-----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, S+atTYwwSocB3kllB+p35+yQ+If6nsP8vnC0w13jpNIbOM/DGRPOqtnKm8sqdpbP wdZO/ERQgiRpRlsJsW+d0A== 0000946275-04-000544.txt : 20040517 0000946275-04-000544.hdr.sgml : 20040517 20040517093318 ACCESSION NUMBER: 0000946275-04-000544 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20040331 FILED AS OF DATE: 20040517 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: 04810011 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_033104-0084.txt FORM 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 March 31, 2004 ------------------------------------------------ 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 000-24168 --------- TF FINANCIAL CORPORATION - -------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) Delaware 74-2705050 - -------------------------------------------------------------------------------- (State or other jurisdiction of (I.R.S. employer identification no.) 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 --- --- Indicate by check mark whether the registrant is an accelerated filer as defined in Exchange Act Rule 12b-2. Yes No X --- --- Indicate the number of shares outstanding of each of the issuer's classes of common stock as of the latest practicable date: May 6, 2004 ----------- Class Outstanding --------------------------- ---------------- $.10 par value common stock 2,885,502 shares TF FINANCIAL CORPORATION AND SUBSIDIARIES FORM 1O-Q FOR THE QUARTER ENDED MARCH 31, 2004 INDEX Page Number ------ PART I - CONSOLIDATED FINANCIAL INFORMATION Item 1. Consolidated Financial Statements 3 Item 2. Management's Discussion and Analysis of Financial Position and Results of Operations 11 Item 3. Quantitative and Qualitative Disclosures about Market Risk 16 Item 4. Controls and Procedures 16 PART II - OTHER INFORMATION Item 1. Legal Proceedings 18 Item 2. Changes in Securities, Use of Proceeds, and Issuer Repurchases of Equity Securities 18 Item 3. Defaults Upon Senior Securities 18 Item 4. Submission of Matters to a Vote of Security Holders Item 5. Other Information 19 Item 6. Exhibits and Reports on Form 8-K 19 SIGNATURES 20 EXHIBITS 31. Certifications pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 21 32. Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 23 2 TF FINANCIAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF FINANCIAL POSITION (in thousands)
Unaudited Audited March 31, December 31, 2004 2003 ---- ---- Assets Cash and cash equivalents $ 6,717 $ 8,241 Certificates of deposit in other financial institutions 38 155 Investment securities available for sale - at fair value 14,479 14,433 Investment securities held to maturity (fair value of $8,829 and $10,815, 8,370 10,389 respectively) Mortgage-backed securities available for sale - at fair value 106,647 106,774 Mortgage-backed securities held to maturity (fair value of $22,192 and 21,112 23,630 $24,774, respectively) Loans receivable, net 418,994 404,649 Federal Home Loan Bank stock - at cost 6,259 6,825 Accrued interest receivable 2,430 2,671 Core deposit intangible, net of accumulated amortization of $2,496 and $2,456, respectively 328 368 Goodwill 4,324 4,324 Premises and equipment, net 6,230 6,268 Other assets 17,284 18,025 -------- -------- Total assets $613,212 $606,752 ======== ======== Liabilities and stockholders' equity Liabilities Deposits $470,918 $459,343 Advances from the Federal Home Loan Bank 78,909 86,853 Advances from borrowers for taxes and insurance 1,797 1,738 Accrued interest payable 2,305 1,908 Other liabilities 1,616 1,430 -------- -------- Total liabilities 555,545 551,272 -------- -------- 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; 2,670,327 and 2,596,037 shares outstanding at March 31, 2004 and December 31, 2003, net of treasury shares of 2,404,498 and 2,474,366, respectively. 529 529 Retained earnings 53,841 52,626 Additional paid-in capital 51,275 51,982 Unearned ESOP shares (2,151) (2,196) Treasury stock - at cost (46,208) (47,043) Accumulated other comprehensive income 381 (418) -------- -------- Total stockholders' equity 57,667 55,480 -------- -------- Total liabilities and stockholders' equity $613,212 $606,752 ======== ========
