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 September 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
-------
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: November 1, 2000
----------------
Class Outstanding
---------------------------------- ----------------------------
$.10 par value common stock 2,801,338 shares
<PAGE>
TF FINANCIAL CORPORATION AND SUBSIDIARIES
FORM 1O-Q
FOR THE QUARTER ENDED SEPTEMBER 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)
Unaudited Audited Unaudited
<TABLE>
<CAPTION>
September 30, December 31, September 30,
2000 1999 1999
---- ---- ----
Assets
<S> <C> <C> <C>
Cash and cash equivalents $10,095 $16,715 $16,422
Certificates of deposit in other financial institutions 457 847 1,347
Investment securities available for sale - at fair value 22,742 21,930 21,088
Investment securities held to maturity (fair value of $62,428, $64,538 and 63,663 66,760 66,129
$65,267, respectively)
Mortgage-backed securities available for sale - at fair value 136,322 132,515 119,145
Mortgage-backed securities held to maturity (fair value of $137,933 141,415 159,888 168,319
$154,188, and $164,585, respectively)
Loans receivable, net 296,586 287,979 285,665
Federal Home Loan Bank stock - at cost 13,042 13,042 12,668
Accrued interest receivable 4,845 4,958 4,572
Real estate held for investment --- --- 2,348
Goodwill and other intangible assets 5,989 6,570 6,763
Premises and equipment, net 9,301 9,177 8,828
Other assets 2,282 1,493 1,392
-------- -------- --------
Total assets $706,739 $721,874 $714,686
======== ========= ========
Liabilities and stockholders' equity
Liabilities
Deposits $416,962 $401,698 $406,612
Advances from the Federal Home Loan Bank 204,159 248,533 248,359
Other borrowings 23,590 15,766 ---
Advances from borrowers for taxes and insurance 885 1,198 755
Accrued interest payable 6,565 3,749 4,867
Other liabilities 3,472 2,483 2,825
-------- -------- --------
Total liabilities 655,633 673,427 663,418
-------- -------- --------
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; 2,533,841, 2,576,160, and 2,759,721 shares
outstanding at September 30, 2000, December 31, 1999 and
September 30, 1999, net of treasury shares of 2,488,662,
2,437,226, and 2,250,626, respectively. 529 529 529
Retained earnings 50,619 48,760 47,763
Additional paid-in capital 52,139 52,076 52,055
Unearned ESOP shares (2,675) (2,766) (2,796)
Shares acquired by MSBP (21) (71) (148)
Treasury stock - at cost (47,503) (46,996) (44,323)
Accumulated other comprehensive income (loss) (1,982) (3,085) (1,812)
-------- -------- --------
Total stockholders' equity 51,106 48,447 51,268
-------- -------- --------
Total liabilities and stockholders' equity $706,739 $721,874 $714,686
======== ========= ========
</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 nine months
ended September 30, ended September 30,
------------------- -------------------
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Interest income
Loans $5,918 $5,481 $17,325 $16,277
Mortgage-backed securities 4,676 4,687 14,387 12,983
Investment securities 1,607 1,642 4,679 5,040
Interest bearing deposits and other 48 72 213 619
------ ------ ------ ------
Total interest income 12,249 11,882 36,604 34,919
------ ------ ------ ------
Interest expense
Deposits 3,909 3,571 11,297 11,135
Advances from the Federal Home Loan Bank and other borrowings 3,385 3,457 10,528 9,670
------ ------ ------ ------
Total interest expense 7,294 7,028 21,825 20,805
------ ------ ------ ------
Net interest income 4,955 4,854 14,779 14,114
Provision for loan losses 100 90 264 180
------ ------ ------ ------
Net interest income after provision for loan losses 4,855 4,764 14,515 13,934
------ ------ ------ ------
Non-interest income
Service fees, charges and other operating income 400 290 1,150 915
------ ------ ------ ------
Total non-interest income 400 290 1,150 915
------ ------ ------ ------
Non-interest expense
Compensation and benefits 1,945 1,792 5,741 5,124
Occupancy and equipment 638 505 1,881 1,510
Federal deposit insurance premium 21 62 64 195
Professional fees 107 198 394 547
Amortization of goodwill and other intangible assets 195 209 584 627
Advertising 186 91 524 272
Other operating 678 591 1,921 1,831
