-----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, LI/WL5yxhEh3vqBEI6djAb2QlB2KXEFtl6n22CB2y5pSTm/90NAxdFulC3hRB9Y0 DDKOOsboxzw6MEuwNd+YrQ== 0000946275-99-000492.txt : 19990816 0000946275-99-000492.hdr.sgml : 19990816 ACCESSION NUMBER: 0000946275-99-000492 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990630 FILED AS OF DATE: 19990813 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: SEC FILE NUMBER: 000-24168 FILM NUMBER: 99689729 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 FORM 10-Q SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM l0-Q (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 1999 ------------------------------------------------- OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to -------------------- ------------------- Commission file number 0-24168 ------- TF FINANCIAL CORPORATION - -------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) Delaware 74-2705050 - -------------------------------------------------------------------------------- (State or other jurisdiction of (I.R.S. employer identification incorporation or organization) no.) 3 Penns Trail, Newtown, Pennsylvania 18940 - -------------------------------------------------------------------------------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code 215-579-4000 ------------ N/A Former name, former address and former fiscal year, if changed since last report. Indicate by check whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- --- APPLICABLE ONLY TO CORPORATE ISSUERS: Indicate the number of shares outstanding of each of the issuer's classes of common stock as of the latest practicable date: August 13, 1999 --------------- Class Outstanding --------------------------- ---------------- $.10 par value common stock 2,757,798 shares TF FINANCIAL CORPORATION AND SUBSIDIARIES FORM 1O-Q FOR THE QUARTER ENDED JUNE 30, 1999 INDEX Page Number ------ PART I - CONSOLIDATED FINANCIAL INFORMATION Item 1. Consolidated Financial Statements 3 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 8 Item 3. Quantitative and Qualitative Disclosures about Market Risk 17 PART II- OTHER INFORMATION Item 1. Legal Proceedings 18 Item 2. Changes in Securities and Use of Proceeds 18 Item 3. Defaults Upon Senior Securities 18 Item 4. Submission of Matters to a Vote of Security Holders 18 Item 5. Other Information 18 Item 6. Exhibits and Reports on Form 8-K 18 SIGNATURES 19 2 TF FINANCIAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (in thousands)
Unaudited Audited Unaudited ` June 30, December 31, June 30, 1999 1998 1998 ---- ---- ---- Assets Cash and cash equivalents $ 16,467 $ 42,703 $ 43,478 Certificates of deposit in other financial institutions 1,745 2,238 2,437 Investment securities available for sale - at fair value 22,692 9,042 37,898 Investment securities held to maturity (fair value of $81,126, $81,094 and 80,731 80,895 61,015 $60,945, respectively) Mortgage-backed securities available for sale - at fair value 95,273 75,285 41,723 Mortgage-backed securities held to maturity (fair value of $176,574, 179,670 180,964 234,144 $182,560, and $235,901, respectively) Loans receivable, net 291,363 240,841 237,407 Federal Home Loan Bank stock - at cost 12,668 9,168 8,918 Accrued interest receivable 5,114 4,558 4,463 Real estate held for investment 2,348 2,348 -- Goodwill and other intangible assets 6,972 7,389 7,823 Premises and equipment, net 8,765 9,017 8,523 Other assets 1,359 1,160 1,455 --------- --------- --------- Total Assets $ 725,167 $ 665,608 $ 689,284 ========= ========= ========= Liabilities and Stockholders' Equity Liabilities Deposits $ 416,925 $ 438,913 $ 448,625 Advances from the Federal Home Loan Bank 248,359 163,359 178,356 Advances from borrowers for taxes and insurance 1,304 1,204 1,721 Accrued interest payable 4,275 4,166 5,750 Other liabilities 3,088 5,306 3,194 --------- --------- --------- Total Liabilities 673,951 612,948 637,646 --------- --------- --------- 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; 2,763,318, 2,857,932, and 2,892,522 shares outstanding at June 30, 1999, December 31, 1998 and June 30, 1998, net of treasury shares of 2,243,990, 2,143,319, and 2,098,551, respectively 529 529 529 Retained earnings 47,052 45,762 44,438 Additional paid-in capital 52,026 51,957 51,888 Unearned ESOP shares (2,827) (2,888) (2,943) Shares acquired by MSBP (255) (468) (682) Treasury stock - at cost (44,212) (42,386) (41,565) Accumulated other comprehensive income (1,097) 154 (27) --------- --------- --------- Total Stockholders' Equity 51,216 52,660 51,638 --------- --------- --------- Total Liabilities and Stockholders' Equity $ 725,167 $ 665,608 $ 689,284 ========= ========= =========
See notes to consolidated financial statements 3 TF FINANCIAL CORPORATION AND SUBSIDIARIES UNAUDITED CONSOLIDATED STATEMENTS OF EARNINGS (in thousands, except per share data)
