-----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, EZmhcNLP1Aax899hLNCU4rFd3op8lOo7sfg0repR8g0SrZX/xSIuSJ9QBzgngV6Y 4BUqqtwkIRUqwXVoU7+6pw== 0000946275-02-000539.txt : 20021114 0000946275-02-000539.hdr.sgml : 20021114 20021114105737 ACCESSION NUMBER: 0000946275-02-000539 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20020930 FILED AS OF DATE: 20021114 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: 02822524 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 f10q_093002-0084.txt 10Q 093002 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 September 30, 2002 ------------------------ OR |_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ______________ to _____________ Commission file number 0-24168 ------- TF FINANCIAL CORPORATION - -------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) Delaware 74-2705050 - -------------------------------------------------------------------------------- (State or other jurisdiction (I.R.S. employer identification no.) of incorporation or organization) 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: October 28, 2002 ----------------- Class Outstanding ---------------------------- ---------------- $.10 par value common stock 2,722,732 shares TF FINANCIAL CORPORATION AND SUBSIDIARIES FORM 1O-Q FOR THE QUARTER ENDED SEPTEMBER 30, 2002 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 Item 4. Controls and Procedures 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 CERTIFICATIONS 20 EXHIBITS 22
2 TF FINANCIAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (in thousands)
Unaudited Audited September 30, December 31, 2002 2001 ------------ ----------- Assets Cash and cash equivalents $101,968 $ 69,139 Certificates of deposit in other financial institutions 199 194 Investment securities available for sale - at fair value 27,529 22,671 Investment securities held to maturity (fair value of $15,210 and $9,830, respectively) 14,581 9,866 Mortgage-backed securities available for sale - at fair value 129,898 99,763 Mortgage-backed securities held to maturity (fair value of $67,435 and $94,735, respectively) 64,552 93,367 Loans receivable, net 349,611 377,635 Federal Home Loan Bank stock - at cost 11,118 11,368 Accrued interest receivable 3,935 4,154 Core deposit intangible, net 601 775 Goodwill, net 4,324 4,324 Premises and equipment, net 6,882 7,484 Other assets 10,948 10,464 -------- -------- Total assets $726,146 $711,204 ======== ======== Liabilities and stockholders' equity Liabilities Deposits $438,122 $422,052 Advances from the Federal Home Loan Bank 217,359 222,359 Advances from borrowers for taxes and insurance 897 1,241 Accrued interest payable 3,876 3,762 Other liabilities 3,534 3,815 -------- -------- Total liabilities 663,788 653,229 -------- -------- 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; 2,479,547 and 2,465,986 shares outstanding at September 30, 2002 and December 31, 2001, net of treasury shares of $2,567,268 and $2,571,712, respectively. 529 529 Retained earnings 58,915 56,370 Additional paid-in capital 51,608 51,652 Unearned ESOP shares (2,431) (2,523) Treasury stock - at cost (48,809) (48,838) Accumulated other comprehensive income 2,546 785 -------- -------- Total stockholders' equity 62,358 57,975 -------- -------- Total liabilities and stockholders' equity $726,146 $711,204 ======== ========
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 nine months ended September 30, ended September 30, ------------------- ------------------- 2002 2001 2002 2001 ---- ---- ---- ---- Interest income Loans $ 6,238 $ 7,042 $19,398 $21,355 Mortgage-backed securities 2,872 3,322 9,120 10,670 Investment securities 608 542 1,760 2,452 Interest bearing deposits and other 320 564 800 1,140 ------- ------- ------- ------- Total interest income 10,038 11,470 31,078 35,617 ------- ------- ------- ------- Interest expense Deposits 2,565 3,548 8,102 10,716 Advances from the Federal Home Loan Bank and other borrowings 3,059 3,105 9,167 9,761 ------- ------- ------- ------- Total interest expense 5,624 6,653 17,269 20,477 ------- ------- ------- ------- Net interest income 4,414 4,817 13,809 15,140 Provision for loan losses 150 124 838 373 ------- ------- ------- ------- Net interest income after provision for loan losses 4,264 4,693 12,971 14,767 ------- ------- ------- ------- Non-interest income Service fees, charges and other operating income 433 419 1,179 1,189 Bank-owned life insurance 130 43 390 43 Gains on sale of loans and