See notes to consolidated financial statements 3 TF FINANCIAL CORPORATION AND SUBSIDIARIES UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except per share data)
For Three Months Ended March 31, --------------- 2004 2003 ---- ---- Interest income Loans $5,990 $6,051 Mortgage-backed securities 1,457 1,852 Investment securities 280 508 Interest bearing deposits and other 3 246 ------ ------ Total interest income 7,730 8,657 ------ ------ Interest expense Deposits 1,506 2,044 Advances from the Federal Home Loan Bank and other borrowings 646 2,778 ------ ------ Total interest expense 2,152 4,822 ------ ------ Net interest income 5,578 3,835 Provision for loan losses 150 90 ------ ------ Net interest income after provision for loan losses 5,428 3,745 ------ ------ Non-interest income Service fees, charges and other operating income 576 444 Bank-owned life insurance 133 134 Gain (loss) on sale of investment and mortgage-backed securities available for sale -- 506 ------ ------ Total non-interest income 709 1,084 ------ ------ Non-interest expense Compensation and benefits 2,274 2,023 Occupancy and equipment 595 628 Federal deposit insurance premium 18 19 Professional fees 206 160 Amortization of core deposit intangible 40 48 Advertising 163 138 Other operating 621 724 ------ ------ Total non-interest expense 3,917 3,740 ------ ------ Income before income taxes 2,220 1,089 Income tax expense 611 310 ------ ------ Net income $1,609 $ 779 ====== ====== Basic earnings per share $0.61 $0.31 Diluted earnings per share $0.57 $0.29 Dividends paid $0.15 $0.15
See notes to consolidated financial statements 4 TF FINANCIAL CORPORATION AND SUBSIDIARIES UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands)
For the three months ended March 31, --------- 2004 2003 -------- -------- Cash flows from operating activities Net income $ 1,609 $ 779 Adjustments to reconcile net income to net cash provided by operating activities: Mortgage loan servicing rights -- 3 Deferred loan origination fees (8) (104) Premiums and discounts on investment securities, net 21 (18) Premiums and discounts on mortgage-backed securities and loans, net 249 549 Amortization of core deposit intangible 40 48 Provision for loan losses 150 90 Depreciation of premises and equipment 234 257 Recognition of ESOP and MSBP expenses 144 116 Gain on sale of investment and mortgage-backed securities available for sale -- (506) Gain on sale of real estate (1) (11) Increase in value of bank-owned life insurance (132) (134) (Increase) decrease in: Accrued interest receivable 241 257 Other assets 839 (219) Increase (decrease) in: Accrued interest payable 397 610 Other liabilities (226) (300) -------- -------- Net cash provided (used) by operating activities 3,557 1,417 -------- -------- Cash flows from investing activities Loan originations (29,335) (24,375) Purchases of loans (3,428) (21,927) Loan principal payments 18,251 40,241 Proceeds from sale of mortgage-backed securities available for sale -- 12,363 Purchases of mortgage-backed securities available for sale (6,129) (25,327) Purchase of investment securities available for sale -- (15,628) Proceeds from maturities of investment securities held to maturity 2,000 1,330 Proceeds from maturities of investment securities available for sale -- 8,000 Principal repayments from mortgage-backed securities held to maturity 2,517 10,959 Principal repayments from mortgage-backed securities available for sale 7,196 10,685 (Purchases) and maturities of certificates of deposit in other financial institutions,net 117 (3) (Purchases) and redemptions of Federal Home Loan Bank stock, net 566 (422) Proceeds from sales of real estate 32 95 Purchase of real estate held for investment 3 -- Purchase of premises and equipment (196) (192) -------- -------- Net cash provided by (used in) investing activities (8,406) (4,201) -------- --------
See notes to consolidated financial statements 5 TF FINANCIAL CORPORATION AND SUBSIDIARIES UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS (continued) (in thousands)
