SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------------
(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, 1998
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 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
--- ---
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's
classes of common stock as of the latest practicable date July 31, 1998
------------------
Class Outstanding
--------------------------- ----------------
$.10 par value common stock 2,898,510 shares
<PAGE>
TF FINANCIAL CORPORATION AND SUBSIDIARIES
FORM 1O-Q
FOR THE QUARTER ENDED JUNE 30, 1998
INDEX
Page
Number
------
PART I - CONSOLIDATED FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements 3
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9
Item 3. Quantitative and Qualitative Disclosures about Market Risk 17
PART II- OTHER INFORMATION
Item 1. Legal Proceedings 18
Item 2. Changes in Securities 18
Item 3. Defaults upon Senior Securities 18
Item 4. Submission of Matters to a Vote of Security Holders 18
Item 5. Other Materially Important Events 18
Item 6. Exhibits and Reports on Form 8-K 18
SIGNATURES
2
<PAGE>
TF FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(in thousands)
<TABLE>
<CAPTION>
Unaudited Audited
--------- -------
June 30, December 31,
ASSETS 1998 1997
<S> <C> <C>
Cash and cash equivalents $ 33,414 41,625
Securities purchased under agreements to resell 10,064 10,000
Certificates of deposit in other financial institutions 2,437 2,737
Investment securities available for sale - at market value 37,898 32,037
Investment securities held to maturity (market value of $69,863 and $57,944 69,933 57,740
respectively, for the periods shown)
Mortgage-backed securities available for sale - at market value 41,723 36,847
Mortgage-backed securities held to maturity (market value of $235,901 and
$145,723 respectively, for the periods shown) 234,144 144,074
Loans receivable, net 237,407 250,711
Accrued interest receivable 4,463 3,957
Goodwill/Core deposit intangible 7,823 8,274
Premises and equipment, net 8,523 7,889
Other assets 1,455 1,156
-------- --------
Total Assets $689,284 $597,047
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Deposits $448,625 $450,429
Advances from the Federal Home Loan Bank 178,356 88,359
Advances from borrowers for taxes and insurance 1,721 1,591
Accrued interest payable 5,750 2,470
Other liabilities 3,194 4,103
-------- --------
Total Liabilities 637,646 546,952
-------- --------
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; 2,892,522 and 2,886,251 shares outstanding
at June 30, 1998 and December 31, 1997, net of treasury shares of
2,098,551 and 2,102,767 respectively 529 529
Additional paid-in capital 51,888 51,775
Net unrealized loss on investment securities available for sale (27) 169
Unearned ESOP shares-at cost (2,943) (3,010)
Shares acquired by MSBP (682) (895)
Treasury stock - at cost (41,565) (41,649)
Retained earnings 44,438 43,176
-------- --------
Total Stockholders' Equity 51,638 50,095
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $689,284 $597,047
======== ========
</TABLE>
See notes to consolidated financial statement
3
<PAGE>
TF FINANCIAL CORPORATION AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF EARNINGS
(in thousands, except per share data)
<TABLE>
<CAPTION>
For Six Months For Quarter
Ended June 30, Ended June 30,
------------------------ ------------------------
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Interest Income
Loans $ 9,509 $12,413 $ 4,605 $ 6,221
Mortgage-backed securities 7,573 6,379 4,335 3,271
Investment securities 3,327 2,955 1,750 1,388
Interest bearing deposits and other 730 534 308 226
------- ------- ------- -------
TOTAL INTEREST INCOME 21,139 22,281 10,998 11,106
Interest expense
Deposits 8,678 9,320 4,364 4,663
Borrowings 3,574 2,930 2,226 1,473
------- ------- ------- -------
TOTAL INTEREST EXPENSE 12,252 12,250 6,590 6,136
NET INTEREST INCOME 8,887 10,031 4,408 4,970
Provision for loan losses 30 180 15 75
------- ------- ------- -------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 8,857 9,851 4,393 4,895
Non-interest income
Gain on sale of real estate acquired through foreclosure 24 0 25 0
Gain on sale of mortgage-backed securities 345 188 345 115
Gain on sale of loans 91 39 17 40
Service fees, charges and other operating income 646 651 299 333
------- ------- ------- -------
TOTAL NON-INTEREST INCOME 1,106 878 686 488
Non-interest expense
Employee compensation and benefits 3,285 3,299 1,620 1,626
Occupancy and equipment 923 904 484 459
Federal deposit insurance premium 140 153 70 76
Data processing 449 346 274 166
Professional fees 284 276 149 143
Goodwill and other intangible amortization 450 488 225 244
Advertising 180 188 90 90
Other operating 1,117 1,072 541 514
------- ------- ------- -------
TOTAL NON-INTEREST EXPENSE 6,828 6,726 3,453 3,318
INCOME BEFORE INCOME TAXES 3,135 4,003 1,626 2,065
Income taxes 1,153 1,574 637 800
------- ------- ------- -------
NET INCOME $ 1,982 $ 2,429 $ 989 $ 1,265
======= ======= ======= =======
Basic earnings per share $ 0.68 $ 0.63 $ 0.34 $ 0.33
Diluted earnings per share $ 0.61 $ 0.61 $ 0.30 $ 0.32
Weighted average number of shares outstanding - Basic 2,892,522 3,836,006 2,895,580 3,772,709
