SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K
(Mark One)
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
- - ---- EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended December 31, 1996
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- or -
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
|_| EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from _________________ to _____________________
Commission Number: 0-24168
TF FINANCIAL CORPORATION
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(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
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(Address of principal executive offices) Zip Code
Registrant's telephone number, including area code: (215) 579-4000
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Securities registered pursuant to Section 12(b) of the Act: None
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Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $.10 per share
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(Title of Class)
Indicate by check mark 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
----- -----
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K (ss.229.405 of this chapter) is not contained herein, and
will not be contained, to the best of Registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. [ X ]
The aggregate market value of the voting stock held by non-affiliates of
the Registrant, based on the (18.875) average bid price of the Registrant's
Common Stock as quoted on the Nasdaq System on March 3, 1997, was $57.3 million
(3,033,147 shares at $18.875 per share).
As of March 11, 1997 there were outstanding 4,217,386 shares of the
Registrant's Common Stock.
DOCUMENTS INCORPORATED BY REFERENCE
1. Portions of the Annual Report to Stockholders for the Fiscal Year Ended
December 31, 1996. (Parts I, II and IV)
2. Portions of the Proxy Statement for the 1997 Annual Meeting of
Stockholders. (Part III)
PART I
Item 1. Business
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BUSINESS OF THE COMPANY
On July 13, 1994, the Registrant, TF Financial Corporation (the "Company")
consummated its public offering for 5,290,000 shares of its common stock and
acquired Third Federal Savings Bank (the "Savings Bank" or "Third Federal") as
part of the Savings Bank's conversion from a mutual to a stock federally
chartered savings bank. The Registrant was incorporated under Delaware law in
March 1994. The Registrant is a savings and loan holding company and is subject
to regulation by the Office of Thrift Supervision (the "OTS"), the Federal
Deposit Insurance Corporation (the "FDIC") and the Securities and Exchange
Commission (the "SEC"). Currently, the Registrant does not transact any material
business other than through its subsidiaries, the Savings Bank, TF Investments
Corporation and Penns Trail Development Corporation. TF Investments Corporation
loaned $21.6 million, on a short-term basis, to Third Federal. Penns Trail
Development Corporation was incorporated on June 15, 1995 for the purpose of
land related business opportunities. At December 31, 1996, the Company had total
assets of $647.9 million, total deposits of $469.1 million and stockholders'
equity of $72.6 million.
On August 19, 1994, the Board of Directors approved the change in the
Company's fiscal year from June 30 to December 31.
BUSINESS OF THE SAVINGS BANK
Third Federal, originally organized in 1921 as a Pennsylvania-chartered
building and loan association, converted to a federally chartered mutual savings
and loan association in 1935. The Savings Bank's deposits are insured up to the
maximum amount allowable by the FDIC.
The Savings Bank is a community oriented savings institution offering a
variety of financial services to meet the needs of the community it serves. The
Savings Bank significantly expanded its operations throughout Philadelphia and
Bucks Counties, Pennsylvania in June 1992 through its acquisition of Doylestown
Federal Savings and Loan Association ("Doylestown"). On September 20, 1996,
Third Federal acquired three branch offices, certain assets and $143 million of
deposits from Cenlar Federal Savings Bank, Trenton, New Jersey ("Cenlar"). As a
result of the Cenlar acquisition, Third Federal currently operates eleven branch
offices in Bucks and Philadelphia counties, Pennsylvania and three branch
offices in Mercer County, New Jersey. This acquisition was consistent with the
Savings Bank's strategic goal of growing its market share within its market area
and reaching into adjacent market areas, through low-cost, fill-in or
market-extension acquisitions.
The Savings Bank attracts deposits from the general public and uses such
deposits, together with borrowings and other funds, primarily to invest in
mortgage-backed and investment securities and to originate or purchase loans
secured by first mortgages on owner - occupied, one- to four-family residences
in its market area. At December 31, 1996, one- to four-family residential
mortgage loans totaled $265.6 million or 85.8% of the Savings Bank's total loan
portfolio. At that same date, the Savings Bank had approximately $175.8 million
or 27.1% of total assets invested in mortgage-backed securities and $51.0
million or 7.9% of total assets in investment securities. To a lesser extent,
the Savings Bank also originates commercial real estate and multi-family,
construction and consumer loans.
Market Area
Third Federal operated five offices in Philadelphia County and six offices
in Bucks County, Pennsylvania. These two counties cover the city of Philadelphia
and the northeast suburbs of
1
Philadelphia. The population of these two counties total over 2.1 million. The
Savings Bank also operates three branch offices in Mercer County, New Jersey.
The population of Bucks and Mercer Counties, have experienced distinctly
different economic and demographic trends over recent decades. Whereas
Philadelphia County has experienced a population decline and has offered very
limited lending opportunities, Bucks and Mercer Counties, with growing
population, has offered Third Federal much greater lending opportunities.
Competition
Third Federal faces varying degrees of competition from local thrifts and
credit unions at its various branch locations. Stronger competition has come
from local and much larger regional banks based in and around the Philadelphia
area. Commercial banks hold approximately 79% of the deposit market in
Philadelphia County, 69% in Bucks County and 66% in Mercer County. Third
Federal's share of the deposit market in Philadelphia, Bucks and Mercer Counties
is very small, at 0.81%, 1.87% and 1.87%, respectively.
Between 1980 and 1990, Bucks County's population grew approximately 13%,
Mercer County by 9%, while Philadelphia County's population declined by 6%. The
per capita income in Bucks County ($22,548) exceeds those of the U.S. ($18,696),
the State ($18,679), Mercer County ($18,040) and Philadelphia County ($16,721).
The drop in population and the lower per capita income in Philadelphia
County can also be attributed to the loss of well-paying manufacturing jobs as
companies transferred out of the City of Philadelphia and the State. Between
1982 and 1991, the number of employees in goods-producing industries declined
over 14% while those employed in the service industries increased by
approximately 20%.
As of December 31, 1996, there were 47 thrift offices in Bucks County
holding 22.13% of deposits, Commercial Banks had 138 offices and held 68.50% of
deposits; Credit Unions had 18 offices and held 9.37% of deposits; Third
Federal's six offices held 1.87% of the total share.
Lending Activities
General. The Savings Bank's loan portfolio composition consists primarily
of conventional adjustable-rate ("ARM") and fixed-rate first mortgage loans
secured by one- to four-family residences. The Savings Bank also makes
commercial real estate and multi-family loans, construction loans and consumer
and other loans. At December 31, 1996, the Savings Bank's mortgage loans
outstanding were $290.8 million, of which $265.6 million were one- to
four-family residential mortgage loans. Of the one- to four-family residential
mortgage loans outstanding at that date, 28.9% were ARM's and 71.1% were
fixed-rate loans. Total ARM mortgage loans in the Savings Bank's portfolio at
December 31, 1996, amounted to $88.1 million or 30.2% of total mortgage loans.
At that same date, commercial real estate and multi-family residential and
construction loans totalled $20.4 million and $4.7 million, respectively.
Consumer and other loans held by the Savings Bank totalled $21.1 million
or 6.8% of total loans outstanding at December 31, 1996, of which $9.7 million
or 3.1% consisted of home equity and second mortgages. At that same date
commercial business loans, leases and other loans totalled $3.1 million, $3.1
million and $5.2 million, respectively.
2
The following table sets forth the composition of the Savings Bank's loan
portfolio and mortgage-backed and related securities portfolios in dollar
amounts and in percentages of the respective portfolios at the dates indicated.
At December 31, At June 30,
------------------------------------------------------ --------------------------------------------------
1996 1995 1994 1994 1993 1992
----------------- ----------------- ---------------- --------------- ----------------- ---------------
Percent Percent Percent Percent Percent Percent
Amount of Total Amount of Total Amount of Total Amount of Total Amount of Total Amount of Total
----- -------- ------- -------- ------ -------- ------ -------- ------ -------- ------ --------
Mortgage loans:
One- to four-family ....$265,618 85.16% $204,430 85.00% $ 80,862 69.70% $ 85,641 70.40% $104,577 71.52% $120,637 67.58%
Commercial real e
state and multi-
family ............... 20,427 6.55 10,294 4.28 11,285 9.73 12,456 10.24 16,140 11.04 21,932 12.29
Construction ........... 4,720 1.51 3,604 1.50 1,534 1.32 607 0.50 542 0.37 474 0.27
-------- ------- -------- ------ -------- ------ -------- ------ -------- ------ -------- ------
Total mortgage
loan.............. 290,765 93.22 218,328 90.78 93,681 80.75 98,704 81.14 121,259 82.93 143,043 80.14
Consumer and other loans:
Home equity and second
mortgage ............. 9,661 3.10 10,635 4.42 11,663 10.05 11,689 9.61 10,989 7.52 9,885 5.54
Commercial business .... 3,126 1.00 2,887 1.20 3,679 3.17 4,285 3.52 5,980 4.09 16,260 9.11
Leases ................. 3,093 0.99 3,590 1.49 2,194 1.89 2,828 2.33 3,847 2.63 3,488 1.95
Other .................. 5,261 1.69 5,072 2.11 4,796 4.14 4,138 3.40 4,145 2.83 5,821 3.26
-------- ------- -------- ------ -------- ------ -------- ------ -------- ------ -------- ------
Total consumer
and other loans . 21,141 6.78 22,184 9.22 22,332 19.25 22,940 18.86 24,961 17.07 35,454 19.86
-------- ------ -------- ------ -------- ------ -------- ------ -------- ------ -------- ------
Total loans ....... 311,906 100.00% 240,512 100.00% 116,013 100.00% 121,644 100.00% 146,220 100.00% 178,479 100.00%
======== ====== ======== ====== ======== ====== ======== ====== ======== ====== ======== ======
Less:
Unearned discount,
premium, deferred
loan fees, net ....... 530 753 647 748 1,265 1,742
Allowance for loan
losses................ 1,806 1,484 1,473 1,450 1,656 1,800
-------- -------- -------- -------- -------- --------
Total loans, net....$309,570 $238,275 $113,893 $119,446 $143,299 $174,955
======== ======== ======== ======== ======== ========
Mortgage-backed securities
held to maturity:
FHLMC ..................$ 90,016 58.54% $ 65,834 47.76% $ 85,524 47.14% $ 68,526 44.41% $ 54,093 56.44% $ 37,902 49.63%
FNMA ................... 27,547 17.92 33,150 24.05 39,713 21.89 29,201 18.93 6,831 7.13 5,480 7.18
GNMA ................... 6,043 3.93 7,644 5.55 9,358 5.16 9,653 6.26 7,480 7.81 9,517 12.46
Real estate investment
mortgage conduit ..... 29,220 19.00 30,033 21.79 46,603 25.69 46,437 30.10 26,113 27.25 20,178 26.42
Collateralized mortgage
obligations .......... -- -- 19 0.01 213 0.12 471 0.30 1,319 1.37 3,290 4.31
Other mortgage-backed
securities ........... 932 0.61 1,161 0.84 -- -- -- -- -- -- -- --
-------- ------ -------- ------ -------- ------ -------- ------ -------- ------ -------- ------
Total mortgage-backed
and related
securities held to
maturity ...........$153,758 100.00% $137,841 100.00% $181,411 100.00% $154,288 100.00 $ 95,836 100.00% $ 76,367 100.00%
======== ====== ======== ====== ======== ====== ======== ====== ======== ====== ======== ======
Mortgage-backed
securities available
for sale:
FHLMC ................$ 8,905 40.43% $ 15,422 52.03% $ -- --%
FNMA ................. 3,240 14.71 4,010 13.53 -- --
Real estate
investment mortgage
conduit ............ 9,882 44.86 10,208 34.44 -- --
-------- ------ -------- ------ -------- -----
Total ..............$ 22,027 100.00% $ 29,640 100.00% $ -- --%
======== ====== ======== ====== ======== =====
3
The following table sets forth the Savings Bank's loan originations and
loan and mortgage-backed and related securities purchases, sales and principal
payments for the periods indicated:
Six Months
Year Ended Year Ended Ended Year Ended
December 31, December 31, December 31, June 30,
------------ ----------- ----------- --------
1996 1995 1994 1994 1993
------ ------ ------ ------ -----
(In Thousands)
Total loans receivable (gross):
At beginning of period ............................. $240,512 $116,013 $ 121,644 $ 146,220 $ 178,497
Mortgage loans originated:
One- to four-family ............................. 64,643 41,627 811 8,982 13,503
Commercial real estate and multi-family ......... 8,488 -- -- 925 2,729
Construction .................................... 14,465 6,859 -- 1,132 948
--------- --------- --------- --------- ---------
Total mortgage loans originated ............. 87,596 48,486 811 11,039 17,180
Mortgage loans purchased:
One- to four-family ............................. 82,363 94,732 -- 370 --
Other non-residential ........................... 358 -- 2,000 -- --
Total mortgage loans purchased .............. 82,721 94,732 2,000 370 --
--------- --------- --------- --------- ---------
Total mortgage loans originated and purchased...... 170,317 143,218 2,811 11,409 17,180
Consumer loans originated ......................... 4,473 6,611 2,849 4,204 9,675
Transfer of mortgage loans to real estate owned.... (242) (136) (103) (557) (150)
Sale of loans ..................................... (19,591) -- -- (949) --
Loans securitized ................................. (28,212) -- -- -- --
Principal repayments .............................. (55,351) (25,194) (11,188) (38,683) (58,982)
--------- --------- --------- --------- ---------
Total loans receivable at end of period............ $ 311,906 $ 240,512 $ 116,013 $ 121,644 $ 146,220
========= ========= ========= ========= =========
Mortgage-backed securities:
Held to maturity:
At beginning of period ............................ $137,841 $18,411 $154,288 $ 95,836 $ 76,367
Mortgage-backed securities purchased .............. 45,349 10,198 38,014 88,042 44,236
Mortgage-backed securities sold ................... -- -- -- -- --
Transferred to available for sale ................. -- (29,640) -- -- --
Amortization and repayments ....................... (29,432) (24,128) (10,891) (29,590) (24,767)
--------- --------- --------- --------- ---------
At end of period .................................. $ 153,758 $ 137,841 $ 181,411 $ 154,288 $ 95,836
========= ========= ========= ========= =========
Available for sale:
At beginning of period ............................ $ 29,640 $ --
Transferred from held to maturity ................. -- 29,640
Mortgage-backed securities purchased .............. 4,952 --
Mortgage-backed securities sold ................... (8,943) --
Amortization and repayments ....................... (3,622) --
--------- --------
At end of period .................................. $ 22,027 $ 29,640
========= ========
4
Maturity of Loans and Mortgage-backed and Related Securities. The
following table sets forth the maturity of Third Federal's loan and
mortgage-backed securities at December 31, 1996. The table does not include
prepayments or scheduled principal repayments. Prepayments and scheduled
principal repayments on loans totalled $53.6 million, $25.2 million, $11.2
million, $38.7 million and $59.0 million, for the years ended December 31, 1996
and 1995, the six months ended December 31, 1994, and the years ended June 30,
1994 and 1993, respectively. Adjustable-rate mortgage loans are shown as
maturing based on contractual maturities.