securities available for sale 419 12 419 7 Gains on sale of real estate - - - 444 ------- ------- ------- ------- Total non-interest income 982 474 1,988 1,683 ------- ------- ------- ------- Non-interest expense Compensation and benefits 1,945 1,965 5,790 5,801 Occupancy and equipment 570 622 1,724 1,847 Federal deposit insurance premium 18 18 56 57 Professional fees 119 128 304 445 Amortization of core deposit intangible 58 69 174 207 Amortization of goodwill - 111 - 333 Advertising 110 129 330 381 Other operating 613 585 1,781 1,853 ------- ------- ------- ------- Total non-interest expense 3,433 3,627 10,159 10,924 ------- ------- ------- ------- Income before income taxes 1,813 1,540 4,800 5,526 Income taxes 438 389 1,145 1,429 ------- ------- ------- ------- Net income $ 1,375 $ 1,151 $ 3,655 $ 4,097 ======= ======= ======= ======= Basic earnings per share $0.55 $0.47 $1.48 $1.66 Diluted earnings per share $0.51 $0.43 $1.34 $1.54 Weighted average number of shares outstanding - basic 2,478 2,462 2,471 2,466 Weighted average number of shares outstanding - diluted 2,716 2,703 2,725 2,663
See notes to consolidated financial statements 4 TF FINANCIAL CORPORATION AND SUBSIDIARIES UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands)
For the nine months ended September 30, ------------- 2002 2001 ---- ---- Cash flows from operating activities Net income $3,655 $4,097 Adjustments to reconcile net income to net cash provided by operating activities: Mortgage loan servicing rights 10 10 Deferred loan origination fees (198) (61) Premiums and discounts on investment securities, net 93 13 Premiums and discounts on mortgage-backed securities and loans, net 417 (152) Amortization of goodwill and core deposit intangible 174 540 Provision for loan losses 838 383 Depreciation of premises and equipment 760 649 Gain on sale of premises and equipment - (444) Recognition of ESOP and MSBP expenses 204 178 Gain on sales of real estate acquired through foreclosure (60) (19) Gain on sale of loans and securities available for sale (419) (7) Increase in surrender value of bank-owned life insurance (390) (43) Decrease in: Accrued interest receivable 219 1,647 Other assets 715 838 Increase (decrease) in: Accrued interest payable 114 538 Other liabilities (1,188) (1,451) ------ ------- Net cash provided by operating activities 4,944 6,716 ------ ------- Cash flows from investing activities Loan originations and principal payments on loans, net 54,305 34,396 Purchases of loans (27,188) (29,341) Proceeds from loan sales - 1,480 Proceeds from sale of mortgage-backed securities available for sale 17,427 4,309 Proceeds from sale of investment securities available for sale - 507 Purchases of mortgage-backed securities held to maturity (1,139) - Purchases of mortgage-backed securities available for sale (67,997) (8,464) Purchase of investment securities available for sale (6,453) (4,057) Purchase of investment securities held to maturity (6,821) - Proceeds from maturities of investment securities held to maturity 2,060 51,233 Proceeds from maturities of investment securities available for sale 2,000 15,500 Principal repayments from mortgage-backed securities held to maturity 29,843 28,009 Principal repayments from mortgage-backed securities available for sale 22,762 14,935 Purchases and maturities of certificates of deposit in other financial institutions, net (5) - Purchases and redemptions of Federal Home Loan Bank stock, net 250 1,674 Proceeds from sales of real estate acquired through foreclosure 275 134 Proceeds from sale of premises and equipment - 1,784 Purchase of real estate held for investment (765) - Purchase of premises and equipment (158) (119) Purchase of Bank-owned life insurance - (9,000) ------ ------- Net cash provided by investing activities 18,396 102,980 ------ -------
See notes to consolidated financial statements 5 TF FINANCIAL CORPORATION AND SUBSIDIARIES UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS (continued) (in thousands)