Weighted average number of shares outstanding - Diluted 3,249,145 4,008,885 3,254,270 4,025,742
</TABLE>
See notes to consolidated financial statement
4
<PAGE>
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOW
(in thousands)
<TABLE>
<CAPTION>
For the Six Months
Ended June 30,
------------------------------
1998 1997
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 1,982 $ 2,429
Adjustments to reconcile net income to net cash provided by
operating activities:
Amortization of:
Mortgage loan servicing rights 9 47
Deferred loan origination fees (91) (77)
Premiums and discounts on investment securities net 36 25
Premiums and discounts on mortgage-backed securities and
loans net 291 69
Amortization of goodwill and core deposit intangible 451 488
Provision for loan losses and provision for losses on real estate 30 180
Depreciation of premises and eqipment 387 351
Recognition of ESOP and MSBP expenses 411 454
(Gain) loss on sale of mortgage-backed securities - available for sale (80) (188)
(Gain) on sale of investment securities - available for sale (265) --
(Gain) loss on sale of real estate acquired through foreclosure (24) --
(Gain) on sale of mortgage servicing rights -- --
(Gain) loss on sale of mortgage loans (91) (39)
Decrease (increase) in
Acquired interest receivable (506) (568)
Other assets (337) (65)
Increase (decrease) in
Accrued interest payable 3,280 1,255
Other liabilities (1,140) 1,154
-------- -------
NET CASH PROVIDED BY OPERATING ACTIVITIES 4,343 5,515
CASH FLOWS FROM INVESTING ACTIVITIES
Loan originating and principal payments on loans, net (6,142) (11,009)
Purchases of loans -- (12,663)
Proceeds from loan sales 19,496 16,970
Purchases and maturities of certificates of deposit in other
financial institutions net 300 769
Purchases and maturities of securities purchased
under agreements to resell, net (64) 20,129
Purchases of investment securities - available for sale (137,644) (6,982)
Purchases of investment securities - held to maturity (23,030) (68,081)
Purchases of mortgage-backed securities - available for sale (16,244) (23,412)
Purchases of mortgage-backed securities - held to maturity (114,358) (15,071)
Proceeds from maturities of investment securities - held to maturity 23,989 54,680
Proceeds from maturities of investment securities - available for sale 115,472 1,350
Principal repayments from maturities of mortgage-backed securities -
held to maturity 24,192 12,144
Principal repayments from maturities of mortgage-backed securities -
available for sale 5,627 1,189
Proceeds from the sale of mortgage-backed securities - available for sale 5,683 8,648
Proceeds from the sale of investment securites - available for sale 7,445 --
Purchases and redemptions of Federal Home Loan Bank Stock, net (4,000) --
Proceeds from sales of real estate acquired through foreclosure 114 --
Purchases of premises and equipment (1,021) (187)
------- -------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES $(100,185) $(21,526)
</TABLE>
5
<PAGE>
TF FINANCIAL CORPORATION AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
For the Six Months
Ended June 30,
-----------------------
1998 1997
<S> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase (decrease) in demand deposits/ NOW accounts,
passbook savings accounts and certificates of deposit $ (1,804) $ (8,241)
Advances from Federal Home Loan Bank - net 89,997 --
Net (decrease) increase in advances from borrowers for taxes
and insurance 130 200
Purchase of treasury stock -- (3,587)
Common stock cash dividend (692) (768)
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 87,631 (12,396)
NET INCREASE (DECREASE) INCASH AND CAS EQUIVALENTS (8,211) (28,407)
Cash and cash equivalents at beginning of period 41,625 54,132
-------- --------
Cash and cash equivalents at end of period $ 33,414 $ 25,725
Supplemental disclosure of cash flow information
Cash paid for
Interest on deposits and advances $ 8,972 $ 10,995
Income taxes $ 1,692 $ 801
Non-cash transactions
Transfers from loans to real estate acquired through foreclosure $ 61 $ 78
</TABLE>
See notes to consolidated financial statement
6
<PAGE>
TF FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - PRINCIPLES OF CONSOLIDATION
The consolidated financial statements as of June 30, 1998, December 31,
1997, and for the three and six month periods ended June 30, 1998 and 1997
include the accounts of TF Financial Corporation (the "Corporation") and
its wholly owned subsidiaries Third Federal Savings Bank (the "Savings
Bank"), TF Investments Corporation, Penns Trail Development Corporation and
Teragon Financial Corporation. The Corporation'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 information or footnotes necessary for a complete presentation of
consolidated financial condition, results of operations, and cash flows in
conformity with generally accepted accounting principles. However, all
adjustments, consisting of normal recurring accruals, which, in the opinion
of management, are necessary for fair presentation of the consolidated
financial statements have been included. The results of operations for the
period ended June 30, 1998 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 Corporation's Annual Report on Form 10-K
for the fiscal year ended December 31, 1997.