Commercial Mortgage-
One- to Real Estate Backed
Four- and Multi- Consumer Total Loans and Related
Family Family Construction and Other Receivable Securities Total
------ -------- ------------ --------- ----------- ---------- -----
(In Thousands)
Non-performing......... $ 922 $ -- $ -- $ 1,050 $ 1,972 $ - $ 1,972
Amounts Due:
Within 3 months........ -- 1,165 11,008 15 12,188 365 12,553
3 months to 1 Year..... 64 551 476 2,288 3,379 7,962 11,341
After 1 year:
1 to 3 years......... 34 199 2,477 1,127 3,837 12,246 16,083
3 to 5 years......... 17,645 1,961 -- 4,293 23,899 17,153 41,052
5 to 10 years........ 45,665 12,175 -- 9,797 67,637 24,690 92,327
10 to 20 years....... 73,834 4,378 -- 2,571 80,783 63,591 144,374
Over 20 years........ 127,454 -- -- -- 127,454 49,778 177,232
Total due after one year 264,632 18,713 2,477 17,788 303,610 167,458 471,068
Total amounts due...... 265,618 20,429 13,961 21,141 321,149 175,785 496,934
Less:
Allowance for loan loss 1,330 102 24 350 1,806 -- 1,806
Loans in process....... -- 2 9,241 -- 9,243 -- 9,243
Deferred loan fees..... 521 -- -- 9 530 -- 530
------- ------- ------ ------- -------- -------- --------
Total.............. $263,767 $ 20,325 $ 4,696 $ 20,782 $ 309,570 $ 175,785 $ 485,355
======= ======= ====== ======= ======== ======== ========
5
The following table sets forth the dollar amount of all loans due after
December 31, 1997, which have predetermined interest rates and which have
floating or adjustable interest rates.
Fixed Floating or
Rates Adjustable Rates Total
----- ---------------- -----
(In Thousands)
One- to four-family ................... $187,790 $ 76,830 $264,620
Commercial real estate and multi-family 12,055 6,416 18,471
Construction .......................... -- 2,477 2,477
Consumer and other .................... 10,429 6,959 17,388
-------- -------- --------
Total ............................... $210,274 $ 92,682 $302,956
======== ======== ========
One- to Four-Family Mortgage Loans. The Savings Bank offers first mortgage
loans secured by one- to four-family residences in the Savings Bank's lending
area. Typically, such residences are single-family homes that serve as the
primary residence of the owner. The Savings Bank generally originates and
invests in one- to four-family residential mortgage loans in amounts up to 80%
of the lesser of the appraised value or selling price of the mortgaged property.
Loans originated in amounts over 80% of the lesser of the appraised value or
selling price of the mortgaged property, other than loans to facilitate the sale
of real estate acquired through foreclosure, must be owner-occupied and private
mortgage insurance must be provided on the amount in excess of 80%.
Loan originations are generally obtained from existing or past customers,
members of the local community, and referrals from established builders and
realtors within the Savings Bank's lending area. Mortgage loans originated and
held by the Savings Bank in its portfolio generally include due-on sale clauses
which provide the Savings Bank with the contractual right to deem the loan
immediately due and payable in the event that the borrower transfers ownership
of the property without the Savings Bank's consent.
At December 31, 1996, 91.3% of mortgage loans consisted of one- to
four-family residential loans, of which 28.9% were ARM loans. The Savings Bank
has historically not originated a large amount of ARM loans. The Savings Bank
acquired $55.5 million or 96.9% of its ARM loans when it merged with Doylestown
in June 1992.
The Savings Bank offers a variety of ARM loans with terms of 30 years
which adjust at the end of 6 months, one, three, five, seven and ten years and
adjust by a maximum of 1 to 2 % per adjustment with a lifetime cap of 5 to 6%
over the life of the loan. The ARM loans acquired as a result of the Doylestown
merger adjust at the end of one or three years and adjust by a maximum of 2.00%
per adjustment with a lifetime cap of 5.00% over the life of the loan
The Savings Bank offers fixed-rate mortgage loans with terms of 10 to 30
years, which are payable monthly. The Savings Bank has continued its emphasis on
fixed-rate mortgage loans with terms of 15 years or less. Interest rates charged
on fixed-rate mortgage loans are competitively priced based on market conditions
and the Savings Bank's cost of funds. The origination fees for fixed-rate loans
were generally 3.0% at December 31, 1996. Generally, the Savings Bank's standard
underwriting guideline for fixed-rate mortgage loans conform to the FHLMC and
FNMA guidelines and may be sold in the secondary market. The Savings Bank has in
the past sold a portion of its conforming fixed-rate mortgage loans in the
secondary market to federal agencies while retaining the servicing rights on all
such loans. The Savings Bank, however, is primarily a portfolio lender. As of
December 31, 1996, the Savings Bank's portfolio of loans serviced for others
totalled approximately $72.4 million.
6
Commercial Real Estate and Multi-Family Loans. The Savings Bank has
historically originated a limited number of loans secured by commercial real
estate including non-owner occupied residential multi-family dwelling units
(more than four units) primarily secured by professional office buildings and
apartment complexes. In June, 1992, the Savings Bank acquired by merger, the
assets and liabilities of Doylestown, which included $8.9 million in commercial
real estate and multi-family loans. At December 31, 1996, $20.4 million, or 6.6%
of the Savings Bank's total loan portfolio was secured by commercial real estate
located primarily in the Savings Bank's primary market area.
The Savings Bank generally originates commercial real estate and
multi-family loans up to 75% of the appraised value of the property securing the
loan. Currently, it is the Savings Bank's philosophy to originate commercial
real estate and multi-family loans only to borrowers known to the Savings Bank
and on properties in its market area. The commercial real estate and
multi-family loans in the Savings Bank's portfolio consist of fixed-rate, ARM
and balloon loans which were originated at prevailing market rates for terms of
up to 20 years. The Savings Bank's current policy is to originate commercial
real estate and multi-family loans as ARM's that are generally amortized over a
period of 15 years or as balloon loans which generally have terms of 5 to 10
years, with 20-25 year amortizations.
Loans secured by commercial and multi-family real estate are generally
larger and involve a greater degree of risk than one- to four-family residential
mortgage loans. Of primary concern in commercial and multi-family real estate
lending is the borrower's creditworthiness and the feasibility and cash flow
potential of the project. Loans secured by income properties are generally
larger and involve greater risks than residential mortgage loans because
payments on loans secured by income properties are often dependent on successful
operation or management of the properties. As a result, repayment of such loans
may be subject to a greater extent than residential real estate loans to adverse
conditions in the real estate market or the economy. In order to monitor cash
flows on income properties, the Savings Bank requires borrowers and loan
guarantors, if any, to provide annual financial statements and rent rolls on
multi-family loans. At December 31, 1996, the five largest commercial real
estate and multi-family loans totalled $8.4 million with no single loan larger
than $2.2 million. At December 31, 1996, all such loans were current and the
properties securing such loans are in the Savings Bank's market area.
Construction Loans. At December 31, 1996, the Savings Bank had $4.7
million of construction loans or 1.5% of the Savings Bank's total loan
portfolio. Construction financing is generally considered to involve a higher
degree of risk of loss than long-term financing on improved, occupied real
estate. Risk of loss on a construction loan is dependent largely upon the
accuracy of the initial estimate of the property's value at completion of
construction or development and the estimated cost (including interest) of
construction. During the construction phase, a number of factors could result in
delays and cost overruns. If the estimate of construction costs proves to be
inaccurate, the Savings Bank may be required to advance funds beyond the amount
originally committed to permit completion of the development. If the estimate of
value proves to be inaccurate, the Savings Bank may be confronted, at or prior
to the maturity of the loan, with a project having a value which is insufficient
to assure full repayment.
Consumer and Other Loans. The Savings Bank also offers consumer and other
loans in the form of home equity and second mortgage loans (referred to
hereinafter collectively as "second mortgage loans"), commercial business loans,
automobile loans and student loans. These loans totalled $21.1 million or 6.8%
of the Savings Bank's total loan portfolio at December 31, 1996. Federal
regulations permit federally chartered thrift institutions to make secured and
unsecured consumer loans up to 35% of an institution's assets. In addition, a
federal thrift has lending authority above the 35% category for certain consumer
loans, property improvement loans, and loans secured by savings accounts. The
Savings Bank originates consumer loans in order to provide a wide range of
financial services to its
7
customers and because the shorter terms and normally higher interest rates on
such loans help maintain a profitable spread between its average loan yield and
its cost of funds.
In connection with consumer loan applications, the Savings Bank verifies
the borrower's income and reviews a credit bureau report. In addition, the
relationship of the loan to the value of the collateral is considered. All
automobile loan applications are reviewed and approved by the Savings Bank. The
Savings Bank reviews the credit report of the borrower as well as the value of
the unit which secures the loan.
The Savings Bank intends to continue to emphasize the origination of
consumer loans. Consumer loans tend to be originated at higher interest rates
than conventional residential mortgage loans and for shorter terms which
benefits the Savings Bank's interest rate gap management. Consumer loans,
however, tend to have a higher risk of default than residential mortgage loans.
At December 31, 1996, the Savings Bank had $475,040 in consumer loans delinquent
more than 90 days.
Federal thrift institutions are permitted to make secured or unsecured
loans for commercial, corporate, business or agricultural purposes, including
the issuance of letters of credit secured by real estate, business equipment,
inventories, accounts receivable and cash equivalents. The aggregate amount of
such loans outstanding may not exceed 10% of such institution's assets.
The Savings Bank offers second mortgage loans on one- to four-family
residences. At December 31, 1996, second mortgage and home equity loans totalled
$9.7 million, or 3.1% of the Savings Bank's total loan portfolio. Second
mortgage loans are offered as fixed-rate loans for a term not to exceed 15
years. Such loans are only made on owner-occupied one- to four-family residences
and are subject to a 75% combined loan to value ratio. The underwriting
standards for second mortgage loans are the same as the Savings Bank's standards
applicable to one- to four-family residential loans.
