SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-Q
(Mark One)
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1997
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OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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COMMISSION FILE NUMBER 0-24168
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TF FINANCIAL CORPORATION
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(Exact name of registrant as specified in its charter)
Delaware 74-2705050
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(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
3 Penns Trail, Newtown, Pennsylvania 18940
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code 215-579-4000
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N/A
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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 May 14, 1998
Class Outstanding
--------------------------- ----------------
$.10 par value common stock 2,891,022 shares
1
<PAGE>
TF FINANCIAL CORPORATION AND SUBSIDIARIES
FORM 1O-Q
FOR THE QUARTER ENDED MARCH 31, 1998
INDEX
Page
Number
------
PART I - CONSOLIDATED FINANCIAL INFORMATION
Item 1. Unaudited 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 15
PART II- OTHER INFORMATION
Item 1. Legal Proceedings 16
Item 2. Changes in Securities 16
Item 3. Defaults upon Senior Securities 16
Item 4. Submission of Matters to a Vote of Security Holders 16
Item 5. Other Materially Important Events 16
Item 6. Exhibits and Reports on Form 8-K 16
SIGNATURES
2
<PAGE>
TF FINANCIAL CORPORATION AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(in thousands)
<TABLE>
<CAPTION>
March 31, December 31,
ASSETS 1998 1997
-------- --------
<S> <C> <C>
Cash and cash equivalents $ 34,793 41,625
Securities purchased under agreements to resell 0 10,000
Certificates of deposit in other financial institutions 2,537 2,737
Investment securities available for sale - at market value 44,333 32,037
Investment securities held to maturity (market value of $60,786 and
$53,026 respectively, for the periods shown) 60,565 57,740
Mortgage-backed securities available for sale - at market value 45,321 36,847
Mortgage-backed securities held to maturity (market value of $191,514 and
$145,723 respectively, for the periods shown) 189,697 144,074
Loans receivable, net 240,552 250,711
Accrued interest receivable 4,062 3,957
Goodwill/Core deposit intangible 8,048 8,274
Premises and equipment, net 8,113 7,889
Other assets 1,434 1,156
-------- --------
Total Assets $639,455 $597,047
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Deposits $450,629 $450,429
Advances from the Federal Home Loan Bank 128,359 88,359
Advances from borrowers for taxes and insurance 1,442 1,591
Accrued interest payable 4,566 2,470
Other liabilities 3,480 4,103
-------- --------
Total Liabilities 588,476 546,952
-------- --------
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; 2,891,022 and 2,886,251 shares outstanding
at March 31, 1998 and December 31, 1997, net of treasury shares of
2,101,301 and 2,102,767 respectively 529 529
Additional paid-in capital 51,823 51,775
Net unrealized gain on investment securities available for sale 196 169
Unearned ESOP shares-at cost (2,976) (3,010)
Shares acquired by MSBP (789) (895)
Treasury stock - at cost (41,620) (41,649)
Retained earnings 43,816 43,176
-------- --------
Total Stockholders' Equity 50,979 50,095
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $639,455 $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>
Three Months
Ended March 31,
---------------
1998 1997
---- ----
<S> <C> <C>
Interest income
Loans $ 4,904 $ 6,192
Mortgage-backed securities 3,238 3,108
Investment securities 1,577 1,567
Interest bearing deposits and other 422 308
-------- --------
TOTAL INTEREST INCOME 10,141 11,175
Interest expense
Deposits 4,314 4,657
Borrowings 1,348 1,457
-------- --------
TOTAL INTEREST EXPENSE 5,662 6,114
NET INTEREST INCOME 4,479 5,061
Provision for loan losses 15 105
-------- --------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 4,464 4,956
Non-interest income
Gain (loss) on sale of real estate acquired through foreclosure (1) 0
Gain on sale of mortgage-backed securities 0 73
Gain (loss) on sale of loans 74 (1)
Gain on sale of servicing 0 0
Service fees, charges and other operating income 347 318
-------- --------
TOTAL NON-INTEREST INCOME 420 390
Non-interest expense
Employee compensation and benefits 1,665 1,673
Occupancy and equipment 439 445
Federal deposit insurance premium 70 77
Data processing 175 180
Professional fees 135 133
Goodwill and other intangible amortization 225 244
Provision for losses on real estate acquired through foreclosure 0 0
Advertising 90 98
Other operating 576 558
-------- --------
TOTAL NON-INTEREST EXPENSE 3,375 3,408