For the three months ended March 31, --------- 2004 2003 ---- ---- Cash flows from financing activities Net increase in deposits 11,575 4,208 Net decrease in advances from Federal Home Loan Bank (7,944) (5,000) Net increase (decrease) in advances from borrowers for taxes and insurance 59 (174) Exercise of stock options 1,245 223 Purchase of treasury stock, net (1,216) -- Common stock cash dividend (394) (373) ------- -------- Net cash provided by (used in) financing activities 3,325 (1,116) ------- -------- Net (decrease) increase in cash and cash equivalents (1,524) (3,900) Cash and cash equivalents at beginning of period 8,241 100,580 ------- -------- Cash and cash equivalents at end of period $ 6,717 $ 96,680 ======= ======== Supplemental disclosure of cash flow information Cash paid for Interest on deposits and advances $1,755 $4,212 Income taxes $ 0 $ 150 Non-cash transactions Transfers from loans to real estate acquired through foreclosure $ 0 $1,805
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 March 31, 2004 (unaudited) and December 31, 2003 and for the three-month periods ended March 31, 2004 and 2003 (unaudited) include the accounts of TF Financial Corporation (the "Company") and its wholly owned subsidiaries Third Federal Savings Bank (the "Bank"), TF Investments Corporation and Penns Trail Development 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 period ended March 31, 2004 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, 2003. 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 position or results of operations. NOTE 4 - OTHER COMPREHENSIVE INCOME 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 March 31, 2004 and 2003 was $2,408,000 and $182,000, net of applicable income tax of $1,023,000 and $2,000, respectively. 7 TF FINANCIAL CORPORATION AND SUBSIDIARIES NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS NOTE 5 - EARNINGS PER SHARE
Three months ended March 31, 2004 --------------------------------- Weighted (000's) Average Income Shares Per share (numerator) (denominator) Amount ----------- ------------- ------ Basic earnings per share Income available to common stockholders $ 1,609 2,649,208 $ 0.61 Effect of dilutive securities Stock options - 171,464 (0.04) ------- --------- ------ Diluted earnings per share Income available to common stockholders plus effect of dilutive securities $ 1,609 2,820,672 $ 0.57 ======= ========= ======
Three months ended March 31, 2003 --------------------------------- Weighted (000's) Average Income Shares Per share (numerator) (denominator) Amount ----------- ------------- ------ Basic earnings per share Income available to common stockholders $779 2,488,406 $ 0.31 Effect of dilutive securities Stock options - 206,662 (0.02) ---- --------- ------ Diluted earnings per share Income available to common stockholders plus effect of dilutive securities $779 2,695,068 $ 0.29 ==== ========= ======
There were options to purchase 34,900 shares of common stock at a range of $25.33 to $28.00 per share which were outstanding during the three-month period ended March 31, 2003 that were not included in the computation of diluted earnings per share because the options' exercise prices were greater than the average market price of the common shares. 8 TF FINANCIAL CORPORATION AND SUBSIDIARIES NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS NOTE 6- STOCK BASED COMPENSATION The Company has several fixed stock option plans. The Company's employee stock option plans are accounted for using the intrinsic value method under APB Opinion No. 25, as permitted by SFAS No. 123. No stock-based compensation expense is reflected in net income, as all options granted under the plans had an exercise price equal to the market value of the underlying common stock on the date of the grant. Had compensation cost for the plans been determined based on the fair value of options at the grant dates consistent with the method of SFAS No. 123, "Accounting for Stock-Based Compensation," the Company's net income and earnings per share would have been reduced to the pro forma amounts indicated below (in thousands, except per share data):
