-----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, C1imuMSNGd65K5H4Cl6VN7jDkZCL5Ur0lqQePEW8aQAfy7k2pqXSQbtvrdQBJCIi mAWqtpFnxj/XIOtbmSqJbg== 0000946275-04-001076.txt : 20041115 0000946275-04-001076.hdr.sgml : 20041115 20041115140425 ACCESSION NUMBER: 0000946275-04-001076 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20040930 FILED AS OF DATE: 20041115 DATE AS OF CHANGE: 20041115 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: 041143827 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_093004-0084.txt 10Q 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, 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: November 8, 2004 Class Outstanding ---------------------------- ---------------- $.10 par value common stock 2,944,009 shares TF FINANCIAL CORPORATION AND SUBSIDIARIES FORM 1O-Q FOR THE QUARTER ENDED SEPTEMBER 30, 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 13 Item 3. Quantitative and Qualitative Disclosures about Market Risk 21 Item 4. Controls and Procedures 21 PART II- OTHER INFORMATION Item 1. Legal Proceedings 23 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 23 Item 3. Defaults Upon Senior Securities 24 Item 4. Submission of Matters to a Vote of Security Holders 24 Item 5. Other Information 24 Item 6. Exhibits 24 SIGNATURES 25 EXHIBITS 31. Certifications pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 26 32. Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 28 2 TF FINANCIAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF FINANCIAL POSITION (in thousands)
Unaudited Audited September 30, December 31, 2004 2003 ---- ---- Assets Cash and cash equivalents $ 6,650 $ 8,241 Certificates of deposit in other financial institutions 38 155 Investment securities available for sale - at fair value 17,630 14,433 Investment securities held to maturity (fair value of $7,277 and $10,815, respectively) 7,045 10,389 Mortgage-backed securities available for sale - at fair value 109,462 106,774 Mortgage-backed securities held to maturity (fair value of $17,179 and $24,774, respectively) 16,427 23,630 Loans receivable, net 435,174 404,649 Federal Home Loan Bank stock - at cost 7,573 6,825 Accrued interest receivable 2,469 2,671 Core deposit intangible, net of accumulated amortization of $2,577 and $2,456, respectively 247 368 Goodwill, net of accumulated amortization of $2,328 4,324 4,324 Premises and equipment, net 5,937 6,268 Other assets 16,481 18,025 -------- -------- Total assets $629,457 $606,752 ======== ======== Liabilities and stockholders' equity Liabilities Deposits $457,892 $459,343 Advances from the Federal Home Loan Bank 108,078 86,853 Advances from borrowers for taxes and insurance 1,179 1,738 Accrued interest payable 1,961 1,908 Other liabilities 2,172 1,430 -------- -------- Total liabilities 571,282 551,272 -------- -------- 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; 2,701,901 and 2,596,037 shares outstanding at September 30, 2004 and December 31, 2003, net of treasury shares of 2,381,768 and 2,474,366, respectively. 529 529 Retained earnings 56,301 52,626 Additional paid-in capital 50,394 51,982 Unearned ESOP shares (2,063) (2,196) Treasury stock - at cost (46,644) (47,043) Accumulated other comprehensive loss (342) (418) -------- -------- Total stockholders' equity 58,175 55,480 -------- -------- Total liabilities and stockholders' equity $629,457 $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 For Nine Months Ended September 30, Ended September 30, ------------------- ------------------- 2004 2003 2004 2003 ---- ---- ---- ---- Interest income Loans $6,095 $ 5,660 $18,045 $17,336 Mortgage-backed securities 1,490 1,621 4,478 5,318 Investment securities 279 505 839 1,531 Interest bearing deposits and other 4 49 11 463 ------ ------- ------- ------- Total interest income 7,868 7,835 23,373 24,648 ------ ------- ------- ------- Interest expense Deposits 1,456 1,638 4,440 5,506 Advances from the Federal Home Loan Bank 758 2,078 2,077 7,558 ------ ------- ------- ------- Total interest expense 2,214 3,716 6,517 13,064 ------ ------- ------- ------- Net interest income 5,654 4,119 16,856 11,584 Provision for loan losses 150 90 450 270 ------ ------- ------- ------- Net interest income after provision for loan losses 5,504 4,029 16,406 11,314 ------ ------- ------- ------- Non-interest income Service fees, charges and other operating income 463 435 1,584 1,320 Bank-owned life insurance 132 154 401 416 Gain (loss) on sale of investment and mortgage-backed securities -- (377) -- 208 available for sale Gain on sale of real estate -- 110 -- 110 ------ ------- ------- ------- Total non-interest income 595 322 1,985 2,054 ------ ------- ------- ------- Non-interest expense Compensation and benefits 2,160 1,996 6,681 6,056 Occupancy and equipment 613 675 1,852 1,905 Federal deposit insurance premium 17 18 53 55 Professional fees 121 110 459 428 Amortization of core deposit intangible 41 49 121 145 Advertising 164 138 490 413 Debt prepayment fee -- 13,765 -- 13,765 Other operating 627 727 1,873 2,049 ------ ------- ------- ------- Total non-interest expense 3,743 17,478 11,529 24,816 ------ ------- ------- ------- Income (loss) before income taxes 2,356 (13,127) 6,862 (11,448) Income tax expense (benefit) 642 (4,562) 1,883 (4,098) ------ ------- ------- ------- Net income (loss) $1,714 $(8,565) $ 4,979 $(7,350) ====== ======= ======= ======= Basic earnings (loss) per share $ 0.64 $ (3.33) $ 1.86 (2.91) Diluted earnings (loss) per share $ 0.61 $ (3.33) $ 1.77 (2.91) Dividends paid $ 0.17 $ 0.15 $ 0.49 $ 0.45
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, ------------- 2004 2003 ---- ---- Cash flows from operating activities Net income (loss) $ 4,979 $(7,350) Adjustments to reconcile net income to net cash provided by operating activities: Mortgage loan servicing rights -- 11 Deferred loan origination fees (10) (174) Premiums and discounts on investment securities, net 54 150 Premiums and discounts on mortgage-backed securities and loans, net 565 1,642 Amortization of core deposit intangible 121 145 Provision for loan losses and provision for losses on real estate 450 270 Adjustments to the net realizable value of real estate owned 30 12 Depreciation of premises and equipment 725 809 Recognition of employee stock ownership plan expense 396 427 Gain on sale of investment and mortgage-backed securities available for sale -- (208) Gain on sale of real estate (1) (123) Increase in value of bank-owned life insurance (401) (416) (Increase) decrease in: Accrued interest receivable 202 1,109 Other assets 1,881 (5,012) Increase (decrease) in: Accrued interest payable 53 (379) Other liabilities 704 1,807 ------- ------ Net cash provided (used) by operating activities 9,748 (7,280) ------- ------ Cash flows from investing activities Loan originations (108,130) (131,604) Purchases of loans (3,922) (23,035) Loan principal payments 80,997 121,646 Proceeds from sale of investment securities available for sale -- 70,753 Proceeds from sale of mortgage-backed securities available for sale -- 24,440 Purchases of mortgage-backed securities available for sale (27,701) (65,873) Purchase of investment securities available for sale (3,040) (95,737) Proceeds from maturities of investment securities held to maturity 3,295 4,105 Proceeds from maturities of investment securities available for sale -- 40,000 Principal repayments from mortgage-backed securities held to maturity 7,204 26,533 Principal repayments from mortgage-backed securities available for sale 24,489 51,451 Purchase of bank-owned insurance -- (1,500) (Purchases) and maturities of certificates of deposit in other financial institutions,net 117 (9) (Purchases) and redemptions of Federal Home Loan Bank stock, net (748) 164 Proceeds from sales of real estate 32 473 Purchase of real estate held for investment 3 (5) Purchase of premises and equipment (394) (597) ------- ------ Net cash provided by (used in) investing activities (27,798) 21,205 ------- ------