NOTE 3 - CONTINGENCIES
The Corporation, from time to time, is a party to routine litigation, which
arise in the normal course of business. In the opinion of management, the
resolution of these lawsuits would not have a material adverse effect on
the Corporation's consolidated financial condition or results of
operations.
A petition for resettlement has been filed by the Savings Bank protesting
assessment of certain prior years' Pennsylvania Mutual Thrift Institutions
Tax. Management believes that the resolution of this liability, if any,
would not have a material adverse effect on the Corporation's financial
position or results of operations.
NOTE 4 - NEW PRONOUNCEMENTS
On January 1, 1998, the Corporation adopted SFAS No. 130, "Reporting
Comprehensive Income". SFAS No. 130 establishes standards to provide
prominent disclosure of comprehensive income items. Comprehensive income is
the change in equity of a business enterprise during a period from
transactions and other events and circumstances from non-owner sources.
Other comprehensive income consists of net unrealized gains on investment
securities available for sale. Subsequent to the adoption date, all prior
period amounts are required to be restated to conform to the provisions of
SFAS No. 130. Total comprehensive income for the first six month period
ended June 30, 1998 was $1,787,000, compared to $2,305,000 for the six
month period ended June 30, 1997. Total comprehensive income for the three
month period ended June 30, 1998 was $767,000, compared to $1,588,000 for
the three month period ended June 30, 1997. The adoption of SFAS 130 did
not have a material impact on the Corporation's financial position or
results of operations.
7
<PAGE>
On January 1, 1998, the Corporation adopted SFAS No. 131, "Disclosures
about Segments of an Enterprise and Related Information". SFAS No. 131
requires that public business enterprises report certain information about
operating segments in a complete set of financial statements of the
enterprise and in condensed financial statements of interim periods issued
to shareholders. It also requires the reporting of certain information
about their products and services, the geographic area in which they
operate, and their major customers. The adoption of SFAS No. 131 did not
have an impact on the Corporation's financial position or results of
operations.
The American Institute of Certified Public Accountants (AICPA) executive
committee has issued Statement of Position (SOP) 98-1, Accounting for the
Costs of Computer Software Developed or Obtained for Internal Use. The SOP
was issued to provide authoritative guidance on the subject of accounting
for the cost associated with the purchase or development of computer
software. The statement is effective for fiscal years beginning after
December 15, 1998 for costs incurred in those fiscal years for all
projects, including projects in progress when the SOP is adopted. The
adoption of SOP 98-1 is not expected to have a material impact on the
Corporation's financial position or results of operations.
In June 1998, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 113, "Accounting for
Derivative Instruments and Hedging Activity" SFAS No. 133 established
accounting and reporting standards for derivative instruments, including
certain derivative instruments imbedded in other contracts, and for hedging
activities. It requires that an entity recognize all derivatives as either
assets or liabilities in the statement of financial position and measure
those instruments at fair value. If certain conditions are not met, a
derivative may be specifically designated as a hedge. The accounting for
changes in fair value of a derivative (gains or losses) depends on the
intended use of the derivative and resulting designation. SAFS No. 113 is
effective for all fiscal quarters of fiscal years beginning after June 15,
1999. Early application is permitted only as of the beginning of any fiscal
quarter. He Company is currently reviewing the provisions of SFAF No 133.
8
<PAGE>
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 economics 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.
The Corporation's total assets at June 30, 1998 and December 31, 1997 totaled
$689.3 million and $597.0 million, respectively, an increase of $92.3 million or
15.5% for the six month period. This increase was primarily a result of the
$94.9 million increase in mortgage-backed securities, coupled with the $18.1
million increase in investment securities, partially offset by the $8.2 million
decrease in cash and cash equivalents, and the $13.3 million decrease in loans
receivable. The increase in total assets was funded by the $90.0 million
increase in advances from the Federal Home Loan Bank. Total liabilities
increased to $637.6 million at June 30, 1998 from $547.0 at December 31, 1997.
This increase was primarily the result of the $90.0 million, or 101.8%, increase
in advances from the Federal Home Loan Bank to $178.4 million at June 30, 1998
from $88.4 million at December 31, 1997. Total deposits balances decreased by
$1.8 million from $450.0 million at December 31, 1997 to $448.6 million at June
30, 1998.
The decrease in loans receivable of $13.3 million or, 5.3%, from $250.7 million
at December 31, 1997 to $237.4 million at June 30, 1998 was a result of mortgage
loan repayments.
Cash and cash equivalent balances decreased by $8.2 million, or 19.7%, from
$41.6 million at December 31, 1997 to $33.4 million at June 30, 1998 primarily
as a result of its reinvestment into mortgage-backed and investment securities.
Investment securities at June 30, 1998 totaled $107.8 million, which represents
an increase of $18.1 million or 20.2% as compared to $89.7 million at December
31, 1997. This increase is primarily due to the reinvestment of
9
<PAGE>
cash and cash flow caused by repayments of mortgage loans.
