SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM lO-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, 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
incorporation or organization) identification 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 May 14, 1999
-------------
Class Outstanding
----- -----------
$.10 par value common stock 2,755,279 shares
1
<PAGE>
TF FINANCIAL CORPORATION AND SUBSIDIARIES
FORM 1O-Q
FOR THE QUARTER ENDED MARCH 31, 1999
INDEX
<TABLE>
<CAPTION>
Page
Number
------
PART I - CONSOLIDATED FINANCIAL INFORMATION
<S> <C> <C> <C>
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 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 18
</TABLE>
2
<PAGE>
TF FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(in thousands)
<TABLE>
<CAPTION>
Unaudited Audited
March December
31, 31,
ASSETS 1999 1998
----------- ----------
<S> <C> <C>
Cash and cash equivalents $35,795 42,703
Certificates of deposit in other financial institutions 2,038 2,238
Investment securities available for sale - at fair value 5,016 9,042
Investment securities held to maturity (fair value of $96,478 and $81,094, 96,651 80,895
respectively)
Mortgage-backed securities available for sale - at fair value 69,682 75,285
Mortgage-backed securities held to maturity (fair value of $191,819 and
$182,560, respectively) 191,321 180,964
Loans receivable, net 302,083 240,841
Federal Home Loan Bank stock - at cost 12,668 9,168
Accrued interest receivable 4,420 4,558
Real estate held for investment 2,348 2,348
Goodwill and other intangible assets 7,181 7,389
Premises and equipment, net 8,924 9,017
Other assets 1,290 1,160
--------- --------
Total Assets $739,417 $665,608
========= ========
LABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Deposits $424,869 $438,913
Advances from the Federal Home Loan Bank 253,359 163,359
Advances from borrowers for taxes and insurance 1,111 1,204
Accrued interest payable 5,557 4,166
Other liabilities 3,256 5,306
--------- ---------
Total Liabilities 688,152 612,948
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; 2,755,279 and 2,857,932 shares outstanding at March 31,
1999 and December 31, 1998, net of treasury shares of
2,248,990 and 2,143,319 respectively. 529 529
Retained earnings 46,392 45,762
Additional paid-in capital 51,988 51,957
Unearned ESOP shares (2,857) (2,888)
Shares acquired by MSBP (362) (468)
Treasury stock - at cost (44,311) (42,386)
Accumulated other comprehensive income (114) 154
--------- --------
Total Stockholders' Equity 51,265 52,660
--------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $739,417 $665,608
========= ========
</TABLE>
See notes to consolidated financial statements
3
<PAGE>
TF FINANCIAL CORPORATION AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF EARNINGS
(in thousands, except per share data)
<TABLE>
<CAPTION>
For Three Months
Ended March 31,
1999 1998
---------- -----------
<S> <C> <C>
Interest income
Loans $5,089 $4,904
Mortgage-backed securities 4,097 3,238
Investment securities 1,581 1,577
Interest bearing deposits and other 326 422
-------- --------
TOTAL INTEREST INCOME 11,093 10,141
Interest expense
Deposits 3,857 4,314
Borrowings 2,775 1,348
-------- --------
TOTAL INTEREST EXPENSE 6,632 5,662
NET INTEREST INCOME 4,461 4,479
Provision for loan losses 30 15
-------- --------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 4,431 4,464
Non-interest income
Gain on sale of real estate acquired through foreclosure 6 (1)
Gain on sale of loans 0 74
Service fees, charges and other operating income 318 347
-------- --------
TOTAL NON-INTEREST INCOME 324 420
Non-interest expense
Employee compensation and benefits 1,640 1,665
Occupancy and equipment 494 439
Federal deposit insurance premium 68 70
Data processing 5 175
Professional fees 165 135
Amortization of goodwill and other intangible assets 209 225
Advertising 90 90
Other operating 549 576
-------- --------
TOTAL NON-INTEREST EXPENSE 3,220 3,375
INCOME BEFORE INCOME TAXES 1,535 1,509
Income taxes 551 516
-------- --------
NET INCOME $984 $993
======== ========
Basic earnings per share $ 0.35 $ 0.34
Diluted earnings per share $ 0.33 $ 0.31