For the nine months ended September 30, ------------- 2002 2001 ---- ---- Cash flows from financing activities Net increase in deposits 16,070 15,223 Net decrease in advances from Federal Home Loan Bank (5,000) (22,500) Net decrease in other borrowings - (14,962) Net decrease in advances from borrowers for taxes and insurance (344) (387) Exercise of stock options 249 256 Purchase of treasury stock, net (376) (998) Common stock cash dividend (1,110) (1,099) -------- ------- Net cash provided by (used in) financing activities 9,489 (24,467) -------- ------- Net increase in cash and cash equivalents 32,829 85,229 Cash and cash equivalents at beginning of period 69,139 10,618 -------- ------- Cash and cash equivalents at end of period $101,968 $95,847 ======== ======= Supplemental disclosure of cash flow information Cash paid for Interest on deposits and advances $ 17,155 $19,939 Income taxes $ 1,600 $ 1,595 Non-cash transactions Transfers from loans to real estate acquired through foreclosure $ 269 $ -
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 September 30, 2002 (unaudited) and December 31, 2001 and for the three-month and nine-month periods ended September 30, 2002 and 2001 (unaudited) include the accounts of TF Financial Corporation (the "Company") and its wholly owned subsidiaries Third Federal Savings Bank (the "Bank"), TF Investments Corporation, Penns Trail Development Corporation and Teragon Financial Corporation. The Company's business is conducted principally through the 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 periods ended September 30, 2002 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, 2001. 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 on investment securities and mortgage-backed securities available for sale. Total comprehensive income for the three-month periods ended September 30, 2002 and 2001 was $1,682,000 and $2,180,000, net of applicable income tax of $596,000 and $919,000, respectively. Total comprehensive income for the nine-month periods ended September 30, 2002 and 2001 was $5,416,000 and $5,700,000, net of applicable income tax of $2,052,000 and $2,255,000, respectively. NOTE 5- RECLASSIFICATIONS Certain prior period amounts have been reclassified to conform to the current period presentation. 7 NOTE 6- NEW ACCOUNTING PRONOUNCEMENTS On January 1, 2002, the Company adopted Financial Accounting Standards Board (FASB) Statement of Financial Accounting Standards (SFAS) No. 141, "Business Combinations", SFAS No. 142, "Goodwill and Intangible Assets", and SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets". The adoption of these statements did not have a material impact on the financial condition or results of operations of the Company. On January 1, 2002, the Company also adopted Statement of Position (SOP) 01-6, "Accounting by Certain Entities That Lend to or Finance the Activities of Others", which reconciles and conforms existing differences in the accounting and financial reporting guidance in the AICPA Audit and Accounting Guides, Banks and Savings Institutions, Audits of Credit Unions, and Audits of Finance Companies. It also carries forward accounting guidance for practices deemed to be unique to certain financial institutions. The adoption of this SOP had no impact on the Company's financial position or results of operations. On October 1, 2002 the FASB issued SFAS No. 147,"Acquisitions of Certain Financial Institutions." Except for transactions between two or more mutual enterprises, SFAS No. 147 removes the acquisitions of financial institutions from the scope of both SFAS No. 72 and FASB Interpretation No. 9 and requires that those transactions be accounted for in accordance with SFAS No. 141 and SFAS No. 142. Thus, the requirement of SFAS No. 72 to recognize (and subsequently amortize) any excess of the fair value of liabilities assumed over the fair value of tangible and identifiable intangible assets acquired ("SFAS 72 Goodwill") as an unidentifiable intangible no longer applies to acquisitions within the scope of SFAS No. 147. In addition, SFAS No. 147 amends SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets," to include within its scope long-term customer relationship intangible assets of financial institutions such as depositor-relationship intangible assets. Consequently, those intangible assets are subject to undiscounted cash flow recoverability tests and impairment loss recognition and measurement provisions. Finally, SFAS No. 147 provides that branch acquisitions that meet the definition of a business should be accounted for as a business combination. SFAS No. 147 is effective October 1, 2002, although earlier application is permitted. The Company has elected to apply SFAS No. 147 as of January 1, 2002. The Company had $4,324,000 of SFAS 72 Goodwill at December 31, 2001 related to a 1996 branch acquisition that management of the Company has concluded was a business combination. In accordance with the provisions of SFAS No. 147, as of July 1, 2002 the Company has restated its financial information to remove the amortization of goodwill from the Unaudited Consolidated Statement of Earnings retroactive to January 1, 2002. Accordingly, net income for the quarterly periods ended March 31, 2002 and June 30, 2002 is restated to $1,285,000 and $995,000, respectively. In addition, the Company will test the goodwill for impairment prior to its fiscal year ending December 31, 2002. No impairment has been previously recognized. 