The Savings Bank makes commercial business loans on a secured basis and
generally requires additional collateral consisting of real estate. The terms of
such loans generally do not exceed five years. The majority of these loans have
floating interest rates which adjust with changes in market driven indices. The
Savings Bank's commercial business loans primarily consist of short-term loans
for equipment, working capital, business expansion and inventory financing. The
Savings Bank customarily requires a personal guaranty of payment by the
principals of any borrowing entity and reviews the financial statements and
income tax returns of the guarantors. At December 31, 1996, the Savings Bank had
approximately $3.1 million outstanding in commercial business loans, which
represented approximately 1.0% of its total loan portfolio.
Loan Approval Authority and Underwriting. All loans must be approved by
either two or more loan officers specifically designated by the Board of
Directors or by the Board of Directors, depending on the amount and type of
loan. Any two designated underwriters may approve loans on one- to four-family
residences, not to exceed FHLMC and FNMA conforming single-family limits, which
at December 31, 1996, was $214,600 or consumer loans up to $100,000 providing
the loan meets all of the Savings Bank's underwriting guidelines for consumer
loans. All other loans up to $500,000 must be approved by the Loan Committee.
All loans that exceed $500,000 must be submitted to the Board of Directors for
approval.
One- to four-family residential mortgage loans are generally underwritten
according to FHLMC and FNMA guidelines. For all loans originated by the Savings
Bank, upon receipt of a completed loan application from a prospective borrower,
a credit report is ordered, income and certain other information is verified
and, if necessary, additional financial information is requested. An appraisal
of the real estate
8
intended to secure the proposed loan is required which currently is performed by
an independent appraiser designated and approved by the Savings Bank. The
Savings Bank makes construction/permanent loans on individual properties. Funds
advanced during the construction phase are held in a loan-in-process account and
disbursed based upon various stages of completion. The independent appraiser or
loan officer determines the stage of completion based upon its physical
inspection of the construction. It is the Savings Bank's policy to obtain title
insurance or a title opinion on all real estate first mortgage loans. Borrowers
must also obtain hazard or flood insurance (for loans on property located in a
flood zone) prior to closing the loan. For loans in excess of 80% of the loan to
value ratio, borrowers are generally required to advance funds on a monthly
basis together with each payment of principal and interest to an escrow account
from which the Savings Bank makes disbursements for items such as real estate
taxes and hazard insurance premiums.
Loans-to-One Borrower. Current regulations limit loans-to-one borrower in
an amount equal to 15% of unimpaired capital and retained income on an unsecured
basis and an additional amount equal to 10% of unimpaired capital and retained
income if the loan is secured by readily marketable collateral (generally,
financial instruments, not real estate) or $500,000, whichever is higher.
Penalties for violations of the loan-to-one borrower statutory and regulatory
restrictions include cease and desist orders, the imposition of a supervisory
agreement and civil money penalties. The Savings Bank's maximum loan- to-one
borrower limit was approximately $8.4 million as of December 31, 1996.
At December 31, 1996, the Savings Bank's five largest aggregate lending
relationships had balances ranging from $2.2 to $6.3 million. At December 31,
1996, all of these loans were current.
Mortgage-Backed Securities
To supplement lending activities, Third Federal invests in residential
mortgage-backed securities. Although the majority of such securities are held
for investment, they can serve as collateral for borrowings and, through
repayments, as a source of liquidity.
The mortgage-backed securities portfolio as of December 31, 1996,
consisted primarily of fixed-rate certificates issued by the Federal Home Loan
Mortgage Corporation ("FHLMC") ($98.9 million), Government National Mortgage
Association ("GNMA"), ($6.0 million) Federal National Mortgage Association
("FNMA") ($30.8 million), real estate investment mortgage conduit ("REMICs")
($39.1 million), collateralized mortgage obligations ("CMOs") ($0) and other
mortgage-backed securities ($.9
million).
At December 31, 1996, the carrying value of mortgage-backed securities
totalled $175.8 million, or 27.1% of total assets. The market value of such
securities totalled approximately $175.3 million at December 31, 1996.
Mortgage-backed securities represent a participation interest in a pool of
single-family or multi-family mortgages, the principal and interest payments on
which are passed from the mortgage originators, through intermediaries
(generally quasi-governmental agencies) that pool and repackage the
participation interests in the form of securities, to investors such as the
Savings Bank. Such quasi-governmental agencies, which guarantee the payment of
principal and interest to investors, primarily include FHLMC, FNMA and GNMA.
FHLMC issues participation certificates backed principally by conventional
mortgage loans. FHLMC guarantees the timely payment of interest and the ultimate
return of principal within one year. FHLMC securities are indirect obligations
of the United States Government. FNMA is a private
9
corporation chartered by Congress with a mandate to establish a secondary market
for conventional mortgage loans. FNMA guarantees the timely payment of principal
and interest, and FNMA securities are indirect obligations of the United States
Government. GNMA is a government agency within the Department of Housing and
Urban Development ("HUD") which is intended to help finance government assisted
housing programs. GNMA guarantees the timely payment of principal and interest,
and GNMA securities are backed by the full faith and credit of the United States
Government. Since FHLMC, FNMA and GNMA were established to provide support for
low- and middle-income housing, there are limits to the maximum size of loans
that qualify for these programs. Currently, GNMA limits its maximum loan size to
$144,000 for Veterans Administration ("VA") loans and on average $137,750 for
Federal Housing Authority ("FHA") loans. FNMA and FHLMC limit their loans to
$214,600. To accommodate larger-sized loans, and loans that, for other reasons,
do not conform to the agency programs, a number of private institutions have
established their own home-loan origination and securitization programs.
Mortgage-backed securities typically are issued with stated principal
amounts, and the securities are backed by pools of mortgages that have loans
with interest rates that are within a range and have varying maturities. The
underlying pool of mortgages are primarily composed of either fixed-rate
mortgages or adjustable-rate mortgage ("ARM") loans. Mortgage-backed securities
are generally referred to as mortgage participation certificates or pass-through
certificates. As a result, the interest rate risk characteristics of the
underlying pool of mortgages, i.e., fixed-rate or adjustable-rate, as well as
prepayment risk, are passed on to the certificate holder. The life of a
mortgage-backed pass-through security is equal to the life of the underlying
mortgages. Mortgage-backed securities issued by FHLMC, FNMA and GNMA make up a
majority of the pass-through market.
CMOs and REMICs are typically issued by a special-purpose entity (the
"issuer"), which may be organized in a variety of legal forms, such as a trust,
a corporation, or a partnership. The entity aggregates pools of pass-through
securities, which are used to collateralize the mortgage related securities.
Once combined, the cash flows can be divided into "tranches" or "classes" of
individual securities, thereby creating more predictable average durations for
each security than the underlying pass-through pools. Accordingly, under this
security they structure all principal pay downs from the various mortgage pools
are allocated to a mortgage-related class or classes structured to have priority
until it has been paid off. Thus these securities are intended to address the
reinvestment concerns associated with mortgage-backed securities pass-through,
namely that (i) they tend to pay off when interest rates fall, thereby taking
their relatively high coupon with them, and (ii) their expected average life may
vary significantly among the different tranches.
Some CMO and REMIC instruments are most like traditional debt instruments
because they have stated principal amounts and traditionally defined
interest-rate terms. Purchasers of certain other CMO and REMIC instruments are
entitled to the excess, if any, of the issuer's cash inflows, including
reinvestment earnings, over the cash outflows for debt service and
administrative expenses. These mortgage related instruments may include
instruments designated as residual interests, and are riskier in that they could
result in the loss of a portion of the original investment. Cash flows from
residual interests are very sensitive to prepayments and, thus, contain a high
degree of interest-rate risk. Residual interests represent an ownership interest
in the underlying collateral, subject to the first lien of the CMO and REMICs
investors.
The CMOs and REMICs held by the Savings Bank at December 31, 1996,
consisted solely of fixed-rate notes and adjustable-rate notes with contractual
maturities ranging from 1 to 27 years. The portfolio of CMOs and REMICs held
within the Savings Bank's mortgage-backed securities portfolio at December 31,
1996, did not include any residual interests. Further, at December 31, 1996, the
Savings
10
Bank's mortgage-backed securities portfolio did not include any "stripped" CMOs
and REMICs, i.e. CMOs and REMICs that pay interest only and do not repay
principal or CMOs that repay principal only and do not pay interest.
The following table sets forth the carrying value of the Savings Bank's
mortgage-backed securities held in portfolio at the dates indicated.
At December 31, At June 30,
----------------------------------- ---------------------
1996 1995 1994 1994 1993
---------- ---------- ----------- --------- ---------
(In Thousands)
Held for Investment:
GNMA-fixed rate........... $ 6,043 $ 7,644 $ 9,358 $ 9,653 $ 7,480
-------- -------- -------- -------- -------
FHLMC ARMs................ 364 407 496 522 591
FHLMC-fixed rate.......... 89,652 65,427 85,028 68,004 53,501
FNMA-fixed rate........... 27,547 33,150 39,713 29,201 6,831
CMOs...................... -- 19 213 471 1,320
Remics.................... 29,220 30,033 46,603 46,437 26,113
Other mortgage-backed
securities.............. 932 1,161 -- -- --
-------- -------- -------- -------- -------
Total mortgage-backed
securities.............. $153,758 $137,841 $181,411 $154,288 $95,836
======== ======== ======== ======== =======
Mortgage-backed Securities
Available for Sale:
FHLMC $ 8,905 $ 15,422 $ -- $ -- $ --
FNMA 3,240 4,010 -- -- --
Remics.................... 9,882 10,208 -- -- --
-------- -------- -------- -------- -------
Total mortgage-backed
securities available
for sale.............. $ 22,027 $ 29,640 $ -- $ -- $ --
======== ======== ======== ======== =======
Mortgage-Backed Securities Maturity. The following table sets forth the
maturity and the weighted average coupon ("WAC") of the Savings Bank's
mortgage-backed securities portfolio at December 31, 1996. The table does not
include estimated prepayments. Adjustable-rate mortgage-backed securities are
shown as maturing based on contractual maturities.
Contractural
Contractual Available For
Held to Sale
Maturities Due WAC Maturities Due WAC
-------------- --- -------------- ----
(Dollars In Thousands)
Less than 1 year......... $ 8,327 6.08% $ -- --%
1 to 3 years............. 11,150 6.54 1,097 6.00
3 to 5 years............. 15,282 6.70 1,871 6.00
5 to 10 years............ 18,592 6.95 6,098 6.42
10 to 20 years........... 58,869 7.21 4,721 6.46
Over 20 years............ 41,538 7.03 8,240 7.25
------- ---- ------ ------
Total mortgage-backed
securities............. $153,758 6.97% $ 22,027 6.68%
======= ==== ======= =====
Non-Performing and Problem Assets
Loan Collection. When a borrower fails to make a required payment on a
loan, the Savings Bank takes a number of steps to have the borrower cure the
delinquency and restore the loan to current status. In the case of residential
mortgage loans and consumer loans, the Savings Bank generally sends the borrower
a written notice of non-payment after the loan is 15 days past due. In the event
payment is not then received, additional letters and phone calls are made. If
the loan is still not brought current
11
and it becomes necessary for the Savings Bank to take legal action, which
typically occurs after a loan is delinquent 90 days or more, the Savings Bank
will commence foreclosure proceedings against any real property that secures the
loan and attempt to repossess any personal property that secures a consumer
loan. If a foreclosure action is instituted and the loan is not brought current,
paid in full, or refinanced before the foreclosure sale, the real property
securing the loan generally is sold at foreclosure.
In the case of commercial real estate and multi-family loans, and
construction loans, the Savings Bank generally attempts to contact the borrower
by telephone after any loan payment is ten days past due and a senior loan
officer reviews all collection efforts made if payment is not received after the
loan is 30 days past due. Decisions as to when to commence foreclosure actions
for commercial real estate and multi-family loans and construction loans are
made on a case by case basis. The Savings Bank may consider loan work-out
arrangements with these types of borrowers in certain circumstances.
On mortgage loans or loan participations purchased by the Savings Bank,
the Savings Bank receives monthly reports from its loan servicers with which it
monitors the loan portfolio. Based upon servicing agreements with the servicers
of the loan, the Savings Bank relies upon the servicer to contact delinquent
borrowers, collect delinquent amounts and to initiate foreclosure proceedings,
when necessary, all in accordance with applicable laws, regulations and the
terms of the servicing agreements between the Savings Bank and its servicing
agents.
Delinquent Loans. Generally, the Savings Bank reserves for uncollected
interest on loans past due 90 days or more. Loans also are placed on a
nonaccrual status when, in the judgment of management, the probability of
collection of interest is deemed to be insufficient to warrant further
collection. When a loan is placed on nonaccrual status, previously accrued but
unpaid interest is deducted from interest income.