Weighted average number of shares outstanding - Basic 2,822 2,888
Weighted average number of shares outstanding - Diluted 2,996 3,242
</TABLE>
See notes to consolidated financial statements
4
<PAGE>
TF FINANCIAL CORPORATION AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
For the Three Months
Ended March 31,
1999 1998
---------- ----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income $984 $993
Adjustments to reconcile net income to net cash provided by
operating activities:
Amortization of:
Mortgage loan servicing rights 3 6
Deferred loan origination fees (25) (59)
Premiums and discounts on investment securities, net 23 31
Premiums and discounts on mortgage-backed securities and loans, net 230 85
Amortization of goodwill and other intangible assets 209 225
Provision for loan losses and provision for losses on real estate 30 15
Depreciation of premises and equipment 231 179
Recognition of ESOP and MSBP expenses 167 206
(Gain) loss on sale of real estate acquired through foreclosure (12) 1
(Gain) loss on sale of mortgage loans - (74)
Decrease (increase) in
Accrued interest receivable 138 (105)
Other assets (167) (334)
Increase (decrease) in
Accrued interest payable 1,391 2,096
Other liabilities (2,222) (711)
-------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES 980 2,554
CASH FLOWS FROM INVESTING ACTIVITIES
Loan origination and principal payments on loans, net 15,253 (4,271)
Purchases of loans (76,553) -
Proceeds from loan sales - 14,527
Maturities (purchases) of certificates of deposit in other financial institutions, net 200 200
Maturities (purchases) of securities purchased under agreements to resell, net - 10,000
Purchases of investment securities available for sale - (73,998)
Purchases of investment securities held to maturity (102,576) (16,415)
Purchases of mortgage-backed securities available for sale (2,346) (10,154)
Purchase of mortgage-backed securities held to maturity (41,632) (54,734)
Proceeds from maturities of investment securities held to maturity 89,140 14,582
Proceeds from maturities of investment securities available for sale 2,000 62,265
Principal repayments from mortgage-backed securities held to maturity 31,162 9,072
Principal repayments from mortgage-backed securities available for sale 7,458 1,664
Purchases and redemption of Federal Home Loan Bank Stock, net (3,500) (1,500)
Proceeds from sales of real estate acquired through foreclosure 60 50
Purchase of premises and equipment (138) (403)
-------- --------
NET CASH USED IN INVESTING ACTIVITIES (81,472) (49,115)
</TABLE>
5
<PAGE>
TF FINANCIAL CORPORATION AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
For the Three Months
Ended March 31,
1999 1998
<S> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase (decrease) in deposits $ (14,044) $ 200
Advances from Federal Home Loan Bank , net 90,000 40,000
Net (decrease) increase in advances from borrowers for taxes and insurance (93) (149)
Exercise of stock options 34 -
Purchase of treasury stock (1,970) -
Common stock cash dividend (343) (322)
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 73,584 39,729
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
(6,908) (6,832)
Cash and cash equivalents at beginning of period 42,703 41,625
----------- ----------
Cash and cash equivalents at end of period $ 35,795 $ 34,793
Supplemental disclosure of cash flow information
Cash paid for
Interest on deposits and advances $ 5,241 $ 3,565
Income taxes $ 512 $ 1,112
Non-cash transactions
Transfers from loans to real estate acquired through foreclosure $ 13 $ -
</TABLE>
See notes to consolidated financial statements
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, 1999, December
31, 1998, and for the three month periods ended March 31, 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 period ended March 31, 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 comprehensive income consists of
net unrealized gains on investment securities available for sale. Total
comprehensive income for the three-month periods ended March 31, 1999
and 1998 was $716,000 and $1,020,000, net of applicable income taxes of
$172,000 and $18,000, respectively.