For Three Months For Six Months Ended June 30, Ended June 30, 1999 1998 1999 1998 Interest income Loans $ 5,707 $ 4,605 $ 10,796 $ 9,509 Mortgage-backed securities 4,199 4,335 8,296 7,573 Investment securities 1,817 1,750 3,398 3,327 Interest bearing deposits and other 221 308 547 730 -------- -------- -------- -------- TOTAL INTEREST INCOME 11,944 10,998 23,037 21,139 -------- -------- -------- -------- Interest expense Deposits 3,707 4,364 7,564 8,678 Borrowings 3,438 2,226 6,213 3,574 TOTAL INTEREST EXPENSE 7,145 6,590 13,777 12,252 -------- -------- -------- -------- NET INTEREST INCOME 4,799 4,408 9,260 8,887 Provision for loan losses 60 15 90 30 -------- -------- -------- -------- NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 4,739 4,393 9,170 8,857 -------- -------- -------- -------- Non-interest income Gain (loss) on sale of real estate acquired through foreclosure (10) 25 (4) 24 Gain on sale of loans and securities -- 362 -- 436 Service fees, charges and other operating income 307 299 625 646 -------- -------- -------- -------- TOTAL NON-INTEREST INCOME 297 686 621 1,106 -------- -------- -------- -------- Non-interest expense Compensation and benefits 1,692 1,620 3,332 3,285 Occupancy and equipment 511 484 1,005 923 Federal deposit insurance premium 65 70 133 140 Data processing 4 274 9 449 Professional fees 184 149 349 284 Amortization of goodwill and other intangible assets 209 225 418 450 Advertising 91 90 181 180 Other operating 678 541 1,227 1,117 -------- -------- -------- -------- TOTAL NON-INTEREST EXPENSE 3,434 3,453 6,654 6,828 -------- -------- -------- -------- INCOME BEFORE INCOME TAXES 1,602 1,626 3,137 3,135 Income taxes 577 637 1,128 1,153 -------- -------- -------- -------- NET INCOME $ 1,025 $ 989 $ 2,009 $ 1,982 ======== ======== ======== ======== Basic earnings per share $ 0.37 $ 0.34 $ 0.72 $ 0.68 Diluted earnings per share $ 0.35 $ 0.30 $ 0.67 $ 0.61 Weighted average number of shares outstanding - Basic 2,759 2,896 2,790 2,893 Weighted average number of shares outstanding - Diluted 2,967 3,254 2,981 3,249
See notes to consolidated financial statements 4 TF FINANCIAL CORPORATION AND SUBSIDIARIES UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands)
For the Six Months Ended June 30, -------- 1999 1998 ---- ---- CASH FLOWS FROM OPERATING ACTIVITIES Net Income $ 2,009 $ 1,982 Adjustments to reconcile net income to net cash provided by operating activities: Mortgage loan servicing rights 7 9 Deferred loan origination fees (39) (91) Premiums and discounts on investment securities, net 16 36 Premiums and discounts on mortgage-backed securities and loans, net 379 291 Amortization of goodwill and other intangible assets 417 451 Provision for loan losses and provision for losses on real estate 90 30 Depreciation of premises and equipment 456 387 Recognition of ESOP and MSBP expenses 342 411 (Gain) loss on sale of real estate acquired through foreclosure 4 (24) (Gain) loss on sale of loans and securities -- (436) Decrease (increase) in Accrued interest receivable (556) (506) Other assets (270) (337) Increase (decrease) in Accrued interest payable 109 3,280 Other liabilities (2,218) (1,140) -------- -------- NET CASH PROVIDED BY OPERATING ACTIVITIES 746 4,343 -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES Loan origination and principal payments on loans, net 25,893 (6,142) Purchases of loans (76,553) -- Proceeds from loan sales -- 19,496 Maturities (purchases) of certificates of deposit in other financial institutions, net 493 300 Purchases of investment securities available for sale (18,059) (137,644) Purchases of investment securities held to maturity (144,494) (23,030) Purchases of mortgage-backed securities available for sale (34,541) (16,244) Purchase of mortgage-backed securities held to maturity (35,412) (114,358) Proceeds from sale of investment securities available for sale -- 7,445 Proceeds from sale of mortgage backed securities available for sale -- 5,683 Proceeds from maturities of investment securities held to maturity 147,447 23,989 Proceeds from maturities of investment securities available for sale 2,000 115,472 Principal repayments from mortgage-backed securities held to maturity 36,542 24,192 Principal repayments from mortgage-backed securities available for sale 12,779 5,627 Purchases and redemption of Federal Home Loan Bank Stock, net (3,500) (4,000) Proceeds from sales of real estate acquired through foreclosure 61 114 Purchase of premises and equipment (204) (1,021) -------- -------- NET CASH USED IN INVESTING ACTIVITIES (87,548) (100,121) -------- --------
See notes to consolidated financial statements 5 TF FINANCIAL CORPORATION AND SUBSIDIARIES UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS (continued) (in thousands)