12
Non-Performing Assets. The following table sets forth information
regarding non-accrual loans and real estate owned by the Savings Bank at the
dates indicated. The Savings Bank had no loans contractually past due 90 days or
more or for which accrued interest has been recorded. At December 31, 1996, the
Savings Bank had no restructured loans within the meaning of FASB Statement 15.
At December 31, At June 30,
---------------------------------- --------------
1996 1995 1994 1994 1993 1992
----- ----- ----- ---- ---- ----
(Dollars in Thousands)
Loans accounted for on a non-accrual basis:
Mortgage loans:
One- to four-family ..................... $ 922 $ 999 $ 928 $1,041 $1,782 $2,000
Commercial real estate and multi-famil... -- 28 119 120 994 558
Construction loans ...................... -- -- -- -- -- 314
Consumer and other ........................ 1,050 776 639 552 685 1,464
------ ------ ------ ------ ------ ------
Total non-accrual loans ................ $1,972 $1,803 $1,686 $1,713 $3,461 $4,336
====== ====== ====== ====== ====== ======
Real estate owned, net .................... $ 112 $ 129 $ 139 $ 376 $1,687 $4,245
Other non-performing assets(1) ............ -- -- -- -- 609 --
------ ------ ------ ------ ------ ------
Total non-performing assets ............... $2,084 $1,932 $1,825 $2,089 $5,757 $8,581
====== ====== ====== ====== ====== ======
Total non-accrual to net loans ............ 0.64% 0.76% 1.48% 1.43% 2.42% 2.48%
====== ====== ====== ====== ====== ======
Total non-accrual loans to total assets.... 0.30% 0.37% 0.39% 0.39% 0.89% 1.20%
====== ====== ====== ====== ====== ======
Total non-performing assets to total assets 0.32% 0.39% 0.42% 0.48% 1.48% 2.37%
====== ====== ====== ====== ====== ======
- - ----------------
(1) Other non-performing assets consists of Third Federal's investment in an
administrative building for all dates presented. Such building was sold
subsequent to December 31, 1993.
At December 31, 1996, the Company had no foreign loans and no loan
concentrations exceeding 10% of total loans not disclosed in above the table.
"Loan concentrations" are considered to exist when there are amounts loaned to a
multiple number of borrowers engaged in similar activities that would cause them
to be similarly impacted by economic or other conditions. Loans recorded in the
category of other real estate owned are valued at the lower of book value of
loans outstanding or fair market value less cost of disposal.
At December 31, 1996, the Company was not aware of any potential problem
loans that are not otherwise included in the foregoing table. "Potential problem
loans" are loans where information about possible credit problems of borrowers
has caused management to have serious doubts about the borrowers' ability to
comply with present repayment terms.
Classified Assets. OTS regulations provide for a classification system for
problem assets of insured institutions which covers all problem assets. Under
this classification system, problem assets of insured institutions are
classified as "substandard," "doubtful," or "loss." An asset is considered
"substandard" if it is inadequately protected by the current net worth and
paying capacity of the obligor or of the collateral pledged, if any.
"Substandard" assets include those characterized by the "distinct possibility"
that the insured institution will sustain "some loss" if the deficiencies are
not corrected. Assets classified as "doubtful" have all of the weaknesses
inherent in those classified "substandard," with the added characteristic that
the weaknesses present make "collection or liquidation in full," on the basis of
currently existing facts, conditions and values, "highly questionable and
improbable." Assets classified as "loss" are those considered "uncollectible"
and of such little value that their continuance as assets without the
establishment of a specific loss reserve is not warranted. Assets designated
"special mention"
13
by management are assets included on the Savings Bank's internal watchlist
because of potential weakness but that do not currently warrant classification
in one of the aforementioned categories.
When an insured institution classifies problem assets as either
substandard or doubtful, it may establish general allowances for loan losses in
an amount deemed prudent by management. General allowances represent loss
allowances which have been established to recognize the inherent risk associated
with lending activities, but which, unlike specific allowances, have not been
allocated to particular problem assets. When an insured institution classifies
problem assets as "loss," it is required either to establish a specific
allowance for losses equal to 100% of that portion of the asset so classified or
to charge off such amount. An institution's determination as to the
classification of its assets and the amount of its valuation allowances is
subject to review by the OTS, which may order the establishment of additional
general or specific loss allowances. A portion of general loss allowances
established to cover possible losses related to assets classified as substandard
or doubtful may be included in determining an institution's regulatory capital,
while specific valuation allowances for loan losses generally do not qualify as
regulatory capital.
The following table provides further information in regard to the Savings
Bank's classified assets as of December 31, 1996.
At
December 31,
1996
------------
(In Thousands)
Special mention assets...... $ --
Substandard................. 2,804
Doubtful assets............. 108
Loss ....................... --
----------
Total classified assets.. $ 2,912
==========
- - ---------------------
(1) Substandard assets include approximately $816,000 of performing assets that
are less than 90 days delinquent, that are classified for reasons other
than delinquency.
Real Estate Owned. Real estate acquired by the Savings Bank as a result of
foreclosure, judgment or by deed in lieu of foreclosure is classified as real
estate owned ("REO") until it is sold. When property is acquired it is recorded
at the lower of fair value, minus estimated cost to sell, or cost.
The Savings Bank records loans as in substance foreclosures if the
borrower has little or no equity in the property based upon its documented
current fair value and if the borrower has effectively abandoned control of the
collateral or has continued to retain control of the collateral but because of
the current financial status of the borrower it is doubtful the borrower will be
able to repay the loan in the foreseeable future. In substance foreclosures are
accounted for as loans until such time that title to the collateral is acquired
by the Savings Bank. There may be significant other expenses incurred such as
attorney and other extraordinary servicing costs involved with in substance
foreclosures.
Allowances for Loan Losses and Real Estate Acquired in Settlement of
Loans. The Savings Bank provides valuation allowances for estimated losses from
uncollectible loans and real estate acquired in settlement of loans.
Management's periodic evaluation of the adequacy of the allowance for loan
losses
14
is based on loss experience, known and inherent risk in the portfolio,
prevailing market conditions, and management's judgment as to collectibility.
The Savings Bank's determination as to the amount of its allowance for loan
losses is subject to review of the federal regulatory agencies, the OTS and
FDIC, which can order the establishment of additional general or specific loan
loss reserves. The allowance for loan losses is increased by charges to earnings
and decreased by charge-offs (net of recoveries). The Savings Bank provides
valuation allowances for losses on real estate acquired in settlement of loans
based on the lower of fair value, minus estimated cost to sell, or cost.
The allowance for loan losses is established through a provision for loan
losses based on management's evaluation of the risk inherent in its loan
portfolio and the general economy. Such evaluation, which includes a review of
all loans on which full collectibility may not be reasonably assured, considers
among other matters, the estimated fair value of the underlying collateral,
economic conditions, historical loan loss experience and other factors that
warrant recognition in providing for an adequate loan loss allowance.
15
The following table sets forth information with respect to the Savings
Bank's allowance for loan losses at the dates and for the periods indicated:
For the Years Ended For the Six Months For the Year Ended
December 31, Ended December 31, June 30,
----------------- ------------------ ----------------
1996 1995 1994 1994 1993 1992
---- ---- ---- ---- ---- ----
(Dollars In Thousands)
Balance at beginning of period $ 1,484 $ 1,473 $ 1,450 $ 1,656 $ 1,800 $ 1,730
Provision for loan losses ......... 330 72 30 (144) 48 1,263
Charge-offs:
One- to four-family ............. -- (48) -- -- -- --
Commercial and multi-family
real estate loans ............... -- -- -- (31) (380) (684)
Consumer and other loans(1) ..... (8) (13) (7) (31) (300) (679)
Recoveries:
Commercial and multi-family
real estate loans ............... -- -- -- -- 413 75
Consumer and other loans(1) ..... -- -- -- -- 75 95
------- ------- ------- ------- ------- -------
Balance at end of year(2) ......... $ 1,806 $ 1,484 $ 1,473 $ 1,450 $ 1,656 $ 1,800
======= ======= ======= ======= ======= =======
Ratio of net charge-offs during
the period to average loans
outstanding during the period.... 0.003% 0.04% 0.01% .04% .12% .57%
Ratio of allowance for loan
losses to non-performing
loans at the end of the period... 91.58% 82.3% 87.3% 84.6% 47.8% 41.5%
Ratio of allowance for loan
losses to net loans receivable
at the end of period ............ 0.58% 0.62% 1.3% 1.2% 1.2% 1%
Ratio of allowances for loan
losses and foreclosed real
estate to total non-performing
assets at the end of period...... 92.03% 76.8% 81.3% 69.4% 29.5% 30.8%
- - ---------------
(1) Consumer and other loan charge-offs for all periods presented are almost
solely comprised of commercial business loan losses.
(2) Third Federal had not incurred any material charge-offs or received any
material recoveries on the one-to four-family and consumer loan portfolios
for any of the periods presented.
16
The following table sets forth the allocation of the Savings Bank's
allowance for loan losses by loan category and the percent of loans in each
category to total loans receivable, gross, at the dates indicated. The portion
of the loan loss allowance allocated to each loan category does not represent
the total available for future losses which may occur within the loan category
since the total loan loss allowance is a valuation reserve applicable to the
entire loan portfolio.
At December 31, At June 30,
----------------------------------------------------- ---------------------------------------------------
1996 1995 1994 1994 1993 1992
---------------- ---------------- ------------------ ---------------- --------------- -----------------
Percent Percent Percent Percent Percent Percent
of Loans of Loans of Loans of Loans of Loans of Loans
to Total to Total to Total to Total to Total to Total
Amount Loans Amount Loans Amount Loans Amount Loans Amount Loans Amount Loans
------ ------- ------- -------- ------ ------- ------ ------- ------ ------ ------ ------
(Dollars in thousands)
At end of period
allocated to:
One- to four-
family........... $ 1,330 73.7% $1,042 85.1% $ 990 67.2% $ 958 70.4% $ 788 72.0% $ 793 67.5%
------- ----- ------ ---- ----- ---- ------ ---- ------ ---- ------ ----
Commercial real
estate and
multi-family..... 102 5.7 46 4.1 134 9.1 132 10.2 422 10.9 425 12.3
Construction...... 24 1.3 24 1.6 8 0.5 12 0.5 2 0.4 2 0.3
Consumer and
other loans..... 350 19.3 372 9.2 341 23.2 348 18.9 490 17.1 580 19.9
------- ----- ------ ---- ----- ---- ------ ---- ------ ---- ------ ----
Total allowance... $ 1,806 100.0% $1,484 100.0% $1,473 100.0% $1,450 100.0% $1,656 100.0% $1,800 100.0%
17
Analysis of the Allowance for Real Estate Owned
At December 31, At June 30,
----------------------- ---------------
1996 1995 1994 1994 1993
---- ---- ---- ---- ----
(Dollars in thousands)
Total real estate owned and in
judgment, net............ $116 $129 $139 $376 $1,687
==== ==== ==== ==== ======
Allowance balances - beginning $ -- $ 11 $ -- $ 40 $ 846
Provision.................. 3 2 11 1 8
Charge-offs................ -- (13) -- (41) (814)
---- ---- ---- ---- ------
Allowance balances - ending $ 3 $ -- $ 11 $ -- $ 40
==== ==== ==== ==== ======
Allowance for losses on real
estate owned and in judgment
to net real estate owned and in
judgment................... 2.5% --% 7.9% --% 2.4%
==== ==== ==== ==== ======
Investment Activities
The investment policy of the Savings Bank, which is established by the
Board of Directors and implemented by the Asset Liability Committee, is designed
primarily to provide and maintain liquidity, to generate a favorable return on
investments without incurring undue interest rate and credit risk, and to
complement the Savings Bank's lending activities. In establishing its investment
strategies, the Savings Bank considers its business and growth plans, the
economic environment, the types of securities to be held and other factors.
Federally chartered savings institutions have the authority to invest in various
types of assets, including U.S. Treasury obligations, securities of various
federal agencies, certain certificates of deposit of insured banks and savings
institutions, certain bankers acceptances, repurchase agreements, loans on
federal funds, and, subject to certain limits, commercial paper and mutual
funds.