INCOME BEFORE INCOME TAXES 1,509 1,938
Income taxes 516 774
-------- --------
NET INCOME $ 993 $ 1,164
======== ========
Per share data
Basic earnings per share $ 0.34 $ 0.30
Diluted earnings per share $ 0.31 $ 0.29
Weighted average number of shares outstanding - Basic 2,888 3,900
Weighted average number of shares outstanding - Diluted 3,242 4,073
</TABLE>
See notes to consolidated financial statement
4
<PAGE>
TF FINANCIAL CORPORATION AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
Three Months
Ended March 31,
--------------------
1998 1997
--------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income $ 993 $ 1,164
Adjustments to reconcile net income to net cash provided by
operating activities:
Amortization of:
Mortgage loan servicing rights 6 23
Deferred loan origination fees (59) (43)
Premiums and discounts on investment securities. net 31 (7)
Premiums and discounts on mortgage-backed securities and
loans, net 85 (11)
Amortization of goodwill and core deposit intangible 225 244
Provision for loan losses and provision for losses on real estate 15 105
Depreciation of premises and equipment 179 173
Recognition of ESOP and MSBP expenses 206 228
(Gain) loss on sale of mortgage-backed securities - available for sale 0 (73)
(Gain) on sale of investment securities - available for sale 0 0
(Gain) loss on sale of real estate acquired through foreclosure 1 0
(Gain) on sale of mortgage servicing rights 0 0
(Gain) loss on sale of mortgage loans (74) 1
Decrease (increase) in
Accrued interest receivable (105) (11)
Other assets (334) (120)
Increase (decrease) in
Accrued interest payable 2,096 2,251
Other liabilities (711) 552
--------- ---------
NET CASH PROVIDED BY OPERATING ACTIVITIES 2,554 4,476
CASH FLOWS FROM INVESTING ACTIVITIES
Loan origination and principal payments on loans. net (4,271) (2,822)
Purchases of loans 0 (12,211)
Proceeds from loan sales 14,527 6,518
Purchases and maturities of certificates of deposit in other
financial institutions. net 200 (475)
Purchases and maturities of securities purchased under
agreements to resell, net 10,000 8,022
Purchases of investment securities -
available for sale (73,998) (6,982)
Purchases of investment securities - held to maturity (16,415) (45,425)
Purchases of mortgage-backed securities - available for sale (10,154) (4,935)
Purchase of mortgage-backed securities - held to maturity (54,734) (15,071)
Proceeds from maturities of investment securities - held to maturity 14,582 30,680
Proceeds from maturities of investment securities - available for sale 62,265 1,350
Principal repayments from maturities of mortgage-backed securities-
held to maturity 9,072 5,811
Principal repayments from maturities of mortgage-backed securities-
available for sale 1,664 571
Proceeds from the sale of mortgage-backed securities - available for sale 0 2,647
Proceeds from the sale of investment securities - available for sale 0 0
Purchases and redemptions of Federal Home Loan Bank Stock, net (1,500) (250)
Proceeds from sales of real estate acquired through foreclosure 50 0
Purchase of premises and equipment (403) (112)
--------- ---------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES (49,115) (32,684)
</TABLE>
See notes to consolidated financial statement
5
<PAGE>
TF FINANCIAL CORPORATION AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(in thousands)
<TABLE>
<CAPTION>
For the Three Months
Ended March 31,
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 $ 200 $ (8,178)
Advances from Federal Home Loan Bank - net 40,000 5,000
Net (decrease) increase in advances from borrowers for taxes
and insurance (149) (271)
Purchase of treasury stock 0 (3,513)
Common stock cash dividend (322) (391)
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 39,729 (7,353)
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (6,832) (35,561)
Cash and cash equivalents at beginning of period 41,625 54,132
Cash and cash equivalents at end of period $ 34,793 $ 18,571
-------- --------
Supplemental disclosure of cash flow information
Cash paid for
Interest on deposits and advances $ 3,565 $ 3,863
Income taxes $ 1,112 $ 47
Non-cash transactions
Transfers from loans to real estate acquired through foreclosure $ 0 $ 39
</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 March 31, 1998, December 31,
1997, and for the three month periods ended March 31, 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
periods ended March 31, 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 Statement of Financial
Accounting Standards (SFAS) No. 129, "Disclosure Information about Capital
Structure". SFAS No. 129 summarizes previously issued disclosure guidance
contained within APB Opinion No. 10 and No. 15, as well as SFAS No. 47. The
Corporation's current disclosures were not affected by the adoption of SFAS
No. 129.
