SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM l0-Q
(Mark One)
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2000
-------------------------------------------------
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
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TF FINANCIAL CORPORATION
--------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 74-2705050
--------------------------------------------------------------------------------
(State or other jurisdiction of incorporation (I.R.S. employer
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: August 4, 2000
--------------
Class Outstanding
--------------------------- ----------------
$.10 par value common stock 2,802,388 shares
<PAGE>
TF FINANCIAL CORPORATION AND SUBSIDIARIES
FORM 1O-Q
FOR THE QUARTER ENDED JUNE 30, 2000
INDEX
Page
Number
------
PART I - CONSOLIDATED FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements 3
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
Item 3. Quantitative and Qualitative Disclosures about Market Risk 16
PART II- OTHER INFORMATION
Item 1. Legal Proceedings 17
Item 2. Changes in Securities and Use of Proceeds 17
Item 3. Defaults Upon Senior Securities 17
Item 4. Submission of Matters to a Vote of Security Holders 17
Item 5. Other Information 17
Item 6. Exhibits and Reports on Form 8-K 17
SIGNATURES 18
2
<PAGE>
TF FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(in thousands)
<TABLE>
<CAPTION>
Unaudited Audited Unaudited
June 30, December 31, June 30,
2000 1999 1999
---- ---- ----
Assets
<S> <C> <C> <C>
Cash and cash equivalents $ 8,980 $ 16,715 $ 16,467
Certificates of deposit in other financial institutions 556 847 1,745
Investment securities available for sale - at fair value 22,366 21,930 22,692
Investment securities held to maturity (fair value of $71,037, $64,538 and 73,111 66,760 80,731
$81,126, respectively)
Mortgage-backed securities available for sale - at fair value 138,908 132,515 95,273
Mortgage-backed securities held to maturity (fair value of $142,601, 148,145 159,888 179,670
$154,188, and $176,574, respectively)
Loans receivable, net 293,330 287,979 291,363
Federal Home Loan Bank stock - at cost 13,042 13,042 12,668
Accrued interest receivable 4,880 4,958 5,114
Real estate held for investment --- --- 2,348
Goodwill and other intangible assets 6,183 6,570 6,972
Premises and equipment, net 9,326 9,177 8,765
Other assets 2,694 1,493 1,359
--------- --------- ---------
Total assets $ 721,521 $ 721,874 $ 725,167
========= ========= =========
Liabilities and stockholders' equity
Liabilities
Deposits $ 419,611 $ 401,698 $ 416,925
Advances from the Federal Home Loan Bank 208,359 248,533 248,359
Other borrowings 34,228 15,766 ---
Advances from borrowers for taxes and insurance 1,441 1,198 1,304
Accrued interest payable 4,759 3,749 4,275
Other liabilities 3,846 2,483 3,088
--------- --------- ---------
Total liabilities 672,244 673,427 673,951
--------- --------- ---------
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; 2,531,852, 2,576,160, and 2,763,318 shares outstanding
at June 30, 2000, December 31, 1999 and June 30, 1999, net of
treasury shares of 2,487,612, 2,437,226, and 2,243,990, respectively 529 529 529
Retained earnings 49,880 48,760 47,052
Additional paid-in capital 52,118 52,076 52,026
Unearned ESOP shares (2,705) (2,766) (2,827)
Shares acquired by MSBP (38) (71) (255)
Treasury stock - at cost (47,489) (46,996) (44,212)
Accumulated other comprehensive income (loss) (3,018) (3,085) (1,097)
--------- --------- ---------
Total stockholders' equity 49,277 48,447 51,216
--------- --------- ---------
Total liabilities and stockholders' equity $ 721,521 $ 721,874 $ 725,167
========= ========= =========
</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 the three months For the six months
ended June 30, ended June 30,
-------------- --------------
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Interest income
Loans $ 5,851 $ 5,707 $11,407 $10,796
Mortgage-backed securities 4,841 4,199 9,711 8,296
Investment securities 1,541 1,817 3,072 3,398
Interest bearing deposits and other 93 221 165 547
------- ------- ------- -------
Total interest income 12,326 11,944 24,355 23,037
------- ------- ------- -------
Interest expense
Deposits 3,812 3,707 7,388 7,564
Advances from the Federal Home Loan Bank and other borrowings 3,540 3,438 7,143 6,213
------- ------- ------- -------
Total interest expense 7,352 7,145 14,531 13,777
------- ------- ------- -------