OTS guidelines regarding investment portfolio policy and accounting
require insured institutions to categorize securities and certain other assets
as held for "investment," "sale," or "trading." The Savings Bank's investment
policy has policies and strategies for each type of security. The portion of the
investment securities portfolio which is held with the intent to hold to
maturity is accounted for on an amortized cost basis. At December 31, 1996, the
Savings Bank had $38.5 million in securities held for investment consisting of
interest-earning deposits due in three months or less, U.S. government and
agency obligations. Securities which are categorized as available for sale are
carried at the lower of historical cost or market value. At December 31, 1996,
the Savings Bank had securities available for sale consisting of U.S. government
and agency securities and mutual funds which had a market and book value of
$12.7 million. The Savings Bank does not engage in security trading and
therefore had no securities in a trading account at December 31, 1996.
18
The following table sets forth certain information regarding the amortized
cost and market values of the Savings Bank's investments at the dates indicated.
At December 31, At June 30,
-------------------------------------------------------------- ----------------------------------------
1996 1995 1994 1994 1993
------------------- ------------------- -------------------- -------------------- ------------------
Amortized Market Amortized Market Amortized Market Amortized Market Amortized Market
Cost Value Cost Value Cost Value Cost Value Cost Value
--------- -------- --------- --------- --------- -------- --------- -------- ---------- ------
(In Thousands)
Interest-earning deposits $ 38,120 $ 38,120 $15,606 $15,606 $31,898 $31,898 $ 68,733 $ 68,733 $ 51,426 $ 51,426
======= ======= ====== ====== ====== ====== ======= ======= ======= =======
Investment securities
held to maturity:
U.S. Government and
agency obligations... $34,976 $34,854 $14,475 $14,739 $23,466 $22,558 $ 9,470 $ 8,957 $ 48,210 $ 48,546
State and political
subdivisions.......... 3,068 3,040 3,140 3,139 3,219 3,080 3,216 3,140 3,862 3,939
Corporate Debt Securities 500 499 6,025 6,002 9,846 9,634 13,173 13,140 20,055 20,477
------- ------- ------- ------- ------- ------- -------- -------- -------- --------
Total............... $38,544 $38,393 $23,640 $23,880 $36,531 $35,272 $ 25,859 $ 25,237 $ 72,137 $ 73,039
======= ======= ======= ======= ======= ======= ======== ======== ======== ========
Securities available for
sale(1):
U.S. Government and
agency obligations... $11,976 $12,015 $14,489 $14,448 $41,460 $40,466 $40,454 $39,765 $ -- $ --
Equity Securities
(SLMA Stock).......... 10 139 10 98 64 50 10 59 10 77
------- ------- ------- ------- ------- ------- -------- -------- -------- --------
Mutual funds.......... 500 498 500 498 447 486 500 492 -- --
------- ------- ------- ------- ------- ------- -------- -------- -------- --------
Total............... $12,486 $12,652 $14,999 $15,044 $41,971 $41,002 $ 40,964 $ 40,316 $ -- $ --
======= ======= ======= ======= ======= ======= ======== ======== ====== ======
- - -------------------
(1) Securities designated as held for sale at June 30, 1994.
19
Investment Portfolio Maturities
The following table sets forth certain information regarding the carrying
values, weighted average yields and maturities of the Savings Bank's investment
securities portfolio, exclusive of interest-earning deposits, at December 31,
1996.
Total
One Year or Less One to Five Years Five to Ten Years More than Ten Years Investment Securities(2)
------------------ ------------------ ----------------- ------------------- ---------------------------
Carrying Average Carrying Average Carrying Average Carrying Average Carrying Average Market
Value Yield Value Yield Value Yield Value Yield Value Yield Value
----- ----- ----- ----- ----- ----- ----- ----- ----- ----- -----
(Dollars in Thousands)
U.S. Government
Obligation............ $ 6,010 5.75% $ 4,005 6.32% $ -- --% $ -- --% $ 10,015 5.98% $ 10,015
U. S. Agency Obligations 12,113 5.41 9,235 6.31 13,767 6.97 2,000 8.33 37,115 6.37 36,993
Municipal Obligations... -- -- 3,068 5.33 -- -- -- -- 3,068 5.33 3,040
Corporate Obligations... 500 7.22 -- -- -- -- -- -- 500 7.22 499
Other Securities(1)..... 498 6.08 -- -- -- -- -- -- 498 6.08 498
------- ------ ------- ----- -------- ----- ------- ----- ------- ------ -------
Total................. $19,121 5.58% $16,308 6.13% $ 13,767 6.97% $ 2,000 8.33% $ 51,196 6.24% $ 51,045
====== ====== ====== ===== ======= ===== ====== ====== ====== ====== ======
- - ----------------------
(1) Other securities consists of an investment in adjustable-rate
mortgage-backed securities mutual funds. Such investments do not have a
stated maturity and are considered in the one year or less category based
on quarterly repricing of the investment.
(2) Includes $12.7 million of U.S. Government and Agency obligations and other
investments which are carried as available for sale at December 31, 1996.
Investment securities available for sale are carried at fair value.
20
Sources of Funds
General. Deposits, borrowings, loan repayments and cash flows generated
from operations are the primary sources of the Savings Bank's funds for use in
lending, investing and other general purposes.
Deposits. The Savings Bank offers a variety of deposit accounts having a
range of interest rates and terms. The Savings Bank's deposits consist of
regular savings, non-interest bearing checking, NOW checking, money market, and
certificate accounts. Of the deposit accounts, $31.58 million or 6.7% consist of
IRA, Keogh or SEP retirement accounts at December 31, 1996.
The flow of deposits is influenced significantly by general economic
conditions, changes in money market and prevailing interest rates and
competition. The Savings Bank's deposits are primarily obtained from areas
surrounding its offices, and the Savings Bank relies primarily on customer
service and long-standing relationships with customers to attract and retain
these deposits. The Savings Bank has maintained a high level of core deposits
consisting of regular savings, money market, non-interest bearing checking, and
NOW checking, which has contributed to a low cost-of-funds. At December 31,
1996, core deposits amounted to 56.26% of total deposits.
21
The following table sets forth the distribution of the Savings Bank's
deposit accounts at the dates indicated and the weighted average nominal
interest rates on each category of deposits presented. The Savings Bank does not
have a significant amount of deposits from out-of state sources. Management does
not believe that the use of year end balances instead of average balances
resulted in any material difference in the information presented.
At December 31,
-------------------------------------------------------------------------------------------
1996 1995 1994
----------------------------- ---------------------------- -----------------------------
Weighted Weighted Weighted
Percent Average Percent Average Percent Average
of Total Nominal of Total Nominal of Total Nominal
Amount Deposits Rate Amount Deposits Rate Amount Deposits Rate
------ -------- ------ ------ -------- ----- ------ -------- ------
(Dollars in Thousands)
Transaction accounts:
Interest-bearing checking
accounts ................... $ 42,513 9.06% 0.98% $ 33,581 9.96% 1.57% $ 33,840 9.73% 1.53%
Money market accounts........ 29,970 6.39 3.54 10,481 3.11 2.75 11,696 3.36 2.95
Non-interest-bearing
checking accounts ............ 3,741 0.80 -- 1,573 0.47 -- 1,026 0.30 --
-------- ------- -------- ------- -------- --------
Total transaction accounts..... 76,224 16.25 45,635 13.54 46,562 13.39
Fixed-rate passbook accounts... 127,213 27.12 3.00 120,387 35.72 3.00 136,824 39.36 2.95
Adjustable-rate passbook
accounts ..................... 60,452 12.89 4.88 68,247 20.25 4.74 77,198 22.21 5.11
Total ................... 187,665 40.01 234,269 69.51 260,584 74.96
-------- ------- -------- ------- -------- --------
Certificate accounts:
90-day certificates ......... 2,354 0.50 3.96 4,541 1.35 4.05 1,034 0.30 3.22
Six-month certificates....... 18,861 4.02 4.44 10,351 3.07 4.10 14,604 4.20 3.47
Seven-month certificates..... 3,555 0.76 4.93 -- -- -- -- -- --
Nine-month certificates...... 13,116 2.80 4.96 5,144 1.53 5.86 646 0.19 3.65
Ten-month certificates....... 19,341 4.12 5.29 -- -- -- -- -- --
One-year certificates........ 55,586 11.85 5.28 17,409 5.16 5.08 20,076 5.77 3.67
15-month certificates ....... 1,450 0.31 5.54 -- -- -- -- -- --
17-month certificates ....... 8,801 1.88 5.53 7,515 2.23 5.75 -- -- --
18-month certificates ....... 5,052 1.08 4.83 12,004 3.56 6.07 4,378 1.26 4.54
21-month certificates ....... 677 0.14 5.20 -- -- -- -- -- --
Two-year certificates........ 22,632 4.82 5.65 6,139 1.82 4.99 5,948 1.71 4.14
25-month certificates ....... 8,666 1.85 5.81 -- -- -- -- -- --
30-month certificates ....... 8,539 1.82 5.45 7,371 2.19 4.54 8,884 2.55 3.83
Three-year certificates...... 9,628 2.05 5.55 5,442 1.61 4.55 6,236 1.79 4.52
Four year certificates....... 2,645 0.56 5.48 929 0.27 5.33 1,628 0.47 6.38
54 month certificates ....... 1,975 0.42 5.83 1,921 0.57 5.80 -- -- --
Five year certificates....... 19,356 4.13 5.35 18,274 5.42 5.66 18,812 5.41 6.07
Six-year certificates ....... 211 0.04 5.34 -- -- -- -- -- --
Seven-year certificates ..... 1 -- 7.30 -- -- -- -- -- --
Eight-year certificates ..... 99 0.02 5.80 105 0.03 5.83 236 0.07 6.37
10-year ..................... 1,398 0.30 7.85 1,050 0.31 7.88 1,422 0.41 8.12
Jumbo certificates(1) ....... 1,256 0.27 5.40 4,436 1.32 5.12 2,942 0.85 5.36
-------- ------ ---- -------- ------ ---- -------- ----- ----
Total certificate accounts 205,199 43.74 5.30 102,800 30.49 5.22 87,047 25.04 4.52
-------- ------ ---- -------- ------ ---- -------- ----- ----
Total deposits ................ $469,088 100.00% 4.08% $337,069 100.00% 3.87% $347,631 100.0 3.67%
======== ====== ==== ======== ====== ==== ======== ===== ====
22
At June 30,
----------------------------------------------------------------------------------------------
1994 1993 1992
------------------------------- ------------------------------ --------------------------
Weighted Weighted Weighted
Percent Average Percent Average Percent Average
of Total Nominal of Total Nominal of Total Nominal
Amount Deposits Rate Amount Deposits Rate Amount Deposits Rate
------ -------- ---- ------ -------- ---- ------ -------- ----
(Dollars in Thousands)
Transaction accounts:
Interest-bearing checking
accounts .................. $ 33,522 9.13% 1.47% $ 34,659 9.89% 2.30% $ 28,287 8.68% 3.15%
Money market accounts........ 12,131 3.30 2.72 12,543 3.58 2.71 15,454 4.74 3.51
Non-interest-bearing checking
accounts .................. 658 .18 -- 180 .05 -- 3,460 1.06 --
-------- ------ -------- ------ -------- ------
Total transaction accounts..... 46,311 12.61 -- 47,382 13.52 -- 47,201 14.48 --
Fixed-rate passbook accounts... 151,121 41.17 2.95 143,936 41.09 3.20 138,601 42.51 4.56
-------- ------ -------- ------
Adjustable-rate passbook
accounts .................... 79,373 21.62 4.16 52,721 15.05 4.14 -- -- --
-------- ------
Total ................... 276,805 75.40 244,039 69.66 185,802 56.99 --
-------- ------ -------- ------ -------- ------
Certificate accounts:
90-day certificates ......... 929 .25 2.75 1,307 .36 2.71 2,092 .64 3.66
Six-month certificates....... 16,325 4.45 2.74 19,837 5.66 2.88 28,070 8.61 3.99
Nine-month certificates ..... 887 .24 2.91 1,213 .35 3.06 1,657 .51 4.45
One-year certificates........ 21,632 5.89 3.12 24,700 7.05 3.68 37,810 11.60 5.16
18-month certificates ....... 2,514 .69 3.36 2,423 .69 3.75 5,255 1.61 6.22
Two-year certificates ....... 5,033 1.37 3.67 4,987 1.42 4.78 7,727 2.37 6.81
30-month certificates ....... 9,888 2.69 3.85 12,262 3.50 5.07 15,638 4.80 6.89
Three-year certificates...... 6,867 1.87 4.73 8,991 2.57 6.37 9,249 2.84 7.03
Four year certificates....... 2,045 .56 7.26 3,381 .97 7.74 3,980 1.22 8.13
Five year certificates....... 18,972 5.17 6.26 23,760 6.78 7.74 21,214 6.50 8.01
Six-year certificates ....... 214 .06 7.46 302 .09 5.64 376 .11 7.86
Eight-year certificates...... 1,761 .48 8.11 412 .12 7.36 406 .12 7.46
10-year ..................... 51 .01 8.02 1,452 .41 8.36 1,338 .41 8.40
Jumbo certificates(1) ....... 3,210 .87 5.29 1,262 .37 3.93 5,439 1.67 5.40
-------- ------ ---- -------- ------ ---- -------- ------ ----
Total certificate accounts 90,328 24.60 4.25 106,289 30.34 4.90 140,251 43.01 5.80
-------- ------ ---- -------- ------ ---- -------- ------ ----
Total deposits ................ $367,133 100.00% 3.38% $350,328 100.00% 3.74% $326,053 100.00% 4.87%
======== ====== ==== ======== ====== ==== ======== ====== ====
23
At December 31, 1996, the Savings Bank had outstanding certificates of
deposit in amounts of $100,000 or more maturing as follows:
Amount
------
Maturing Period (In Thousands)
- - ---------------
Three months or less.......................... $ 1,070
Over three through six months................. 1,066
Over six through 12 months.................... 3,115
Over 12 months................................ 3,313
-------
Total..................................... $ 8,564
=======
The following table presents, by various rate categories, the amount of
time deposits outstanding at December 31, 1996, 1995 and 1994, and June 30, 1994
and 1993, and the periods to maturity of the certificate accounts outstanding at
December 31, 1996.