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 September 30, 2002 and December 31, 2001 were $726.1 million and $711.2 million, respectively, an increase of $14.9 million, or 2.1%, during the nine-month period. The increase in total assets was primarily the result of deposit growth that was first used to repay advances from the Federal Home Loan Bank and then invested in interest-earning assets. Cash and cash equivalents increased by $32.8 million. Investment securities increased by $9.6 million due to the purchase of $13.3 million of such securities. Mortgage-backed securities available for sale increased by $30.1 million as $68.0 million in purchases of such securities more than off-set the principal paydowns received from these securities. Mortgage-backed securities held to maturity decreased by $28.8 million due to the high rate of prepayments of the mortgages underlying these pass-through securities. Similarly, high prepayments of existing mortgages in the loans receivable portfolio more than off-set new loans closed and purchased, causing a net decrease of $28.0 million in loans receivable. Total liabilities increased by $10.6 million due to $16.1 million in deposit growth, less $5.0 million in advances from the Federal Home Loan Bank, which were repaid as they matured. Non-interest bearing 9 demand deposits grew by $1.2 million while interest-bearing checking accounts increased by $1.6 million. Savings and money market accounts grew by $11.2 million and certificates of deposit increased by $2.1 million. Total consolidated stockholders' equity of the Company was $62.4 million or 8.59% of total assets at September 30, 2002, compared to $58.0 million or 8.15% of assets at December 31, 2001. During the first nine months of 2002 the Company repurchased 16,894 shares of its common stock and issued 21,338 shares pursuant to the exercise of stock options. As of September 30, 2002, there were approximately 114,000 shares available for repurchase under a previously announced share repurchase plan, and the Company will continue to repurchase shares as share availability and market conditions permit. Asset Quality During the third quarter of 2002, the Company's provision for loan and lease losses was $150,000 compared with $124,000 during the third quarter of 2001. The Company has not experienced any significant deterioration in its asset quality during the third quarter of 2002, nor has the Company experienced any significant change in the composition of its non-performing assets during such period. The following table sets forth information regarding the Company's asset quality (dollars in thousands): < September 30, December 31, ------------- ------------ 2002 2001 ---- ---- Non-performing loans $3,275 $3,776 Ratio of non-performing loans to gross loans 0.93% 0.99% Ratio of non-performing loans to total assets 0.45% 0.53% Foreclosed property $ 84 $ 40 Foreclosed property to total assets 0.01% 0.01% Ratio of total non-performing assets to total assets 0.46% 0.54% Management maintains an allowance for loan and lease 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 and lease portfolios will not exceed the allowance. The following table sets forth the activity in the allowance for loan and lease losses during the periods indicated (in thousands): 2002 2001 ---- ---- Beginning balance, January 1, $1,972 $1,714 Provision 838 249 Less: charge-off's (recoveries), net 850 155 ------ ------ Ending balance, September 30, $1,960 $1,808 ====== ====== 10 RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2002 AND 2001 Net Income. The Company recorded net income of $1,375,000, or $0.51 per diluted share, for the three months ended September 30, 2002 as compared to $1,151,000, or $0.43 per diluted share, for the three months ended September 30, 2001. 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 daily balance of interest-earning assets or interest-bearing liabilities, respectively, for the periods indicated.