Mortgage-backed securities totaled $275.8 million at June 30, 1998 as compared
to $180.9 million at December 31, 1997. This increase of $94.9 million or,
52.5%, is a result the investment of the proceeds of the $90.0 million of
Federal Home Loan advances, coupled with the decrease in cash and cash
equivalents.
Total consolidated stockholders' equity of the Corporation increased $1.5
million or 3.0%, to $51.6 million, or 7.49% of total assets, at June 30, 1998,
from $50.1 million or 8.39 % of total assets at December 31, 1997, primarily due
to the $1.2 million increase to retained earnings for the six month period. The
amortization of stock incentive plans of $300,000 also contributed to this
increase in stockholders' equity.
10
<PAGE>
Average Balance Sheet
The following table sets forth information relating to the Corporation'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 monthly average balance of interest-earning
assets or interest-bearing liabilities, respectively for the periods indicated.
<TABLE>
<CAPTION>
Three Months Ended June 30, Three Months Ended June 30,
------------------------------- -----------------------------
1998(5) 1997(5)
------------------------------- -----------------------------
Average Average
Average Yield/ Average Yield/
Balance Interest Cost Balance Interest Cost
------- -------- ---- ------- -------- ----
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Assets:
Interest-earning assets:
Loans receivabe(4)......................... $232,336 $ 4,605 7.93% $316,050 $ 6,221 7.87%
Mortgage-backed securities................. 269,285 4,335 6.44% 196,144 3,271 6.67%
Investment securities...................... 116,558 1,750 6.01% 81,281 1,388 6.83%
Other interest-earning assets(1)........... 29,984 308 4.11% 22,563 226 4.01%
------- ------ ------ ------
Total interest-earning assets........ $648,163 $10,998 6.79% $616,038 $11,106 7.21%
-------- ------- -------- -------
Non interest-earning assets................ 23,002 23,029
------- -------
Total assets......................... $671,165 $639,067
======== ========
Liabilities and Stockholders' Equity:
Interest-bearing liabilities:
Savings deposits......................... 447,435 $ 4,364 3.90% $459,122 $ 4,663 4.06%
Borrowings............................... 161,691 2,226 5.51% 98,359 1,473 5.99%
------- ----- ------- -----
Total interest-bearing liabilities... $609,126 $ 6,590 4.33% $557,481 $ 6,136 4.40%
======== ======= ==== ======== ======= ====
Non interest-bearing liabilities............. 10,615 11,025
Total liabilities.................... 619,741 568,506
Stockholders' equity......................... 51,424 70,561
------- ------
Total liabilities and stockholders'
equity............................. $671,165 $639,067
======== ========
Net interest income.......................... $ 4,408 $ 4,970
======= =======
Interest rate spread(2)...................... 2.46% 2.81%
Net yield on interest-earning assets(3)...... 2.72% 3.23%
Ratio of average interest-earning assets to
average interest bearing liabilities....... 106% 111%
</TABLE>
(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.
(5) Ratios have been annualized where applicable.
11
<PAGE>
Average Balance Sheet (continued)
<TABLE>
<CAPTION>
Six Months Ended June 30, Six Months Ended June 30,
------------------------------- -----------------------------
1998(5) 1997(5)
------------------------------- -----------------------------
Average Average
Average Yield/ Average Yield/
Balance Interest Cost Balance Interest Cost
------- -------- ---- ------- -------- ----
<S> <C> <C> <C> <C> <C> <C>
Assets:
Interest-earning assets:
Loans receivabe(4)......................... $238,592 $ 9,509 7.97% $313,320 $12,413 7.93%
Mortgage-backed securities................. 236,119 7,573 6.41% 190,656 6,379 6.69%
Investment securities...................... 110,302 3,327 6.03% 91,152 2,955 6.48%
Other interest-earning assets(1)........... 33,014 730 4.42% 23,347 534 4.57%
------- ------ ------ ------
Total interest-earning assets........ $618,027 $21,139 6.84% $618,375 $22,281 7.21%
-------- ------- -------- -------
Non interest-earning assets................ 22,266 22,783
------- -------
Total assets......................... $640,293 $641,158
======== ========
Liabilities and Stockholders' Equity:
Interest-bearing liabilities:
Savings deposits......................... 449,193 $ 8,678 3.86% $460,847 $ 9,320 4.04%
Borrowings............................... 130,025 3,574 5.50% 99,192 2,930 5.91%
------- ----- ------- -----
Total interest-bearing liabilities... $579,218 $12,252 4.23% $560,039 $12,250 4.37%
======== ======= ==== ======== ======= ====
Non interest-bearing liabilities............. 10,034 10,176
Total liabilities.................... 589,252 570,215
Stockholders' equity......................... 51,041 70,943
------- ------
Total liabilities and stockholders'
equity............................. $640,293 $641,158
======== ========
Net interest income.......................... $ 8,887 $10,031
======= =======
Interest rate spread(2)...................... 2.61% 2.84%
Net yield on interest-earning assets(3)...... 2.87% 3.24%
Ratio of average interest-earning assets to
average interest bearing liabilities....... 107% 110%
</TABLE>
(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.