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, ------------- 2004 2003 ---- ---- Cash flows from financing activities Net increase (decrease) in deposits (1,451) 12,190 Net increase (decrease) in advances from Federal Home Loan Bank 21,225 (120,259) Net increase (decrease) in advances from borrowers for taxes and insurance (559) (208) Exercise of stock options 2,802 1,009 Purchase of treasury stock, net (4,254) -- Common stock cash dividend (1,304) (1,131) -------- --------- Net cash provided by (used in) financing activities 16,459 (108,399) -------- --------- Net decrease in cash and cash equivalents (1,591) (94,474) Cash and cash equivalents at beginning of period 8,241 100,580 -------- --------- Cash and cash equivalents at end of period $ 6,650 $ 6,106 ======== ========= Supplemental disclosure of cash flow information Cash paid for Interest on deposits and advances from FHLB $ 6,464 $ 13,443 Income taxes $ 0 $ 250 Non-cash transactions Transfers from loans to real estate acquired through foreclosure $ 0 $ 1,857 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, 2004 (unaudited) and December 31, 2003 and for the nine-month periods ended September 30, 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 September 30, 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 (loss) consists of net unrealized gains (losses) on investment securities and mortgage-backed securities available for sale. Total comprehensive income (loss) for the three-month periods ended September 30, 2004 and 2003 was $2,746,000 and $(9,578,000), net of applicable income tax expense (benefit) of $1,173,000 and $(5,084,000), respectively. Total comprehensive income (loss) for the nine-month periods ended September 30, 2004 and 2003 was $5,055,000 and $(8,971,000), net of applicable income tax expense (benefit) of $1,921,000 and $(4,933,000), respectively. 7 TF FINANCIAL CORPORATION AND SUBSIDIARIES NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS NOTE 5 - EARNINGS PER SHARE
Three months ended September 30, 2004 ------------------------------------- Weighted (000's) Average Income Shares Per share (numerator) (denominator) Amount ----------- ------------- ------ Basic earnings per share Income available to common stockholders $ 1,714 2,692,211 $ 0.64 Effect of dilutive securities Stock options - 108,516 (0.03) ------- --------- ------ Diluted earnings per share Income available to common stockholders plus effect of dilutive securities $ 1,714 2,800,727 $ 0.61 ======= ========= ======
Nine months ended September 30, 2004 ------------------------------------ Weighted (000's) Average Income Shares Per share (numerator) (denominator) Amount ----------- ------------- ------ Basic earnings per share Income available to common stockholders $ 4,979 2,673,448 $ 1.86 Effect of dilutive securities Stock options - 144,734 (0.09) ------- --------- ------ Diluted earnings per share Income available to common stockholders plus effect of dilutive securities $ 4,979 2,818,182 $ 1.77 ======= ========= ======
There were options to purchase 31,816 shares of common stock at a price of $34.14 per share which were outstanding during the nine months ended September 30, 2004 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 5 - EARNINGS PER SHARE (continued)
Three months ended September 30, 2003 ------------------------------------- Weighted (000's) Average Income Shares Per share (numerator) (denominator) Amount ----------- ------------- ------ Basic earnings (loss) per share Income (loss) available to common stockholders $ (8,565) 2,571,947 $ (3.33) Effect of dilutive securities Stock options -- 216,749 -- -------- --------- ------- Diluted earnings (loss) per share Income (loss) available to common stockholders plus effect of dilutive securities $ (8,565) 2,788,696 $ (3.33) ======== ========= =======
Nine months ended September 30, 2003 ------------------------------------ Weighted (000's) Average Income Shares Per share (numerator) (denominator) Amount ----------- ------------- ------ Basic earnings (loss) per share Income (loss) available to common stockholders $ (7,350) 2,525,970 $ (2.91) Effect of dilutive securities Stock options - 210,595 -- -------- --------- ------- Diluted earnings (loss) per share Income (loss) available to common stockholders plus effect of dilutive securities (7,350) 2,736,565 $ (2.91) ======== ========= =======
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 nine months ended September 30, 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. 9 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 September 30, 2004 2003 -------------------------------- ---- ---- Net income (loss) As reported $1,714 $(8,565) Deduct: stock-based compensation expense determined using the fair value method, net of related tax effects 25 17 ------ ------- Pro forma $1,689 $(8,582) ====== ======= Basic earnings (loss) per share As reported $0.64 $(3.33) Pro forma $0.63 $(3.34) Diluted earnings (loss) per share As reported $0.61 $(3.33) Pro forma $0.61 $(3.34) 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 $95,000 and $140,000 for the three-month periods ended September 30, 2004 and 2003, respectively. 10 TF FINANCIAL CORPORATION AND SUBSIDIARIES NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS NOTE 6- STOCK BASED COMPENSATION (continued) Nine months ended September 30, 2004 2003 ------------------------------- ---- ---- Net income (loss) As reported $4,979 $(7,350) Deduct: stock-based compensation expense determined using the fair value method, net of related tax effects 76 39 ------ ------- Pro forma $4,903 $(7,389) ====== ======= Basic earnings (loss) per share As reported $1.86 $(2.91) Pro forma $1.84 $(2.93) Diluted earnings (loss) per share As reported $1.77 $(2.91) Pro forma $1.76 $(2.93) 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 $322,000 and $368,000 for the nine-month periods ended September 30, 2004 and 2003, respectively. 11 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 September 30, 2004 2003 -------------------------------- ---- ---- Service cost $ 57,569 $ 47,686 Interest cost 47,413 46,256 Expected return on plan assets (52,367) (54,317) Amortization of transition (asset)/obligation 1,002 1,337 Amortization of prior service costs 15,634 15,634 Amortization of unrecognized net actual loss 6,014 3,273 -------- -------- Net periodic benefit cost $ 75,265 $ 59,869 ======== ======== Nine months ended September 30, 2004 2003 ------------------------------- ---- ---- Service cost $172,706 $143,057 Interest cost 142,240 138,770 Expected return on plan assets (157,103) (162,953) Amortization of transition (asset)/obligation 3,005 4,011 Amortization of prior service costs 46,902 46,902 Amortization of unrecognized net actual loss 18,042 9,821 -------- -------- Net periodic benefit cost $225,792 $179,608 ======== ========
As of September 30, 2004, $30,000 of contributions has been made to the pension plan. Management does not anticipate any additional contributions 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. 12 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 September 30, 2004 and December 31, 2003 were $629.5 million and $606.8 million, respectively, an increase of $22.7 million, or 3.7%, during the nine-month period. Cash and cash equivalents decreased by $1.6 million. Investment securities available for sale increased by $3.2 million, the net effect of the purchases of $3.0 million and a $0.2 million increase in the market value of these securities. Investment securities held to maturity decreased by $3.3 million due to the maturities of such securities. Mortgage-backed securities available for sale increased by $2.7 million as $27.7 million in security purchases was off-set by $24.5 million of principal payments and premium amortization of $0.5 million. Mortgage-backed securities held to maturity decreased by $7.2 million as a result of principal repayments. Loans receivable increased by $30.5 million for the nine-month period. Consumer and single-family residential mortgage loans of $66.7 million and commercial loans of $41.4 million comprised loan originations during the first nine months of 2004. Additionally, $3.7 million of newly originated, single-family residential mortgage loans were purchased during the nine-month period. Offsetting these increases to loans receivable were $81.0 million of principal repayments. 