Period to Maturity from
December 31, 1996
--------------------------------
Within
One One to At December 31, At June 30,
Year Three Years Thereafter 1996 1995 1994 1994 1993
------ ----------- ----------- ------- ------ ------ ---- ----
(In Thousands)
Time deposits:
2.00% to 2.99% . $ 1 $ 16 $ -- 17 $ 273 $ 5,306 $ 28,708 $ 21,144
3.00% to 3.99% . 2,803 124 -- 2,927 11,711 39,120 27,946 29,598
4.00% to 4.99% . 49,007 11,633 715 61,355 27,319 11,296 10,031 4,987
5.00% to 5.99% . 80,058 44,590 5,287 129,935 49,298 20,837 8,844 12,564
6.00% to 6.99% . 5,535 2,498 1,600 9,633 11,578 2,204 3,874 8,991
7.00% to 7.99% . 334 95 199 628 1,886 6,541 8,064 27,553
8.00% to 8.99% . 43 553 -- 596 735 1,551 -- --
9.00% to 9.99% . 30 78 -- 108 -- 192 2,861 1,452
-------- -------- -------- -------- -------- --------- -------- --------
Total ..... $137,811 $ 59,587 $ 7,801 $205,199 $102,800 $ 87,047 $ 90,328 $106,289
======== ======== ======== ======== ======== ========= ======== ========
24
Borrowings
Deposits are the primary source of funds of the Savings Bank's lending and
investment activities and for its general business purposes. The Savings Bank
may obtain advances from the FHLB of Pittsburgh to supplement its supply of
lendable funds. Advances from the FHLB of Pittsburgh are typically secured by a
pledge of the Savings Bank's stock in the FHLB of Pittsburgh and a portion of
the Savings Bank's first mortgage loans and certain other assets. The Savings
Bank, if the need arises, may also access the Federal Reserve Bank discount
window to supplement its supply of lendable funds and to meet deposit withdrawal
requirements. The following table sets forth the maximum month-end balance
period and balance, and weighted average balance of outstanding FHLB advances at
the dates and for the periods indicated, together with the applicable weighted
average interest rates.
At December 31, At June 30,
--------------------------------- -------------
1996 1995 1994 1994 1993
----------- --------- ------ ---- ----
(Dollars in Thousands)
FHLB advances............... $98,359 $73,359 $ -- $ 900 $3,900
====== ====== ====== ==== =====
Weighted average interest rate 5.98% 6.07% --% 9.80% 7.98%
Six Months
Ended
Years Ended December 31, December 31, Year Ended June 30,
----------------------- ----------- -------------------
1996 1995 1994 1994 1993
---- ---- ---- ---- ----
(Dollars in Thousands)
Maximum balance of
FHLB advances outstanding $ 98,359 $73,359 $ -- $3,900 $4,800
======= ====== ======= ===== =====
Weighted average balance of
FHLB advances outstanding. $ 89,343 $16,171 $ -- $2,650 $4,125
======= ====== ======= ===== =====
Weighted average interest rate
of FHLB advances 5.99% 6.22% --% 7.98% 8.10%
====== ==== ======= ==== ====
Subsidiary Activity
Third Federal is permitted to invest up to 2% of its assets in the capital
stock of, or secured or unsecured loans to, subsidiary corporations, with an
additional investment of 1% of assets when such additional investment is
utilized primarily for community development purposes. Under such limitations,
as of December 31, 1996, Third Federal was authorized to invest up to
approximately $13.0 million in the stock of, or loans to, service corporations
(based upon the 2% limitation). At December 31, 1996, the Savings Bank had no
active subsidiaries.
Personnel
As of December 31, 1996, the Savings Bank had 139 full-time and 18
part-time employees. None of the Savings Bank's employees are represented by a
collective bargaining group. The Savings Bank believes that its relationship
with its employees is good.
25
Executive Officers of the Registrant
Executive Officers of the Savings Bank and Company (these individuals have
held their respective positions with the Company since March 1994):
Carl F. Gregory is Chairman of the Savings Bank. Mr. Gregory was Chief
Executive Officer of the Savings Bank and of the Company from April 1982 until
December 1994. He has been with the Savings Bank since 1962 and will continue to
represent Third Federal throughout the communities that the Savings Bank serves
in his role as Chairman of the Savings Bank and Director of the Company.
John R. Stranford has been with the Savings Bank since 1968. He presently
serves as President, Chief Executive Officer, Chief Operating Officer and
Director of the Savings Bank and Company. Mr. Stranford has served as Chief
Operating Officer of the Savings Bank since 1984 and President of the Savings
Bank since January 1994. Prior to that time he served in various capacities as
an officer of the Savings Bank.
William C. Niemczura has been with the Savings Bank as an officer since
1987. Prior to his current position as Senior Vice President and Chief Financial
Officer, Mr. Niemczura was Asst. Vice President and Vice President-Lending. Mr.
Niemczura is Senior Vice President, Treasurer and Chief Financial Officer of the
Company.
Elizabeth Davidson Maier is Senior Vice President and Secretary of the
Savings Bank and the Company and has been with the Savings Bank since 1964. Ms.
Maier has been an officer of the Savings Bank since 1974. Prior to that, Ms.
Maier held various positions at the Savings Bank.
The remaining information relating to Directors and Executive Officers of
the Registrant is incorporated herein by reference to the Registrant's Proxy
Statement for the 1997 Annual Meeting of Stockholders.
REGULATION
Set forth below is a brief description of all materials laws and
regulations which relate to the regulation of the Savings Bank and the Company.
The description does not purport to be complete and is qualified in its entirety
by reference to applicable laws and regulations.
Company Regulation
General. The Company is a unitary savings and loan holding company subject
to regulatory oversight by the OTS. As such, the Company is required to register
and file reports with the OTS and is subject to regulation and examination by
the OTS. In addition, the OTS has enforcement authority over the Company and its
non-savings association subsidiaries, should such subsidiaries be formed, which
also permits the OTS to restrict or prohibit activities that are determined to
be a serious risk to the subsidiary savings association. This regulation and
oversight is intended primarily for the protection of the depositors of the
Savings Bank and not for the benefit of stockholders of the Company. The Company
is also required to file certain reports with, and otherwise comply with, the
rules and regulations of the OTS and the SEC.
QTL Test. As a unitary savings and loan holding company, the Company
generally is not subject to activity restrictions, provided the Savings Bank
satisfies the QTL test. If the Company acquires control of another savings
association as a separate subsidiary, it would become a multiple savings and
loan
26
holding company, and the activities of the Company and any of its subsidiaries
(other than the Savings Bank or any other SAIF-insured savings association)
would become subject to restrictions applicable to bank holding companies unless
such other associations each also qualify as a QTL and were acquired in a
supervisory acquisition.
Restrictions on Acquisitions. The Company must obtain approval from the
OTS before acquiring control of any other SAIF-insured association. Such
acquisitions are generally prohibited if they result in a multiple savings and
loan holding company controlling savings associations in more than one state.
However, such interstate acquisitions are permitted based on specific state
authorization or in a supervisory acquisition of a failing savings association.
Federal law generally provides that no "person," acting directly or
indirectly or through or in concert with one or more other persons, may acquire
"control," as that term is defined in OTS regulations, of a federally insured
savings institution without giving at least 60 days' written notice to the OTS
and providing the OTS an opportunity to disapprove the proposed acquisition.
Such acquisitions of control may be disapproved if it is determined, among other
things, that (i) the acquisition would substantially lessen competition; (ii)
the financial condition of the acquiring person might jeopardize the financial
stability of the savings institution or prejudice the interests of its
depositors; or (iii) the competency, experience or integrity of the acquiring
person or the proposed management personnel indicates that it would not be in
the interest of the depositors or the public to permit the acquisitions of
control by such person.
FIRREA amended provisions of the Bank Holding Company Act of 1956 ("BHCA")
to specifically authorize the Federal Reserve Board to approve an application by
a bank holding company to acquire control of a savings association. FIRREA also
authorized a bank holding company that controls a savings association to merge
or consolidate the assets and liabilities of the savings association with, or
transfer assets and liabilities to, any subsidiary bank which is a member of the
BIF with the approval of the appropriate federal banking agency and the Federal
Reserve Board. FDICIA further amended the BHCA to permit federal savings
associations to acquire or be acquired by any insured depository institution. As
a result of these provisions, there have been a number of acquisitions of
savings associations by bank holding companies and other financial institutions
in recent years.
Federal Securities Law. Stock held by persons who are affiliates
(generally officers, directors and principal stockholders) of the Company may
not be resold without registration or unless sold in accordance with certain
resale restrictions. If the Company meets specified current public information
requirements, each affiliate of the Company is able to sell in the public
market, without registration, a limited number of shares in any three-month
period.
Savings Bank Regulation
General. As a federally chartered, SAIF-insured savings association, the
Savings Bank is subject to extensive regulation by the OTS and the FDIC. Lending
activities and other investments must comply with various federal statutory and
regulatory requirements. The Savings Bank is also subject to certain reserve
requirements promulgated by the Federal Reserve Board.
The OTS, in conjunction with the FDIC, regularly examines the Savings Bank
and prepares reports for the consideration of the Savings Bank's Board of
Directors on any deficiencies that they find in the Savings Bank's operations.
The Savings Bank's relationship with its depositors and borrowers is also
regulated to a great extent by federal law, especially in such matters as the
ownership of savings accounts and the form and content of the Savings Bank's
mortgage documents.
27
The Savings Bank must file reports with the OTS and the FDIC concerning
its activities and financial condition, in addition to obtaining regulatory
approvals prior to entering into certain transactions such as mergers with or
acquisitions of other savings institutions. This regulation and supervision
establishes a comprehensive framework of activities in which an institution can
engage and is intended primarily for the protection of the SAIF and depositors.
The regulatory structure also gives the regulatory authorities extensive
discretion in connection with their supervisory and enforcement activities and
examination policies, including policies with respect to the classification of
assets and the establishment of adequate loan loss reserves for regulatory
purposes. Any change in such regulations, whether by the OTS, the FDIC or the
Congress could have a material adverse impact on the Company, the Savings Bank
and their operations. The Company is also required to file certain reports with,
and otherwise comply with, the rules and regulations of the OTS and the SEC.
Insurance of Deposit Accounts. The Savings Bank's deposit accounts are
insured by the SAIF to a maximum of $100,000 for each insured member (as defined
by law and regulation). FIRREA, enacted in 1989, gave the FDIC the authority,
should it initiate proceedings to terminate an institution's deposit insurance,
to suspend the insurance of any such institution without tangible capital.
However, if a savings association has positive capital when it includes
qualifying intangible assets, the FDIC cannot suspend deposit insurance unless
capital declines materially, the institution fails to enter into and remain in
compliance with an approved capital plan or the institution is operating in an
unsafe or unsound manner.
Regardless of an institution's capital level, insurance of deposits may be
terminated by the FDIC upon a finding that the institution has engaged in unsafe
or unsound practices, is in an unsafe or unsound condition to continue
operations or has violated any applicable law, regulation, rule, order or
condition imposed by the FDIC or the institution's primary regulator. The
management of the Savings Bank is unaware of any practice, condition or
violation that might lead to termination of its deposit insurance.