Three months ended September 30, -------------------------------- 2002 2001 ---------------------------------- ---------------------------------- Average Average Average Average Balance Interest Yld/Cost Balance Interest Yld/Cost ------- -------- -------- ------- -------- -------- (dollars in thousands) Assets: Interest-earning assets: Loans receivable (1)....................... $348,675 $ 6,238 7.10% $361,960 $ 7,042 7.72% Mortgage-backed securities................. 205,729 2,872 5.54% 205,605 3,322 6.41% Investment securities...................... 54,051 608 4.46% 34,769 542 6.18% Other interest-earning assets(2)........... 80,811 320 1.57% 66,116 564 3.38% -------- ------- -------- ------- Total interest-earning assets............ 689,266 10,038 5.78% 668,450 11,470 6.81% ------- ------- Non interest-earning assets.................... 34,176 28,862 -------- -------- Total assets............................. $723,442 $697,312 ======== ======== Liabilities and stockholders' equity: Interest-bearing liabilities Deposits................................... $436,272 2,565 2.33% $411,985 3,548 3.42% Advances from the FHLB and other Borrowings...................... 218,989 3,059 5.54% 222,368 3,105 5.54% -------- ------- -------- ------- Total interest-bearing liabilities....... 655,261 5,624 3.41% 634,353 6,653 4.16% ------- ------- Non interest-bearing liabilities............... 6,908 7,414 -------- -------- Total liabilities........................ 662,169 641,767 Stockholders' equity........................... 61,273 55,545 -------- -------- Total liabilities and stockholders' equity $723,442 $697,312 ======== ======== Net interest income............................ $ 4,414 $4,817 ======= ====== Interest rate spread (3)....................... 2.37% 2.65% Net yield on interest-earning assets (4)....... 2.54% 2.86% Ratio of average interest-earning assets to average interest bering liabilities......... 105% 105%
(1) 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. (2) Includes interest-bearing deposits in other banks. (3) Interest-rate spread represents the difference between the average yield on interest-earning assets and the average cost of interest-bearing liabilities. (4) Net yield on interest-earning assets represents net interest income as a percentage of average interest-earning assets. 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 September 30, 2002 vs. 2001 ---------------------------------------------- Increase (decrease) due to ---------------------------------------------- Volume Rate Net ---------------------------------------------- Interest income: Loans receivable, net $ (252) $ (552) $ (804) Mortgage-backed securities 14 (464) (450) Investment securities 841 (775) 66 Other interest-earning assets 631 (875) (244) --------------------------------------------- Total interest-earning assets 1,234 (2,666) (1,432) ============================================= Interest expense: Deposits 1,246 (2,229) (983) Advances from the FHLB and other borrowings (54) 8 (46) ----------------------------------------------- Total interest-bearing liabilities 1,192 (2,221) (1,029) =============================================== Net change in net interest income $ 42 $ (445) $ (403) ===============================================
Total Interest Income. Total interest income decreased by $1.4 million or 12.5% to $10.0 million for the three months ended September 30, 2002 compared with the third quarter of 2001 primarily because of the consequences of a substantial decrease in market interest rates. Since the beginning of the first quarter of 2001, the Federal Reserve Board lowered the federal funds rate eleven times from 6.50% to 1.75%. Longer term market interest rates also decreased significantly. As a result, the Company's callable investment securities were called, higher coupon mortgage-related securities were paid down at an accelerated rate, and loans receivable were refinanced by borrowers at lower rates, or away from the Bank, resulting in large paydowns of higher yielding loans. In addition, the interest rates on the Company's adjustable rate loans adjusted downward. Thus, each component of the Company's earning assets produced less interest income because of declining market interest rates. In addition, the repayment of these mortgage-related assets produced cash and cash equivalents in amounts greater than the Corporation was able to reinvest back into longer-term, higher-yielding assets; thus, the Company's cash and cash equivalents were significantly higher during the 2002 period, while the rate earned on these assets, the federal funds rate minus 25 basis points, was substantially