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
7
<PAGE>
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 three months of 1998 was $1,020,000,
compared to $965,000 for the first three months of 1997. The adoption of
SFAS 130 did not have a material impact on the Corporation's financial
position or results of operations.
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.
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 March 31, 1998 and December 31, 1997 totaled
$639.5 million and $597.0 million, respectively, an increase of $42.5 million or
7.1% for the three month period. This increase was primarily a result of the
$54.1 million increase in mortgage-backed securities, coupled with the $15.2
million increase in investment securities, partially offset by the $6.8 million
decrease in cash and cash equivalents, the $10.0 million decrease in securities
purchased under agreements to resell, and the $10.1 million decrease in loans
receivable. The increase in total assets was funded by the $40.0 million
increase in advances from the Federal Home Loan Bank. Total liabilities
increased to $588.5 million at March 31, 1997 from $547.0 at December 31, 1997.
This increase was primarily the result of the $40.0 million, or 45.2%, increase
in advances from the Federal Home Loan Bank to $128.4 million at March 31, 1998
from $88.4 million at December 31, 1997. Total deposits balances remained level
at $450.6 million at March 31, 1998 from $450.4 million at December 31, 1997.
The decrease in loans receivable of $10.1 million or, 4.0%, from $250.7 million
at December 31, 1997 to $240.6 million at March 31, 1998 was a result of
mortgage loan amortization.
Cash and cash equivalent balances decreased by $6.8 million, or 16.3%, from
$41.6 million at December 31, 1997 to $34.8 million at March 31, 1998 primarily
as a result of the reinvestment into mortgage-backed and investment securities.
9
<PAGE>
Investment securities at March 31, 1998 totaled $104.9 million, which represents
an increase of $15.2 million or 16.9% as compared to December 31, 1997. This
increase is primarily due to the reinvestment of cash and cash flow caused by
amortization of mortgage loans.
Mortgage-backed securities totaled $235.0 million at March 31, 1998 as compared
to $180.9 million at December 31, 1997. This increase of $54.1 million or,
29.9%, is a result the investment of the proceeds of the $40.0 million of
Federal Home Loan advances, coupled with the decrease in securities purchased
under agreements to resell.
Total consolidated stockholders' equity of the Corporation increased $900,000,
or 1.8%, to $51.0 million, or 8.0% of total assets, at March 31, 1998, from
$50.1 million or 8.39 % of total assets at December 31, 1997, primarily due to
the $640,000 increase to retained earnings for the three month period. The
increase in net unrealized gain on investment securities available for sale of
$27,000, coupled with the amortization of stock incentive plans of $140,000 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 March 31, Three Months Ended March 31,
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 receivable (4)................ $244,847 $ 4,904 8.01% $310,389 $ 6,192 7.98%
Mortgage-backed securities.......... 202,952 3,238 6.38% 185,167 3,108 6.71%
Investment securities............... 104,046 1,577 6.06% 101.023 1,567 6.20%
Other interest-earning assets(1).... 36,046 422 4.68% 24,130 308 5.11%
-------- ------- -------- -------
Total interest-earning assets..... $587,891 $10,141 6.90% $620,709 $11,175 7.20%
======== ====== ======== =======
Non interest-earning assets........... 21,529 $22,540
-------- --------
Total assets..................... $609,420 $643,249
======== ========
Liabilities and Stockholders' Equity:
Interest-bearing liabilities:
Savings deposits.................... 450,952 $4,314 3.83% $462,572 $ 4,657 4.03%
Borrowings.......................... 98,359 1,348 5.48% 100,026 1,457 5.83%
-------- ------- -------- -------
Total interest-bearing liabilities $549,311 $5,662 4.12% $562,598 $ 6,114 4.35%
======== ====== ======== =======
Non interest-bearing liabilities...... 9,451 9,327
Total liabilities................ 558,762 571,925
Stockholders' equity.................. 50,658 71,324
-------- --------
Total liabilities and Stockholders'
equity............................ $609,420 $643,249
======== ========
Net interest income................... $4,479 $ 5,061
====== =======
Interest rate spread (2).............. 2.78% 2.85%
Net yield on interest-earning assets(3) 3.05% 3.26%
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.