13 Total liabilities increased by $20.0 million. Deposit growth during the first nine months of 2004 was $1.5 million. Non-interest bearing demand deposits increased by $5.7 million while savings, money market, and interest-bearing checking accounts decreased by a combined $6.6 million. Certificates of deposit decreased by $0.6 million. Advances from the Federal Home Loan Bank increased by $21.2 million due to a $25.0 million increase in long-term fixed rate advances and $5.6 million of short-term advances, less scheduled amortization payments of $9.4 million. Total consolidated stockholders' equity of the Company was $58.2 million or 9.24% of total assets at September 30, 2004. During the first three quarters of 2004 the Company repurchased 149,608 shares of its common stock and issued 242,206 shares pursuant to the exercise of stock options. As of September 30, 2004, there were 101,123 shares available for repurchase under the previously announced share repurchase plan. Asset Quality During the first nine months of 2004, the Company's provision for loan losses was $450,000 compared to $270,000 during the same period in 2003. The resulting increase in the allowance for loan losses is consistent with the corresponding increase in balance of loans receivable. As of September 30, 2004, the Company owned one parcel of foreclosed real estate. 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 September 30, 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):
September 30, December 31, September 30, ------------- ------------ ------------- 2004 2003 2003 ---- ---- ---- Non-performing loans $1,813 $2,282 $2,905 Ratio of non-performing loans to gross loans 0.41% 0.56% 0.72% Ratio of non-performing loans to total assets 0.29% 0.38% 0.48% Foreclosed property $ 807 $ 868 $1,763 Foreclosed property to total assets 0.13% 0.14% 0.29% Ratio of total non-performing assets to total assets 0.42% 0.52% 0.77%
Management maintains an allowance for loan losses at levels that are believed to be adequate; however, there can be no assurances that further additions will not be necessary or that losses inherent in the existing loan portfolios will not exceed the allowance. The following table sets forth the activity in the allowance for loan losses during the periods indicated (in thousands): 2004 2003 ---- ---- Beginning balance, January 1, $2,111 $2,047 Provision 450 270 Less: charge-off's (recoveries), net 376 345 ------ ------ Ending balance, September 30, $2,185 $1,972 ====== ====== 14 RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2004 AND 2003 Net Income. The Company recorded net income of $1,714,000, or $0.61 per diluted share, for the three months ended September 30, 2004 as compared to a net loss of $8,565,000, or $3.33 per diluted share, for the three months ended September 30, 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 September 30, -------------------------------- 2004 2003 -------------------------------- ------------------------------- Average Average Average Average Balance Interest Yld/Cost Balance Interest Yld/Cost ------- -------- -------- ------- -------- -------- (dollars in thousands) Assets: Interest-earning assets: Loans receivable (1)....................... $426,686 $6,095 5.68% $381,005 $5,660 5.89% Mortgage-backed securities................. 129,715 1,490 4.57% 155,260 1,621 4.14% Investment securities(2)................... 31,117 340 4.35% 85,847 552 2.55% Other interest-earning assets(3)........... 685 4 2.32% 21,685 49 0.90% -------- ------ -------- ------ Total interest-earning assets............ 588,203 7,929 5.36% 643,797 7,882 4.86% Non interest-earning assets.................... 36,358 ------ 33,670 ------ -------- -------- Total assets............................. $624,561 $677,467 ======== ======== Liabilities and stockholders' equity: Interest-bearing liabilities Deposits................................... $465,782 1,456 1.24% $452,145 1,638 1.44% Advances from the FHLB..................... 96,090 758 3.14% 158,357 2,078 5.21% -------- ------ -------- ------ Total interest-bearing liabilities....... 561,872 2,214 1.56% 610,502 3,716 2.42% Non interest-bearing liabilities............... 5,327 ------ 3,661 ------ -------- -------- Total liabilities........................ 567,199 614,163 Stockholders' equity........................... 57,362 63,304 -------- -------- Total liabilities and stockholders' equity $624,561 $677,467 ======== ======== Net interest income............................ $5,715 $4,166 ====== ====== Interest rate spread (4)....................... 3.80% 2.44% Net yield on interest-earning assets (5)....... 3.87% 2.57% 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) Tax equivalent adjustments to interest on investment securities for the quarter ended September 30, 2004 and 2003 were $61,000 and $47,000 respectively. Tax equivalent interest income is based upon a marginal effective tax rate of 34%. (3) Includes interest-bearing deposits in other banks. (4) Interest-rate spread represents the difference between the average yield on interest-earning assets and the average cost of interest-bearing liabilities. (5) Net yield on interest-earning assets represents net interest income as a percentage of average interest-earning assets. 15 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, 2004 vs. 2003 ----------------------------------------------- Increase (decrease) due to ----------------------------------------------- Volume Rate Net ----------------------------------------------- Interest income: Loans receivable, net $1,573 $(1,138) $ 435 Mortgage-backed securities (896) 765 (131) Investment securities (1,566) 1,354 (212) Other interest-earning assets (251) 206 (45) ----------------------------------------------- Total interest-earning assets (1,140) 1,187 47 =============================================== Interest expense: Deposits 287 (469) (182) Advances from the FHLB and other borrowings (657) (663) (1,320) ----------------------------------------------- Total interest-bearing liabilities (370) (1,132) (1,502) =============================================== Net change in net interest income $ (770) $ 2,319 $ 1,549 ===============================================
Total Interest Income. Total interest income, on a taxable equivalent basis, increased by $47,000 or 0.6% to $7.9 million for the quarter ended September 30, 2004, compared with the same quarter of 2003. Low market interest rates on loans resulted in a significant amount of loan prepayments during the intervening period, lowering the yield on the remaining portfolio. However, increased loan originations at the Bank and resulting loan portfolio growth contributed to loan interest income in a manner that largely offset the impact caused by the lower market interest rates. Interest income from mortgage-backed securities, investment securities and other interest-earning assets was lower in the third quarter of 2004 in comparison to the same period of 2003. This decrease was largely caused by the reduction in the lower yielding balances maintained in these types of interest-earning assets as a result of the debt refinancing transaction executed during the third quarter of 2003. Total Interest Expense. Total interest expense decreased by $1.5 million to $2.2 million during the three-month period ended September 30, 2004 as compared with the related quarter of 2003. The decrease in the market interest rates and the lower rates paid on the Bank's renewing certificates of deposit that had been originated when market interest rates were higher was more than offset by the increase in the average balance of deposits during the period. However, the repayment and refinancing of the Federal Home Loan Bank Advances that occurred at the end of the third quarter of 2003 was the primary factor in the overall reduction of interest expense. 