The FDIC charges an annual assessment for the insurance of deposits based
on the risk a particular institution poses to its deposit insurance fund. This
risk classification is based on an institution's capital group and supervisory
subgroup assignment. In addition, the FDIC is authorized to increase such
deposit insurance rates, on a semi-annual basis, if it determines that such
action is necessary to cause the balance in the SAIF to be maintained at the
designated reserve ratio of 1.25% of SAIF- insured deposits.
Prior to September 30, 1996, savings associations paid within a range of
.23% to .31% of domestic deposits and the SAIF was substantially underfunded. By
comparison, prior to September 30, 1996, members of the Bank Insurance Fund
("BIF"), predominantly commercial banks, were required to pay substantially
lower, or virtually no, federal deposit insurance premiums. Effective September
30, 1996, federal law was revised to mandate a one-time special assessment on
SAIF members such as the Savings Bank of approximately .657% of deposits held on
March 31, 1995. The Savings Bank recorded a $2.2 million pre-tax expense for
this assessment at September 30, 1996. Beginning January 1, 1997, deposit
insurance assessments for SAIF members were reduced to approximately .064% of
deposits on an annual basis; this rate may continue through the end of 1999.
During this same period, BIF members are expected to be assessed approximately
0.13% of deposits. Thereafter, assessments for BIF and SAIF members should be
the same and the SAIF and BIF may be merged. It is expected that these
continuing assessments for both SAIF and BIF members will be used to repay
outstanding Financing Corporation bond obligations. As a result of these
changes, beginning January 1, 1997, the rate of deposit insurance assessed the
Bank declined by approximately 70% from rates in effect prior to September 30,
1996.
28
Regulatory Capital Requirements. OTS capital regulations require savings
institutions to meet three capital standards: (1) tangible capital equal to 1.5%
of total adjusted assets, (2) a leverage ratio (core capital) equal to at least
3% of total adjusted assets and (3) a risk-based capital requirement equal to
8.0% of total risk-weighted assets.
The following table sets forth the Savings Bank's compliance with its
regulatory capital requirements as of December 31, 1996:
Amount Percent
------ -------
(Dollars in Thousands)
Tangible capital................................. $ 50,103 7.78%
Tangible capital requirement..................... 9,655 1.50
------- -----
Excess over requirement.......................... $ 40,448 6.28%
======= =====
Core Capital..................................... $ 50,103 7.78%
Core Capital requirement......................... 19,310 3.00
------- -----
Excess over requirement.......................... $ 30,793 4.78%
======= =====
Risk-based capital............................... $ 51,909 17.70%
Risk-based capital requirement................... 23,468 8.00
------- -----
Excess over requirement.......................... $ 28,441 9.70%
======= =====
Net Portfolio Value Analysis. In recent years, the Savings Bank has
measured its interest rate sensitivity by computing the "gap" between the assets
and liabilities which were expected to mature or reprice within certain periods,
based on assumptions regarding loan prepayment and deposit decay rates formerly
provided by the OTS. However, the OTS now requires the computation of amounts by
which the net present value of an institution's cash flows from assets,
liabilities and off-balance sheet items (the institution's net portfolio value,
or "NPV") would change in the event of a range of assumed changes in market
interest rates. The OTS also requires institutions with assets of $500 million
or more to compute estimated changes in net interest income over a four-quarter
period. These computations estimate the effect on an institution's NPV and net
interest income of instantaneous and permanent 1% to 4% increases and decreases
in market interest rates.
At December 31, 1996, Third Federal's Board of Directors had adopted
interest rate risk target limits which established maximum potential decreases
in the Savings Bank's NPV of 20%, 30%, 40% and 50% in the event of 1%, 2%, 3%
and 4% immediate and sustained increases in market interest rates, respectively.
At that date, the target limits also provided for maximum potential decreases of
5%, 10%, 15% and 20% in the Savings Bank's NPV in the event of 1%, 2%, 3% and 4%
immediate and sustained decreases in market interest rates, respectively. These
target limits indicate that the Savings Bank's NPV could be adversely affected
by changes in interest rates. The Savings Bank's interest rate risk target
limits are reviewed by the Board of Directors at least quarterly and are
regularly changed in light of market conditions and other factors.
While management did not believe that Third Federal's NPV would have been
subject to decreases in excess of the percentages set forth in the Savings
Bank's interest rate risk target limits at
29
December 31, 1996, management cannot predict future interest rates or their
effect on the Savings Bank's NPV in the future. Computations of prospective
effects of hypothetical interest rate changes generally are based on numerous
assumptions, including relative levels of market interest rates, prepayments and
deposit run-offs and should not be relied upon as indicative of actual results.
Further, the computations may not contemplate any actions the Savings Bank may
undertake in response to changes in interest rates. Certain shortcomings may be
inherent in the method of analysis presented in the computation of NPV. For
example, although certain assets and liabilities may have similar maturities or
periods to repricing, they may react in differing degrees to changes in market
interest rates. The interest rates on certain types of assets and liabilities
may fluctuate in advance of changes in market interest rates, while interest
rates on other types, such as ARMs indexed to the cost of funds may lag behind
changes in market rates. Additionally, certain assets, such as adjustable-rate
loans, have features which restrict changes in interest rates during the initial
term and over the remaining life of the asset. In addition, the proportion of
adjustable-rate loans in the Savings Bank's portfolios could decrease in future
periods due to refinancing activity if market interest rates remain at or
decrease below current levels. Further, in the event of a change in interest
rates, prepayment and early withdrawal levels could deviate significantly from
those assumed in the tables. Finally, the ability of many borrowers to service
their adjustable-rate debt may decrease in the event of an interest rate
increase.
Based on its interest rate risk position as measured by the OTS, at
December 31, 1996, the Savings Bank was not subject to any increased capital
requirements.
Prompt Corrective Action. The FDICIA also established a system of prompt
corrective action to resolve the problems of undercapitalized institutions.
Under this system, the banking regulators are required to take certain
supervisory actions against undercapitalized institutions, the severity of which
depends upon the institution's degree of capitalization. Under the OTS final
rule implementing the prompt corrective action provisions, an institution shall
be deemed to be (i) "well capitalized" if it has total risk-based capital of
10.0% or more, has a Tier I risk-based capital ratio (core or leverage capital
to risk-weighted assets) of 6.0% or more, has a leverage capital of 5.0% or more
and is not subject to any order or final capital directive to meet and maintain
a specific capital level for any capital measure, (ii) "adequately capitalized"
if it has a total risk-based capital ratio of 8.0% or more, a Tier I
risked-based ratio of 4.0% or more and a leverage capital ratio of 4.0% or more
(3.0% under certain circumstances) and does not meet the definition of "well
capitalized," (iii) "undercapitalized" if it has a total risk-based capital
ratio that is less than 8.0%, a Tier I risk-based capital ratio that is less
than 4.0% or a leverage capital ratio that is less than 4.0% (3.0% in certain
circumstances), (iv) "significantly undercapitalized" if it has a total
risk-based capital ratio that is less than 6.0%, a Tier I risk-based capital
ratio that is less than 3.0% or a leverage capital ratio that is less than 3.0%
and (v) "critically undercapitalized" if it has a ratio of tangible equity to
total assets that is equal to or less than 2.0%. In addition, under certain
circumstances, a federal banking agency may reclassify a well capitalized
institution as adequately capitalized and may require an adequately capitalized
institution or an undercapitalized institution to comply with supervisory
actions as if it were in the next lower category (except that the FDIC may not
reclassify a significantly undercapitalized institution as critically
undercapitalized). Immediately upon becoming undercapitalized, an institution
shall become subject to various restrictions and could be subject to additional
supervisory actions.
The Savings Bank is currently a "well capitalized institution" as
defined in the prompt corrective action regulations and as such is not subject
to any prompt corrective action measures.
Dividend and Other Capital Distribution Limitations. OTS regulations
require the Savings Bank to give the OTS 30 days' advance notice of any proposed
declaration of dividends to the Company, and the OTS has the authority under its
supervisory powers to prohibit the payment of dividends to the
30
Company. In addition, the Savings Bank may not declare or pay a cash dividend on
its capital stock if the effect thereof would be to reduce the regulatory
capital of the Savings Bank below the amount required for the liquidation
account to be established pursuant to the Savings Bank's Plan of Conversion.
Qualified Thrift Lender Test. The Home Owners' Loan Act ("HOLA"), as
amended, requires savings institutions to meet a QTL test. If the Savings Bank
maintains an appropriate level of Qualified Thrift Investments (primarily
residential mortgages and related investments, including certain mortgage-backed
securities) ("QTIs") and otherwise qualifies as a QTL, it will continue to enjoy
full borrowing privileges from the FHLB of Pittsburgh. The required percentage
of QTIs is 65% of portfolio assets (defined as all assets minus intangible
assets, property used by the institution in conducting its business and liquid
assets equal to 10% of total assets). Certain assets are subject to a percentage
limitation of 20% of portfolio assets. In addition, savings associations may
include shares of stock of the FHLBs, FNMA and FHLMC as qualifying QTIs. The
FDICIA also amended the method for measuring compliance with the QTL test to be
on a monthly basis in nine out of every 12 months, as opposed to on a daily or
weekly average of QTIs. As of December 31, 1996, the Savings Bank was in
compliance with its QTL requirement with 88.0% of its assets invested in QTIs .
A savings association that does not meet a QTL test must either convert to
a bank charter or comply with the following restrictions on its operations: (i)
the savings association may not engage in any new activity or make any new
investment, directly or indirectly, unless such activity or investment is
permissible for a national bank; (ii) the branching powers of the savings
association shall be restricted to those of a national bank; (iii) the savings
association shall not be eligible to obtain any advances from its FHLB; and (iv)
payment of dividends by the savings association shall be subject to the rules
regarding payment of dividends by a national bank. Upon the expiration of three
years from the date the savings association ceases to be a QTL, it must cease
any activity and not retain any investment not permissible for a national bank
and immediately repay any outstanding FHLB advances (subject to safety and
soundness considerations).
Loans-to-One Borrower. Under the HOLA, as amended, savings institutions
are subject to the national bank limits on loans-to-one borrower. Generally, a
savings association may not make a loan or extend credit to a single or related
group of borrowers in excess of 15% of the association's unimpaired capital and
surplus. An additional amount may be lent, equal to 10% of unimpaired capital
and surplus, if such loan is secured by readily-marketable collateral, which is
defined to include certain securities and bullion, but generally does not
include real estate. The Savings Bank is in compliance with this requirement.
Liquidity Requirements. All savings associations are required to maintain
an average daily balance of liquid assets equal to a certain percentage of the
sum of its average daily balance of net withdrawable deposit accounts and
borrowings payable in one year or less. The liquidity requirement may vary from
time to time (between 4% and 10%) depending upon economic conditions and savings
flows of all savings associations. At the present time, the required liquid
asset ratio is 5%. At December 31, 1996, the Savings Bank's liquidity ratio was
24.16%.
Federal Home Loan Bank System. The Savings Bank is a member of the FHLB of
Pittsburgh, which is one of 12 regional FHLBs that administer the home financing
credit function of savings associations. Each FHLB serves as a reserve or
central bank for its members within its assigned region. It is funded primarily
from proceeds derived from the sale of consolidated obligations of the FHLB
System. It makes loans to members (i.e., advances) in accordance with policies
and procedures established by the Board of Directors of the FHLB.
31
As a member, the Savings Bank is required to purchase and maintain stock
in the FHLB of Pittsburgh in an amount equal to at least 1% of its aggregate
unpaid residential mortgage loans, home purchase contracts or similar
obligations at the beginning of each year. At December 31, 1996, the Savings
Bank had $4.9 million in FHLB stock, which was in compliance with this
requirement.
Federal Reserve System. The Federal Reserve Board requires all depository
institutions to maintain non-interest bearing reserves at specified levels
against their transaction accounts (primarily checking, NOW and Super NOW
checking accounts) and non-personal time deposits. The balances maintained to
meet the reserve requirements imposed by the Federal Reserve Board may be used
to satisfy the liquidity requirements that are imposed by the OTS. At December
31, 1996, the Savings Bank's total transaction accounts required a reserve level
of $750,000 which was entirely offset by the Bank's vault cash on hand.
Savings associations have authority to borrow from the Federal Reserve
Bank "discount window," but Federal Reserve policy generally requires savings
associations to exhaust all OTS sources before borrowing from the Federal
Reserve System. The Savings Bank had no such borrowings at December 31, 1996.