For the Six Months Ended June 30, -------- 1999 1998 ---- ---- CASH FLOWS FROM FINANCING ACTIVITIES Net increase (decrease) in deposits (21,988) (1,804) Advances from Federal Home Loan Bank , net 85,000 89,997 Net (decrease) increase in advances from borrowers for taxes and insurance 100 130 Exercise of stock options 97 -- Purchase of treasury stock (1,970) -- Common stock cash dividend (673) (692) -------- -------- NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 60,566 87,631 -------- -------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (26,236) (8,147) Cash and cash equivalents at beginning of period 42,703 51,625 -------- -------- Cash and cash equivalents at end of period $ 16,467 $ 43,478 ======== ======== Supplemental disclosure of cash flow information Cash paid for Interest on deposits and advances $ 13,669 $ 8,972 Income taxes $ 911 $ 1,692 Non-cash transactions Transfers from loans to real estate acquired through foreclosure -- $ 61
See notes to consolidated financial statements 6 TF FINANCIAL CORPORATION AND SUBSIDIARIES NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS NOTE 1 - PRINCIPLES OF CONSOLIDATION The consolidated financial statements as of June 30, 1999, December 31, 1998, June 30, 1998 and for the three and six month periods ended June 30, 1999 and 1998 include the accounts of TF Financial Corporation (the "Company") and its wholly owned subsidiaries Third Federal Savings Bank (the "Savings Bank"), TF Investments Corporation, Penns Trail Development Corporation and Teragon Financial Corporation. The Company's business is conducted principally through the Savings Bank. All significant intercompany accounts and transactions have been eliminated in consolidation. NOTE 2 - BASIS OF PRESENTATION The accompanying unaudited consolidated financial statements were prepared in accordance with instructions for Form 10-Q and, therefore, do not include all of the disclosures or footnotes required by generally accepted accounting principles. In the opinion of management, all adjustments, consisting of normal recurring accruals, necessary for fair presentation of the consolidated financial statements have been included. The results of operations for the periods ended June 30, 1999 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, 1998. NOTE 3 - CONTINGENCIES The Company, from time to time, is a party to routine litigation that arises in the normal course of business. In the opinion of management, the resolution of this litigation, if any, would not have a material adverse effect on the Company's consolidated financial condition or results of operations. NOTE 4 - OTHER COMPREHENSIVE INCOME On January 1, 1998, the Company adopted SFAS No. 130, "Reporting Comprehensive Income". The Company's other comprehensive income consists of net unrealized gains on investment securities available for sale. Total comprehensive income for the three-month periods ended June 30, 1999 and 1998 was $43,000 and $766,000, net of applicable income tax (benefit) of ($51,000) and $494,000, respectively. Total comprehensive income for the six-month periods ended June 30, 1999 and 1998 was $758,000 and $1,786,000, net of applicable income tax of $329,000 and $1,028,000, respectively. 7 TF FINANCIAL CORPORATION AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS GENERAL TF Financial Corporation (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 Condition The Company's total assets at June 30, 1999 and December 31, 1998 totaled $725.2 million and $665.6 million, respectively, an increase of $59.6 million, or 9.0%, during the six month period. This increase was primarily the result of a $50.5 million increase in loans receivable, an $13.5 million increase in investment securities, a $18.7 million increase in mortgage-backed securities, and a $3.5 million increase in Federal Home Loan Bank stock. These increases were partially offset by the $26.2 million decrease in cash and cash equivalents. The increase in total assets was primarily funded by the $85.0 million increase in advances from the Federal Home Loan Bank. The net increase in loans receivable of $50.5 million, or 20.0%, from $240.8 million at December 31, 1998 to $291.4 million at June 30, 1999 was primarily the result of the purchase of $ 71.9 million of single-family residential mortgage loans and the purchase of $4.5 million of commercial mortgage loans, partially offset by loan repayments. While it is management's intent to originate the majority of its portfolio loans, similar loan products will be purchased in the secondary markets during periods when in-house originating capacity is being added or when opportunities to originate in local markets are not sufficient to satisfy portfolio loan capacity. 