Net interest income 4,974 4,799 9,824 9,260
Provision for loan losses 120 60 164 90
------- ------- ------- -------
Net interest income after provision for loan losses 4,854 4,739 9,660 9,170
------- ------- ------- -------
Non-interest income
Service fees, charges and other operating income 376 307 750 625
------- ------- ------- -------
Total non-interest income 376 307 750 625
------- ------- ------- -------
Non-interest expense
Compensation and benefits 1,969 1,692 3,796 3,332
Occupancy and equipment 619 511 1,245 1,005
Federal deposit insurance premium 21 65 43 133
Professional fees 100 184 287 349
Amortization of goodwill and other intangible assets 195 209 389 418
Advertising 168 91 338 181
Other operating 645 692 1,243 1,240
------- ------- ------- -------
Total non-interest expense 3,717 3,444 7,341 6,658
------- ------- ------- -------
Income before income taxes 1,513 1,602 3,069 3,137
Income taxes 456 577 983 1,128
------- ------- ------- -------
Net income $ 1,057 $ 1,025 $ 2,086 $ 2,009
======= ======= ======= =======
Basic earnings per share $0.42 $0.37 $0.82 $0.72
Diluted earnings per share $0.40 $0.35 $0.79 $0.67
Weighted average number of shares outstanding - basic 2,539 2,759 2,554 2,790
Weighted average number of shares outstanding - diluted 2,554 2,967 2,632 2,981
</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 six months ended
June 30,
2000 1999
---- ----
<S> <C> <C>
Cash flows from operating activities
Net Income $ 2,086 $ 2,009
Adjustments to reconcile net income to net cash provided by operating activities:
Mortgage loan servicing rights 7 7
Deferred loan origination fees (29) (39)
Premiums and discounts on investment securities, net (44) 16
Premiums and discounts on mortgage-backed securities and loans, net (7) 379
Amortization of goodwill and other intangible assets 387 417
Provision for loan losses 208 90
Depreciation of premises and equipment 505 456
Recognition of ESOP and MSBP expenses 136 342
Gain on sale of real estate acquired through foreclosure 4 4
(Increase) decrease in:
Accrued interest receivable 78 (556)
Other assets (1,566) (270)
Increase (decrease) in:
Accrued interest payable 1,010 109
Other liabilities 1,362 (2,218)
------- -------
Net cash provided by operating activities 4,137 746
------- -------
Cash flows from investing activities
Loan origination and principal payments on loans, net 1,041 25,893
Purchases of loans (6,595) (76,553)
Proceeds from loan sales --- ---
Maturities of certificates of deposit in other financial institutions, net 291 493
Purchases of investment securities available for sale (429) (18,059)
Purchases of investment securities held to maturity (11,316) (144,494)
Purchases of mortgage-backed securities available for sale (11,079) (34,541)
Purchase of mortgage-backed securities held to maturity --- (35,412)
Proceeds from maturities of investment securities held to maturity 5,000 (147,447)
Proceeds from maturities of investment securities available for sale --- 2,000
Principal repayments from mortgage-backed securities held to maturity 11,675 36,542
Principal repayments from mortgage-backed securities available for sale 4,853 12,779
Purchases and redemption of Federal Home Loan Bank Stock, net --- (3,500)
Proceeds from sales of real estate acquired through foreclosure 354 61
Purchase of premises and equipment (654) (204)
------- -------
Net cash used in investing activities (6,859) (87,548)
------- -------
</TABLE>
See notes to consolidated financial statements
5
<PAGE>
TF FINANCIAL CORPORATION AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
(in thousands)
<TABLE>
<CAPTION>
For the six months ended
June 30,
2000 1999
---- ----
<S> <C> <C>
Cash flows from financing activities
Net increase (decrease ) in deposits 17,913 (21,988)
Net increase (decrease) in advances from Federal Home Loan Bank (40,174) 85,000
Net increase in other borrowings 18,462 ---
Net decrease in advances from borrowers for taxes and insurance 243 100
Exercise of stock options 437 97
Purchase of treasury stock, net (1,226) (1,970)
Common stock cash dividend (668) (673)
-------- --------
Net cash provided by financing activities (5,013) 60,566
-------- --------
Net decrease in cash and cash equivalents (7,735) (26,236)
Cash and cash equivalents at beginning of period 16,715 42,703
-------- --------
Cash and cash equivalents at end of period $ 8,980 $ 16,467
======== ========
Supplemental disclosure of cash flow information
Cash paid for