lower during the 2002 period. At September 30, 2002 cash and cash equivalents totaled $102.0 million or 14.0% of total assets. Total Interest Expense. Total interest expense decreased by $1.0 million or 15.5% to $5.6 million for the three-month period ended September 30, 2002. An increase in deposit interest expense due to an increase in the average balance of deposits was more than offset by lower market interest rates during the period and the lower rates paid on the Company's renewing certificates of deposit that had been originated when market interest rates were higher. In addition, during the fourth quarter of 2001 and the first nine months of 2002, the 12 Company lowered the interest rates paid on several of its other deposit products in order to keep them in line with short term market interest rates, mainly the federal funds rate. Non-interest income. Total non-interest income was $982,000 for the three-month period ended September 30, 2002 compared with $474,000 for the same period in 2001. The increase is due to $419,000 in gains on sales of securities and an $87,000 increase in income from the Corporation's bank-owned life insurance which was purchased during August 2001. Non-interest expense. Total non-interest expense decreased by $194,000 to $3.4 million for the three months ended September 30, 2002 compared to the same period in 2001. The decrease in non-interest expenses is largely attributable to the elimination of $111,000 in amortization of goodwill. Please refer to Note 6 of the Notes to Unaudited Consolidated Financial Statements for an explanation. The Company's effective tax rate during the third quarter of 2002 was 24.2% compared with 25.3% during the third quarter of 2001. The decrease is due to the purchase of bank-owned life insurance during August 2001. 13 RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2002 AND 2001 Net Income. The Company recorded net income of $3,655,000, or $1.34 per diluted share, for the nine months ended September 30, 2002 as compared to $4,097,000, or $1.54 per diluted share, for the nine months ended September 30, 2001. 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 daily balance of interest-earning assets or interest-bearing liabilities, respectively, for the periods indicated.
Nine months ended September 30, Three Months Ended March, 2002 2001 -------------------------------- ------------------------------- Average Average Average Average Balance Interest Yld/Cost Balance Interest Yld/Cost ------- -------- -------- ------- -------- -------- (dollars in thousands) Assets: Interest-earning assets: Loans receivable (1)....................... $360,215 $19,398 7.20% $360,781 $21,355 7.91% Mortgage-backed securities................. 206,506 9,120 5.90% 218,401 10,670 6.53% Investment securities...................... 50,650 1,760 4.65% 54,614 2,452 6.00% Other interest-earning assets(2)........... 66,499 800 1.61% 39,088 1,140 3.90% -------- ------- -------- ------- Total interest-earning assets............ 683,870 31,078 6.08% 672,884 35,617 7.08% ------- ------- Non interest-earning assets.................... 34,890 27,432 -------- -------- Total assets............................. $718,760 $700,316 ======== ======== Liabilities and stockholders' equity: Interest-bearing liabilities Deposits................................... $430,857 8,102 2.51% $405,332 10,716 3.53% Advances from the FHLB and other Borrowings..................... 221,223 9,167 5.54% 232,679 9,761 5.61% -------- ------- -------- ------- Total interest-bearing liabilities....... 652,080 17,269 3.54% 638,011 20,477 4.29% ------- ------- Non interest-bearing liabilities............... 7,340 7,986 -------- -------- Total liabilities........................ 659,420 645,997 Stockholders' equity........................... 59,340 54,319 -------- -------- Total liabilities and stockholders' equity.. $718,760 $700,316 ======== ======== Net interest income............................ $13,809 $15,140 ======= ======= Interest rate spread (3)....................... 2.54% 2.79% Net yield on interest-earning assets (4)....... 2.70% 3.01% Ratio of average interest-earning assets to average interest bearing liabilities........... 105% 105%
(1) 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. (2) Includes interest-bearing deposits in other banks. (3) Interest-rate spread represents the difference between the average yield on interest-earning assets and the average cost of interest-bearing liabilities. (4) Net yield on interest-earning assets represents net interest income as a percentage of average interest-earning assets. 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.
