SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM lO-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1997
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 0-24168
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TF FINANCIAL CORPORATION
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(Exact name of registrant as specified in its charter)
Delaware 74-2705050
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(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
3 Penns Trail, Newtown, Pennsylvania 18940
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code 215-579-4000
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N/A
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Former name, former address and former fiscal year,
if changed since last report.
Indicate by check _ whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such e filed by shorter period that
the registrant was required to file such reports), and (2) has been subject to
such filing by requirements for the past 90 days. Yes X No
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APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes
of common stock as of the latest practicable date August 11, 1997
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Class Outstanding
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$.10 par value common stock 4,083,100 shares
TF FINANCIAL CORPORATION AND SUBSIDIARIES
FORM 1O-Q
FOR THE QUARTER ENDED JUNE 30, 1997
INDEX
Page
Number
------
PART I - CONSOLIDATED FINANCIAL INFORMATION
Item 1. Unaudited Consolidated Financial Statements 1
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 7
PART II- OTHER INFORMATION
Item 1. Legal Proceedings 15
Item 2. Changes in Securities 15
Item 3. Defaults upon Senior Securities 15
Item 4. Submission of Matters to a Vote of Security Holders 15
Item 5. Other Materially Important Events 15
Item 6. Exhibits and Reports on Form 8-K 15
SIGNATURES
TF FINANCIAL CORPORATION AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(in thousands)
June 30, December 31,
ASSETS 1997 1996
------------ --------------
Cash and cash equivalents $ 25,725 $ 54,132
Securities purchased under agreements to resell 5,000 25,129
Certificates of deposit in other financial institutions 3,451 4,220
Investment securities available for sale - at market value 18,642 12,652
Investment securities held to maturity (market value of $56,912 and $38,393 56,488 43,462
respectively, for the periods shown)
Mortgage-backed securities available for sale - at market value 35,957 22,027
Mortgage-backed securities held to maturity (market value of $156,536 and
$153,269 respectively, for the periods shown) 156,690 153,758
Loans receivable, net 315,866 309,570
Accrued interest receivable 4,815 4,247
Goodwill/Core deposit intangible 8,743 9,232
Premises and equipment, net 7,838 8,002
Other assets 1,531 1,422
--------- ---------
Total Assets $ 640,746 $ 647,853
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Deposits $ 460,847 $ 469,088
Advances from the Federal Home Loan Bank 98,359 98,359
Advances from borrowers for taxes and insurance 2,564 2,364
Accrued interest payable 3,285 2,030
Other liabilities 4,464 3,437
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Total Liabilities 569,519 575,278
--------- ---------
Commitments and contingencies -- --
Stockholders' Equity
Preferred stock, no par value; 2,000,000 shares authorized
and none issued -- --
Common stock, $0.10 par value; 10,000,000 shares authorized,
5,290,000 issued; 3,776,815 and 3,962,544 shares outstanding
at June 30, 1997 and December 31, 1996, net of treasury shares of
1,206,900 and 1,008,614 respectively 529 529
Additional paid-in capital 51,761 51,645
Net unrealized loss on investment securities available for sale (3) (127)
Unearned ESOP shares-at cost (3,063) (3,188)
Shares acquired by MSBP (1,109) (1,322)
Treasury stock - at cost (18,299) (14,712)
Retained earnings 41,411 39,750
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Total Stockholders' Equity 71,227 72,575
--------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 640,746 $ 647,853
========= =========
See notes to consolidated financial statement
1
TF FINANCIAL CORPORATION AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF EARNINGS
(in thousands, except per share data)
Six Months Three Months
Ended June 30, Ended June 30,
1997 1996 1997 1996
---- ---- ---- ----
Interest income
Loans $12,413 $10,902 $ 6,221 $ 5,622
Mortgage-backed securities 6,379 5,366 3,271 2,597
Investment securities 2,955 1,228 1,388 596
Interest bearing deposits and other 534 577 226 268