Interest on deposits and advances $ 13,521 $ 13,669
Income taxes $ 850 $ 911
Non-cash transactions
Transfers from loans to real estate acquired through foreclosure $ 28 $---
</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 June 30, 2000, December 31,
1999, June 30, 1999 and for the three-month and six-month periods ended
June 30, 2000 and 1999 include the accounts of TF Financial Corporation
(the "Company") and its wholly owned subsidiaries Third Federal Savings
Bank (the "Savings Bank"), TF Investments Corporation, Penns Trail
Development Corporation and Teragon Financial Corporation. The Company's
business is conducted principally through the Savings Bank. All significant
intercompany accounts and transactions have been eliminated in
consolidation.
NOTE 2 - BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements were prepared
in accordance with instructions for Form 10-Q and, therefore, do not
include all of the disclosures or footnotes required by generally accepted
accounting principles. In the opinion of management, all adjustments,
consisting of normal recurring accruals, necessary for fair presentation of
the consolidated financial statements have been included. The results of
operations for the periods ended June 30, 2000 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, 1999.
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
The Company's other accumulated comprehensive income consists of net
unrealized gains (losses) on investment securities and mortgage-backed
securities available for sale. Total comprehensive income for the
three-month periods ended June 30, 2000 and 1999 was $1,436,000 and
$43,000, net of applicable income tax (benefit) of $651,000 and ($51,000),
respectively.
Total comprehensive income for the six-month periods ended June 30, 2000
and 1999 was $2,154,000 and $758,000, net of applicable income tax of
$1,018,000 and $329,000, respectively.
NOTE 5- RECLASSIFICATIONS
Certain prior year amounts have been reclassified to conform to the current
period presentation.
7
<PAGE>
TF FINANCIAL CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
TF Financial Corporation may from time to time make written or oral
"forward-looking statements", including statements contained in the Company's
filings with the Securities and Exchange Commission (including this Quarterly
Report on Form 10-Q and the exhibits thereto), in its reports to stockholders
and in other communications by the Company, which are made in good faith by the
Company pursuant to the "Safe Harbor" Provisions of the Private Securities
Litigation Reform Act of 1995.
These forward-looking statements involve risks and uncertainties, such as
statements of the Company's plans, objectives, expectations, estimates and
intentions, that are subject to change based on various important factors (some
of which are beyond the Company's control). The following factors, among others,
could cause the Company's financial performance to differ materially from the
plans, objectives, expectations, estimates and intentions expressed in such
forward-looking statements: the strength of the United States economy in general
and the strength of the local economies in which the Company conducts
operations; the effects of, and changes in, trade, monetary and fiscal policies
and laws, including interest rate policies of the Board of Governors of the
Federal Reserve System, inflation, interest rate, market and monetary
fluctuations; the timely development of and acceptance of new products and
services of the Company and the perceived overall value of these products and
services by users, including the features, pricing and quality compared to
competitors' products and services; the willingness of users to substitute
competitors' products and services for the Company's products and services; the
success of the Company in gaining regulatory approval of its products and
services, when required; the impact of changes in financial services' laws and
regulations (including laws concerning taxes, banking, securities and
insurance); technological changes, acquisitions; changes in consumer spending
and saving habits; and the success of the Company at managing the risks involved
in the foregoing.
The Company cautions that the foregoing list of important factors is not
exclusive. The Company does not undertake to update any forward-looking
statement, whether written or oral, that may be made from time to time by or on
behalf of the Company.