Three months ended March 31, 2004 2003 ----------------------------- ---- ---- Net income As reported $1,609 $ 779 Deduct: stock-based compensation expense determined using the fair value method, net of related tax effects 25 11 ------ ------ Pro forma $1,584 $ 768 ====== ====== Basic earnings per share As reported $ 0.61 $ 0.31 Pro forma $ 0.60 $ 0.31 Diluted earnings per share As reported $ 0.57 $ 0.29 Pro forma $ 0.57 $ 0.29
Stock-based compensation expense included in net income is related to stock grants in lieu of salary and the Company's employee stock ownership plan. Such expense totaled $121,000 and $96,000 for the three-month periods ended March 31, 2004 and 2003, respectively. 9 TF FINANCIAL CORPORATION AND SUBSIDIARIES NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS NOTE 7- EMPLOYEE BENEFIT PLANS Net periodic defined benefit pension expense included the following components: Three months ended March 31, 2004 2003 ----------------------------- ---- ---- Service cost $ 57,936 $ 47,686 Interest cost 44,429 46,257 Expected return on plan assets (51,884) (54,318) Amortization of transition (asset)/obligation 1,002 1,337 Amortization of prior service costs 15,634 15,634 Amortization of unrecognized net actual loss 3,720 3,274 -------- -------- Net periodic benefit cost $ 70,837 $ 59,870 ======== ======== Management expects to make no contribution to the pension plan in 2004. The impact of the Pension Funding Equity Act which was enacted in April 2004 is currently being evaluated. NOTE 8- RECLASSIFICATIONS Certain prior year amounts have been reclassified to conform to the current period presentation. 10 TF FINANCIAL CORPORATION AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL POSITION AND RESULTS OF OPERATIONS GENERAL The Company 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 Position The Company's total assets at March 31, 2004 and December 31, 2003 were $613.2 million and $606.8 million, respectively, an increase of $6.4 million, or 1.1%, during the three-month period. Cash and cash equivalents decreased by $1.5 million. Investment securities available for sale increased by $0.05 million due to the increase in the market value of these securities. Investment securities held to maturity decreased by $2.0 million due to calls of such securities. Mortgage-backed securities available for sale decreased by $0.1 million as $7.2 million in principal pay-downs received was off-set by $6.1 million of security purchases as well as an increase in the market value of these securities totaling $1.2 million. Mortgage-backed securities held to maturity decreased by $2.5 million as a result of principal repayments. Loans receivable increased by $14.3 million for the three-month period. Consumer and single-family residential mortgage loans of $16.0 million and commercial loans of $13.3 million account for loan originations during the first quarter of 2004. Additionally, $3.4 million of newly originated, single-family residential mortgage loans were purchased during the three-month period. Offsetting these increases to loans receivable were $18.3 million of principal repayments. 11 Total liabilities increased by $4.3 million. Deposit growth during the first three months of 2004 was $11.6 million. Non-interest bearing demand deposits grew by $1.7 million while savings, money market, and interest-bearing checking accounts increased by a combined $2.3 million. Certificates of deposit decreased by $7.6 million. Advances from the Federal Home Loan Bank decreased by $7.9 million due to $3.0 million of scheduled loan amortization payments and repayments of $4.9 million of short-term advances, using funds generated by deposit growth, which replaced the Company's need for funding from the Federal Home Loan Bank. Total consolidated stockholders' equity of the Company was $57.7 million or 9.40% of total assets at March 31, 2004. During the first quarter of 2004 the Company repurchased 38,000 shares of its common stock and issued 107,868 shares pursuant to the exercise of stock options. As of March 31, 