------- ------- ------- -------
TOTAL INTEREST INCOME 22,281 18,073 11,106 9,083
Interest expense
Deposits 9,320 6,397 4,663 3,219
Borrowings 2,930 2,923 1,473 1,519
------- ------- ------- -------
TOTAL INTEREST EXPENSE 12,250 9,320 6,136 4,738
NET INTEREST INCOME 10,031 8,753 4,970 4,345
Provision for loan losses 180 90 75 60
------- ------- ------- -------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 9,851 8,663 4,895 4,285
Non-interest income
Gain on sale of real estate acquired through foreclosure 0 114 0 0
Gain on sale of mortgage-backed securities 188 223 115 0
Gain on sale of loans 39 7 40 7
Service fees, charges and other operating income 651 650 333 296
------- ------- ------- -------
TOTAL NON-INTEREST INCOME 878 994 488 303
Non-interest expense
Employee compensation and benefits 3,299 2,806 1,626 1,383
Occupancy and equipment 904 657 459 307
Federal deposit insurance premium 153 390 76 194
Data processing 346 237 166 118
Professional fees 276 277 143 153
Goodwill and other intangible amortization 488 0 244 0
Provision for losses on real estate acquired through foreclosure 0 3 0 3
Advertising 188 155 90 80
Other operating 1,072 878 514 419
------- ------- ------- -------
TOTAL NON-INTEREST EXPENSE 6,726 5,403 3,318 2,657
INCOME BEFORE INCOME TAXES 4,003 4,254 2,065 1,931
Income taxes 1,574 1,758 800 829
------- ------- ------- -------
NET INCOME $ 2,429 $ 2,496 $ 1,265 $ 1,102
======= ======= ======= =======
Per share data
Earnings per share .60 .58 .31 .26
Weighted average number of shares outstanding 4,025 4,301 3,981 4,304
See notes to consolidated financial statement
2
TF FINANCIAL CORPORATION AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Six Months
Ended June 30
--------------------
1997 1996
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CASH FLOWS FROM OPERATING ACTIVITIES
Net Income $ 2,429 $ 2,496
Adjustments to reconcile net income to net cash provided by
operating activities:
Amortization of:
Mortgage loan servicing rights 47 0
Deferred loan origination fees (77) (87)
Premiums and discounts on investment securities. net 25 (12)
Premiums and discounts on mortgage-backed securities and
loans. net 69 88
Amortization of goodwill and core deposit intangible 488 0
Provision for loan losses and provision for losses on real estate 180 93
Depreciation of premises and equipment 351 271
Recognition of ESOP and MSBP expenses 454 440
Gain (loss) on sale of mortgage-backed securities - available for sale (188) (223)
Gain on sale of real estate acquired through foreclosure 0 (114)
(Gain)/loss on sale of mortgage loans (39) 0
Decrease (increase) in
Accrued interest receivable (568) 122
Other assets (65) (415)
Increase (decrease) in
Accrued interest payable 1,255 408
Other liabilities 1,154 986
------ -------
NET CASH PROVIDED BY OPERATING ACTIVITIES 5,515 4,053
CASH FLOWS FROM INVESTING ACTIVITIES
Loan originations and principal payments on loans. net (11,009) (22,347)
Purchases of loans (12,663) (46,690)
Proceeds from loan sales 16,970 1,008
Purchases and maturities of certificates of deposit in other
financial institutions. net 769 800
Purchases and maturities of securities purchased under
agreements to resell, net 20,129 0
Purchases of investment securities - available for sale (6,982) 0
Purchases of investment securities - held to maturity (68,081) (3,724)
Purchases of mortgage-backed securities - available for sale (23,412) 0
Purchase of mortgage-backed securities - held to maturity (15,071) (4,882)
Proceeds from maturities of investment securities held to maturity 54,680 7,464
Proceeds from maturities of investment securities available for sale 1,350 7,000
Principal repayments from maturities of mortgage-backed securities-
held to maturity 12,144 14,044
Principal repayments from maturities of mortgage-backed securities-
available for sale 1,189 1,851
Proceeds from the sale of mortgage-backed securities 8,648 5,338
Purchases and redemptions of Federal Home Loan Bank Stock. net 0 (1,500)
Proceeds from sales of real estate acquired through foreclosure 0 439
Purchase of premises and equipment (187) (69)
------ -------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES 21,526) (41,268)
See notes to consolidated financial statement
3
TF FINANCIAL CORPORATION AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(in thousands)
For the Six Months
Ended June 30
1997 1996
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase (decrease) in demand deposits/NOW accounts,
passbook savings accounts and certificates of deposit $ (8,241) $ 4,803
Advances from Federal Home Loan Bank - net 0 30,000
Net (decrease) increase in advances from borrowers for taxes