Financial Condition
The Company's total assets at June 30, 2000 and December 31, 1999 totaled $721.5
million and $721.9 million, respectively. Loans receivable grew by $5.3 million
while cash and cash equivalents decreased by $7.7 million. The Company's present
objectives include growth in the loan portfolio through both originated and
purchased loans, and a corresponding decrease in lower-yielding investment
securities and mortgage-backed securities. Total assets are expected to remain
at approximately their present levels in the immediate future and the expected
growth in the Company's net interest income is expected to come from a
combination of loan growth funded by lower cost retail deposit growth.
Total liabilities decreased by $1.2 million during the first six months of 2000.
Deposits increased by $17.9 while advances from the Federal Home Loan Bank and
other borrowings decreased by a combined $21.7 million. The decrease in advances
from the Federal Home Loan Bank occurred in part due to the conversion of $35
million of fixed rate advances that were convertible into LIBOR-based floating
rate at the option of the Federal Home Loan Bank. Subsequent to conversion a
portion of these advances were replaced with lower cost funds from other
sources.
8
<PAGE>
Total consolidated stockholders' equity of the Company was $49.3 million at June
30, 2000, an increase of $830,000 from December 31, 1999. During the first six
months of 2000, the net increase in retained earnings, which is net income less
dividends paid, was partially offset by the net cost of treasury shares
purchased. During January of 2000 management announced that the Company's board
of directors had authorized the purchase of up to 142,368 additional shares of
the Company's stock in the open market during the subsequent twelve months. As
of June 30, 2000 there were approximately 112,600 shares available for
repurchase under this repurchase program.
Asset Quality
Management of the Company believes that there has been no material adverse
change in the Company's asset quality during the six-month period ended June 30,
2000. Non-performing loans include $305,000 in student loans that are guaranteed
by the United States Department of Education, through the Pennsylvania Higher
Education Assistance Association, unless the Savings Bank is notified that it
has failed to perform all the necessary procedures to preserve the guarantee. In
such a situation, the Savings Bank would attempt to have the guarantee
reinstated; if unsuccessful, these loans become unsecured loans that the Savings
Bank will attempt to collect or charge-off.
The following table sets forth information regarding the Company's asset
quality (dollars in thousands):
<TABLE>
<CAPTION>
June 30, December 31, June 30,
-------- ------------ --------
2000 1999 1999
---- ---- ----
<S> <C> <C> <C>
Non-performing loans $1,322 $1,356 $2,199
Ratio of non-performing loans to gross loans 0.45% 0.47% 0.66%
Ratio of non-performing loans to total assets 0.18% 0.19% 0.30%
Foreclosed property $188 $546 $243
Foreclosed property to total assets 0.03% 0.08% 0.03%
Ratio of total non-performing assets to total assets 0.21% 0.26% 0.34%
</TABLE>
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):
2000 1999
---- ----
Beginning balance, January 1, $1,970 $1,909
Provision 164 90
Less: charge-off's (recoveries), net 232 83
--------- ---------
Ending balance, June 30, $1,902 $1,916
====== ======
9
<PAGE>
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED JUNE 30, 2000 AND 1999
Net Income. The Company recorded net income of $1,057,000, or $0.40 per diluted
share, for the three months ended June 30, 2000 as compared to $1,025,000, or
$0.35 per diluted share, for the three months ended June 30, 1999.