8 Investment securities at June 30, 1999 totaled $103.4 million, which represents an increase of $13.5 million or 15.0% as compared to $89.9 million at December 31, 1998. Mortgage-backed securities aggregated $274.9 million at June 30, 1999 compared to $256.2 million at December 31, 1998. These increases in securities balances are due to the reinvestment of cash and cash flow caused by repayments of mortgage loans and mortgage securities, and the reinvestment of maturing investment securities. The increase in Federal Home Loan Bank stock balances was the result of the purchase of $3.5 million of stock required to support the increase in outstanding advances from the Federal Home Loan Bank. Total liabilities increased by $61.0 million during the first half of 1999 primarily as a result of the $85.0 million, or 52.0%, increase in advances from the Federal Home Loan Bank. This increase was offset by a $22.0 million, or 5.0%, decrease in total deposits balances. The increase in advances from the Federal Home Loan Bank funded the purchase of loans and securities, and the decrease in deposit balances. Total consolidated stockholders' equity of the Company decreased by $1.4 million or 2.7%, to $51.2 million, or 7.1% of total assets at June 30, 1999, from $52.7 million or 8.0 % of total assets at December 31, 1998. The decrease resulted from the repurchase of 107,937 shares of common stock at a cost of approximately $1.8 million, a decrease of $1.3 million in accumulated other comprehensive income, partially offset by a net increase to retained earnings of $1.3 million for the six month period. During the first quarter of 1999 management announced the completion of its then current share repurchase program, and that the Company's board of directors had authorized the purchase of up to 152,052 additional shares of the Company's stock in the open market during the subsequent twelve months. Asset Quality Management of the Company believes that there has been no material adverse change in the Company's asset quality during the six-month period ended June 30, 1999. The following table sets forth information regarding the Company's asset quality (dollars in thousands):
June 30, December 31, June 30, -------- ------------ -------- 1999 1998 1998 ---- ---- ---- Non-performing loans $ 2,199 $ 1,594 $ 1,746 Ratio of non-performing loans to gross loans 0.75% 0.65% 0.73% Ratio of non-performing loans to total assets 0.30% 0.24% 0.25% Foreclosed property 243 308 322 Foreclosed property to total assets 0.03% 0.05% 0.05% Ratio of total non-performing assets to total assets 0.34% 0.28% 0.30%
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) 1999 1998 ---- ---- Beginning balance, January 1, $ 1,909 $ 2,029 Provision 90 30 Charge-off's, net 83 (4) ------- ------- Ending balance, June 30, $ 1,916 $ 2,063 ======= ======= 9 RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED JUNE 30, 1999 Net Income. The Company recorded net income of $1,025,000, or $0.35 per diluted share, for the three months ended June 30, 1999 as compared to $989,000, or $0.30 per diluted share, for the three months ended June 30, 1998. Average Balance Sheet The following table sets forth information relating to the Company's average balance sheet and reflects the average yield on assets and average cost of liabilities for the periods indicated. The yields and costs are computed by dividing income or expense by the average balance of interest-earning assets or interest-bearing liabilities, respectively for the periods indicated.
Three Months Ended June 30, --------------------------- 1999 1998 ---- ---- Average Average Average Average Balance Interest Yld/Cost Balance Interest Yld/Cost ------- -------- -------- ------- -------- -------- (dollars in thousands) Assets: Interest-earning assets: Loans receivable (4) .................... $300,809 $ 5,707 7.59% $232,336 $ 4,605 7.93% Mortgage-backed securities .............. 264,431 4,199 6.35% 269,285 4,335 6.44% Investment securities ................... 116,534 1,817 6.24% 116,558 1,750 6.01% Other interest-earning assets(1) ........ 21,783 221 4.06% 29,984 308 4.11% -------- -------- -------- -------- Total interest-earning assets ......... 703,557 11,944 6.79% 648,163 10,998 6.79% -------- -------- Non interest-earning assets ................. 34,760 23,002 -------- -------- Total assets .......................... 738,317 671,165 ======= ======= Liabilities and stockholders' equity: Interest-bearing liabilities: Savings deposits ........................ 423,038 3,707 3.51% 447,435 4,364 3.90% Advances from the FHLB .................. 250,027 3,438 5.50% 161,691 2,226 5.51% -------- -------- -------- -------- Total interest-bearing liabilities .... 673,065 7,145 4.25% 609,126 6,590 4.33% -------- -------- -------- -------- Non interest-bearing liabilities ............ 13,725 10,615 Total liabilities ..................... 686,790 619,741 Stockholders' equity ........................ 51,527 51,424 -------- -------- Total liabilities and stockholders' equity $738,317 $671,165 ======== ======== Net interest income ......................... $ 4,799 $ 4,408 ======== ======== Interest rate spread (2) .................... 2.54% 2.46% Net yield on interest-earning assets (3) .... 2.73% 2.72% Ratio of average interest-earning assets to average interest bearing liabilities ........ 105% 106%