(5) Ratios have been annualized where applicable.
12
<PAGE>
RESULTS OF OPERATIONS
Net Income. The Corporation recorded net income of $1.0 million for the three
months ended June 30, 1998 as compared to $1.3 million for the three months
ended June 30, 1997. This decrease of $300,000, or 23.1%, was primarily the
result of the decrease in total interest income from $11.1 million at June 30,
1997 to $11.0 million at June 30, 1998, in conjunction with the increase in
total interest expense from $6.1 million at June 30, 1997 to $6.6 million at
June 30, 1998. Net interest income before provisions for loan losses was $4.4
million for the three month period ended June 30, 1998 as compared to $5.0
million for the same period in 1997. Non-interest income was $700,000 and
$500,000, respectively, for these same periods. Operating expenses (non-interest
expense) were $3.5 million for the three month period ended June 30, 1998 and
$3.3 million for the three month period ended June 30, 1997.
The Corporation recorded net income of $2.0 million for the six months ended
June 30, 1998 as compared to $2.4 million for the six months ended June 30,
1997. This decrease of $400,000, or 16.7%, was primarily the result of the
decrease in total interest income from $22.3 million at June 30, 1997 to $21.1
million at June 30, 1998. Net interest income before provision for loan losses
was $8.9 million for the six month period ended June 30, 1998 as compared to
$10.0 million for the same period in 1997. For these same periods, total
interest expense remained level at $12.3 million. Non-interest income was $1.1
million and $900,000, respectively, for these same periods. Operating expenses
(non-interest expense) remained level at $6.8 million and $6.7 million for the
six month periods ended June 30, 1998 and June 30, 1997, respectively.
Total Interest Income. Total interest income decreased by $100,000 or 0.9% to
$11.0 million for the three months ended June 30, 1998, from $11.1 million for
the three months ended June 30, 1997 due primarily to decreases in the average
balance of loans receivable somewhat offset by increases in the average balance
of mortgage-backed securities, investment securities and other interest earning
assets. The average balance of loans receivable decreased $83.8 million, or
26.5%, to $232.3 million from $316.1 million for the three months ended June 30,
1998 and 1997, respectively. The decrease in the average balance of loans
receivable is primarily attributable to the sale of $43.6 million of mortgage
loans in the third quarter of 1997, coupled with mortgage loan repayments.
Interest attributable to loans receivable decreased $1.6 million or 25.8% to
$4.6 million from $6.2 million for these same periods. This decrease is
primarily attributable to the decrease in the average balance of loans
receivable partially offset by an increase in the average yield on loans
receivable from 7.87% for the three month period end June 30, 1997, to 7.93% for
the three month period ended June 30, 1998. Interest on mortgage-backed
securities increased $1,000,000, or 30.3%, for the three month period ended June
30, 1998, from $3.3 million at June 30, 1997 primarily as a result of increases
in the average balances of mortgage-backed securities to $269.3 million at June
30, 1998 from $196.1 million at June 30, 1997. The increase in income
attributable to the increase in the average balance of mortgage-backed
securities was partially offset by a decrease in the average yield of the
securities to 6.44% at June 30, 1998 from 6.67% at June 30 1997. Interest on
investment securities increased to $1.8 from $1.4 million for the three month
periods ended June 30, 1998 and 1997 respectively, primarily as a result of the
increase in the average balance of investment securities to $116.6 million at
June 30, 1998 from $81.3 million at June 30, 1997. Interest on other
interest-earning assets increased by $100,000 for the three month period ended
June 30, 1998 compared to the similar period ended June 30, 1997 primarily as a
result of the average balance increasing by $7.4 million to $30.0 million,
coupled with the increase in the average yield to 4.11% at June 30, 1998 from
4.01% at June 30, 1997. The increases in the average balances of investment
securities and other interest-earning assets are primarily the result of the
reinvestment of $43.6 million in proceeds from the sale of mortgage loans. The
increase in the average balance of mortgage-backed securities is primarily the
result of the reinvestment of borrowed funds coupled with the reinvestment of
mortgage loan repayments. The average balance of total interest earning assets
increased $32.2 million, or 5.2%, to $648.2 million at June 30, 1998 from $616.0
million at June 30, 1997.
Total interest income decreased by $1.2 million or 5.4% to $21.1 million for the
six months ended June 30, 1998, from $22.3 million for the six months ended June
30, 1997 due primarily to decreases in the average balance of loans receivable
somewhat offset by increases in the average balance of mortgage-backed
securities, investment securities and other interest earning assets. The average
balance of loans receivable decreased $74.6 million, or 23.8%, to $238.6 million
from $313.2 million for the six months ended June 30, 1998 and 1997,
respectively. The decrease in the average balance of loans receivable is
primarily attributable to the sale of $43.6 million of mortgage loans coupled
with mortgage loan amortization. Interest attributable to loans receivable
decreased $2.9 million or 23.4% to $9.5 million from $12.4 million for these
same periods.