2004, there were approximately 114,000 shares available for repurchase under the previously announced share repurchase plan. Asset Quality During the first quarter of 2004, the Company's provision for loan and lease loss was $150,000 compared to $90,000 during the first quarter of 2003. The increase in the provision is consistent with the corresponding increase in balance of loans receivable. During the first quarter of 2003 the Company completed foreclosure proceedings on two related parcels of commercial real estate with a combined loan balance of $1.7 million. As of March 31, 2004 the Company continued to own one of the parcels. This parcel has been recorded as real estate owned at the lower of the recorded investment in the loan or estimated fair value in the amount of $0.8 million and is included in other assets in the statement of financial position at March 31, 2004. Management of the Company believes that there has not been any significant deterioration in its asset quality during such period. The following table sets forth information regarding the Company's asset quality (dollars in thousands):
March 31, December 31, March 31, --------- ------------ --------- 2004 2003 2003 ---- ---- ---- Non-performing loans $2,710 $2,282 $3,275 Ratio of non-performing loans to gross loans 0.64% 0.56% 0.93% Ratio of non-performing loans to total assets 0.44% 0.38% 0.45% Foreclosed property $837 $868 $84 Foreclosed property to total assets 0.14% 0.14% 0.01% Ratio of total non-performing assets to total assets 0.58% 0.52% 0.46%
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): 2004 2003 ---- ---- Beginning balance, January 1, $2,111 $2,047 Provision 150 90 Less: charge-off's (recoveries), net 39 79 ------ ------ Ending balance, March 31, $2,222 $2,058 ====== ====== 12 RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 2004 AND 2003 Net Income. The Company recorded a net income of $1,609,000, or $0.57 per diluted share, for the three months ended March 31, 2004 as compared to net income of $779,000, or $0.29 per diluted share, for the three months ended March 31, 2003. 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. Yield and cost 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 March 31, ---------------------------- 2004 2003 -------------------------------- ------------------------------- Average Average Average Average Balance Interest Yld/Cost Balance Interest Yld/Cost ------- -------- -------- ------- -------- -------- (dollars in thousands) Assets: Interest-earning assets: Loans receivable (1)....................... $410,976 $5,990 5.85% $366,561 $6,051 6.69% Mortgage-backed securities................. 130,658 1,457 4.47% 163,663 1,852 4.59% Investment securities...................... 30,453 280 3.69% 56,620 508 3.64% Other interest-earning assets(2)........... 1,570 3 0.77% 94,384 246 1.06% -------- ------ -------- ------ Total interest-earning assets............ 573,657 7,730 5.42% 681,228 8,657 5.15% ------ ------ Non interest-earning assets.................... 35,513 34,960 -------- -------- Total assets............................. $609,170 $716,188 ======== ======== Liabilities and stockholders' equity: Interest-bearing liabilities Deposits................................... $464,744 1,506 1.30% $442,687 2,044 1.87% Advances from the FHLB and other Borrowings...................... 83,314 646 3.11% 204,026 2,778 5.52% -------- ------ -------- ------ Total interest-bearing liabilities....... 548,058 2,152 1.58% 646,713 4,822 3.02% ------ ------ Non interest-bearing liabilities............... 5,233 6,422 -------- -------- Total liabilities........................ 553,291 653,135 Stockholders' equity........................... 55,879 63,053 -------- -------- Total liabilities and stockholders' equity.. $609,170 $716,188 ======== ======== Net interest income............................ $5,578 $3,835 ====== ====== Interest rate spread (3)....................... 3.84% 2.13% Net yield on interest-earning assets (4)....... 3.91% 2.28% 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. 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.