(1) Includes interest-bearing deposits in other banks. (2) Interest-rate spread represents the difference between the average yield on interest-earning assets and the average cost of interest-bearing liabilities. (3) Net yield on interest-earning assets represents net interest income as a percentage of average interest-earning assets. (4) Nonaccrual loans have been included in the appropriate average loan balance category, but interest on nonaccrual loans has not been included for purposes of determining interest income. 10 Rate/Volume Analysis The following table presents, for the periods indicated, the change in interest income and interest expense (in thousands) attributed to (I) changes in volume (changes in the weighted average balance of the total interest earning asset and interest bearing liability portfolios multiplied by the prior year rate), and (ii) changes in rate (changes in rate multiplied by prior year volume). Changes attributable to the combined impact of volume and rate have been allocated proportionately based on the absolute value of changes due to volume and changes due to rate. Three Months Ended June 30, 1999 vs. 1998 ------------------------------- Increase (Decrease) ------------------------------- Due to ------------------------------- Volume Rate Net ------------------------------- Interest income: Loans receivable, net $ 2,341 ($1,239) $ 1,102 Mortgage-backed securities (77) (59) (136) Investment securities (3) 70 67 Other interest-earning assets (83) (4) (87) ------------------------------ Total interest-earning assets 2,179 (1,233) 946 ============================= Interest expense Interest-bearing liabilities: Savings deposits (232) (425) (657) Advances from the FHLB 1,240 (28) 1,212 Total interest-bearing liabilities 1,008 (437) 555 ------------------------------ Net change in net interest income $ 1,170 ($ 779) $ 391 ============================= Total Interest Income. Total interest income increased by $946 thousand, or 8.6%, to $11.9 million for the three months ended June 30, 1999 compared with the second quarter of 1998 primarily because of increases in the average balance of loans receivable. The increase in the interest on loans receivable is primarily attributable to the purchase of $76.4 million of mortgage loans in the first quarter of 1999. The increased interest income attributable to the purchase of mortgage loans was partially offset by the decrease to the average yield on loans receivable resulting from the early repayment during the period of higher yielding mortgage loans. In addition, the yield on the mortgage loans purchased was less than the average yield on the portfolio due to the interest rate environment that existed at the time of the purchase. Total Interest Expense. Total interest expense increased to $7.1 million for the three-month period ended June 30, 1999 from $6.6 million for the same period in 1998 primarily due to increased advances from the Federal Home Loan Bank which were used to fund asset growth and deposit outflows. The average rate paid on Federal Home Loan Bank advances decreased due to the effect of lower rates on new advances, and the Company's use of lower cost convertible advances for a portion of its funding needs. The average balance of savings deposits decreased $24.4 million, or 5.5%, from $447.4 million for the three month period ended June 30, 1998 to $423.0 million for the three-month period ended June 30, 1999. The average rate paid on savings deposits decreased from 3.90% for the three month period ended June 30, 1998 to 3.51% for the three month period ended June 30, 1999. The decrease in the average balances and the average 11 rate paid on savings deposits were the consequences of decreased market interest rates and management's efforts to price deposits at lower rates. Non-interest income. Total non-interest income was $297 thousand for the three-month period ended June 30, 1999 compared with $686 thousand for the same period in 1998. The decrease is attributable to a $362 thousand decrease in the gain on sale of loans and investments. Non-interest expense. Total non-interest expense decreased by $19 thousand to $3.4 million for the three months ended June 30, 1999 compared to the same period in 1998. Data processing decreased by $270 thousand as a result of conversion to an in-house data processing system, which occurred during the second quarter of 1998. Professional fees increased by $35 thousand as a result of consulting fees associated with Year 2000 compliance remediation and testing. In addition, compensation and benefits, occupancy and equipment, and other expenses increased by a combined $236 thousand, also due to the conversion to an in-house data processing system. 12 RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 1999 Net Income. The Company recorded net income of $2,009,000 or $0.67 per diluted share for the six months ended June 30, 1999 as compared to $1,982,000 or $0.61 per diluted share for the six months ended June 30, 1998. Average Balance Sheet The following table sets forth information relating to the Company's average balance sheet and reflects the average yield on assets and average cost of liabilities for the periods indicated. The yields and costs are computed by dividing income or expense by the average balance of interest-earning assets or interest-bearing liabilities, respectively for the periods indicated.