11
<PAGE>
RESULTS OF OPERATIONS
Net Income. The Corporation recorded net income of $1.0 million for the three
months ended March 31, 1998 as compared to $1.2 million for the three months
ended March 31, 1997. This decrease of $200,000, or 16.7%, was primarily the
result of the decrease in the average balance of interest-earnings assets from
$620.7 million at March 31, 1997 to $587.9 million at March 31, 1998. Net
interest income before provisions for loan losses was $4.5 million for the three
month period ended March 31, 1998 as compared to $5.1 million for the same
period in 1997. For these same periods, total interest expense was $5.7 million
and $6.1 million, respectively. Non-interest income was $420,000 and $390,000,
respectively, for these same periods. Operating expenses (non-interest expense)
remained level at $3.4 million for the three month periods ended March 31, 1998
and March 31, 1997, respectively.
Total Interest Income. Total interest income decreased by $1.1 million or 9.8%
to $10.1 million for the three months ended March 31, 1998, from $11.2 million
for the three months ended March 31, 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 $65.6 million,
or 21.1%, to $244.8 million from $310.4 million for the three months ended March
31, 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 $1.3 million or 21.0% to $4.9 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 7.98% for the period end March 31, 1997,
to 8.01% for the period ended March 31, 1998. Interest on mortgage-backed
securities increased $100,000, or 3.2%, for the three month period ended March
31, 1998, from $3.1 million at March 31, 1997 primarily as a result of increases
in the average balances of these securities partially offset by decreases in the
average yield. The average yield on mortgage-backed securities decreased to
6.38% for the three month period ended March 31, 1998 compared to 6.71% for the
similar period in 1997 while the average balance of mortgage-backed securities
increased by $17.8 million, or 9.6%, when comparing these two periods. Interest
on investment securities remained level at $1.6 million for the three month
periods ended March 31, 1998 and 1997. Interest on other interest-earning assets
increased by $114,000 for the three month period ended March 31, 1998 compared
to the similar period ended March 31, 1997 primarily as a result of the average
balance increasing by $11.9 million to $36.0 million, partially offset by the
decrease in the average yield to 4.68% at March 31, 1998 from 5.11% at March 31,
1997. The increases in the average balances of mortgage-backed securities,
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 average balance of total interest earning assets decreased $32.8
million, or 5.3%, to $587.9 million at March 31, 1998 from $620.7 million at
March 31, 1997.
Total Interest Expense. Total interest expense decreased to $5.7 million for the
three month period ended March 31, 1998 from $6.1 million at March 31, 1997.
This decrease in total interest expense is a result of the decreases in the
average balance and average rate paid on savings deposits. The average balance
of savings deposits decreased from $462.6 million at March 31, 1997 to $451.0
million at March 31, 1998. The average rate paid on savings deposits decreased
from 4.03% in the March 31, 1997 period to 3.83% in the March 31, 1998 period.
As a result of the decrease in the average balance and average rate paid on
savings deposits, the portion of total interest expense attributable to savings
deposits decreased to $4.3 million from $4.7 million at March 31, 1998 and 1997
respectively. The average balance of total interest-bearing liabilities
decreased to $549.3 million at March 31, 1998 from $562.6 million at March 31,
1997 as a result of the decrease in savings deposits coupled with the decreases
in the average balance and rate of Federal Home Loan Bank advances.
Net Interest Income. Net interest income for the three month period ended March
31, 1998 decreased by $600,000, or 11.8%, to $4.5 million from $5.1 million for
the same period in 1997. This decrease is primarily due to the decrease in
interest-earning assets partially offset by the decrease in interest-bearing
liabilities. The average balance of total interest- earning assets decreased
$32.8 million, or 5.3%, to $587.9 million at March 31, 1998 from $620.7 million
at March 31, 1997. During these same periods, the average balances on
interest-bearing liabilities decreased to $549.3 million from
12
<PAGE>
$562.6 million. The cost of interest-bearing liabilities decreased from 4.35% to
4.12% while the yield on interest-earning assets decreased from 7.20% to 6.90%
for the three month periods ended March 31, 1997 and 1998 respectively.
Allowance for Loan Losses. The allowance for loan losses increased at March 31,
1998 to $2.0 million from $1.9 million at March 31, 1997. Such totals correlate
to non-performing loans of $1.6 million at March 31, 1998 and $2.0 million at
March 31, 1997. The increase in the allowance for loan losses of $139,000
resulted from the addition of $307,000 to the provision for loan losses and the
deduction of $168,000 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 March 31, 1998. At March 31, 1998, the allowance for loan losses
was 126.8% of non-performing loans as compared to 95.6% of non-performing loans
at March 31, 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 $420,000 for the
three months ended March 31, 1998 from $390,000 for the same period in 1997.