Three months ended March 31, 2004 vs. 2003 --------------------------------- Increase (decrease) due to --------------------------------- Volume Rate Net --------------------------------- Interest income: Loans receivable, net $ 3,011 $(3,072) (61) Mortgage-backed securities (351) (44) (395) Investment securities (276) 48 (228) Other interest-earning assets (190) (53) (243) ------- ------- ------- Total interest-earning assets 2,194 (3,121) (927) ===== ====== ==== Interest expense: Deposits 635 (1,173) (538) Advances from the FHLB and other borrowings (1,227) (905) (2,132) ------- ------- ------- Total interest-bearing liabilities (592) (2,078) (2,670) ==== ====== ====== Net change in net interest income $ 2,786 $(1,043) $ 1,743 ======= ======= =======
Total Interest Income. Total interest income decreased by $0.9 million or 10.7% to $7.7 million for the quarter ended March 31, 2004 compared with the first quarter of 2003 primarily because of low market interest rates which resulted in a significant amount of loan prepayments during the intervening period. Increased loan originations at the Bank contributed to loan income in a manner that largely offset the impact caused by the low market interest rates. Interest income from mortgage-backed securities, investment securities and other interest-earning assets was lower in the first three months of 2004 in comparison to the same period of 2003. This decrease is consistent with the reduction in the balances maintained in these types of interest-earning assets. Total Interest Expense. Total interest expense decreased by $2.7 million to $2.1 million during the three-month period ended March 31, 2004 as compared with the first quarter of 2003. The 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 Bank's renewing certificates of deposit that had been originated when market interest rates were higher. In addition, the Bank 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 and the Bank's competitors. The repayment and refinancing of the Federal Home Loan Bank Advances that occurred at the end of the third quarter of 2003 also contributed to the overall reduction of interest expense. 14 Non-interest income. Total non-interest income was $709,000 for the three-month period ended March 31, 2004 compared with $1,084,000 for the same period in 2003. The decrease was primarily due to $506,000 in net gains on sales of mortgage-backed securities available for sale during the first quarter of 2003 while, conversely, there were no such sales during the same period in 2004. Retail banking fees were $131,000 greater over the period as a result of a $76,000 increase in overdraft and uncollected fees. Also, the collection of mortgage brokered fees and a growth in other loan fees contributed to the increase during the period. Non-interest expense. Total non-interest expense increased by $177,000 to $3.9 million for the three months ended March 31, 2004 compared to the same time in 2003. Compensation and benefit expenses were higher by $251,000 due to increases in salary and compensation costs of the Company. Professional expenses of the Company were $46,000 higher mainly because of compliance and audit work that was outsourced. In contrast, other operating expenses decreased $103,000 between the two quarters mostly due to a $55,000 decline in loan expenses related to single-family residential mortgage loans. 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 three-month period ended March 31, 2004 in the ability of the Company and its subsidiaries to fund their operations. At March 31, 2004, the Company had commitments outstanding under letters of credit of $1 million, commitments to originate loans of $21.9 million, and commitments to fund undisbursed balances of closed loans and unused lines of credit of $51.5 million. There has been no material change during the three months ended March 31, 2004 in any of the Company's other contractual obligations or commitments to make future payments. Capital Requirements The Bank was in compliance with all of its capital requirements as of March 31, 2004. 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 three months ended March 31, 2004. CONTROLS AND PROCEDURES Evaluation of Disclosure Controls and Procedures Based on their evaluation of the Company's disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934 (the "Exchange Act")), the Company's principal executive officer and principal financial officer have concluded that as of the end of the period covered by this Quarterly Report on Form 10-Q such disclosure controls and procedures are effective to ensure that information required to be disclosed by the Company in reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms. Changes in Internal Controls over Financial Reporting During the quarter under report, there was no change in the Company's internal control over financial reporting that has materially affected, or is reasonably likely to materially affect, the Company's internal control over financial reporting. 