------ ------ ------ ------
Total non-interest expense 3,768 3,448 11,109 10,106
------ ------ ------ ------
Income before income taxes 1,487 1,606 4,556 4,743
Income taxes 417 551 1,400 1,679
------ ------ ------ ------
Net income $1,070 $1,055 $3,156 $3,064
====== ====== ====== ======
Basic earnings per share $0.42 $0.38 $1.24 $1.10
Diluted earnings per share $0.41 $0.36 $1.20 $1.03
Weighted average number of shares outstanding - basic 2,533 2,760 2,547 2,780
Weighted average number of shares outstanding - diluted 2,616 2,933 2,627 2,965
</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 nine months ended
September 30,
-------------
2000 1999
---- ----
<S> <C> <C>
Cash flows from operating activities
Net Income $ 3,156 $ 3,064
Adjustments to reconcile net income to net cash provided by operating
activities:
Mortgage loan servicing rights 10 10
Deferred loan origination fees (24) (51)
Premiums and discounts on investment securities, net (35) 8
Premiums and discounts on mortgage-backed securities and loans, net (2) 526
Amortization of goodwill and other intangible assets 581 626
Provision for loan losses 264 180
Depreciation of premises and equipment 778 674
Recognition of ESOP and MSBP expenses 204 509
Gain on sale of real estate acquired through foreclosure (19) (5)
(Increase) decrease in:
Accrued interest receivable 113 (14)
Other assets (1,054) (310)
Increase (decrease) in:
Accrued interest payable 2,816 701
Other liabilities 419 (2,481)
--------- ---------
Net cash provided by operating activities 7,207 3,437
--------- ---------
Cash flows from investing activities
Loan origination and principal payments on loans, net (2,165) 33,757
Purchases of loans (6,734) (78,993)
Proceeds from loan sales -- --
Maturities of certificates of deposit in other financial institutions, net 390 891
Purchases of investment securities available for sale (429) (20,732)
Purchases of investment securities held to maturity (82,081) (147,742)
Purchases of mortgage-backed securities available for sale (11,079) (63,482)
Purchase of mortgage-backed securities held to maturity -- (35,412)
Proceeds from maturities of investment securities held to maturity 85,219 167,937
Proceeds from maturities of investment securities available for sale -- 4,000
Principal repayments from mortgage-backed securities held to maturity 18,361 47,825
Principal repayments from mortgage-backed securities available for sale 8,677 16,773
Purchases and redemption of Federal Home Loan Bank Stock, net -- (3,500)
Proceeds from sales of real estate acquired through foreclosure 318 195
Purchase of premises and equipment (902) (485)
--------- ---------
Net cash provided by (used in) investing activities 9,575 (78,968)
--------- ---------
</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 nine months ended
September 30,
-------------
2000 1999
---- ----
<S> <C> <C>
Cash flows from financing activities
Net increase (decrease ) in deposits 15,264 (32,301)
Net increase (decrease) in advances from Federal Home Loan Bank (44,374) 85,000
Net increase in other borrowings 7,824 --
Net increase (decrease) in advances from borrowers for taxes and insurance (313) (449)
Exercise of stock options 440 119
Purchase of treasury stock, net (1,245) (2,117)
Common stock cash dividend (998) (1,002)
-------- --------
Net cash provided by (used in) financing activities (23,402) 49,250
-------- --------
Net decrease in cash and cash equivalents (6,620) (26,281)
Cash and cash equivalents at beginning of period 16,715 42,703
-------- --------
Cash and cash equivalents at end of period $ 10,095 $ 16,422
======== ========
Supplemental disclosure of cash flow information
Cash paid for
Interest on deposits and advances $ 19,009 $ 20,207
Income taxes $ 1,100 $ 1,011
Non-cash transactions
Transfers from loans to real estate acquired through foreclosure $ 103 $ 122
</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 September 30, 2000,
December 31, 1999, September 30, 1999 and for the three-month and
nine-month periods ended September 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 September 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 September 30, 2000 and 1999 was $2,106,000
and $340,000, net of applicable income tax of $951,000 and $131,000,
respectively.