This increase of $30,000 can be primarily attributable to the increase in the
gain on sale of loans of $75,000 and the increase of $29,000 to service fees,
charges and other operating income, partially offset by the decrease of $73,000
in the gain on sale of mortgage-backed securities.
Non-interest Expense. Total non-interest expense remained level at $3.4 million
for the three months ended March 31, 1998 as compared for the similar period in
1997. Employee compensation and benefits remained level at $1.7 million for the
compared periods, while occupancy and equipment decreased by $6,000, data
processing expense decreased by $5,000, amortization of goodwill and other
intangibles decreased by $19,000, federal deposit insurance premiums decreased
by $7,000 and other operating costs increased by $18,000.
Income Tax Expense. Income taxes decreased by $258,000 to $516,000 for the three
month period ended March 31, 1998, from $774,000 for the three months ended
March 31, 1997. The primary reason for this decrease was the decrease in net
income before taxes to $1.5 million at March 31, 1998, from $1.9 million at
March 31, 1997.
13
<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 March 31, 1998, the Savings Bank was in compliance with its three regulatory
capital requirements as follows:
Amount Percent
------ -------
(dollars in thousands)
Tangible capital $43,037 6.8%
Tangible capital requirement 9,537 1.5
------- ----
Excess over requirement $33,500 5.3%
======= ===
Core capital $43,037 6.8%
Core capital requirement 25,431 4.0
------- ----
Excess over requirement $17,606 2.8%
======= ===
Risk based capital $45,086 18.4%
Risk based capital requirement 19,641 8.0
------- ----
Excess over requirement $25,445 10.4%
======= ====
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 March 31, 1998, such
borrowed funds total $128.4 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 19.8% and 26.6% at
March 31, 1998 and 1997, respectively, and its short-term liquidity was 10.1%
and 19.1%, at such dates, respectively.
The amount of certificate accounts, which are scheduled to mature during the
twelve months ending March 31 1999, is approximately $147.5 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.
14
<PAGE>
At March 31, 1998, the Savings Bank had outstanding commitments to originate
loans of $6.2 million. Funds required to fill these commitments are derived
primarily from current excess liquidity, deposit inflows or loan and security
repayments. At March 31, 1998, the Savings Bank had outstanding commitments to
sell loans of $5.8 million.
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 reprogramed. 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.
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not Applicable.
15
<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 May 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
16
<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: May 14, 1998 John R. Stranford
President and CEO
(Principal Executive Officer)
/s/William C. Niemczura
---------------------------------
Date: May 14, 1998 Senior Vice President and
Chief Financial Officer
(Principal Financial & Accounting Officer)
<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> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1998
<CASH> 34,793
<INT-BEARING-DEPOSITS> 2,537
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 89,654
<INVESTMENTS-CARRYING> 339,916
<INVESTMENTS-MARKET> 341,954
<LOANS> 242,601
<ALLOWANCE> 2,049
<TOTAL-ASSETS> 639,455
<DEPOSITS> 450,629
<SHORT-TERM> 30,000
<LIABILITIES-OTHER> 9,488
<LONG-TERM> 98,359
0
0
<COMMON> 529
<OTHER-SE> 50,450
<TOTAL-LIABILITIES-AND-EQUITY> 639,455
<INTEREST-LOAN> 4,904
<INTEREST-INVEST> 4,815
<INTEREST-OTHER> 422
<INTEREST-TOTAL> 10,141
<INTEREST-DEPOSIT> 4,314
<INTEREST-EXPENSE> 5,662
<INTEREST-INCOME-NET> 4,479
<LOAN-LOSSES> 15
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 3,375
<INCOME-PRETAX> 1,509
<INCOME-PRE-EXTRAORDINARY> 993
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 993
<EPS-PRIMARY> .34
<EPS-DILUTED> .31
<YIELD-ACTUAL> 3.05
<LOANS-NON> 0
<LOANS-PAST> 1,382
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 2,029
<CHARGE-OFFS> 3
<RECOVERIES> 7
<ALLOWANCE-CLOSE> 2,049
<ALLOWANCE-DOMESTIC> 2,049
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 2,049
</TABLE>