Six Months Ended June 30, ------------------------- 1999 1998 ---- ---- Average Average Average Average Balance Interest Yld/Cost Balance Interest Yld/Cost ------- -------- -------- ------- -------- -------- (dollars in thousands) Assets: Interest-earning assets: Loans receivable (4) ....................... $282,033 $ 10,796 7.66% $238,592 $ 9,509 7.97% Mortgage-backed securities ................. 263,025 8,296 6.31% 236,119 7,573 6.41% Investment securities ...................... 110,459 3,398 6.15% 110,302 3,327 6.03% Other interest-earning assets(1) ........... 25,416 547 4.30% 33,014 730 4.42% -------- -------- -------- -------- Total interest-earning assets ............ 680,933 23,037 6.77% 618,027 21,139 4.68% -------- -------- Non interest-earning assets .................. 33,682 22,266 6.84% -------- -------- Total assets ............................. 714,615 609,420 ======== ======== Liabilities and stockholders' equity: Interest-bearing liabilities: Savings deposits ......................... 427,373 7,564 3.54% 449,193 8,678 3.86% Advances from the FHLB ................... 224,630 6,213 5.53% 130,025 3,574 5.50% -------- -------- -------- -------- Total interest-bearing liabilities ..... 652,003 13,777 4.23% 579,218 12,252 4.23% -------- -------- -------- -------- Non interest-bearing liabilities ............. 10,742 10,034 Total liabilities ...................... 662,745 589,252 Stockholders' equity ......................... 51,870 51,041 -------- -------- Total liabilities and stockholders' equity 714,615 640,293 ======== ======== Net interest income .......................... $ 4,461 $ 8,887 ======== ======== Interest rate spread (2) ..................... 2.54% 2.61% Net yield on interest-earning assets (3) ..... 2.72% 2.88% Ratio of average interest-earning assets to Average interest bearing liabilities ......... 104% 107%
(1) Includes interest-bearing deposits in other banks. (2) Interest-rate spread represents the difference between the average yield on interest-earning assets and the average cost of interest-bearing liabilities. (3) Net yield on interest-earning assets represents net interest income as a percentage of average interest-earning assets. (4) Nonaccrual loans have been included in the appropriate average loan balance category, but interest on nonaccrual loans has not been included for purposes of determining interest income. 13 Rate/Volume Analysis The following table presents, for the periods indicated, the change in interest income and interest expense (in thousands) attributed to (I) changes in volume (changes in the weighted average balance of the total interest earning asset and interest bearing liability portfolios multiplied by the prior year rate), and (ii) changes in rate (changes in rate multiplied by prior year volume). Changes attributable to the combined impact of volume and rate have been allocated proportionately based on the absolute value of changes due to volume and changes due to rate. Six Months Ended June 30, 1999 vs. 1998 ----------------------------- Increase (Decrease) Due to ----------------------------- Volume Rate Net ----------------------------- Interest income: Loans receivable, net $ 2,279 ($ 992) $ 1,287 Mortgage-backed securities 1,051 (328) 723 Investment securities 5 66 71 Other interest-earning assets (164) (19) (183) ----------------------------- Total interest-earning assets 3,172 (1,274) 1,898 ============================= Interest expense Interest-bearing liabilities: Savings deposits (412) (702) (1,114) Advances from the FHLB 2,619 20 2,639) Total interest-bearing liabilities 2,207 (682) 1,525 ----------------------------- Net change in net interest income $ 964 ($ 591) $ 373 ============================= Total Interest Income. Total interest income increased by $1.9 million, or 9.0%, to $23.0 million for the six months ended June 30, 1999 compared with the first six months of 1998 primarily because of increases in the average balance of loans receivable and mortgage-backed securities. The increase in the average balances of loans receivable is primarily attributable to the purchase of $76.4 million of mortgage loans in the first quarter of 1999. The increased interest income attributable to the purchase of mortgage loans was partially offset by the decrease to the average yield on loans receivable resulting from the early repayment during the period of higher yielding mortgage loans. In addition, the yield on the mortgage loans purchased was less than the average yield on the portfolio due to the interest rate environment that existed at the time of the purchase. Total Interest Expense. Total interest expense increased to $13.8 million for the six-month period ended June 30, 1999 from $12.3 million for the same period in 1998 primarily due to increased advances from the Federal Home Loan Bank which were used to fund asset growth and deposit outflows. The average balance of savings deposits decreased $21.8 million, or 4.9%, from $449.2 million for the six month period ended June 30, 1998 to $427.4 million for the six-month period ended June 30, 1999. The average rate paid on savings deposits decreased from 3.86% for the six month period ended June 30, 1998 to 3.54% for the six month period ended June 30, 1999. The decrease in the average balances and the average rate paid on savings deposits resulted from decreased market interest rates and management's efforts to price deposits at lower rates. 14 Non-interest income. Total non-interest income was $621 thousand for the six-month period ended June 30, 1999 compared with $1.1 million for the same period in 1998. The decrease of $485 thousand is primarily attributable to the decrease in the gain on sale of loans and securities Non-interest expense. Total non-interest expense decreased $174 thousand to $6.7 million for the six months ended June 30, 1999 compared to the same period in 1998. Data processing decreased by $440 thousand as a result of conversion to an in-house data processing system, which occurred during the second quarter of 1998. Professional fees increased by $64 thousand as a result of consulting fees associated with Year 2000 compliance remediation and testing. In addition, compensation and benefits, occupancy and equipment, and other expenses increased by a combined $239 thousand, also due to the conversion to an in-house data processing system. 