Total comprehensive income for the nine-month periods ended September
30, 2000 and 1999 was $4,260,000 and $1,098,000, net of applicable
income tax of $1,969,000 and $524,000, 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 September 30, 2000 and December 31, 1999 totaled
$706.7 million and $721.9 million, respectively. Loans receivable, net grew by
$8.6 million while cash and cash equivalents decreased by $6.6 million. The
Company's investment securities decreased by $2.3 million during the first nine
months of 2000, while the Company's mortgage-backed securities decreased by
$14.7 million during the same period. These results are consistent with the
Company's present objectives that 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.
8
<PAGE>
Total liabilities decreased by $17.8 million during the first nine months of
2000. Deposits increased by $15.3 million while advances from the Federal Home
Loan Bank and other borrowings decreased by a combined $36.6 million. The
decrease in advances from the Federal Home Loan Bank occurred in part due to the
conversion and subsequent repayment of $40 million of fixed rate advances that
were convertible into LIBOR-based floating rate advances at the option of the
Federal Home Loan Bank.
Total consolidated stockholders' equity of the Company was $51.1 million at
September 30, 2000, an increase of $2.7 million from December 31, 1999. During
the first nine months of 2000 retained earnings, which is net income less
dividends paid, increased by $1.9 million. In addition, accumulated other
comprehensive income increased by $1.1 million during the same period due to
increased values of the Company's available for sale securities.
The net cost of treasury shares purchased increased by $507,000 during the first
nine months of 2000. 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 September 30, 2000 there were approximately
111,300 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 nine-month period ended
September 30, 2000. Non-performing loans include $337,000 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>
September 30, December 31, September 30,
2000 1999 1999
---- ---- ----
<S> <C> <C> <C>
Non-performing loans $1,303 $1,356 $1,392
Ratio of non-performing loans to gross loans 0.44% 0.47% 0.48%
Ratio of non-performing loans to total assets 0.18% 0.19% 0.19%
Foreclosed property $247 $546 $240
Foreclosed property to total assets 0.03% 0.08% 0.03%
Ratio of total non-performing assets to total assets 0.22% 0.26% 0.23%
</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, $1,917 $1,909
Provision 264 180
Less: charge-off's (recoveries), net 284 202
------ ------
Ending balance, September 30, $1,897 $1,887
====== ======
9
<PAGE>
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
Net Income. The Company recorded net income of $1,070,000, or $0.41 per diluted
share, for the three months ended September 30, 2000 as compared to $1,055,000,
or $0.36 per diluted share, for the three months ended September 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 September 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) $296,873 $5,918 7.93% $290,693 $5,481 7.54%
Mortgage-backed securities 282,986 4,676 6.57% 290,070 4,687 6.46%
Investment securities 102,280 1,607 6.25% 112,430 1,642 5.84%
Other interest-earning assets(1) 2,810 48 6.80% 7,060 72 4.08%
-------- ------- -------- -------
Total interest-earning assets 684,949 12,249 7.11% 700,253 11,882 6.79%
------- -------
Non interest-earning assets 27,351 21,793
-------- --------
Total assets 712,300 722,046
======== ========
Liabilities and stockholders' equity:
Interest-bearing liabilities
Deposits 417,960 3,909 3.72% 412,557 3,571 3.46%
Advances from the FHLB and other
borrowings 235,682 3,385 5.71% 248,615 3,457 5.56%
-------- ------- -------- -------
Total interest-bearing liabilities 653,642 7,294 4.44% 661,172 7,028 4.25%
------- -------
Non interest-bearing liabilities 9,935 9,654
----- -----
Total liabilities 663,577 670,826
Stockholders' equity 48,723 51,220
-------- --------
Total liabilities and stockholders' equity.... $712,300 $722,046
======== ========
Net interest income $4,955 $4,854
====== ======
Interest rate spread (2) 2.68% 2.51%
Net yield on interest-earning assets (3) 2.88% 2.75%
Ratio of average interest-earning assets to
average interest bearing liabilities 105% 106%
</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.
Three months ended
September 30,
2000 vs. 1999
-------------------------
Increase (decrease)
due to
-------------------------
Volume Rate Net
-------------------------
Interest income:
Loans receivable, net $ 127 $ 310 $ 437
Mortgage-backed securities (382) 371 (11)
Investment securities (538) 503 (35)
Other interest-earning assets (194) 170 (24)
-------------------------
Total interest-earning assets (987) 1,354 367
=========================
Interest expense:
Deposits 50 288 338
Advances from the FHLB and other borrowings (538) 466 (72)
-------------------------
Total interest-bearing liabilities (488) 754 266
=========================
Net change in net interest income $ (499) $ 600 $ 101
=========================
Total interest income. Total interest income increased by $367,000 or 3.1% to
$12.2 million for the three months ended September 30, 2000 compared with the
third quarter of 1999 primarily because of an increase in interest income on
loans receivable.