and insurance 200 856
Purchase of treasury stock (3,587) (0)
Common stock cash dividend (768) (626)
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES (12,396) 35,033
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (28,407) 2,182
Cash and cash equivalents at beginning of period 54,132 27,032
Cash and cash equivalents at end of period $ 25,725 $ 24,850
-------- --------
Supplemental disclosure of cash flow information
Cash paid for
Interest on deposits and advances $ 10,995 $ 8,192
Income taxes $ 801 $ 1,330
Non-cash transactions
Transfers from loans to real estate acquired through foreclosure $ 78 $ 32
See notes to consolidated financial statement
4
TF FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - PRINCIPLES OF CONSOLIDATION
The consolidated financial statements as of December 31, 1996 and as of and
for the three and six month periods ended June 30, 1997 and 1996 include the
accounts of TF Financial Corporation (the "Corporation") and its wholly owned
subsidiaries Third Federal Savings Bank (the "Savings Bank"), TF Investments
Corporation and Penns Trail Development Corporation and Teragon Financial
Corporation. The Corporation's business is conducted principally through the
Savings Bank. All significant intercompany accounts and transactions have been
eliminated in consolidation.
NOTE 2 - BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements were prepared
in accordance with instructions for Form 10-Q and, therefore, do not include
information or footnotes necessary for a complete presentation of consolidated
financial condition, results of operations, and cash flows in conformity with
generally accepted accounting principles. However, all adjustments, consisting
of normal recurring accruals, which, in the opinion of management, are necessary
for fair presentation of the consolidated financial statements have been
included. The results of operations for the periods ended June 30, 1997 are not
necessarily indicative of the results which may be expected for the entire
fiscal year or any other period. For further information, refer to consolidated
financial statements and footnotes thereto included in the Corporations Annual
Report on Form 10-K for the fiscal year ended December 31, 1996.
NOTE 3 - IMPAIRED LOANS
On January 1, 1995 the Corporation adopted Statement of Financial
Accounting Standards (SFAS) No. 114, "Accounting for Creditors for Impairment of
a Loan," as amended by SFAS No. 118, "Accounting by Creditors for Impairment of
a Loan - Income Recognition and Disclosures." SFAS No. 114 requires that a
creditor measure impairment based on the present value of expected future cash
flows discounted at the loan's effective interest rate, except that as a
practical expedient, a creditor may measure impairment based on a loan's
observable market price, or the fair value of the collateral if the loan is
collateral dependent. Regardless of the measurement method, a creditor must
measure impairment based on the fair value of the collateral when the creditor
determines that foreclosure is probable: SFAS No. 118 allows creditors to use
existing methods for recognizing interest income on impaired loans.
The Savings Bank has identified a loan as impaired when it is probable that
interest and principal will not be collected according to the contractual terms
of the loan agreement. The accrual of interest is discontinued on such loans,
and cash payments received are applied to reduce principal to the extent
necessary to eliminate any doubt as to the ultimate collectibility of principal
either in whole or in part. Loan impairment is measured by estimating the
expected future cash flows and discounting them at the respective effective
interest rate, or by valuing the underlying collateral. An allowance for credit
losses has been established for all loans identified as impaired. The recorded
investment in impaired loans and the valuation for credit losses are as follows:
(in thousands) June 30 1997
------------
Principal amount of impaired loans $ 625
Accrued interest -
Deferred loan costs -
Subtotal $ 625
---
Less valuation allowance 132
---
Total $ 493
===
The average recorded investment in impaired loans during the quarter ended
June 30, 1997 was $628,000. Total cash collected on impaired loans during the
quarter ended June 30, 1997 was $7,000 of which $4,000 was credited to the
principal balance outstanding on such loans and $3,000 was recognized as
interest income. Interest that would have been accrued on impaired loans during
the quarter was
5
$13,000. Interest income recognized during the quarter was $3,000.