16 CRITICAL ACCOUNTING POLICIES Certain critical accounting policies of the Company require the use of significant judgment and accounting estimates in the preparation of the consolidated financial statements and related data of the Company. These accounting estimates require management to make assumptions about matters that are highly uncertain at the time the accounting estimate is made. Management believes that the most critical accounting policy requiring the use of accounting estimates and judgment is the determination of the allowance for loan losses. If the financial position of a significant amount of debtors should deteriorate more than the Company has estimated, present reserves for loan losses may be insufficient and additional provisions for loan losses may be required. The allowance for loan losses was $2,222,000 at March 31, 2004. NEW ACCOUNTING PRONOUNCEMENTS On March 31, 2004, the Financial Accounting Standards Board (FASB) issued a proposed Statement, "Share-Based Payment an Amendment of FASB Statements No. 123 and APB No. 95", that addresses the accounting for share-based payment transaction in which an enterprise receives employee services in exchange for (a) equity instruments of the enterprise or (b) liabilities that are based on the fair value of the enterprise's equity instruments or that may be settled by the issuance of such equity instruments. Under the FASB's proposal, all forms of share-based payments to employees, including stock options, would be treated the same as other forms of compensation by recognizing the related cost in the income statement. The expense of the award would generally be measured at fair value at the grant date. Current accounting guidance requires that the expense relating to so-called fixed plan employee stock options only be disclosed in the footnotes to the financial statements. The proposed Statement would eliminate the ability to account for share-based compensation transactions using APB Opinion No. 25, "Accounting for Stock Issued to Employees." The Company is currently evaluating this proposed statement and its effects on its results of operations. In March 2004 the Securities and Exchange Commission staff released Staff Accounting Bulletin (SAB) 105, "Loan Commitments Accounted for as Derivative Instruments." SAB 105 requires that a lender should not consider the expected cash flows related to loan servicing or include any internally developed intangible assets in determining the fair value of loan commitments accounted for as derivatives. Companies will be required to adopt SAB 105 effective for commitments entered into after March 31, 2004. The requirements of SAB 105 will apply to the Company's mortgage interest rate lock commitments related to loans held for sale. At March 31, 2004, the Company did not have such commitments subject to the provisions of SAB 105. The Company anticipates that the implementation of SAB 105 will not have a material impact on the effect on the Company's financial position or results of operations. 17 TF FINANCIAL CORPORATION AND SUBSIDIARIES PART II ITEM 1. LEGAL PROCEEDINGS Not applicable. ITEM 2. CHANGES IN SECURITIES, USE OF PROCEEDS AND ISSUER PURCHASES OF EQUITY SECURITIES The following table provides information on repurchases by the Company of its common stock in each month of the quarter ended March 31, 2004:
Total Number of Maximum Number of Total Shares Purchased as Shares that may yet Number of Part of Publicly be Purchased Under Shares Average Price Announced Plan of the Plans or Period Purchased Paid per Share Program Programs ------ --------- -------------- ------- -------- January 1, 2004 through -- -- -- 114,082 January 31, 2004 February 1, 2004 through -- -- -- 114,082 February 29, 2004 March 1 Through 38,000 $32.00 -- 114,082 March 31, 2004
The total number of shares repurchased during the quarter was directly related to the exercise of stock options. The repurchase poses no modification to the rights of stockholders. Furthermore, there has been no change in the ability of the Company to pay dividends or any material change in the working capital of the Company. The stock repurchase did not alter the previously approved stock repurchase plan of the Company. ITEM 3. DEFAULTS UPON SENIOR SECURITIES Not applicable. 18 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS The Annual Meeting of Stockholders (the "Meeting") of the Company was held on April 28, 2004. There were outstanding and entitled to vote at the Meeting 2,885,502 shares of Common Stock of the Company. There were present at the meeting or by proxy the holders of 2,611,478 shares of Common Stock representing 90.51% of the total eligible votes to be cast. Proposal 1 was to elect two directors of the Company. Proposal 2 was to ratify the appointment of the independent auditor for the December 31, 2004 fiscal year. Proposal 3, a shareholder submitted proposal, was to take the necessary steps to remove any provisions in the Company's Certificate of Incorporation and Bylaws that segregate the Board of Directors into separate classes with staggered terms of office. The result of the voting at the Meeting is as follows (percentages in terms of votes cast):