16 Non-interest income. Total non-interest income was $595,000 for the three-month period ended September 30, 2004 compared with $322,000 for the same period in 2003. Net losses on sales of mortgage-backed securities and investments available for sale during the third quarter of 2003 totaled $377,000 while, conversely, there were no such sales during the same period in 2004. In addition, the Company recorded a gain of $110,000 during the third quarter of 2003 on the sale of real estate while there was no such gain during the third quarter of 2004. Non-interest expense. Total non-interest expense decreased by $13.7 million to $3.7 million for the three months ended September 30, 2004 compared to the same period in 2003. The decrease in non-interest expense was associated with the debt prepayment fee of $13.8 million paid during the third quarter of 2003 as a result the repayment and refinancing of Federal Home Loan Bank borrowings. Without this fee, non-interest expenses increased by $30,000 during the third quarter of 2004 compared with the third quarter of 2003. Compensation and benefit expenses were higher by $164,000 due largely to additional mortgage origination and commercial lending personnel added during the fourth quarter of 2003 and the first nine months of 2004. Occupancy and equipment costs dropped due to a one time $62,000 expense booked during the third quarter of 2003 associated with revisions in the useful lives of certain depreciable and amortizable assets. Additionally, other operating expenses decreased $100,000 between the two quarters primarily due to $80,000 of various deposit items, reconciling and other losses, which were expensed during the third quarter of 2003. 17 RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2004 AND 2003 Net Income. The Company recorded net income of $4,979,000, or $1.86 per diluted share, for the nine months ended September 30, 2004 as compared to a net loss of $7,350,000, or $2.91 per diluted share, for the nine months ended September 30, 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.
Nine months ended September 30, ------------------------------- 2004 2003 -------------------------------- --------------------------------- Average Average Average Average Balance Interest Yld/Cost Balance Interest Yld/Cost ------- -------- -------- ------- -------- -------- (dollars in thousands) Assets: Interest-earning assets: Loans receivable (1)....................... $418,765 $18,045 5.76% $370,543 $17,336 6.26% Mortgage-backed securities................. 130,835 4,478 4.57% 163,697 5,318 4.34% Investment securities...................... 30,563 1,001 4.37% 73,131 1,644 3.01% Other interest-earning assets(2)........... 1,299 11 1.13% 59,882 463 1.03% -------- ------- -------- ------- Total interest-earning assets............ 581,462 23,535 5.41% 667,253 24,761 4.96% Non interest-earning assets.................... 34,841 ------- 34,789 ------- -------- -------- Total assets............................. $616,303 $702,042 ======== ======== Liabilities and stockholders' equity: Interest-bearing liabilities Deposits................................... $467,304 4,440 1.27% $447,049 5,506 1.65% Advances from the FHLB..................... 87,494 2,077 3.17% 186,377 7,558 5.42% -------- ------- -------- ------- Total interest-bearing liabilities............. 554,798 6,517 1.57% 633,426 13,064 2.76% Non interest-bearing liabilities............... 5,453 ------- 5,439 ------- -------- -------- Total liabilities........................ 560,251 638,865 Stockholders' equity........................... 56,052 63,177 -------- -------- Total liabilities and stockholders' equity $616,303 $702,042 ======== ======== Net interest income............................ $17,018 $11,697 ======= ======= Interest rate spread (3)....................... 3.84% 2.20% Net yield on interest-earning assets (4)....... 3.91% 2.34% 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) Tax equivalent adjustments to interest on investment securities for the nine months ended September 30, 2004 and 2003 were $162,000 and $113,000 respectively. Tax equivalent interest income is based upon a marginal effective tax rate of 34%. (3) Includes interest-bearing deposits in other banks. (4) Interest-rate spread represents the difference between the average yield on interest-earning assets and the average cost of interest-bearing liabilities. (5) Net yield on interest-earning assets represents net interest income as a percentage of average interest-earning assets. 18 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, 2004 vs. 2003 ------------------------------------------- Increase (decrease) Due to ------------------------------------------- Volume Rate Net ------------------------------------------- Interest income: Loans receivable, net $ 2,733 $(2,024) $ 709 Mortgage-backed securities (1,258) 418 (840) Investment securities (1,484) 841 (643) Other interest-earning assets (519) 67 (452) ------------------------------------------- Total interest-earning assets (528) (698) (1,226) =========================================== Interest expense: Deposits 381 (1,447) (1,066) Advances from the FHLB and other borrowings (3,075) (2,406) (5,481) ------------------------------------------- Total interest-bearing liabilities (2,694) (3,853) (6,547) =========================================== Net change in net interest income $ 2,166 $ 3,155 $ 5,321 ===========================================
Total Interest Income. Total interest income, on a taxable equivalent basis, decreased by $1.2 million or 5.0% to $23.5 million for the nine months ended September 30, 2004 as compared with the first nine months of 2003. Low market interest rates on loans resulted in a significant amount of loan prepayments during the intervening period, lowering the yield on the remaining portfolio. However, increased loan originations at the Bank and the resulting loan portfolio growth contributed to loan income in a manner that largely offset the impact caused by the lower market interest rates. Interest income from mortgage-backed securities, investment securities and other interest-earning assets was lower during the first nine months of 2004 in comparison to the same period of 2003. This decrease was largely caused by the reduction in the lower yielding balances maintained in these types of interest-earning assets as a result of the debt refinancing transaction executed during the third quarter of 2003. Total Interest Expense. Total interest expense decreased by $6.5 million to $6.5 million during the nine-month period ended September 30, 2004 as compared with the same period in 2003. The decrease in the market interest rates during the period and the lower rates paid on the Bank's renewing certificates of deposit which had been originated when market interest rates were higher contributed to this reduction. Yet, the repayment of $120 million of Federal Home Loan Bank Advances and the refinancing of the remaining debt at significantly lower rates is the foremost reason for the overall reduction of interest expense. 19 Non-interest income. Total non-interest income was $1,985,000 for the nine-month period ended September 30, 2004 in contrast with $2,054,000 for the same period in 2003. The decrease was primarily due to $208,000 in net gains on sales of mortgage-backed securities available for sale and a gain of $110,000 on the sale of real estate during 2003 while, conversely, there were no such sales of either securities or real estate during the same period in 2004. Retail banking fees were $264,000 greater over the period as a result of a $188,000 increase in overdraft and uncollected fees. Also, the collection of mortgage brokerage fees and a growth in other loan fees contributed to the increase during the period. Non-interest expense. Total non-interest expense decreased by $13.3 million to $11.5 million for the nine months ended September 30, 2004 compared to the same time in 2003. The decrease in non-interest expense was mainly associated with the debt prepayment fee of $13.8 million paid as a consequence of the repayment and refinancing of Federal Home Loan Bank borrowings in 2003. Excluding the debt prepayment fee, non-interest expense increased by $478,000. During 2004, compensation and benefit expenses increased by $625,000 over the same period of 2003. The increase in salary and compensation costs of the Company resulted from the hiring of additional mortgage origination and commercial lending personnel, and increased anticipated incentive compensation expense because this expense is related to the net income of the Company. Occupancy and equipment costs dropped due to a one time $62,000 expense booked during 2003 associated with revisions in the useful lives of certain depreciable and amortizable assets. Other operating expenses decreased $176,000 between the two periods mostly as a result of various deposit items and reconciling losses of $170,000 that were expensed during 2003. 