NOTE 4 - CONTINGENCIES
The Corporation, from time to time, is a party to routine litigation, which
arise in the normal course of business. In the opinion of management, the
resolution of these lawsuits would not have a material adverse effect on the
Corporation's consolidated financial condition or results of operations.
A petition for resettlement has been filed by the Savings Bank protesting
assessment of certain prior years' Pennsylvania Mutual Thrift Institutions Tax.
Management believes that the resolution of this liability, if any, would not
have a material adverse effect on the Corporation's financial position or
results of operations.
6
TF FINANCIAL CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
---------------------------------------------
GENERAL
The Corporation's total assets at June 30, 1997 and December 31, 1996 totaled
$640.7 million and $647.9 million, respectively, a decrease of $7.2 million or
1.1% for the six month period. This decrease was primarily as a result of an
$8.2 million or 1.8% decrease in deposits which was funded by reductions in cash
and cash equivalents. Savings deposits declined over the period as a result of
general market conditions. Loans receivable increased by $6.3 million or 2.0%
from $309.6 million at December 31, 1996 to $315.9 million at June 30, 1997.
During this same period, investment securities increased $19.0 million or 33.9%
and mortgage backed securities increased by $16.9 million or 9.6%. The increases
in these asset categories was funded by the $48.5 million or 61.2% decrease in
other interest earning assets (cash and cash equivalents and securities
purchased under agreements to resell).
Other interest earning assets totaled $30.7 million at June 30, 1997 as compared
with $79.3 million at December 31, 1996. The decrease in other interest earning
assets is a result of the reinvestment of $138 million received in September,
1996 as a result of the acquisition of deposits and three retail offices of
Cenlar Federal Savings Bank ("Cenlar").
Investment securities at June 30, 1997, totaled $75.1 million, which represents
an increase of $19.0 million or 33.9% as compared to December 31, 1996. The
increase is primarily due to the reinvestment of cash received from the Cenlar
acquisition.
Mortgage-backed securities totaled $192.6 million at June 30, 1997 as compared
to $175.8 million at December 31, 1996. This increase of $16.9 million or 9.6%
is also attributed mainly to the reinvestment of cash received from the Cenlar
acquisition.
Other assets, inclusive of prepaid expenses, at June 30 1997, totaled $1.5
million, which represents an increase of $109,000 or 7.7% as compared to
December 31, 1996. This increase is comprised primarily of an increase in
accounts receivable due the Savings Bank.
Total consolidated stockholders' equity of the Corporation decreased $1.3
million to $71.2 million or 11.1% of total assets at June 30, 1997, from $72.6
million or 11.2 % of total assets at December 31, 1996, primarily due to the
payment of $767,000 in dividends to shareholders and $3.6 million in stock
repurchases partially offset by earnings of $2.4 million for the six month
period. Stockholders' equity also decreased as a result of a change in the net
unrealized loss on investment securities available for sale of $124,000 at June
30, 1997 and amortization of stock incentive plans of $338,000. On October 23,
1996 the Corporation announced its intent to repurchase up to 5% of its
outstanding common stock in the open market. The repurchase was completed on
April 9, 1997, with a total of 214,869 shares, approximately 5% of outstanding
common shares, repurchased at a total cost of $3.6 million.
Average Balance Sheet
The following tables set forth information relating to the Corporation's average
balance sheet and reflects the average yield on assets and average cost of
liabilities for the periods indicated. The yields and costs are computed by
dividing income or expense by the monthly average balance of interest-earning
assets or interest-bearing liabilities, respectively for the periods indicated.