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. There has been no material adverse change during six-month period ended June 30, 1999 in the ability of the Company and its subsidiaries to fund their operations. The Savings Bank is required under federal regulations to maintain certain specified levels of "liquid investments", which include certain United States government obligations and other approved investments. Current regulations require the Savings Bank to maintain liquid assets of not less than 4% of its net withdrawable accounts plus short term borrowings. Short-term liquid assets must consist of not less than 1% of such accounts and borrowings, which amount is also included within the 4% requirement. These levels may be changed from time to time by the regulators to reflect current economic conditions. The Savings Bank's regulatory liquidity was 22.6% and 17.6% at June 30, 1999 and 1998, respectively. The amount of certificate accounts that are scheduled to mature during the twelve-month period ending June 30, 2000 is approximately $110.8 million. To the extent that these deposits do not remain at the Savings Bank upon maturity, the Savings Bank believes that it can replace these funds with deposits, broker deposits, excess liquidity, or advances from the Federal Home Loan Bank. It has been the Savings Bank's experience that a substantial portion of such maturing deposits remains at the Savings Bank. At June 30, 1999, the Savings Bank had outstanding commitments to originate loans of $3.7 million, to purchase investment securities of $2.0 million and to fund undisbursed balances of closed loans and lines of credit of $20.1 million. Funds required to fill these commitments will be derived from current excess liquidity, loan and security repayments, deposit growth, or borrowings from the Federal Home Loan Bank. Capital Requirements The Savings Bank is in compliance with all of its capital requirements as of June 30, 1999. 15 YEAR 2000 Readiness Efforts The following discussion of the implications of the Year 2000 problem for the Company contains numerous forward- looking statements based on inherently uncertain information. The cost of the project is based on management's best estimates, which are derived utilizing a number of assumptions regarding future events including the continued availability of internal and external resources, third party modifications and other factors. However, there can be no guarantee that these events will occur as planned and actual results could differ. Moreover, although management believes it will be able to make the necessary systems modifications in advance, there can be no guarantee that failure to modify the systems would not have a material adverse effect on the Company. In 1998, a comprehensive project plan ("Plan") to address the Year 2000 problem and related issues as those relate to the Company's operations was developed, approved by the Board of Directors and implemented. The Company's Year 2000 effort is proceeding in accordance with the written Plan. Progress reports are provided to the Board at least monthly. The Year 2000 issue is the result of potential problems with software and computer systems or any equipment with computer chips that store the year portion of the date as just two-digits. Systems using this two-digit approach may not be able to determine whether 00 represents the year 2000 or 1900. The problem, if not corrected, could make those systems fail altogether or possibly cause them to generate incorrect calculations resulting in a disruption of normal computer and related operations. The Company's Plan is divided into four broad areas of concern: hardware, software, service providers and customers. Year 2000 issues being addressed in each of these areas include both information-related technology and non-information related technology. A project team that consists of key members of the Company's technology staff, representatives of functional business units and senior management was developed. From the assessment, the Company identified and prioritized those systems deemed to be mission critical or those that have a significant impact on normal operations. Formal communications with those providers of data processing capabilities and other external service providers were initiated in 1997 and 1998 to assess the Year 2000 readiness of their products and services. Thus far, responses indicate that the significant providers are currently following plans developed to address processing of transactions beginning January 1, 2000. The Company has contacted all significant commercial borrowers to ensure that each one is following a plan intended to mitigate Year 2000 risks to their business. In addition, the Company has used statement inserts and direct mailings in order to make its depositors aware of Year 2000 issues. The Company contacted all non-information technology suppliers (i. e. utility systems, telephone systems, etc.) regarding their Year 2000 state of readiness. These parties have indicated that they have established Year 2000 plans and are in various stages of remediation and testing. We are unable to test the Year 2000 readiness of our significant suppliers of utilities. We are relying on the utility companies' internal testing and representations in order for the Company to conclude that they will be able to deliver the resources necessary for the Company to operate its systems. The Company is unable to determine what recourse it will have should these utilities fail to successfully resolve their Year 2000 issues. 