7
<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 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 March 31, 1999 and December 31, 1998 totaled
$739.4 million and $665.6 million, respectively, an increase of $73.8 million,
or 11.1%, during the three month period. This increase was primarily the result
of a $61.3 million increase in loans receivable, an $11.8 million increase in
investment securities, a $4.7 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 $6.9 million decrease in cash and cash equivalents.
The increase in total assets was primarily funded by the $90.0 million increase
in advances from the Federal Home Loan Bank.
The net increase in loans receivable of $61.3 million, or 25.5%, from $240.8
million at December 31, 1998 to $302.1 million at March 31, 1999 was primarily
the result of the purchase of $ 71.9 million of residential mortgage loans
coupled with 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.
Investment securities at March 31, 1999 totaled $101.7 million, which represents
an increase of $11.8 million or 13.1% as compared to $89.9 million at December
31, 1998. This increase is primarily due to the reinvestment of cash and cash
flow caused by repayments of mortgage loans and mortgage securities, coupled
with the reinvestment of maturing investment securities. Mortgage-backed
8
<PAGE>
securities aggregated $261.0 million at March 31, 1999 compared with $256.2
million at December 31, 1998.
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 $75.3 million during the first quarter of 1999
primarily as a result of the $90.0 million, or 55.1%, increase in advances from
the Federal Home Loan Bank. This increase was offset by a $14.0 million, or
3.2%, decrease in total deposits balances. The increase in advances from the
Federal Home Loan Bank primarily funded the purchase of loans.
Total consolidated stockholders' equity of the Company decreased by $1.4 million
or 2.7%, to $51.3 million, or 6.94% of total assets, at March 31, 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 $2.0 million, partially offset by a net increase to retained
earnings of $600 thousand for the three month period. On March 19, 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.
9
<PAGE>
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.
<TABLE>
<CAPTION>
Three Months Ended March 31,
1999 1998
----- ----
Average Average Average Average
Balance Interest Yld/Cost Balance Interest Yld/Cost
------- -------- -------- ------- -------- --------
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Assets:
Interest-earning assets:
Loans receivable (4)....................... $282,072 $5,089 7.22% $244,847 $4,904 8.01%
Mortgage-backed securities................. 261,124 4,097 6.28% 202,952 3,238 6.38%
Investment securities...................... 113,605 1,581 5.57% 104,046 1,577 6.06%
Other interest-earning assets(1)........... 34,181 326 3.81% 36,046 422 4.68%
------ --- ------ ---
Total interest-earning assets............ 690,982 11,093 6.42% 587,891 10,141 6.90%
------ ------
Non interest-earning assets.................. 24,562 21,529
------ ------
Total assets............................. 715,544 609,420
======= =======
Liabilities and Stockholders' Equity:
Interest-bearing liabilities:
Savings deposits......................... 430,115 $3,857 3.59% 450,952 $4,314 3.83%
Advances from the FHLB................... 223,359 2,775 4.97% 98,359 1,348 5.48%
------- ----- ------ -----
Total interest-bearing liabilities..... 653,474 6,632 4.06% 549,311 5,662 4.12%
------- ----- ------- -----
Non interest-bearing liabilities............. 9,964 9,451
Total liabilities...................... 663,438 558,762
Stockholders' equity......................... 52,106 50,658
------ ------
Total liabilities and $715,544 $609,420
======== ========
Stockholders' equity.............
Net interest income.......................... $4,461 $4,479
====== ======
Interest rate spread (2)..................... 2.36% 2.78%
Net yield on interest-earning assets (3)..... 2.58% 3.05%
Ratio of average interest-earning assets to
average interest bearing liabilities......... 106% 107%
</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.
10
<PAGE>
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.