7
For Three Months Ended June 30
--------------------------------------------------------------------------------
1997 (4) 1996(4)
-------------------------------------- -------------------------------------
(Dollars in thousands) Average Average Average Average
Balance Interest Yield/Cost Balance Interest Yield/Cost
------- -------- ---------- ------- -------- ----------
Assets:
Interest earning assets:
Loans receivable, net....................... $316,050 $ 6,221 7.87% $299,397 $ 5,622 7.51%
Mortgage-backed securities.................. 196,144 3,271 6.67% 153,381 2,597 6.77%
Investment securities....................... 81,281 1,388 6.83% 38,143 596 6.25%
Other interest-earning assets(1)............ 22,563 226 4.01% 24,742 268 4.33%
------- --- ------ ---
Total interest-earning assets............. $616,038 $11,106 7.21% $515,663 $9,083 7.05%
======= ======= ========
Non interest-earning assets................... 23,029 10,827
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Total assets.............................. $639,067 $526,490
======= =======
Liabilities and Stockholders' Equity:
Interest-bearing liabilities:
Savings deposits.......................... $459,122 $4,663 4.06% $338,511 $3,219 3.80%
Borrowed money............................ 98,359 1,473 5.99% 103,359 1,519 5.88%
-------- ----- ------- -----
Total interest-bearing liabilities...... $557,481 $6,136 4.40% $441,870 $4,738 4.29%
======= ====== ========
Non interest-bearing liabilities.............. 11,025 9,744
-------
Total liabilities....................... $568,506 $451,614
========
Stockholders' equity.......................... 70,561 74,876
Total liabilities and stockholders' equity $639,067 $526,490
======= ========
Net interest income........................... $4,970 $4,345
====== =====
Interest rate spread (2)...................... 2.81% 2.76%
Net yield on interest-earning assets (3)...... 3.23% 3.37%
Ratio of average interest-earning assets to average
interest-bearing liabilities................ 111% 117%
- ----------------------------------------
(1) Includes interest-bearing deposits in other banks.
(2) Interest-rate spread represents the difference between the average yield on
interest-earning assets and the average cost of interest-bearing
liabilities.
(3) Net yield on interest-earning assets represents net interest income as a
percentage of average interest-earning assets.
(4) Ratios have been annualized where applicable.
8
Average Balance Sheet (continued)
For Six Months Ended June 30
------------------------------------------------------------------------------
1997 (4) 1996(4)
------------------------------------ -------------------------------------
(Dollars in thousands) Average Average Average Average
Balance Interest Yield/Cost Balance Interest Yield/Cost
------- -------- ---------- ------- -------- ----------
Assets:
Interest earning assets:
Loans receivable, net.............................. $313,220 $12,413 7.93% $290,154 $10,902 7.51%
Mortgage-backed securities......................... 190,656 6,379 6.69% 156,205 5,366 6.87%
Investment securities.............................. 91,152 2,955 6.48% 39,997 1,228 6.14%
Other interest-earning assets(1)................... 23,347 534 4.57% 25,344 577 4.55%
------ --- ------ ---
Total interest-earning assets.................... $618,375 $22,281 7.21% $511,700 $18,073 7.06%
======== ========
Non interest-earning assets.......................... 22,783 9,310
------ -----
Total assets..................................... $641,158 $521,010
======== ========
Liabilities and Stockholders' Equity:
Interest-bearing liabilities:
Savings deposits................................. $460,847 $9,320 4.04% $336,833 $6,397 3.80%
Borrowed money................................... 99,192 2,930 5.91% 100,859 2,923 5.80%
------ ----- ------- -----
Total interest-bearing liabilities............. $560,039 $12,250 4.37% $437,692 $9,320 4.26%
======== ========
Non interest-bearing liabilities..................... 10,176 8,861
Total liabilities.............................. $570,215 $446,553
========
Stockholders' equity................................. 70,943 74,457
------ -------
Total liabilities and stockholders' equity..... $641,158 $521,010
======== =======
Net interest income.................................. $10,031 $8,753
======= =====
Interest rate spread (2)............................. 2.84% 2.80%
Net yield on interest-earning assets (3)............. 3.24% 3.42%
Ratio of average interest-earning assets to average
interest-bearing liabilities....................... 110% 117%
- ----------------------------------------
(1) Includes interest-bearing deposits in other banks.
(2) Interest-rate spread represents the difference between the average yield on
interest-earning assets and the average cost of interest-bearing
liabilities.
(3) Net yield on interest-earning assets represents net interest income as a
percentage of average interest-earning assets.
(4) Ratios have been annualized where applicable.