20 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 the nine-month period ended September 30, 2004 in the ability of the Company and its subsidiaries to fund their operations. At September 30, 2004, the Company had commitments outstanding under letters of credit of $1.2 million, commitments to originate loans of $30.4 million, and commitments to fund undisbursed balances of closed loans and unused lines of credit of $59.5 million. There has been no material change during the nine months ended September 30, 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 September 30, 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 nine months ended September 30, 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. 21 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 $2,185,000 at September 30, 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 transactions 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." On October 13, 2004, FASB voted to delay the adoption of this proposed standard by public companies until their first fiscal quarter beginning after June 15, 2005. The Company continues to evaluate 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. The Company adopted SAB 105 effective for commitments entered into after June 30, 2004. The requirements of SAB 105 apply to the Company's mortgage interest rate lock commitments related to loans held for sale. At September 30, 2004, the Company did not have such commitments subject to the provisions of SAB 105. The Company's application of SAB 105 did not have a material impact on the effect on the Company's financial position or results of operations. On September 30, 2004, the FASB issued a staff position EITF Issue 03-1-1 which delayed the effective date for the measurement and recognition guidance contained in paragraphs 10-20 of EITF Issue 03-1 from reporting periods beginning after June 15,2004, until implementation guidance is issued. The Bank adopted EITF 03-1, The Meaning of Other than Temporary Impairment and Its Application to Certain Investments, as of December 31, 2003. EITF 03-1 includes certain disclosures regarding quantitative and qualitative disclosures for investment securities accounted for under FAS 115, "Accounting for Certain Investments in Debt and Equity Securities," that are impaired at the balance sheet date, but an other-than-temporary impairment has not been recognized. Paragraphs 10-20 of EITF Issue No.03-1 give guidance on how to evaluate and recognize an impairment loss that is other than temporary. On September 15, 2004 the FASB issued a proposed staff position EITF Issue 03-1-a to address the implementation guidance to evaluate and recognize other than temporary impairment. The Company is in the process of determining the impact that this EITF will have on its financial statements. 22 TF FINANCIAL CORPORATION AND SUBSIDIARIES PART II ITEM 1. LEGAL PROCEEDINGS Not applicable. ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS The following table provides information on repurchases by the Company of its common stock in each month for the nine months ended September 30, 2004:
Total Number of Maximum Number of Shares Purchased as Shares that may yet Total Number Part of Publicly be Purchased Under of Shares Average Price Announced Plan of the Plans or Month Ended Purchased Paid per Share Program Programs ----------- --------- -------------- ------- -------- January 31, 2004 -- -- -- 114,082 February 29, 2004 -- -- -- 114,082 March 31, 2004 38,000 $32.00 -- 114,082 April 30, 2004 -- -- -- 114,082 May 31, 2004 -- -- -- 114,082 June 30, 2004 359 $28.63 359 113,723 July 31, 2004 36,115 $26.99 2,800 110,923 August 31, 2004 47,432 $26.93 800 110,123 September 30, 2004 27,702 $28.01 9,000 101,123
The total number of shares repurchased during the quarter includes 45,334 shares repurchased in conjunction with the exercise of 132,333 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. 23 TF FINANCIAL CORPORATION AND SUBSIDIARIES PART II ITEM 3. DEFAULTS UPON SENIOR SECURITIES Not applicable. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None ITEM 5. OTHER INFORMATION None ITEM 6. EXHIBITS (a) Exhibits 10. TF Financial Corporation Incentive Compensation Plan 31. Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 32. Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 24 TF FINANCIAL CORPORATION 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. Date: November 12, 2004 /s/ Kent C. Lufkin - ----------------------- ------------------ Kent C. Lufkin President and CEO (Principal Executive Officer) Date: November 12, 2004 /s/ Dennis R. Stewart - ----------------------- --------------------- Dennis R. Stewart Executive Vice President and Chief Financial Officer (Principal Financial & Accounting Officer) EX-10 2 ex10.txt EX10 INCENTIVE COMPENSATION PLAN TF FINANCIAL CORPORATION INCENTIVE COMPENSATION PLAN TF FINANCIAL CORPORATION INCENTIVE COMPENSATION PLAN Table of Contents ----------------- PAGE ---- ARTICLE I. General Provisions.....................................1 1.01 Purpose.......................................1 1.02 Effective Date................................1 ARTICLE II. Definitions............................................1 "Bank"........................................1 "Base Salary".................................1 "Beneficiary".................................1 "Benefits"....................................1 "Board" "Bonuses".....................................1 "Budget Year".................................1 "Change in Control"...........................1 "Code"........................................2 "Committee....................................2 "Common Stock"................................2 "Company".....................................2 "Director"....................................2 "Director Compensation".......................2 "Employee"....................................2 "ERISA".......................................2 "Net Income"..................................2 "Budget Plan".................................2 "Participant".................................2 "Participating Director"......................2 "Plan"........................................2 "Plan Year"...................................2 "Retirement"..................................2 "Target Levels"...............................3 ARTICLE III. Eligibility and Participation..........................3 ARTICLE IV. Benefits...............................................3 4.01 Summary.......................................3 4.02 Qualification of Incentive Comp Awards........3 4.03 Illustration of Incentive Comp Calculation....4 4.04 Award Distribution............................4 4.05 Extraordinary Events..........................4 4.06 Bonus Award...................................4 4.07 Revocation for Misconduct.....................5 4.08 Payment of Benefits...........................5 4.09 Minority, Disability, or Incompetency.........5 4.10 Designation of Beneficiary....................5 ARTICLE V. Plan Administration..................................6 5.01 The Committee...............................6 5.02 Claims Procedure............................6 ARTICLE VI. Amendment and Termination............................6 6.01 Right to Amend or Terminate.................6 ARTICLE VII. General Provisions...................................6 7.01 Prohibition Against Alienation..............6 7.02 No Enlargement of Employment Rights.........6 7.03 Gender......................................6 7.04 Applicable Law..............................7 7.05 Titles and Headings.........................7 7.06 Withholding.................................7 EXHIBIT A TF FINANCIAL CORPORATION INCENTIVE COMPENSATION PLAN ARTICLE I. General Provisions ------------------ 1.01 Purpose. This document sets forth the TF Financial Corporation Incentive Compensation Plan, as established by the Company and other sponsoring subsidiary corporations. The Plan is maintained for the purpose of providing certain Participating Directors and selected Employees with incentive compensation payable in the form of Bonuses in the event that the Company and its subsidiaries meet certain performance goals indicative of its profitability and stability. It is intended that the Plan shall be an unfunded plan maintained primarily for the purpose of providing deferred compensation for a select group of management or highly compensated employees within the meaning of Section 201(2) of ERISA and the non-employee directors of the Company and the Bank and that benefits provided under the Plan shall be taxable to Participants only when actually received. The Plan shall be administered, construed, and interpreted in a manner consistent with the purpose and intent set forth in this Section. 