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 June 30,
Three Months Ended March,
2000 1999
-------------------------------- ---------------------------------
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) .................... $294,372 $ 5,851 7.99% $300,809 $ 5,707 7.59%
Mortgage-backed securities .............. 290,922 4,841 6.69% 264,431 4,199 6.35%
Investment securities ................... 99,385 1,541 6.24% 116,534 1,817 6.24%
Other interest-earning assets(1) ........ 11,072 93 3.38% 21,783 221 4.06%
------- -------- -------- ------
Total interest-earning assets ......... 695,751 12,326 7.13% 703,557 11,944 6.79%
-------- ------
Non interest-earning assets ................. 25,352 34,760
-------- -------
Total assets .......................... 721,103 738,317
======== =======
Liabilities and stockholders' equity:
Interest-bearing liabilities
Deposits ................................ 414,940 3,812 3.69% 423,038 3,707 3.51%
Advances from the FHLB and other
Borrowings ................... 248,437 3,540 5.73% 250,027 3,438 5.50%
-------- --------- ------- -----
Total interest-bearing liabilities .... 663,377 7,352 4.46% 673,065 7,145 4.25%
--------- -----
Non interest-bearing liabilities ............ 9,805 13,725
-------- -------
Total liabilities ..................... 673,182 686,790
Stockholders' equity ........................ 47,921 51,527
-------- -------
Total liabilities and stockholders' equity $721,103 $738,317
======== ========
Net interest income ......................... $ 4,974 $4,799
======== ======
Interest rate spread (2) .................... 2.67% 2.54%
Net yield on interest-earning assets (3) .... 2.88% 2.73%
Ratio of average interest-earning assets to
average interest bearing liabilities ........ 105% 105%
</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
June 30,
2000 vs. 1999
------------------------------------------------------
Increase (decrease)
due to
------------------------------------------------------
Volume Rate Net
------------------------------------------------------
<S> <C> <C> <C>
Interest income:
Loans receivable, net $(653) $797 $144
Mortgage-backed securities 418 224 642
Investment securities (276) 0 (276)
Other interest-earning assets (95) (33) (128)
------------------------------------------------------
Total interest-earning assets (606) 988 382
======================================================
Interest expense:
Deposits (385) 490 105
Advances from the FHLB and other borrowings (138) 240 102
------------------------------------------------------
Total interest-bearing liabilities (523) 730 207
======================================================
Net change in net interest income $(83) $258 $175
======================================================
</TABLE>
Total Interest Income. Total interest income increased by $382,000 or 3.2% to
$12.3 million for the three months ended June 30, 2000 compared with the second
quarter of 1999 primarily because of an increase in interest income on
mortgage-backed securities. This increase has occurred because during the second
quarter of 1999 the Company increased its purchases of higher yielding
mortgage-backed securities and reduced its purchases of lower yielding
investment securities. In addition, the rise in certain market interest rates
since June 30, 1999 has resulted in both higher interest rates on the Company's
new loans and higher interest rates on the Company's adjustable rate portfolio
loans.
Total Interest Expense. Total interest expense increased to $7.4 million for the
three-month period ended June 30, 2000 from $7.1 million for the same period in
1999 primarily because of higher market interest rates.
Non-interest income. Total non-interest income was $376,000 for the three-month
period ended June 30, 2000 compared with $307,000 for the same period in 1999.
The increase is primarily due to an increase the number of commercial loan and
demand deposit accounts and the related increase in late charges collected on
commercial loans and increase in overdraft fees collected on demand deposit
accounts.
Non-interest expense. Total non-interest expense increased by $273,000 to $3.7
million for the three months ended June 30, 2000 compared to the same period in
1999. Compensation and benefits expenses increased by $277,000 during the second
quarter of 2000 compared to the year earlier period due in large part to the
increase in full time equivalent employees from 150 at June 30, 1999 to 174 at
June 30, 2000. These additional employees were related to the two additional
branch offices open during the second quarter of 2000 compared to the second
quarter of 1999, and additional staff in the lending and servicing areas of the
Company.
11
<PAGE>
In addition, these additional branch offices are largely the cause of the
increases in occupancy and equipment expenses. The increase in advertising
expense is the result of a planned increase in the Company's advertising
expenses in order to attract new retail banking customers. Professional fees
have decreased from higher than normal levels during the second quarter of 1999
because of the "Year 2000" costs that were incurred during the second quarter of
1999.
Income taxes. The Company's effective tax rate was 30.1% during the second
quarter of 2000 compared with 36.0% during the second quarter of 1999. The
decrease is attributable to investment strategies that are expected to reduce
the Company's income taxes.
12
<PAGE>
RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 2000 AND 1999
Net Income. The Company recorded net income of $2,086,000, or $0.79 per diluted
share, for the six months ended June 30, 2000 as compared to $2,009,000, or
$0.67 per diluted share, for the six months ended June 30, 1999.