9
RESULTS OF OPERATIONS
Net Income. The Corporation recorded net income of $1.3 million for the three
months ended June 30, 1997 as compared to net income of $1.1 million for the
three months ended June 30, 1996. Earnings for the three months ended June 30,
1997 represent an increase of $.2 million or 14.8% compared to earnings reported
for the same period in 1996. The increase in earnings for this period is
attributable to an increase in core earnings. Net interest income before
provisions for loan losses was $5.0 million for the three month periods ended
June 30, 1997 as compared to $4.3 million for the same period in 1996. For these
same periods, total interest expense was $6.1 million and $4.7 million,
respectively. Non-interest income was $488,000 and $303,000, respectively, for
these same periods. Operating expenses (non-interest expense) were $3.3 million
and $2.7 million for the three month periods ended June 30, 1997 and June 30,
1996, respectively.
Net Income of $2.4 million for the six months ended June 30, 1997 showed a
$67,000 decrease over net income of $2.5 million for the six months ended June
30, 1996. The decrease in earnings for this period is attributable to an
increase in non-interest expense partially offset by gains on the sale of real
estate and investment securities. Net interest income before provisions for loan
losses was $10.0 million for the six month period ended June 30, 1997 as
compared to $8.8 million for the same period in 1996. For these same periods,
total interest expense was $12.3 million and $9.3 million, respectively.
Non-interest income was $878,000 and $994,000, respectively for these same
periods. The decrease in non-interest income was attributed to the reduction in
gains on the sale of the real estate and investment securities in the six month
period ended June 30, 1997 than in the corresponding period ended June 30, 1996.
Operating expenses (non-interest expense) were $6.7 million and $5.4 million for
the six month periods ended June 30, 1997 and June 30, 1996, respectively.
Total Interest Income. Total interest income increased by $2.0 million or 22.3%
to $11.1 million for the three months ended June 30, 1997, from $9.1 million for
the three months ended June 30, 1996 due primarily to increases in the average
balance of loans receivable, mortgage-backed securities and investment
securities, offset somewhat by decreases in the average balances of other
interest-earning assets. The average balance of loans receivable increased 5.6%
to $316.0 million from $299.4 million for the three months ended June 30, 1997
and 1996, respectively. Interest attributable to loans receivable increased
$599,000 or 10.7% to $6.2 million from $5.6 million for these same periods. This
increase is primarily attributed to the increase in the average balance of loans
receivable as well as an increase in the average yield on loans receivable from
7.51% for the period end June 30, 1996, to 7.87% for the period ended June 30,
1997. Interest on mortgage-backed securities increased $674,000 (26.0%)
primarily as a result of increases in the average balances of these securities
offset partially by decreases in the average yield. The average yield on
mortgage-backed securities decreased to 6.67% for the three month period ended
June 30, 1997 compared to 6.77% for the similar period in 1996 while the average
balance of mortgage-backed securities increased by $42.8 million or 27.9% when
comparing these two periods. Interest on investment securities increased by
$792,000 or 132.9% for the three month period ended June 30, 1997 as compared to
the similar period in 1996. Interest on other interest earning assets declined
by $42,000 for the three month period ended June 30, 1997 compared to the
similar period ended June 30, 1996 primarily as a result of the average balance
declining by $2.2 million to $22.6 million, coupled with a decrease in the
average yield to 4.01% at June 30, 1997 from 4.33% at June 30, 1996. The
increases in the average balances of loans receivable, mortgage-backed
securities and investment securities are a result of the reinvestment of $138
million in deposits received from the Cenlar acquisition.