1.02. Effective Date. The effective date of this Plan is October 18, 2004. ARTICLE II. Definitions ----------- Unless the context clearly requires otherwise, the terms defined in this Article II shall, for all purposes of this Plan, have the respective meanings specified in this Article II. "Bank" shall mean Third Federal Savings Bank, a federally chartered stock savings bank. "Base Salary" is defined as the annual rate of base compensation of an employee exclusive of bonuses, stock awards, expensive reimbursement, fees earned, incentive compensation payments, company stock dividends and base salary increases that have been granted, but not implemented. An officer's base salary as of close of business December 31st will be the salary utilized in the incentive compensation calculations. "Beneficiary" shall mean the person or persons designated as a Participant's beneficiary or beneficiaries in accordance with Section 4.10. "Benefits" shall mean as to any Participant any benefits provided for under Article IV. "Board" shall mean the Board of Directors of the Company or other sponsoring subsidiary corporation. "Bonuses" shall mean cash bonuses payable immediately. "Budget Year" is defined as the calendar year, January 1st through December 31st, for which Management has prepared and presented a budget for approval by the Board detailing the projected performance of the Bank and Company. The budget is a one year plan which incorporates Management's growth and performance goals, initiatives and objectives. "Change in Control" shall mean: (i) the sale of all, or a material portion, of the assets of the Company; (ii) the merger or recapitalization of the Company or any merger or recapitalization whereby the Company is not the surviving entity; (iii) a change of control of the Company, as otherwise defined or determined by the Office of Thrift Supervision or regulations promulgated by it; or (iv) the acquisition, directly 1 or indirectly, of the beneficial ownership (within the meaning of that term as it is used in Section 13(d) of the Securities Exchange Act of 1934 and the rules and regulations promulgated thereunder) of twenty-five percent (25%) or more of the outstanding voting securities of the Company by any person, trust, entity or group. This limitation shall not apply to the purchase of shares by underwriters in connection with a public offering of Company stock, or the purchase of shares of up to 25% of any class of securities of the Company by a tax-qualified employee stock benefit plan which is exempt from the approval requirements, set forth under 12 C.F.R. 574.3(c)(1)(vi) as now in effect or as may hereafter be amended. The term "person" refers to an individual or a corporation, partnership, trust, association, joint venture, pool, syndicate, sole proprietorship, unincorporated organization or any other form of entity not specifically listed herein. "Code" means the Internal Revenue Code of 1986, as amended from time to time. References to a Code section shall include any comparable section or sections of future legislation that amends, supplements or supersedes such section. "Committee" means the Compensation Committee previously appointed by the Board. Members of the Committee shall serve at the pleasure of the Board. In the absence at any time of a duly appointed Committee, the Plan shall be administered by the Board. "Common Stock" means the common stock of the Company. "Company" means TF Financial Corporation. "Director" means any member of the Board of Directors of the Company or the Bank. "Director Compensation" defined as the annual rate of compensation derived from directors fees and committee fees of any member of the Board of Directors of the Company, any subsidiary of the Company or the Bank exclusive of bonuses, stock awards, expense reimbursements, incentive compensation payments, and company stock dividends. "Employee" means any individual who performs service in the employ of the Company, or a subsidiary of the Company, excluding any individual who performs such services as a self-employed person or solely as a Director. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended from time to time. "Net Income" shall mean net income of the Company reported on a consolidated basis for a fiscal year; provided, however, Net Income for a given fiscal year shall not give effect to any one-time non-recurring or extraordinary payment or event as interpreted by the Committee. "Budget Plan" is defined as the current Budget Plan presented to and approved by the Company's Board of Directors in December of the prior fiscal year. "Participant" means an Employee or Participating Director who has become a Participant in the Plan as provided in Article III. "Participating Director" shall mean a director serving on the Board of Directors of the Company or the Bank who is not otherwise an Employee. "Plan" means the TF Financial Corporation Incentive Compensation Plan, as herein set forth and as it may from time to time be amended. "Plan Year" means the 12 consecutive month period beginning January 1st and on each anniversary of that date. 2 "Retirement" shall mean termination of employment of an employee of the Company or Bank following attainment of not less than age 60 and completion of not less than 15 years of service. "Target Levels" is defined as the performance goals selected by the Compensation Committee against which the actual performance for the plan year will be measured. It will be Management's objective to meet or exceed 100% of the select performance targets as established in the Board-approved budget. ARTICLE III. Eligibility and Participation ----------------------------- (a) Directors of the Company or the Bank who are not Employees shall be deemed Participating Directors as of the Effective Date of their appointment to the Board of Directors of the Company or the Bank. They shall be entitled to their pro-rata share of their plan payment based upon the number of days they served on the Board during the plan year and conditioned upon achievement of plan targets. (b) On or before the first day of each Plan Year, the Committee, in its discretion, shall select the Employee or Employees who shall participate in the Plan for the Plan Year and each such Participant's award allocation for such Plan Year; provided that for the Plan Year beginning January 1st, the Employees are eligible to participate in the Plan. The Committee may, in its sole discretion, limit participation in the Plan for any reason including, but not limited to, ensuring that the Plan at all times is a plan described in Section 201(2) of ERISA. Notwithstanding any provision of the Plan inconsistent herewith, if a Participant terminates service with the Company and the Bank during a Plan Year for a reason other than his or her disability, death, Retirement, or a Change in Control, then the Participant shall not be entitled to receive any Benefits payable under the Plan. ARTICLE IV. Benefits -------- 4.01 Summary. When the Company achieves target levels of performance detailed in the Budget Plan as determined by the Company's Board of Directors prior to the beginning of the Plan Year, each participant in the Plan will receive an award equal to their base annual salary, multiplied by a Final Incentive Program percentage. The