Item 2. Description of Property
- - ---------------------------------
The Company is located and conducts its business at 3 Penns Trail, Newtown,
Pennsylvania. The Savings Bank operates from its main office and 13 branch
offices located in Philadelphia and Bucks Counties, Pennsylvania and Mercer
County, New Jersey. The Savings Bank also owns two lots, one of which has a
building, behind its Doylestown branch office. The building is leased to a
third-party and the other is used as a parking lot for employees and tenants of
Third Federal. The net book value of the two lots was $117,000 at December 31,
1996. In addition, the Savings Bank owns a vacant lot at Newtown Yardley Road
and Friends Lane, Newtown, Pennsylvania. This lot was purchased in 1993 for
future expansion and had a net book value of $1.6 million at December 31, 1996.
The following table sets forth certain information regarding the Savings
Bank's properties:
Leased or Leased or
Location Owned Location Owned
-------- --------- -------- ---------
MAIN OFFICE
Newtown Office
3 Penns Trail
Newtown, PA 18940 Owned
BRANCH OFFICES 950 Newtown Yardley Road Leased
Frankford Office Newtown, Pennsylvania 18940
4625 Frankford Avenue
Philadelphia, PA 19124 Owned
Princeton Shopping Center
301 N. Harrison Street 2075 Pennington Road
Princeton, NJ 08540 Leased Trenton, NJ 08618 Owned
32
Leased or Leased or
Location Owned Location Owned
-------- --------- -------- ---------
Mayfair Office
1850 Route 33 Roosevelt Blvd. at Unruh
Hamilton Square, NJ 08690 Owned Philadelphia, PA 19149 Owned
Fishtown Office Doylestown Office
York & Memphis Streets 60 North Main Street
Philadelphia, PA 19125 Owned Doylestown, PA 18901 Owned
Cross Keys Office Administrative Office
834 North Easton Highway 62 Walker Lane
Doylestown, PA 18901 Owned Newtown, PA 18940(1) Owned
Woodhaven Office Warminster Office
Knights Road Center 601 Louis Drive
4014 Woodhaven Road Warminster, PA 18974 Owned
Philadelphia, PA 19154 Leased
Bridgesburg Office Feasterville Office
Orthodox & Almond Streets Buck Hotel Complex
Philadelphia, PA 19137 Owned Feasterville, PA 19053 Owned
New Britain Office
100 Town Center
New Britain, PA 18901 Leased
- - --------------------------------------
(1) This office serves as administrative offices, check processing, training
center, mail processing and storage center for the Savings Bank
(2) Includes $1.6 million in excess land held for future expansion.
(3) Includes $117,000 for two lots and building behind main office.
Item 3. Legal Proceedings
- - --------------------------
Neither the Company nor its subsidiaries are involved in any pending legal
proceedings, other than routine legal matters occurring in the ordinary course
of business, which in the aggregate involve amounts which are believed by
management to be immaterial to the consolidated financial condition or results
of operations of the Company.
Item 4. Submission of Matters to a Vote of Security Holders
- - ------------------------------------------------------------
None.
33
PART II
Item 5. Market for Common Equity and Related Stockholder Matters
- - ------------------------------------------------------------------
Information relating to the market for Registrant's common equity and
related stockholder matters appears under "Stock Market Information" in the
Registrant's 1996 Annual Report to Stockholders on pages 1 and 2, and is
incorporated herein by reference.
Item 6. Selected Financial Data
- - --------------------------------
The above-captioned information appears under "Selected Financial and
Other Data" in the Registrant's 1996 Annual Report to Stockholders on page 5,
and is incorporated herein by reference.
34
Item 7. Management's Discussion and Analysis of Financial Conditions and Results
- - -------------------------------------------------------------------------------
of Operations
- - -------------
Rate/Volume Analysis
The table below sets forth certain information regarding changes in
interest income and interest expense of the Savings Bank for the periods
indicated. For each category of interest-earning assets and interest-bearing
liabilities, information is provided on changes attributable to (i) changes in
volume (changes in average volume multiplied by old rate); (ii) changes in rates
(changes in rate multiplied by old average volume); (iii) total changes in
rate-volume. The combined effects of changes in both volume and rate, which
cannot be separately identified, have been allocated proportionately to the
change due to volume and the change due to rate.
Years Ended Twelve Months Ended
December 31 December 31 December 31, June 30 Year Ended June 30,
----------------------- --------------------- --------------------------------------------
1996 vs 1995 1995 vs 1994 1994 vs 1993 1993 vs 1992
----------------------- --------------------- ------------------- -------------------
Increase (Decrease) Increase (Decrease) Increase (Decrease) Increase (Decrease)
Due to Due to Due to Due to
----------------------- --------------------- ------------------- -------------------
Volume Rate Net Volume Rate Net Volume Rate Net Volume Rate Net
---------- -------- ---- ------ ---- --- -------- ---------- ----- ------- ------- -----
Interest Income: (In Thousands)
Loans receivable..... $1,645 $ (30) $11,615 $ 853 $ (315) $ 538 $(1,431) $(1,734) $(3,165) $(2,604) $(624) $(3,228)
Mortgage-backed
securities(1........ (699) (137) (836) 3,506 474 3,980 1,295 (7) 1,288 1,223 (807) 416
Investment securities(1) (982) -- (982) (401) 211 (190) 894 (436) 458 1,441 (1,025) 416
Other interest-earning
assets............. (14) (424) (438) 50 736 786 (84) 139 55 591 (843) (252)
------ ------ ------ --- ----- ----- ------ ------ ------ ------ ----- -----
Total interest-
earning assets... $9,950 $ (591) $ 9,359 $4,008 $1,106 $5,114 $ 674 $(2,038) $(1,364) $ 651 $(3,299)$(2,648)
===== ===== ===== ===== ===== ===== ===== ====== ====== ====== ====== ======
Interest Expense:
Savings deposits..... $ 1,734 $ (363) $ 1,371 $ (724) $1,547 $ 823 $1,343 $(2,822) $(1,479) $1,473 $(5,332)$(3,859)
Borrowed money....... 4,866 157 5,023 848 (57) 791 (118) 28 (90) (456) (234) (690)
------- ------ ------ ----- ------ ----- ----- ------ ------ ----- ----- -----
Total interest bearing
liabilities..... $ 6,600 $ (206) $ 6,394 $ 124 $1,490 $1,614 $1,225 $(2,794) $(1,569) $1,017 $(5,566)$(4,549)
====== ====== ====== ===== ===== ===== ===== ====== ====== ===== ====== ======
Net change in interest
income.............. $ 3,350 $ (385) $ 2,965 $3,884 $(384) $3,500 $ (551) $ 756 $ 205 $ (366) $ 2,267 $ 1,901
====== ===== ====== ===== ===== ===== ===== ====== ====== ====== ====== ======
---------------------
(1) Includes intest income on investment securities held for sale.
35
The remaining above-captioned information appears under Management's
Discussion and Analysis of Financial Condition and Results of Operations in the
Registrant's 1996 Annual Report to Stockholders on pages 8 through 20 and is
incorporated herein by reference.
Item 8. Financial Statements
- - ------------------------------
The Consolidated Financial Statements of TF Financial Corporation and its
subsidiaries are included in the Registrant's 1996 Annual Report to Stockholders
on pages 24 through 63 and are incorporated herein by reference.
Item 9. Change In and Disagreements with Accountants on Accounting and Financial
- - -------------------------------------------------------------------------------
Disclosure
- - ----------
None.
PART III
Item 10. Directors and Executive Officers of the Registrant
- - ------------------------------------------------------------
The information contained under the section captioned "Information with
Respect to Nominee for Director, Directors Continuing in Office and Executive
Officers -- Election of Directors" at pages 4 to 6 of the Registrant's
definitive proxy statement for the Registrant's 1997 Annual Meeting of
Stockholders (the "Proxy Statement") is incorporated herein by reference.
Additional information concerning executive officers is included under
"Item 1. Business -- Executive Officers of the Registrant."
Item 11. Executive Compensation
- - --------------------------------
The information relating to executive compensation is incorporated herein
by reference to the Registrant's Proxy Statement at pages 7 through 11.
Item 12. Security Ownership of Certain Beneficial Owners and Management
- - -------------------------------------------------------------------------
The information relating to security ownership of certain beneficial
owners and management is incorporated herein by reference to the Registrant's
Proxy Statement at pages 3 and 4.
Item 13. Certain Relationships and Related Transactions
- - --------------------------------------------------------
The information relating to certain relationships and related transactions
is incorporated herein by reference to the Registrant's Proxy Statement at page
14.
36
PART IV
Item 14. Exhibits and Reports on Form 8-K
- - ------------------------------------------
(a) The following documents are filed as a part of this report:
(1) Financial Statements of the Company are incorporated by reference to
the following indicated pages of the 1996 Annual Report to Stockholders.
PAGE
Independent Auditors' Report..................................................... 23
Consolidated Statements of Financial Position as of December 31, 1996 and 1995... 24
Consolidated Statements of Earnings For the Years Ended
December 31, 1996 and 1995 and the six months ended December 31, 1994 and the
Year Ended June 30, 1994 ...................................................... 25
Consolidated Statement of Changes in Stockholders' Equity
for the Years Ended December 31, 1996 and 1995, the six months ended December
31, 1994 and the Year Ended June 30, 1994....................................... 26
Consolidated Statements of Cash Flows for the Years Ended December 31, 1996 and
1995, the six months ended December 31, 1994 and the Year Ended June 30, 19928
Notes to Consolidated Financial Statements....................................... 30
The remaining information appearing in the Annual Report to Stockholders
is not deemed to be filed as part of this report, except as expressly provided
herein.
(2) All schedules are omitted because they are not required or applicable,
or the required information is shown in the consolidated financial statements or
the notes thereto.
(3) Exhibits
(a) The following exhibits are filed as part of this report.
3.1 Certificate of Incorporation of TF Financial Corporation* 3.2 Bylaws
of TF Financial Corporation* 4.0 Stock Certificate of TF Financial
Corporation*
10.1 Form of Third Federal Savings and Loan Association Management Stock
Bonus Plan*
10.2 Form of TF Financial Corporation 1994 Stock Option Plan*
10.3 Third Federal Savings Bank Directors Consultation and Retirement
Plan**
10.4 TF Financial Corporation Incentive Compensation Plan**
10.5 Severance Agreement with John R. Stranford**
10.6 Severance Agreement with Francis J. Poiesz**
10.7 Severance Agreement with William C. Niemczura**
11.0 Statement re Computation of Per Share Earnings
13.0 1996 Annual Report to Stockholders
37
21.0 Subsidiary Information
23.0 Consent of Independent Auditor
(b) Reports on Form 8-K.
The Registrant filed the following Current Reports on Form 8-K
with the SEC during the quarter ended December 31, 1996:
1) Form 8-K/A No.1, Item 2, dated September 20, 1996, filed
with the SEC to report the acquisition of certain assets and
the assumption of certain liabilities of three branch offices
of Cenlar.
2) Form 8-K/A No. 2, Item 7, dated September 20, 1996, filed
with the SEC to file the financial statements of acquired
business and certain pro forma financial information with
respect to the acquisition of certain assets and the
assumption of certain liabilities of three branch offices of
Cenlar.
3) Form 8-K Item 5, dated October 23, 1996, filed with the SEC
to report the commencement of a repurchase program covering up
to 5% of the Registrant's outstanding common stock.
- - ---------------------------
* Incorporated herein by reference from the Exhibits to Form S-1,
Registration Statement, File No. 33-76960.
** Incorporated herein by reference to the Registrant's Annual Report on Form
10-K for the fiscal year ended December 31, 1995.
38
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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
Dated: March 26, 1997 By:/s/ John R. Stranford
----------------------------------
John R. Stranford
President, Chief Executive
Officer and Director
(Duly Authorized Representative)
Pursuant to the requirement of the Securities Exchange Act of 1934, this
Report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
By: /s/ John R. Stranford By: /s/ William C. Niemczura
---------------------------------- ---------------------------------
John R. Stranford William C. Niemczura
President, Chief Executive Officer Senior Vice President, Chief
and Director Financial Officer and Treasurer
(Principal Executive Officer) (Principal Financial and Accounting
Officer)
Date: March 26, 1997 Date: March 26, 1997
By: /s/ Carl F. Gregory By:/s/ Robert N. Dusek
---------------------------------- -----------------------------------
Carl F. Gregory Robert N. Dusek
Director Chairman of the Board
Date: March 26, 1997 Date: March 26, 1997
By: /s/ Thomas J. Gola By:/s/ George A. Olsen
--------------------------------- -----------------------------------
Thomas J. Gola George A. Olsen
Director Director
Date: March 26, 1997 Date: March 26, 1997