For the six months ended June 30, 1997, total interest income increased to $22.3
million from $18.1 million for the six months ended June 30, 1996. This increase
of $4.2 million, or 23.3%, is due primarily to the increase in income on loans
receivable, mortgage-backed securities and investment securities, somewhat
offset by the decrease in income on other interest earning assets. Interest on
loans receivable increased by $1.5 million, or 13.9%, to $12.4 million at June
30, 1997, from $10.9 million at June 30, 1996. During the same time periods, the
average balance of loans receivable increased by $23.1 to $313.2 million from
$290.2 million. Interest on mortgage-backed securities increased $1.0 million
(18.9%) from June 30, 1996 to June 30, 1997, primarily as a result of increases
in the average balances of these securities. The average yield on
mortgage-backed securities decreased to 6.69% for the six month period ended
June 30,
10
1997 compared to 6.87% for the similar period in 1996 while the average balance
of mortgage-backed securities increased by $34.5 million when comparing these
two periods. Interest on investment securities increased by $1.7 million for the
six month period ended June 30, 1997 as compared to the similar period in 1996
as a result of increases in the average balances and average yields of these
securities. The average yield on investment securities increased to 6.48% for
the six month period ended June 30, 1997 compared to 6.14% for the similar
period in 1996 while the average balance of investment securities increased by
$51.2 million when comparing these two periods. Interest on other interest
earning assets declined by $43,000 for the six month period ended June 30, 1997
compared to the similar period ended June 30, 1996 primarily as a result of the
average balance declining by $2.0 million to $23.3 million, coupled with an
increase in the average yield to 4.57% at June 30, 1997 from 4.55% at June 30,
1996. The increases in the average balances of loans receivable, mortgage-backed
securities and investment securities are a result of the reinvestment of $138
million in deposits received from the Cenlar acquisition.
Total Interest Expense. Total interest expense increased to $6.1 million for the
three month period ended June 30, 1997 from $4.4 million at June 30, 1996. This
increase in total interest expense is a result of the increases in the average
balance and average rate of savings deposits. The average balance of savings
deposits increased from $338.5 million at June 30, 1996 to $459.1 million at
June 30, 1997. The average rate paid on savings deposits increased from 3.80% in
the June 30, 1996 period to 4.06% in the June 30, 1997 period. This increase was
mainly attributable to the acquisition of deposits from the Cenlar acquisition.
The average balance of total interest bearing liabilities increased to $557.5
million during the three months ended June 30, 1997 from $441.9 million during
the three months ended June 30, 1996 as a result of the increase in savings
deposits partially offset by decreases in the average balance and rate of
Federal Home Loan Bank advances.
Total interest expense of $12.3 million increased $2.9 million for the six month
period ended June 30, 1997 compared to $9.3 million for the six months ended
June 30, 1996. This increase in total interest expense is a result of the
increases in the average balance and average rate of savings deposits. The
average balance of total interest bearing liabilities increased to $560.0
million during the six months ended June 30, 1997 from $437.7 million during the
six months ended June 30, 1996 as a result of the increase in savings deposits.
Net Interest Income. Net interest income for the three month period ended June
30, 1997 increased by $625,000 or 14.4% to $5.0 million from $4.3 million for
the same period in 1996. This increase is primarily due to the increase in
interest earning assets offset by the increase to interest bearing liabilities.
The average balances of interest earning assets increased to $616.0 million for
the three months ended June 30, 1997 from $515.7 million for the similar period
in 1996. During these same periods, the average balances on interest-bearing
liabilities increased to $557.5 million from $441.9 million. The cost of
interest bearing liabilities increased from 4.29% to 4.40% while the yield on
interest earning assets increased from 7.05% to 7.21% for the three month
periods ended June 30, 1996 and 1997 respectively.
Net interest income for the six month period ended June 30, 1997 increased by
$1.3 million or 14.6% to $10.0 million from $8.8 million for the same period in
1996. This increase is primarily due to the increase in interest earning assets
partially offset by the increase to interest earning liabilities. The average
balances of interest earning assets increased to $618.4 million for the six
months ended June 30, 1997 from $511.7 million for the similar period in 1996.
During these same periods, the average balances on interest bearing liabilities
increased to $560.0 million from $437.7 million. The cost of interest bearing
liabilities increased from 4.26% to 4.37% while the yield on interest earning
assets increased from 7.06% to 7.21% for the six month periods ended June 30,
1996 and 1997 respectively.
Allowance for Loan Losses. The allowance for loan losses increased at June 30,
1997 to $2.0 million from $1.7 million at June 30, 1996. Such totals correlate
to non-performing loans of $2.0 million at June 30, 1997 and $1.8 million at
June 30, 1996. The increase in the allowance for loan losses of $417,000
resulted from the addition of $420,000 to the provision for loan losses and the
deduction of $3,000 of net charge offs for losses on loans. The provision for
losses on loans is the method by which the allowance for losses is adjusted
during the period. The provision for losses on loans was $75,000 for the three
months ended June 30, 1997. At June 30, 1997, the allowance for loan losses was
102.6% of non-performing loans as compared to 79.4% of non-performing loans at
June 30, 1996. While management maintains its allowance for
11
losses at a level which it considers to be adequate to provide for potential
losses, there can be no assurance that further additions will not be made to the
allowance and that such losses will not exceed the estimated amounts.