13
<PAGE>
This decrease is primarily attributable to the decrease in the average balance
of loans receivable partially offset by an increase in the average yield on
loans receivable from 7.93% for the period end June 30, 1997, to 7.97% for the
period ended June 30, 1998. Interest on mortgage-backed securities increased
$1.2 million, or 18.8%, for the six month period ended June 30, 1998, from $6.4
million at June 30, 1997 primarily as a result of increases in the average
balances of mortgage-backed securities to $236.1 million at June 30, 1998 from
$190.7 million at June 30, 1997. The increase in income attributable to the
increase in the average balance of mortgage-backed securities was partially
offset by a decrease in the average yield of the securities to 6.41% at June 30,
1998 from 6.69% at June 30 1997. Interest on investment securities increased to
$3.3 from $3.0 million for the six month periods ended June 30, 1998 and 1997
respectively, primarily as a result of the increase in the average balance of
investment securities to $110.3 million at June 30, 1998 from $91.2 million at
June 30, 1997. Interest on other interest-earning assets increased by $200,000
for the six month period ended June 30, 1998 compared to the similar period
ended June 30, 1997 primarily as a result of the average balance increasing by
$9.7 million to $33.0 million. The increases in the average balances of
investment securities and other interest-earning assets are primarily the result
of the reinvestment of $43.6 million in proceeds from the sale of mortgage
loans. The increase in the average balance of mortgage-backed securities is
primarily the result of the reinvestment of borrowed funds coupled with the
reinvestment of mortgage loan amortization. The average balance of total
interest earning assets decreased $400,000, or .1%, to $618.0 million at June
30, 1998 from $618.4 million at June 30, 1997.
Total Interest Expense. Total interest expense increased to $6.6 million for the
three month period ended June 30, 1998 from $6.1 million at June 30, 1997. This
increase in total interest expense is a result of the increase in the average
balance of borrowed money partially offset by the decrease in the average
balance of savings deposits. The average balance of borrowed money increased
from $98.4 million at June 30, 1997 to $161.7 million at June 30, 1998. The
average balance of savings deposits decreased from $459.1 million at June 30,
1997 to $447.4 million at June 30, 1998. The average rate paid on borrowed money
decreased from 5.99% at June 30, 1997 to 5.51% at June 30, 1998. The average
rate paid on savings deposits decreased from 4.06% in the June 30, 1997 period
to 3.90% in the June 30, 1998 period. As a result of the decrease in the average
balance and average rate paid on savings deposits, coupled with the increase in
the average balance of borrowed money, the portion of total interest expense
attributable to savings deposits decreased to $4.4 million from $4.7 million at
June 30, 1998 and 1997 respectively. The average balance of total
interest-bearing liabilities increased to $609.1 million at June 30, 1998 from
$557.5 million at June 30, 1997 primarily as a result of increase in Federal
Home Loan Bank advances which were used to fund asset growth.
Total interest expense remained level at $12.3 million six month periods ended
June 30, 1998 and June 30, 1997 respectively. The average balance of borrowed
money increased from $99.2 million at June 30, 1997 to $130.0 million at June
30, 1998. The average balance of savings deposits decreased from $460.8 million
at June 30, 1997 to $449.2 million at June 30, 1998. The average rate paid on
borrowed money decreased from 5.91% at June 30, 1997 to 5.50 at June 30, 1998.
The average rate paid on savings deposits decreased from 4.04% in the June 30,
1997 period to 3.86% in the June 30, 1998 period. As a result of the decrease in
the average balance and average rate paid on savings deposits, coupled with the
increase in the average balance of borrowed money, the portion of total interest
expense attributable to savings deposits decreased to $8.7 million from $9.3
million at June 30, 1998 and 1997 respectively. The average balance of total
interest-bearing liabilities increased to $579.2 million at June 30, 1998 from
$560.0 million at June 30, 1997 primarily as a result of increase in Federal
Home Loan Bank advances which were used to fund asset growth.
Net Interest Income. Net interest income for the three month period ended June
30, 1998 decreased by $600,000, or 12.0%, to $4.4 million from $5.0 million for
the same period in 1997. The decrease was primarily the result of the decrease
in total interest income in conjunction with the increase in total interest
expense. The average balance of total interest-earning assets increased $32.2
million, or 5.2%, to $648.2 million at June 30, 1998 from $616.0 million at June
30, 1997. During these same periods, the average balances on interest-bearing
liabilities increased to $609.1 million from $557.5 million. The cost of
interest-bearing liabilities decreased from 4.40% to 4.33% while the yield on
interest-earning assets decreased from 7.21% to 6.79% for the three month
periods ended June 30, 1997 and 1998 respectively. The increase in the average
balance of interest earning assets and interest earning liabilities was
primarily the result of the increase in Federal Home Loan Borrowings and the
subsequent reinvestment of the cash proceeds into Mortgage-backed securities.
Net interest income for the six month period ended June 30, 1998 decreased by
$1.1 million, or 11.0%, to $8.9 million from
14
<PAGE>
$10.0 million for the same period in 1997. The decrease was primarily the result
of the decrease in total interest income in conjunction with the increase in
total interest expense. The average balance of total interest-earning assets
remained flat at $618.0 million and $618.4 million at June 30, 1998 and June 30,
1997 respectively. During these same periods, the average balances on
interest-bearing liabilities increased to $579.2 million from $560.0 million.