Proposal 1 George A. Olsen FOR: 2,314,744 PERCENT FOR: 88.64% WITHHELD: 296,734 PERCENT WITHHELD: 11.36% Dennis L. McCartney FOR: 2,316,547 PERCENT FOR: 88.71% WITHHELD: 294,931 PERCENT WITHHELD: 11.29% Proposal 2 Ratification of the appointment of Grant Thornton, LLP as independent auditor for the Company for the December 31, 2004 fiscal year. FOR: 2,550,903 PERCENT FOR: 97.68% AGAINST: 21,005 PERCENT AGAINST: 0.80% ABSTAIN: 39,570 PERCENT ABSTAIN 1.52% Proposal 3 To remove provisions from the Company's Certificate of Incorporation and Bylaws that segregate the Board of Directors into separate classed with staggered terms of office. FOR: 850,328 PERCENT FOR: 40.67% AGAINST: 1,228,798 PERCENT AGAINST: 58.77% ABSTAIN: 11,860 PERCENT ABSTAIN 0.56%
ITEM 5. OTHER INFORMATION None ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits 31. Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2003. 32. Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2003. (b) Reports on Form 8-K On April 22, 2004 the Company filed a Form 8-K wherein the Company included the press release announcing the Company's earnings for the first quarter of 2004. 19 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/ Kent C. Lufkin ------------------------------------------ Date: May 14, 2004 Kent C. Lufkin President and CEO (Principal Executive Officer) /s/ Dennis R. Stewart ------------------------------------------ Date: May 14, 2004 Dennis R. Stewart Executive Vice President and Chief Financial Officer (Principal Financial & Accounting Officer) 20 EX-31 2 ex-31.txt CERTIFICATIONS - SECTION 302 Exhibit 31.1 CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2003 I, Kent C. Lufkin, 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 position, 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-15(e)) for the Registrant and we have: a) designed such disclosure controls and procedures , or caused such disclosure controls and procedures to be designed under our supervision, 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 and presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and c) disclosed in this report any change in the Registrant's internal control over financial reporting that occurred during the Registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Registrant's internal control over financial reporting; and 5. The Registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f)), 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 and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Registrant's ability to record, process, summarize and report financial information; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant's internal control over financial reporting. /s/ Kent C. Lufkin ------------------------------------- Date: May 14, 2004 Kent C. Lufkin President and Chief Executive Officer (Principal Executive Officer) Exhibit 31.2 CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2003 I, Dennis R. Stewart, Executive Vice 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 position, 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-15(e)) for the Registrant and we have: a) designed such disclosure controls and procedures , or caused such disclosure controls and procedures to be designed under our supervision, 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 and presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and c) disclosed in this report any change in the Registrant's internal control over financial reporting that occurred during the Registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Registrant's internal control over financial reporting; and 5. The Registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f)), 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 and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Registrant's ability to record, process, summarize and report financial information; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant's internal control over financial reporting. /s/ Dennis R. Stewart ------------------------------------------ Date: May 14, 2004 Dennis R. Stewart Executive Vice President and Chief FinancialOfficer (Principal Financial & Accounting Officer) EX-32 3 ex-32.txt CERTIFICATION - SECTION 906 Exhibit 32 CERTIFICATION PURSUANT TO 18 U.S.C. ss. 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2003 In connection with the Quarterly Report on Form 10-Q for the quarter ended March 31, 2004 (the "Report") of TF Financial Corporation (the "Company") as filed with the Securities and Exchange Commission on the date hereof, we, Kent C. Lufkin, President and Chief Executive Officer, and Dennis R. Stewart, Executive 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 2003, 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 position and results of operations of the Company. /s/ Kent C. Lufkin ------------------------------------------ Date: May 14, 2004 Kent C. Lufkin President and CEO (Principal Executive Officer) /s/ Dennis R. Stewart ------------------------------------------ Date: May 14, 2004 Dennis R. Stewart Executive Vice President and Chief Financial Officer (Principal Financial & Accounting Officer) -----END PRIVACY-ENHANCED MESSAGE-----