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1999 vs. 1998
--------------------------------------------
Increase (Decrease)
Due to
--------------------------------------------
Volume Rate Net
--------------------------------------------
<S> <C> <C> <C>
Interest income:
Loans receivable, net $527 $(342) $185
Mortgage-backed securities 909 (50) 859
Investment securities 33 (29) 4
Other interest-earning assets (21) (75) (96)
--------------------------------------------
Total interest-earning assets 1,448 (496) 952
============================================
Interest expense Interest-bearing liabilities:
Savings deposits (194) (263) (457)
Advances from the FHLB 1,540 (113) 1,427
--------------------------------------------
Total interest-bearing liabilities 1,346 (376) 970
============================================
Net change in net interest income $102 $(120) $(18)
============================================
</TABLE>
11
<PAGE>
RESULTS OF OPERATIONS
Net Income. The Company recorded net income of $984,000, or $0.33 per diluted
share, for the three months ended March 31, 1999 as compared to $993,000, or
$0.31 per diluted share, for the three months ended March 31, 1998.
Total Interest Income. Total interest income increased by $992 thousand, or
9.9%, to $11.1 million for the three months ended March 31, 1999 compared with
the first quarter of 1998 primarily because of increases in the average balance
of loans receivable, mortgage-backed securities and investment securities. 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 repayment during the period of higher yielding mortgage
loans. In addition, the yield on the $75.4 million of mortgage loans purchased
was less than the average yield on the portfolio. Interest on mortgage-backed
securities increased $900 thousand, or 28.1%, for the three-month period ended
March 31, 1999, primarily as a result of a 28.6% increases in the average
balances of mortgage-backed securities during the first quarter of 1999 compared
with the first quarter of 1998.
Total Interest Expense. Total interest expense increased to $6.6 million for the
three-month period ended March 31, 1999 from $5.7 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. 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 $20.9 million, or 4.6%, from
$451.0 million for the three month period ended March 31, 1998 to $430.1 million
for the three month period ended March 31, 1999, as a result of deposit outflows
associated with the decrease in market rates during the period. The average rate
paid on savings deposits decreased from 3.83% for the three month period ended
March 31, 1998 to 3.59% for the three month period ended March 31, 1999. The
decrease in the average rate paid on savings deposits resulted from decreased
market interest rates and management's efforts to price deposits at lower rates.
Allowance for Loan Losses. 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 30 15
Charge-off's, net - (5)
Ending balance, March 31, $1,939 $ 2,049
======= =======
The following table sets forth additional information regarding the Company's
asset quality (dollars in thousands):
At March 31,
1999 1998
------- -------
Non-performing loans $ 1,561 $ 1,616
Ratio of non-performing loans to gross loans 0.51% 0.66%
Ratio of non-performing loans to total assets 0.21% 0.25%
Foreclosed property $ 274 $ 301
Foreclosed property to total assets 0.04% 0.05%
Ratio of total non-performing assets to total assets 0.25% 0.30%
12
<PAGE>
Non-interest income. Total non-interest income was $324 thousand for the three
month period ended March 31, 1999 compared with $420 thousand for the same
period in 1998. The decrease of $96 thousand is primarily attributable to the
decrease in the gain on sale of loans of $74 thousand caused by the Company
discontinuing, during the second quarter of 1998, the origination of loans for
sale into the secondary market. In addition, there was a decrease of $29
thousand in service fees, charges and other operating income, which was caused
by a reduction, due to loan prepayments, in fee producing loan servicing.
Non-interest expense. Total non-interest expense decreased $155 thousand to $3.2
million for the three months ended March 31, 1999 compared to the same period in
1998. Data processing decreased by $170 thousand as a result of conversion to an
in-house data processing system. Professional fees increased by $30 thousand as
a result of consulting fees associated with Year 2000 compliance remediation and
testing, while office occupancy and equipment increased by $55 thousand also as
a result of the conversion to an in-house data processing system.
Liquidity and Capital Resources
Liquidity
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. There has been no material adverse change during three month period
ended March 31, 1999 in the ability of the Savings Bank to fund its 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 27.8% and 19.8% at March 31, 1999 and
1998, respectively.