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>
Six months ended June 30,
Three Months Ended March,
2000 1999
-------------------------------- -------------------------------
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)....................... $292,016 $11,407 7.86% $282,033 $10,796 7.66%
Mortgage-backed securities................. 291,838 9,711 6.69% 263,025 8,296 6.31%
Investment securities...................... 100,656 3,072 6.14% 110,459 3,398 6.15%
Other interest-earning assets(1)........... 9,263 165 3.58% 25,416 547 4.30%
-------- ------- -------- -------
Total interest-earning assets............ 693,773 24,355 7.06% 680,933 23,037 6.77%
------- -------
Non interest-earning assets.................... 26,487 33,682
-------- --------
Total assets............................. 720,260 714,615
======== ========
Liabilities and stockholders' equity:
Interest-bearing liabilities
Deposits................................... 409,516 7,388 3.63% 427,373 7,564 3.54%
Advances from the FHLB and other
borrowings...................... 254,057 7,143 5.58% 224,630 6,213 5.53%
-------- ------- -------- -------
Total interest-bearing liabilities....... 663,573 14,531 4.23% 652,003 13,777 4.23%
------- -------
Non interest-bearing liabilities............... 8,821 10,742
-------- --------
Total liabilities.......................... 672,394 662,745
Stockholders' equity........................... 47,866 51,870
-------- --------
Total liabilities and stockholders' equity.... $720,260 $714,615
======== ========
Net interest income............................ $9,824 $9,260
====== ======
Interest rate spread (2)....................... 2.54% 2.54%
Net yield on interest-earning assets (3)....... 2.72% 2.72%
Ratio of average interest-earning assets to
average interest bearing liabilities........... 105% 104%
</TABLE>
(5) Includes interest-bearing deposits in other banks.
(6) Interest-rate spread represents the difference between the average yield on
interest-earning assets and the average cost of interest-bearing
liabilities.
(7) Net yield on interest-earning assets represents net interest income as a
percentage of average interest-earning assets.
(8) Nonaccrual loans have been included in the appropriate average loan balance
category, but interest on nonaccrual loans has not been included for
purposes of determining interest income.
13
<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>
Six months ended
June 30,
2000 vs. 1999
-------------------------------------------
Increase (decrease)
due to
-------------------------------------------
Volume Rate Net
-------------------------------------------
<S> <C> <C> <C>
Interest income:
Loans receivable, net $352 $259 $611
Mortgage-backed securities 913 502 1,415
Investment securities (320) (6) (326)
Other interest-earning assets (302) (80) (382)
-------------------------------------------
Total interest-earning assets 643 675 1,318
===========================================
Interest expense:
Deposits (588) 412 (176)
Advances from the FHLB and other borrowings 798 132 930
-------------------------------------------
Total interest-bearing liabilities 210 544 754
===========================================
Net change in net interest income $433 $131 $564
===========================================
</TABLE>
Total Interest Income. Total interest income increased by $1,318,000 or 5.7% to
$24.4 million for the six months ended June 30, 2000 compared with the six
months ended June 30, 1999. The increase in the interest earned on loans
receivable occurred mainly because the Company purchased $76.6 million in loans
receivable late in the first quarter of 1999 at yields that were higher than the
current portfolio yields.
The increase in interest earned on mortgage-backed securities also occurred as a
result of the Company's purchases of such securities, throughout the last three
quarters of 1999, with yields higher than the existing portfolio because of
higher market interest rates. In addition, the Company shifted its securities
mix away from lower yielding investment securities and into higher yielding
mortgage-backed securities.
Total Interest Expense. Total interest expense increased to $14.5 million for
the six-month period ended June 30, 2000 from $13.8 million for the same period
in 1999 primarily due to increased advances from the Federal Home Loan Bank and
other borrowings which were used to fund asset growth and deposit outflows. The
average rate paid on Federal Home Loan Bank advances and other borrowings
increased due to the effect of higher market interest rates on new borrowings.
