- Interest income: Loans receivable, net $ 2,686 220 $ 2,906 Mortgage-backed securities (2,218) (145) (2,363) Investment securities (1,065) (97) (1,162) Other interest-earning assets 353 58 411 ---------------------------- Total interest-earning assets (244) 36 (208) ============================ Interest expense: Deposits (152) (68) (220) Advances from the FHLB and other borrowings (474) (13) (487) ---------------------------- Total interest-bearing liabilities (626) (81) (707) ============================ Net change in net interest income $ 382 117 $ 499 ============================ Total Interest Income. Total interest income decreased by $208,000 or 0.9% to $24.1 million for the SIX months ended June 30, 2001 compared with the first half of 2000. Average earning assets decreased by $18.6 million during the same periods. However, there was a substantial change in the mix of the Company's interest-earning assets. During the first half of 2001, loans receivable, which carried higher yields than other earning assets, were 53.3% of total interest-earning assets compared to 42.1% during the first half of 2000. The increase in loans is the direct result of the Company's successful efforts to increase its purchases of seasoned, single-family residential loans. Total Interest Expense. Total interest expense decreased to $13.8 million for the six-month period ended June 30, 2001 from $14.5 million for the same period in 2000 primarily due to decreased advances from the Federal Home Loan Bank and other borrowings, which resulted in an overall decrease in average interest-bearing liabilities. In addition, generally lower market interest rates resulted in a lowering of the Company's deposit interest expense, and the Company's average deposits decreased by $7.6 million due mainly to lower balances in certificates of deposit. Non-interest income. Total non-interest income was $1,209,000 for the six-month period ended June 30, 2001 compared with $750,000 for the same period in 2000. The increase is due to a $444,000 gain on the sale of vacant land that the Company had purchased during 1993 for potential use as an administrative location. Non-interest expense. Total non-interest expense decreased by $44,000 to $7.3 million for the six months ended June 30, 2001 compared to the same period in 2000. Operating expenses decreased in part due to the consolidation of one branch during the first quarter of 2001, thus enabling the Company to avoid the personnel, occupancy, and other costs associated with operating that branch. In addition, the Company reduced its expenditures for direct advertising. 16 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, 2001 in the ability of the Company and its subsidiaries to fund their operations. At June 30, 2001, 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 $36.0 million. Capital Requirements The Savings Bank is in compliance with all of its capital requirements as of June 30, 2001. 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, 2001. 17 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 None ITEM 5. OTHER INFORMATION None ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits None (b) Reports on Form 8-K None 18 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, 2001 John R. Stranford President and CEO (Principal Executive Officer) /s/ Dennis R. Stewart --------------------- Date: August 10, 2001 Dennis R. Stewart Senior Vice President and Chief Financial Officer (Principal Financial & Accounting Officer) 19