The amount of certificate accounts that are scheduled to mature during the
twelve month period ending March 31, 2000 is approximately $122.0 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 remain at the Savings Bank.
At March 31, 1999, the Savings Bank had outstanding commitments to originate
loans of $19.7 million, to purchase loans of $194 thousand and to fund
undisbursed balances of closed loans and lines of credit of $22.0 million. Funds
required to fill these commitments are derived primarily from current excess
liquidity or loan and security repayments. At March 31, 1999, the Savings Bank
had no outstanding commitments to sell loans.
Capital Requirements
The Savings Bank is in compliance with all of its capital requirements as of
March 31, 1999.
13
<PAGE>
Year 2000
Readiness Efforts
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 counter parties
were initiated in 1997 and 1998 to assess the Year 2000 readiness of their
products and services. Thus far, responses indicate that most of the significant
providers are currently following plans developed to address processing of
transactions beginning January 1, 2000. At March 31, 1999, there are no
material, incomplete tasks pursuant to the Company's Plan.
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.
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 by June 30,
1999. 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 Plan
Realizing that some disruption may occur despite its best efforts, the Company
is in the process of developing contingency
14
<PAGE>
plans for each critical system in the event that one or more of those systems
fail. While this is an ongoing process, the Company expects to have the
contingency plan substantially completed by July 31, 1999. The Company's
contingency plan will provide for the replacement, as soon as practicable, of
any service provider that has not demonstrated compliance by June 30, 1999.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Asset and Liability Management
The Company's market risk exposure is predominately caused by interest rate
risk, which is defined as the sensitivity of the Company's current and future
earnings, the values of its assets and liabilities, and the value of its capital
to changes in the level of market interest rates. Management of the Company
believes that there has not been a material adverse change in market risk during
the three months ending March 31, 1999.
15
<PAGE>
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
16
<PAGE>
None
(b) Reports on Form 8-K
On March 19, 1999 a Current Report on Form 8-K was filed
with the SEC to report the completion of the then existing
common stock repurchase program and the adoption of a new
common stock repurchase program. The new program provides
for the repurchase, during the subsequent twelve months in
the open market, of up to 5% of the Company's common stock.
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.
17
<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 17, 1999 John R. Stranford
President and CEO
(Principal Executive Officer)
/s/ Dennis R. Stewart
---------------------------------
Date: May 17, 1999 Dennis R. Stewart
Senior Vice President and
Chief Financial Officer
(Principal Financial &
Accounting Officer)
18
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
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.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1999
<CASH> 35,795
<INT-BEARING-DEPOSITS> 2,038
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 74,698
<INVESTMENTS-CARRYING> 362,670
<INVESTMENTS-MARKET> 362,995
<LOANS> 304,022
<ALLOWANCE> 1,939
<TOTAL-ASSETS> 739,417
<DEPOSITS> 424,869
<SHORT-TERM> 25,000
<LIABILITIES-OTHER> 9,924
<LONG-TERM> 228,359
0
0
<COMMON> 529
<OTHER-SE> 50,736
<TOTAL-LIABILITIES-AND-EQUITY> 739,417
<INTEREST-LOAN> 5,089
<INTEREST-INVEST> 5,678
<INTEREST-OTHER> 326
<INTEREST-TOTAL> 11,093
<INTEREST-DEPOSIT> 3,857
<INTEREST-EXPENSE> 6,632
<INTEREST-INCOME-NET> 4,461
<LOAN-LOSSES> 30
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 3,220
<INCOME-PRETAX> 1,535
<INCOME-PRE-EXTRAORDINARY> 1,535
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 984
<EPS-PRIMARY> .35
<EPS-DILUTED> .33
<YIELD-ACTUAL> 2.54
<LOANS-NON> 0
<LOANS-PAST> 1,561
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 1,909
<CHARGE-OFFS> 0
<RECOVERIES> 0
<ALLOWANCE-CLOSE> 1,939
<ALLOWANCE-DOMESTIC> 1,939
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 1,939
</TABLE>