16 Costs The total cost to the Company of these Year 2000 compliance activities has not been and is not anticipated to be material to its financial position or results of operations in any given year. In total, the Company estimates that its costs, excluding personnel expenses, for Year 2000 remediation and testing of its computer systems will amount to less than $90 thousand for the twelve month period ending December 31, 1999. Approximately $10,000 of these expenses had not been incurred at June 30, 1999. Risk Assessment Based upon current information related to the progress of its major vendors and service providers, management has determined that the Year 2000 issue will not pose significant operational problems for its computer systems. The determination is based on the ability of vendors and service providers to renovate, in a timely manner, the products and services on which the Company's systems rely. To date, management has received assurances by the majority of its vendors and service providers that they will be Year 2000 compliant. While most are on schedule, the Company can give no assurance that the systems of these suppliers will be timely renovated. The Company is exposed to operational disruptions from external entities that have direct or indirect business relationships with the Company, such as telecommunications service providers, customers, vendors, payment systems providers and others. Despite the best efforts of management to address these issues, the vast number of external business relationships makes it impossible to assure that a failure to achieve compliance by one or more of these entities would not have a material adverse impact on the operations of the Company. Contingency Plans Realizing that some disruption may occur despite its best efforts, the Company has developed contingency plans for each critical system in the event that one or more of those systems fail. While this is an ongoing process, the Company's contingency plan is substantially complete. The Company's contingency plan provides for the replacement of a service provider, or substitution of alternative procedures in the case of a process, as soon as it becomes apparent that any service provider will fail to perform or that any process will fail. This phase of the plan will be tested and validated during the third quarter of 1999. In addition, the Savings Bank has developed a currency availability plan in order to address the anticipated but unknown amount of additional currency that could be needed to fund cash withdrawals requested by customers as the end of 1999 approaches. The need for additional currency poses significant risks to the Company, its employees, and customers. There can be no assurances that these risks can be entirely mitigated or that the Company will not experience significant adverse consequences resulting from the need to have available large amounts of currency during the periods immediately preceding and following January 1, 2000. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Asset and Liability Management The Company's market risk exposure is predominately caused by interest rate risk, which is defined as the sensitivity of the Company's current and future earnings, the values of its assets and liabilities, and the value of its capital to changes in the level of market interest rates. Management of the Company believes that there has not been a material adverse change in market risk during the six months ending June 30, 1999. 17 TF FINANCIAL CORPORATION AND SUBSIDIARIES PART II ITEM 1. LEGAL PROCEEDINGS Not applicable. ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS Not applicable. ITEM 3. DEFAULTS UPON SENIOR SECURITIES Not applicable. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS The 1999 Annual Meeting of Stockholders (the "Meeting") of the Company was held on April 28, 1999. There were outstanding and entitled to vote at the Meeting 3,041,010 shares of Common Stock of the Company. There were present at the meeting or by proxy the holders of 2,815,387 shares of Common Stock representing 92.58% of the total eligible votes to be cast. Proposal 1 was to elect John R. Stranford as director of the Company. Proposal 2 was a shareholder proposal to repeal or amend various provisions of the Company's Certificate of Incorporation and by-laws. Proposal 3 was a shareholder proposal recommending that the Board of Directors take certain action to initiate a possible sale of the Company. The results of the voting at the Meeting are as follows (percentages in terms of votes cast): Proposal 1 FOR: 2,610,220 PERCENT FOR: 92.7% Proposal 2 FOR: 452,739 PERCENT FOR: 21.4% AGAINST: 1,636,953 PERCENT AGAINST: 77.8% ABSTAIN: 16,510 PERCENT ABSTAIN: 0.8% Proposal 3 FOR: 302,492 PERCENT FOR: 14.4% AGAINST: 1,774,032 PERCENT AGAINST: 84.2% ABSTAIN: 29,678 PERCENT ABSTAIN: 1.4% ITEM 5. OTHER INFORMATION None ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits Exhibit 27-Financial Data Schedule(In Electronic Filing Only) (b) Reports on Form 8-K On April 30, 1999, a Current Report on Form 8-K was filed with the SEC to report the results of voting at the Company's 1999 Annual Meeting of Stockholders and the appointment of a new Senior Vice President and Chief Financial Officer for the Company. 18 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized. TF FINANCIAL CORPORATION /s/ John R. Stranford ------------------------------------------- Date: August 13, 1999 John R. Stranford President and CEO (Principal Executive Officer) /s/ Dennis R. Stewart ------------------------------------------ Date: August 13, 1999 Dennis R. Stewart Senior Vice President and Chief Financial Officer (Principal Financial & Accounting Officer) 19 EX-27 2 FDS
9 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE QUARTERLY REPORT ON FORM 10-Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL INFORMATION. 1000 6-MOS DEC-31-1999 JUN-30-1999 16,467 1,745 0 0 117,965 378,366 375,665 289,447 1,916 725,167 416,925 30,000 8,667 218,359 0 0 529 50,687 725,167 10,796 11,694 547 20,037 7,564 13,777 9,260 90 0 6,654 3,137 3,137 0 0 2,009 .72 .67 2.72 0 2,199 0 0 1,909 83 0 1,916 1,916 0 1,916
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