In addition, as market interest rates rose during the second and third quarters
of 1999, the Company reduced its positions in short-term, low yielding
securities and purchased intermediate-term issues with higher rates and yields.
These actions when combined with securities maturities and prepayments (in the
case of mortgage-backed securities) during the intervening period produced
rate-related increases in interest income, almost entirely offsetting the
decreases in interest income associated with lower average balances. The rise in
certain market interest rates since September 30, 1999 also has resulted in both
higher interest rates on the Company's new loans and higher interest rates on
the Company's adjustable rate loans held in portfolio.
Total interest expense. Total interest expense increased to $7.3 million for the
three-month period ended September 30, 2000 from $7.0 million for the same
period in 1999 primarily because of higher market interest rates.
Non-interest income. Total non-interest income was $400,000 for the three-month
period ended September 30, 2000 compared with $290,000 for the same period in
1999. The increase is primarily due to increases in late charges, prepayment and
other loan-related fees.
11
<PAGE>
Non-interest expense. Total non-interest expense increased by $320,000 to $3.8
million for the three months ended September 30, 2000 compared to the same
period in 1999. Compensation and benefits expenses increased by $153,000 during
the third quarter of 2000 compared to the year earlier period due in large part
to the increase in full time equivalent employees from 147 at September 30, 1999
to 167 at September 30, 2000. These additional employees were related to the
additional branch office open during the third quarter of 2000 compared to the
third quarter of 1999, and additional staff in the lending and servicing areas
of the Company. The relocation of the Company's home office branch to a new
leased facility also contributed to the increase in occupancy and equipment
expenses. Advertising expense also increased as planned in order to attract new
retail banking customers. Professional fees have decreased from higher than
normal levels during the third quarter of 1999 in part because of the "Year
2000" costs that were incurred during the third quarter of 1999, but also
because the Company has been successful in reducing its use of third-party
professionals.
Income taxes. The Company's effective tax rate was 28.0% during the third
quarter of 2000 compared with 34.3% during the third 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 NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
Net Income. The Company recorded net income of $3,156,000, or $1.20 per diluted
share, for the nine months ended September 30, 2000 as compared to $3,064,000,
or $1.03 per diluted share, for the nine months ended September 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>
Nine months ended September 30,
-------------------------------
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) $293,647 $17,325 7.88% $284,928 $16,277 7.62%
Mortgage-backed securities 288,866 14,387 6.65% 272,139 12,983 6.36%
Investment securities 101,202 4,679 6.18% 117,037 5,040 5.74%
Other interest-earning assets(1) 4,724 213 6.02% 16,734 619 4.93%
-------- ------- -------- -------
Total interest-earning assets 688,439 36,604 7.10% 690,838 34,919 6.74%
------- -------
Non interest-earning assets 29,150 24,455
-------- --------
Total assets 717,589 715,293
======= =======
Liabilities and stockholders' equity:
Interest-bearing liabilities
Deposits 412,351 11,297 3.66% 420,949 11,135 3.53%
Advances from the FHLB and other
borrowings 247,887 10,528 5.67% 232,628 9,670 5.54%
-------- ------- -------- -------
Total interest-bearing liabilities 660,238 21,825 4.42% 653,577 20,805 4.24%
------- -------
Non interest-bearing liabilities 9,197 9,936
-------- --------
Total liabilities 669,435 663,513
Stockholders' equity 48,154 51,780
-------- --------
Total liabilities and stockholders' equity.... $717,589 $715,293
======== ========
Net interest income $14,779 $14,114
======= =======
Interest rate spread (2) 2.69% 2.50%
Net yield on interest-earning assets (3) 2.87% 2.73%
Ratio of average interest-earning assets to
average interest bearing liabilities 104% 106%
</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.
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.