Final Incentive Program percentage is calculated at the end of the Plan Year and is the sum of three component percentages ("Components") - Number of new Deposit Households, Consolidated Net Income, and Originated Loans Outstandings - each of which comprises separate Component Ratio and Weighting Factor. The Components are subject to change annually based upon the goals and objectives of the Company. Number of new Deposit Households from calendar year-end to calendar year-end exclusive of zero balance and certificate of deposit only households. Consolidated Net Income is defined as the Net Income of the Company excluding any extraordinary factors or events as identified and so designated by the Committee and the Board of Directors. Originated Loans Outstandings is defined as the net change in total originated loans outstandings from calendar year-end to calendar year-end. Each Component has a Weighting Percentage depending on the importance of that attribute, and each executive is assigned an Individual Target Participant Factor as recommended by the Compensation Committee and approved by the Board of Directors. Goals will have been met when the performance for the current year equals the Plan Year's Budget Plan, in which case, the Resultant will equal the Component Target. However, the Resultant may be greater or less than the Component Target depending on the ability to reach or exceed the Budget Plan. 3 4.02 Qualification of Incentive Comp Awards. No awards will be granted unless the Actual Year Consolidated Net Income for the Company is at least 90% of the Budget Year Consolidated Net Income, after factoring in the cost of payment of all respective Incentive Plan awards. 4.03 Illustration of Incentive Comp Calculation. Exhibit A illustrates the calculations that lead to the Final Incentive Program Percentage. Note that Number of Deposit Households, Net Income, and Originated Loan Outstandings are all on a consolidated basis and, for the example, a 40% Participant Factor was used. The columns are identified by number, e.g. [1], and the discussion refers to those numbers. Formula [1] is the comparison, for example in the first row, of actual Consolidated Net Income to Budget Plan Consolidated Net Income. The goal is to achieve Consolidated Net Income equal to the Budget Plan, resulting in a Component Ratio [2] of 1.00. The Weighting Factor [3] for this component is 40%. Multiplying columns [2] x [3] x the Individual Target [4] yields the Resultant [5]. The Component Target [6] is not variable and shows what the Resultant column is if the Consolidated Net Income exactly equals the Budget Plan. Any deviation from the Budget Plan Target will be reflected by a corresponding change in the Resultant percentage for that Incentive Plan Component. The sum of the Resultants for each Component will yield the Final Incentive Plan Percentage. Multiplication of the Final Incentive Plan Percentage times the respective base salary of the individual will yield the Incentive Plan payout, which may be equal to, less than, or more than the Participant's Incentive Plan award target, depending on the achievement of the relevant Components of the Budget Plan. 4.04 Award Distribution. Awards will be distributed to all participants as a percent (%) of Base Salary. Awards will be calculated and paid on an annual basis. Interim reports will be provided at the close of each quarter upon the public release of that quarter's financial information. All Incentive Plan awards will be based on the Company's performance in the current year. Regardless of the calculation, no Resultant shall exceed 150% of the Component Target. The sum of 100% of the Bonus payable to a Participant, less applicable federal and state income tax withholding, for any Plan Year shall be paid in cash within 45 days of the completion of the audited financial statements for the Company and immediately upon the closing date in the case of a Change in Control. 4.05 Extraordinary Events. Extraordinary events or occurrences which significantly impact the Components in a positive or adverse manner may be excluded or adjusted for by the Committee and the Board of Directors. 4.06 Bonus Award. (a) Aggregate Amount of Bonuses. Except as otherwise provided in this Article, for each Plan Year, the Company shall pay Bonuses in cash to those Participants eligible to participate in the Plan and to receive a Bonus for the Plan Year if all conditions as defined within the Plan are met. (b) Capitalization Requirement. Notwithstanding anything herein to the contrary, the aggregate amount of Bonuses payable shall be proportionately reduced (to zero, if necessary) to the extent that the payment would cause the Bank to cease to be a well-capitalized institution for the fiscal year. (c) Vesting: General Schedule. Except as otherwise provided hereinafter, Benefits shall become 100% earned and non-forfeitable at the time of payment to the Participant. (d) Vesting: Exception for Termination Due to Retirement, Death, or Disability. Bonuses payable to a Participant whose service with the Company or the Bank terminates prior to the conclusion of the current Plan year whether due to Retirement, death, disability shall be entitled to their pro-rata share of their plan 4 payment based upon the number of days they were employed or served on the Board of Director of the Company or Bank during the plan year and conditioned upon achievement of plan targets. Payment will be made concurrent with all participant plan payments for that plan year. (e) Vesting: Exception for a Change in Control. All Bonuses payable to a Participant shall be deemed to be immediately 100% earned and payable on the closing date in the event of a Change in Control. The decision of the Committee as to whether a change in control has occurred shall be conclusive and binding as to all affected Participants. 4.07 Revocation for Misconduct. Notwithstanding anything herein to the contrary, the Company's Board of Directors may, by resolution, immediately revoke, rescind and terminate any Benefits earned by Employees or Participating Directors, to the extent the Participant has not collected a Bonus, if the Participant is discharged from the service or employ of the Company for Cause (as hereinafter defined), or is discovered after termination of service or employment to have engaged in conduct that would have justified termination for Cause. "Cause" is defined as personal dishonesty, incompetence, willful misconduct, breach of fiduciary duty involving personal profits, intentional failure to perform stated duties, willful violation of any law, rule or regulation (other than traffic violations or similar offenses), or a final cease-and-desist order, or a material breach of the Participant's employment agreement (if any) with the Company or the Bank. A determination of Cause shall be made by the Board of Directors of the Company or the Bank within its sole discretion. 4.08 Payment of Benefits. All Benefits under this Plan shall be provided by the Company or the Bank directly to Participants, and the Committee shall have no responsibility thereto other than to inform the Company or the Bank, as soon as practicable after the end of each Plan Year, in writing as to the Benefits to be provided. (a) No Trust or Trust Fund. The Benefits payable under the Plan shall be paid by the Company or the Bank out of its general assets and shall not be funded by trust or otherwise. Nothing contained in this Plan shall constitute, or be treated as, a trust or create any fiduciary relationship. The Company or the Bank shall be under no obligation to segregate any assets for the purpose of providing Benefits under the Plan and no person or entity which is entitled to payment under the terms of the Plan shall have any claim, right, security interest, or other interest in any fund, trust, account, insurance contract, or asset of the Company or the Bank. To the extent that a Participant or any other person acquires a right to receive any Benefit under the Plan, such right shall be limited to that of a recipient of an unfunded, unsecured promise to pay amounts in the future and the Participant's (or other person's) position with respect to such amounts shall be that of a general unsecured creditor of the Company or the Bank, as applicable. 