Nine months ended September 30, 2002 vs. 2001 ------------------------------------------ Increase (decrease) due to ------------------------------------------ Volume Rate Net ------------------------------------------ Interest income: Loans receivable, net $ (33) $(1,924) $(1,957) Mortgage-backed securities (561) (989) (1,550) Investment securities (168) (524) (692) Other interest-earning assets 790 (1,130) (340) ----------------------------------------- Total interest-earning assets 28 (4,567) (4,539) ========================================= Interest expense: Deposits 1,013 (3,627) (2,614) Advances from the FHLB and other borrowings (476) (118) (594) ----------------------------------------- Total interest-bearing liabilities 537 (3,745) (3,208) ========================================= Net change in net interest income $(509) $ (822) $(1,331) =========================================
Total Interest Income. Total interest income decreased by $4.5 million or 12.7% to $31.1 million for the nine months ended September 30, 2002 compared with the first nine months of 2001 primarily because of the consequences of a substantial decrease in market interest rates. Since the beginning of the first quarter of 2001, the Federal Reserve Board lowered the federal funds rate eleven times from 6.50% to 1.75%. Longer term market interest rates also decreased significantly. As a result the Company's callable investment securities were called, higher coupon mortgage-related securities were paid down at an accelerated rate, and loans receivable were refinanced by borrowers at lower rates, or away from the Bank, resulting in large paydowns of higher yielding loans. In addition, the interest rates on the Company's adjustable rate loans adjusted downward. Thus, each component of the Company's earning assets produced less interest income because of declining market interest rates. In addition, the repayment of these mortgage-related assets produced cash and cash equivalents in amounts greater than the Corporation was able to reinvest back into longer-term, higher-yielding assets; thus, the Company's cash and cash equivalents were significantly higher during the 2002 period, while the rate earned on these assets, the federal funds rate minus 25 basis points, was substantially lower during the 2002 period. At September 30, 2002 cash and cash equivalents totaled $102.0 million or 14.0% of total assets. Total Interest Expense. Total interest expense decreased by $1.3 million or 15.7% to $17.3 million for the nine-month period ended September 30, 2002. An increase in deposit interest expense due to an increase in the average balance of deposits was more than offset by lower market interest rates during the period and the lower rates paid on the Company's renewing certificates of deposit that had been originated when market interest rates were higher. In addition, during the fourth quarter of 2001 and the first nine months of 2002, the Company lowered the interest rates paid on several of its other deposit products in order to keep them in line with short term market interest rates, mainly the federal funds rate. 15 Non-interest income. Total non-interest income was $1,988,000 for the nine-month period ended September 30, 2002 compared with $1,683,000 for the same period in 2001. The net increase is due to $419,000 in gains on sales of securities during the third quarter of 2002 and a $347,000 increase in income from the Corporation's bank-owned life insurance which was purchased during August 2001, off-set in part by $444,000 non-recurring gain on the sale of real estate which occurred during the second quarter of 2001. Non-interest expense. Total non-interest expense decreased by $765,000 to $10.2 million for the nine months ended September 30, 2002 compared to the same period in 2001. The decrease in non-interest expenses is largely attributable to the elimination of $333,000 in amortization of goodwill. Please refer to Note 6 of the Notes to Unaudited Consolidated Financial Statements for an explanation. Occupancy and equipment expense decreased in part because the Company sold one of its branch offices during the fourth quarter of 2001, and also because maintenance expenses were unusually high during the first quarter of 2001 due to inclement weather. Professional fees were lower during the first nine months of 2002 compared to the year earlier period mainly due to $60,000 of costs incurred during the first quarter of 2001 associated with the implementation of in-house item processing and statement rendering capabilities. The decrease in the other operating expense category is caused by decreased loan servicing fees which were lower by $73,000 due to a decrease in the amount of loans serviced by others, and decreased deposit account servicing charges, net of a related increase in postage expense, which were lower by $89,000 because the Company began servicing customer accounts using in-house item processing and statement rendering capabilities installed during the first quarter of 2001. The Company's effective tax rate during the first nine months of 2002 was 23.9% compared with 25.9% during the first nine months of 2001. The decrease is due to the purchase of bank-owned life insurance during August 2001. 