The cost of interest-bearing liabilities decreased from 4.37% to 4.23% while the
yield on interest-earning assets decreased from 7.21% to 6.84% for the six month
periods ended June 30, 1997 and 1998 respectively.
Allowance for Loan Losses. The allowance for loan losses increased at June 30,
1998 to $2.1 million from $2.0 million at June 30, 1997. Such totals correlate
to non-performing loans of $1.7 million at June 30, 1998 and $2.0 million at
June 30, 1997. The increase in the allowance for loan losses of $80,000 resulted
from the addition of $247,000 to the provision for loan losses and the deduction
of $167,000 of net charge offs for losses on loans. The provision for losses on
loans is the method by which the allowance for losses is adjusted during the
period. The provision for losses on loans was $15,000 for the three months ended
June 30, 1998. At June 30, 1998, the allowance for loan losses was 118.1% of
non-performing loans as compared to 102.6% of non-performing loans at June 30,
1997. While management maintains its allowance for losses at a level which it
considers to be adequate to provide for potential losses, there can be no
assurance that further additions will not be made to the allowance and that such
losses will not exceed the estimated amounts.
Non-interest Income. Total non-interest income increased to $686,000 for the
three months ended June 30, 1998 from $488,000 for the same period in 1997. This
increase of $198,000 can be primarily attributable to the increase in the gain
on sale of investment securities of $230,000 and the increase of $25,000 to the
gain on sale of real estate acquired through foreclosure, partially offset by
the decrease of $34,000 to service fees, charges and other operating income, and
the decrease of $23,000 to the gain on sale of loans.
Total non-interest income increased to $1.1 million for the six months ended
June 30, 1998 from $878,000 for the same period in 1997. This increase of
$228,000 can be primarily attributable to the increase in the gain on sale of
investment securities of $157,000, the increase of $52,000 to the gain on sale
of loans, and the increase of $24,000 to the gain on sale of real estate
acquired through foreclosure, partially offset by the decrease of $5,000 to
service fees, charges and other operating.
Non-interest Expense. Total non-interest expense increased $200,000 to $3.5
million for the three months ended June 30, 1998 as compared with $3.3 million
for the similar period in 1997. Employee compensation and benefits remained
level at $1.6 million for the compared periods, while occupancy and equipment
increased by $25,000, data processing increased by $108,000, other operating
costs increased by $27,000, and other intangibles decreased by $19,000.
Advertising, professional fees and federal deposit insurance expense all
remained relatively level for the period. The increases to occupancy and
equipment and data processing expenses were a result of Technology investments
related to a data processing system conversion.
Total non-interest expense increased $100,000 to $6.8 million for the six months
ended June 30, 1998 as compared with $6.7 million for the similar period in
1997. Employee compensation and benefits remained level at $3.3 million for the
compared periods, while occupancy and equipment increased by $19,000, data
processing increased by $103,000, other operating costs increased by $45,000,
and other intangibles decreased by $38,000. Advertising, professional fees and
federal deposit insurance expense all remained relatively level for the period.
The increases to occupancy and equipment and data processing expenses were a
result of Technology investments related to a data processing system conversion.
Income Tax Expense. Income taxes decreased by $163,000 to $637,000 for the three
month period ended June 30, 1998, from $800,000 for the three months ended June
30, 1997. The primary reason for this decrease was the decrease in net income
before taxes to $1.6 million at June 30, 1998, from $2.1 million at June 30,
1997.
Income Tax Expense. Income taxes decreased by $421,000 to $1.2 million for the
six month period ended June 30, 1998, from $1.6 million for the six months ended
June 30, 1997. The primary reason for this decrease was the decrease in net
income before taxes to $3.1 million at June 30, 1998, from $4.0 million at June
30, 1997.
15
<PAGE>
Liquidity and Capital Resources
Under current Office of Thrift Supervision (OTS) regulations, the Savings Bank
must have core capital equal to 4% of total assets and risk-based capital equal
to 8% of risk-weighted assets, of which 1.5% must be tangible capital, excluding
goodwill and certain other intangible assets.
On June 30, 1998, the Savings Bank was in compliance with its three regulatory
capital requirements as follows:
Amount Percent
------ -------
(dollars in thousands)
Tangible capital $43,335 6.3%
Tangible capital requirement 10,289 1.5
------ ---
Excess over requirement $33,046 4.8%
======= ===
Core capital $43,335 6.3%
Core capital requirement 27,438 4.0
------ ---
Excess over requirement $15,897 2.3%
======= ===
Risk based capital $45,398 17.0%
Risk based capital requirement 21,362 8.0
------ ---
Excess over requirement $24,036 9.0%
======= ===
Management believes that under current regulations, the Savings Bank will
continue to meet its minimum capital requirements in the foreseeable future.