4.09 Minority, Disability, or Incompetency. If any Benefit becomes payable under this Plan to a minor, to a person under legal disability or to a person not adjudicated incompetent but who the Committee in its discretion determines to be incapable by reason of illness or mental or physical disability of managing his financial affairs, the Committee may direct that such Benefit shall be paid to the legal representative or custodian of such person or to any relative or friend of such person, or that such amount be paid directly for such person's support and maintenance. Payments so made in good faith shall completely discharge the Committee, the Company and the Bank of any and all obligations and liabilities with respect to such payments. 4.10 Designation of Beneficiary. A Participant may file with the Committee a written designation of a Beneficiary who is to receive his vested benefits in the event of the Participant's death prior to his or her collection of said benefits. Such designation of Beneficiary may be changed at any time by written notice to the Committee. The designation last filed with the Committee shall be controlling. In the event of the death of a Participant and in the absence of a beneficiary validly designated under the Plan who is living at the time of the Participant's death, the Participant's estate shall be deemed to be the Beneficiary for purposes of this Plan. 5 ARTICLE V. Plan Administration ------------------- 5.01 The Committee. In its sole and absolute discretion, which discretion when exercised shall be final and binding on all parties, the Committee shall have the responsibility and authority to control the operation and administration of the Plan in accordance with its terms including, without limiting the generality of the foregoing, the powers and duties: (i) to interpret, apply, and administer the Plan, to decide all questions of eligibility, participation, status, benefits, and rights of Participants and Beneficiaries under the Plan; (ii) to establish and amend such rules and procedures as it deems necessary or appropriate to the proper administration of the Plan; (iii) to employ or retain such agents as it deems necessary or advisable to assist in the administration of the Plan, and to delegate to the extent permitted by applicable law such powers and duties as it deems necessary or advisable; (iv) to prepare and file all statements, returns, and reports required to be filed by the Plan with any agency of government; (v) to comply with all disclosure requirements of all applicable state and federal law; and (vi) to perform all functions otherwise assigned to it under the terms of the Plan. 5.02 Claims Procedure. Claims for Benefits under the Plan shall be filed in writing with the Committee. Written notice of the Committee's disposition of a claim generally shall be furnished to the claimant within 60 days after the application therefore is filed. However, if special circumstances exist of which the Committee notifies the claimant within such 60-day period, the Committee may extend such period to the extent necessary, but in no event beyond 180 days after the claim is filed. In the event the claim is denied, the reasons for the denial shall be specifically set forth in writing, pertinent provisions of the Plan shall be cited and, where appropriate, an explanation as to how the claimant can perfect the claim will be provided. Any claimant who has been denied a Benefit shall be entitled, upon request to the Committee, to appeal the denial of his claim within 60 days following the Committee's determination described in the preceding sentence. Upon such appeal, the claimant, or his representative, shall be entitled to examine pertinent documents, submit issues and comments in writing to the Committee, and meet with the Committee. The Committee shall review its decision and issue a final decision to the claimant in writing, generally within 60 days following such appeal. However, if special circumstances exist of which the Committee notifies the claimant within such 60-day period, the Committee may extend such period to the extent necessary, but in no event beyond 120 days following such appeal. ARTICLE VI. Amendment and Termination ------------------------- 6.01 Right to Amend or Terminate. The Board of Directors of the Company or the Bank reserves the right at any time to terminate or amend the Plan in any manner and for any reason; provided, that no amendment or termination shall, without the consent of the Participant or, if applicable, the Beneficiary, adversely affect such Participant's or Beneficiary's rights with respect to Benefits accrued as of the date of such amendment or termination. Notwithstanding the foregoing, the Board or the Committee reserves the right at any time to terminate the Plan, the participation of any Participant and/or to distribute all sums due under the Plan to any or all Participants in whole or in part without prior notice or consent. ARTICLE VII. General Provisions ------------------ 7.01 Prohibition Against Alienation. Benefits payable to a Participant or Beneficiary under the terms of this Plan shall not be subject in any manner to alienation, anticipation, sale, transfer, assignment, pledge, hypothecation, attachment, receivership, or encumbrance of any kind, nor shall it pass to any trustee in bankruptcy or be reached or applied by any legal process for the payment of any obligations of the Participant or Beneficiary, except at such times and in such manner as provided in this Plan. 7.02 No Enlargement of Employment Rights. Nothing contained in this Plan shall give or be construed as giving any Employee or Participating Director the right to be retained in the service or employment of the Company or the Bank, or shall interfere with the right of the Company or the Bank to discharge or otherwise terminate any Participating Director's or Employee's employment or service at any time. 6 7.03 Gender. Whenever any masculine terminology is used in this Plan, it shall be taken to include the feminine, unless the context otherwise indicates. 7.04 Applicable Law. This Plan shall be construed and regulated, and its validity and effect and the rights hereunder of all parties interested shall at all times be determined, in accordance with the laws of the Commonwealth of Pennsylvania, except to the extent such state law is preempted by federal law. 7.05 Titles and Headings. The titles and headings included herein are included for convenience only and shall not be construed as in any way affecting or modifying the text of this Plan, which text shall control. 7.06 Withholding. The Company and the Bank reserves the right to withhold from payments of Benefits such amounts of income, payroll, and other taxes as it deems advisable. EX-31 3 ex31.txt EX31 CERTIFICATION Exhibit 31 ---------- CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 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. Date: November 12, 2004 /s/ Kent C. Lufkin ----------------- ------------------ Kent C. Lufkin President and Chief Executive Officer (Principal Executive Officer) Exhibit 31 ---------- CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 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. Date: November 12, 2004 /s/ Dennis R. Stewart - ----------------------- --------------------- ` Dennis R. Stewart Executive Vice President and Chief Financial Officer (Principal Financial & Accounting Officer) EX-32 4 ex32.txt EX32 CERTIFICATION Exhibit 32 ---------- 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, 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 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 position and results of operations of the Company. Date: November 12, 2004 /s/ Kent C. Lufkin - ----------------------- ------------------ Kent C. Lufkin President and CEO (Principal Executive Officer) Date: November 12, 2004 /s/ Dennis R. Stewart - ----------------------- --------------------- Dennis R. Stewart Executive Vice President and Chief Financial Officer (Principal Financial & Accounting Officer) -----END PRIVACY-ENHANCED MESSAGE-----