Nine months ended
September 30,
2000 vs. 1999
----------------------------
Increase (decrease)
due to
----------------------------
Volume Rate Net
----------------------------
Interest income:
Loans receivable, net $ 496 $ 552 $ 1,048
Mortgage-backed securities 806 598 1,404
Investment securities (888) 527 (361)
Other interest-earning assets (589) 183 (406)
-----------------------------
Total interest-earning assets (175) 1,860 1,685
============================
Interest expense:
Deposits (333) 495 162
Advances from the FHLB and other borrowings 632 226 858
-----------------------------
Total interest-bearing liabilities 299 721 1,020
============================
Net change in net interest income $ (474) $ 1,139 $ 665
============================
Total Interest Income. Total interest income increased by $1.7 million or 4.8%
to $36.6 million for the nine months ended September 30, 2000 compared with the
first nine months of 1999 in large part because of increases in interest income
on loans receivable and mortgage-backed securities.
In addition, as market interest rates rose during the second and third quarters
of 1999, the Company reduced its positions in short-term, low yielding
securities and purchased intermediate-term issues with higher rates and yields.
These actions when combined with securities maturities and prepayments (in the
case of mortgage-backed securities) during the intervening period produced
substantial rate-related increases in interest income. The rise in certain
market interest rates since September 30, 1999 also has resulted in both higher
interest rates on the Company's new loans and higher interest rates on the
Company's adjustable rate loans held in portfolio.
Total Interest Expense. Total interest expense increased to $21.8 million for
the nine-month period ended September 30, 2000 from $20.8 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
and repriced borrowings.
Interest expense on deposits increased slightly during the first nine months of
2000 compared to the first nine months of 1999. While the average balance of
deposits decreased $8.6 million or 2.0%, the average rate paid increased by 13
basis points to 3.66%. The decrease in the average balance of deposits resulted
from rate sensitive
14
<PAGE>
deposit outflows associated with management's efforts to price deposits at lower
interest rates during the first nine months of 1999. Nevertheless, the average
rate paid on deposits has increased steadily since mid-1999 due to increases in
market interest rates.
Non-interest income. Total non-interest income was $1,150,000 for the nine-month
period ended September 30, 2000 compared with $915,000 for the same period in
1999. The increase is primarily due to increases in late charges, prepayment and
other loan-related fees.
Non-interest expense. Total non-interest expense increased by $1.0 million to
$11.1 million for the nine months ended September 30, 2000 compared to the same
period in 1999. Compensation and benefits expenses increased by $617,000 during
the first nine months of 2000 compared to the year earlier period due in large
part to the increase in full time equivalent employees from 147 at September 30,
1999 to 167 at September 30, 2000. These additional employees were related to
the additional branch office open during the first nine months of 2000 compared
to the first nine months of 1999, and additional staff in the lending and loan
servicing areas of the Company. The relocation of the Company's home office
branch to a new leased facility also contributed to the increase in occupancy
and equipment expenses. Advertising expense also increased as planned in order
to attract new retail banking customers. Professional fees have decreased from
higher than normal levels during the first nine months of 1999 in part because
of the "Year 2000" costs that were incurred during the first nine months of
1999, but also because the Company has been successful in reducing its use of
third-party professionals.
Income taxes. The Company's effective tax rate was 30.7% during the first nine
months of 2000 compared with 35.4% during the first nine months 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 nine-month period ended
September 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 18.9% and 17.2% at September 30,
2000 and 1999, respectively.
At September 30, 2000, the Company had commitments outstanding under letters of
credit of $3.7 million, commitments to originate loans of $5.8 million, and
commitments to fund undisbursed balances of closed loans and unused lines of
credit of $35.0 million.
Capital Requirements
The Savings Bank is in compliance with all of its capital requirements as of
September 30, 2000.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Asset and Liability Management
The Company's market risk exposure is predominately caused by interest rate
risk, which is defined as the sensitivity of the Company's current and future
earnings, the values of its assets and liabilities, and the value of its capital
to changes in the level of market interest rates. Management of the Company
believes that there has not been a material adverse change in market risk during
the nine months ended September 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: November 8, 2000 John R. Stranford
----------------------- President and CEO
(Principal Executive Officer)
/s/ Dennis R. Stewart
------------------------------------------
Date: November 8, 2000 Dennis R. Stewart
---------------------- Senior Vice President and
Chief Financial Officer
(Principal Financial & Accounting Officer)
18