Events beyond the control of the Savings Bank, such as increased interest rates
or a downturn in the economy in areas in which the Savings Bank operates, could
adversely affect future earnings and as a result, the ability of the Savings
Bank to meet its future minimum capital requirements.
The Savings Bank'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 Savings Bank's primary source of funds are deposits and scheduled
amortization and prepayment of loan and mortgage-backed securities principal.
During the past several years, the Savings Bank has used such funds primarily to
fund maturing time deposits, pay savings withdrawals, fund lending commitments,
purchase new investments, and increase liquidity. The Savings Bank is currently
able to fund its operations internally but has, when deemed prudent, borrowed
funds from the Federal Home Loan Bank of Pittsburgh. As of June 30, 1998, such
borrowed funds total $178.4 million. Loan payments, maturing investments and
mortgage-backed security prepayments are greatly influenced by general interest
rates, economic conditions and competition.
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 5% 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 5% requirement. These levels may be changed from
time to time by the regulators to reflect current economic conditions. The
Savings Bank has generally maintained liquidity far in excess of regulatory
requirements. The Savings Bank's regulatory liquidity was 17.6% and 14.5% at
June 30, 1998 and 1997, respectively, and its short-term liquidity was 7.9% and
6.5%, at such dates, respectively.
The amount of certificate accounts, which are scheduled to mature during the
twelve months ending June 30, 1999, is approximately $158.4 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, excess
liquidity, FHLB advances or outside borrowings. It has been the Savings Bank's
experience that a substantial portion of such maturing deposits remain at the
Savings Bank.
16
<PAGE>
At June 30, 1998, the Savings Bank had outstanding commitments to originate
loans of $ 3.7 million, to purchase mortgage-backed securities of $3.9 million,
and to purchase investment securities of $260,000. Funds required to fill these
commitments are derived primarily from current excess liquidity or loan and
security repayments. At June 30, 1998, the Savings Bank had outstanding
commitments to sell loans of $101,000.
Year 2000 Issue
The Corporation is utilizing both internal and external resources to identify,
correct or reprogram, and test its computer systems for the year 2000
compliance. The Year 2000 problem is the result of computer programs being
written using two digits rather than four to define the applicable year. The
Corporation presently believes that the Year 2000 problem will not pose
significant operational problems for the Corporation's computer systems as so
modified and reprogrammed. It is anticipated that all reprogramming efforts will
be completed by December 31, 1998, allowing adequate time for testing. To date,
confirmations have been received from the Corporation's primary processing
vendors that plans are being developed to address processing of transactions in
the Year 2000. Management believes the year 2000 compliance expense will not
have a material adverse effect on the Corporation.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There were no material changes to the information provided for the period ended
December 31, 1997.
17
<PAGE>
TF FINANCIAL CORPORATION AND SUBSIDIARIES
PART II
ITEM 1. LEGAL PROCEEDINGS
Neither the Corporation nor the Savings Bank was engaged in any legal
proceeding of a material nature at August 14, 1998. From time to time,
the Corporation is a party to legal proceedings in the ordinary course
of business wherein it enforces its security interest in loans.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
Not applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
ITEM 5. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
None
(b) Reports on Form 8-K
None
18
<PAGE>
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 14, 1998 John R. Stranford
President and CEO
(Principal Executive Officer)
/s/William C. Niemczura
---------------------------------
Date: August 14, 1998 Senior Vice President and
Chief Financial Officer
Principal Financial & Accounting Officer)
19
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION DERIVED FROM THE
QUARTERLY REPORT ON FORM 10-Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL INFORMATION.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1998
<CASH> 33,414
<INT-BEARING-DEPOSITS> 2,437
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 79,621
<INVESTMENTS-CARRYING> 304,077
<INVESTMENTS-MARKET> 305,764
<LOANS> 239,471
<ALLOWANCE> 2,064
<TOTAL-ASSETS> 689,284
<DEPOSITS> 448,625
<SHORT-TERM> 35,000
<LIABILITIES-OTHER> 10,665
<LONG-TERM> 143,356
0
0
<COMMON> 529
<OTHER-SE> 51,109
<TOTAL-LIABILITIES-AND-EQUITY> 689,284
<INTEREST-LOAN> 9,509
<INTEREST-INVEST> 10,900
<INTEREST-OTHER> 730
<INTEREST-TOTAL> 21,139
<INTEREST-DEPOSIT> 8,678
<INTEREST-EXPENSE> 12,252
<INTEREST-INCOME-NET> 8,887
<LOAN-LOSSES> 30
<SECURITIES-GAINS> 345
<EXPENSE-OTHER> 6,828
<INCOME-PRETAX> 3,135
<INCOME-PRE-EXTRAORDINARY> 3,135
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,982
<EPS-PRIMARY> .68
<EPS-DILUTED> .61
<YIELD-ACTUAL> 2.87
<LOANS-NON> 0
<LOANS-PAST> 1,747
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 2,029
<CHARGE-OFFS> 4
<RECOVERIES> 8
<ALLOWANCE-CLOSE> 2,064
<ALLOWANCE-DOMESTIC> 2,064
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 2,064
</TABLE>