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 nine-month period ended September 30, 2002 in the ability of the Company and its subsidiaries to fund their operations. At September 30, 2002, the Company had commitments outstanding under letters of credit of $1.5 million, commitments to originate or purchase loans of $31.0 million, and commitments to fund undisbursed balances of closed loans and unused lines of credit of $27.1 million. Capital Requirements The Bank is in compliance with all of its capital requirements as of September 30, 2002. 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 nine months ended September 30, 2002. CONTROLS AND PROCEDURES Disclosure Controls and Procedures The Chief Executive Officer and the Chief Financial Officer (the "Certifying Officers") have evaluated the effectiveness of the Company's disclosure controls and procedures as of a date within 90 days prior to the filing date of this report and have concluded that such controls and procedures ensured that material information was made known to them, particularly during the period in which this report was being prepared. Internal Controls The Certifying Officers have concluded that there were no significant deficiencies in the design or operation of internal controls which could adversely affect the Company's ability to record, process, summarize and report financial data; nor have there been any significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of their evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. 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 Not applicable. ITEM 5. OTHER INFORMATION None ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits 99.1 Certification pursuant to 18 U.S.C.ss.1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (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: November 13, 2002 John R. Stranford President and Chief Executive Officer (Principal Executive Officer) /s/ Dennis R. Stewart --------------------- Date: November 13, 2002 Dennis R. Stewart Senior Vice President and Chief Financial Officer (Principal Financial & Accounting Officer) 19 CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 I, John R. Stranford, President and Chief Executive Officer, certify that: 1. I have reviewed this quarterly report on Form 10-Q of TF Financial Corporation (Registrant); 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this quarterly report; 4. The Registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the Registrant and we have: a) designed such disclosure controls and procedures to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b) evaluated the effectiveness of the Registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation, to the Registrant's auditors and the audit committee of Registrant's board of directors (or persons performing the equivalent function): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the Registrant's ability to record, process, summarize and report financial data and have identified for the Registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant's internal controls; and 6. The Registrant's other certifying officer and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. /s/ John R. Stranford --------------------- Date: November 13, 2002 John R. Stranford President and Chief Executive Officer (Principal Executive Officer) 20 CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 I, Dennis R. Stewart, Senior Vive President and Chief Financial Officer, certify that: 1. I have reviewed this quarterly report on Form 10-Q of TF Financial Corporation (Registrant); 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this quarterly report; 4. The Registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the Registrant and we have: a) designed such disclosure controls and procedures to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b) evaluated the effectiveness of the Registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation, to the Registrant's auditors and the audit committee of Registrant's board of directors (or persons performing the equivalent function): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the Registrant's ability to record, process, summarize and report financial data and have identified for the Registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant's internal controls; and 6. The Registrant's other certifying officer and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. /s/ Dennis R. Stewart --------------------- Date: November 13, 2002 Dennis R. Stewart Senior Vice President and Chief Financial Officer (Principal Financial & Accounting Officer) 21 EX-99 3 ex99-1.txt 99-1CERTIFICATION CERTIFICATION PURSUANT TO 18 U.S.C. ss. 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report on Form 10-Q for the quarter ended September 30, 2002 (the "Report") of TF Financial Corporation (the "Company") as filed with the Securities and Exchange Commission on the date hereof, we, John R. Stranford, President and Chief Executive Officer, and Dennis R. Stewart, Senior Vice President and Chief Financial Officer (Principal Accounting Officer), hereby certify, pursuant to 18 U.S.C. ss.1350, as adopted pursuant to ss.906 of the Sarbanes-Oxley Act of 2002, that: (1) The Report fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. /s/ John R. Stranford --------------------- Date: November 13, 2002 John R. Stranford President and Chief Executive Officer (Principal Executive Officer) /s/ Dennis R. Stewart --------------------- Date: November 13, 2002 Dennis R. Stewart Senior Vice President and Chief Financial Officer (Principal Financial & Accounting Officer) -----END PRIVACY-ENHANCED MESSAGE-----