Interest expense on deposits decreased during the first six months of 2000
compared to the first six months of 1999 because the average balance of deposits
decreased $17.9 million or 4.2%, from $430.0 million to $404.1 million. The
decrease in the average balance of deposits resulted from rate sensitive deposit
outflows associated with management's efforts to price deposits at lower
interest rates during the first six months of 1999. Nevertheless, the average
rate paid on deposits has increased steadily since mid-1999 due to increases in
market interest rates.
14
<PAGE>
Non-interest income. Total non-interest income was $750,000 for the six-month
period ended June 30, 2000 compared with $625,000 for the same period in 1999.
The increase is primarily due to an increase the number of commercial loan and
demand deposit accounts and the related increase in late charges collected on
commercial loans and increase in overdraft fees collected on demand deposit
accounts. The increase is also due to $33,000 of non-recurring loan prepayment
fees received during the first quarter of 2000.
Non-interest expense. Total non-interest expense increased by $683,000 to $7.3
million for the six months ended June 30, 2000 compared to the same period in
1999. Compensation and benefits expenses increased by $464,000 during the first
half of 2000 compared to the year earlier period due in large part to the
increase in full time equivalent employees from 150 at June 30, 1999 to 174 at
June 30, 2000. These additional employees were related to the two additional
branch offices open during the first half of 2000 compared to the first half of
1999, and additional staff in the lending and servicing areas of the Company.
In addition, these additional branch offices are largely the cause of the
increases in occupancy and equipment expenses. The increase in advertising
expense is the result of a planned increase in the Company's advertising
expenses in order to attract new retail banking customers. Professional fees
have decreased from higher than normal levels during the first half of 1999
because of the "Year 2000" costs that were incurred during the first half of
1999.
Income taxes. The Company's effective tax rate was 32.0% during the first half
of 2000 compared with 36.0% during the first half of 1999. The decrease is
attributable to investment strategies that are expected to reduce the Company's
income taxes.
15
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
Liquidity
The Company's liquidity is a measure of its ability to fund loans, pay
withdrawals of deposits, and other cash outflows in an efficient, cost-effective
manner. The Company's short-term sources of liquidity include maturity,
repayment and sales of assets, excess cash and cash equivalents, new deposits,
broker deposits, other borrowings, and new advances from the Federal Home Loan
Bank. There has been no material adverse change during six-month period ended
June 30, 2000 in the ability of the Company and its subsidiaries to fund their
operations.
The Savings Bank is required under federal regulations to maintain certain
specified levels of "liquid investments", which include certain United States
government obligations and other approved investments. Current regulations
require the Savings Bank to maintain liquid assets of not less than 4% of its
net withdrawable accounts plus short term borrowings. Short-term liquid assets
must consist of not less than 1% of such accounts and borrowings, which amount
is also included within the 4% requirement. These levels may be changed from
time to time by the regulators to reflect current economic conditions. The
Savings Bank had regulatory liquidity ratios of 19.9% and 22.6% at June 30, 2000
and 1999, respectively.
At June 30, 2000, the Company had commitments outstanding under letters of
credit of $3.7 million, commitments to originate loans of $15.0 million, and
commitments to fund undisbursed balances of closed loans and unused lines of
credit of $28.3 million.
Capital Requirements
The Savings Bank is in compliance with all of its capital requirements as of
June 30, 2000.
YEAR 2000
Risk Assessment
There has been no information that has come to the Company's attention during
the six-months ended June 30, 2000 to indicate that there are any adverse
consequences that might affect the Company in the future related to the "Year
2000" problem.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Asset and Liability Management
The Company's market risk exposure is predominately caused by interest rate
risk, which is defined as the sensitivity of the Company's current and future
earnings, the values of its assets and liabilities, and the value of its capital
to changes in the level of market interest rates. Management of the Company
believes that there has not been a material adverse change in market risk during
the six months ended June 30, 2000.
16
<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
Not applicable
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit 27 - Financial data schedule (in electronic filing only)
(b) Reports on Form 8-K
None
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: August 10, 2000 John R. Stranford
----------------------- President and CEO
(Principal Executive Officer)
/s/ Dennis R. Stewart
---------------------
Date: August 10, 2000 Dennis R. Stewart
---------------------- Senior Vice President and
Chief Financial Officer
(Principal Financial & Accounting Officer)
18