Non-interest Income. Total non-interest income increased to $488,000 for the
three months ended June 30, 1997 from $303,000 for the same period in 1996. This
increase can be attributed to the increase in income from the sale of investment
securities and loans.
Total non-interest income decreased to $878,000 for the six month period ended
June 30, 1997 from $994,000 for the similar period in 1996. This decrease can be
attributed to the decrease in the net gain on the sale of real estate acquired
through foreclosure of $114,000.
Non-interest Expense. Total non-interest expense increased by $661,000 to $3.3
million for the three months ended June 30, 1997 as compared to $2.7 million for
the similar period in 1996. This increase is primarily attributed to the
$243,000 increase in employee compensation and benefits, a $152,000 increase in
occupancy and equipment, a $48,000 increase in data processing expense, a
$244,000 increase in amortization of goodwill and other intangibles, and a
$95,000 increase in other operating costs. These increased costs were offset
partially by decreases of $118,000 in Federal deposit insurance premiums and
$10,000 in professional fees. The increases in compensation and benefit costs
were primarily as a result of increased staffing necessary to support three
additional retail offices which were acquired through the Cenlar acquisition.
Benefit costs were also increased due to the increases in costs associated with
benefit plans utilizing Corporation stock (portions of the costs of benefit
plans utilizing Corporation stock change as the market value of the stock
changes). Data processing, occupancy and equipment, and other operating expenses
were also increased due to this acquisition. The cost of the acquisition of the
three retail offices is being amortized over a 15 year period and this
amortization resulted in additional expenses of $244,000 for the period ended
June 30, 1997.
Total non-interest expense has increased to $6.7 million for the six months
ended June 30, 1997 as compared to $5.4 million for the similar period in 1996.
This increase of $1.3 million is primarily attributable to a $493,000 increase
in employee compensation and benefits, the $247,000 increase in occupancy and
equipment, a $109,000 increase in data processing costs, a $488,000 increase in
goodwill and other intangible amortization, and a $194,000 increase in other
operating costs. These increases were partially offset by the $237,000 decrease
in Federal deposit insurance premiums. The increases were mainly due to the
increased costs associated with the Cenlar acquisition. Benefit costs were also
increased due to the increases in costs associated with benefit plans utilizing
Corporation stock (portions of the costs of benefit plans utilizing Corporation
stock change as the market value of the stock changes).
Income Tax Expense. Income taxes decreased by $29,000 to $800,000 for the three
month period ended June 30, 1997, from $829,000 for the three months ended June
30, 1996. The primary reason for this decrease was the change in the effective
state tax rate as a result of tax savings strategies.
For the six month period ended June 30, 1997, income taxes decreased to $1.6
million from $1.8 million for the six months ended June 30, 1996. This decrease
of $184,000 is primarily attributed to the decrease in net income before taxes
to $4.0 million from $4.3 million for the six month periods ended June 30, 1997
and 1996, respectively coupled with a decrease in the effective state tax rate
as a result of tax savings strategies.
12
Liquidity and Capital Resources
Under current Office of Thrift Supervision (OTS) regulations, the Savings Bank
must have core capital equal to 3% of total assets and risk-based capital equal
to 8% of risk-weighted assets, of which 1.5% must be tangible capital, excluding
goodwill and certain other intangible assets.
On June 30, 1997, the Savings Bank was in compliance with its three regulatory
capital requirements as follows:
Amount Percent
------ -------
(dollars in thousands)
Tangible capital $57,501 9.0%
Tangible capital requirement 9,532 1.5
------- ----
Excess over requirement $47,969 7.5%
======= ====
Core capital $57,501 9.0%
Core capital requirement 19,064 3.0
------- ----
Excess over requirement $38,437 6.0%
======= ====
Risk based capital $59,484 20.8%
Risk based capital requirement 22,830 8.0
------- ----
Excess over requirement $36,654 12.8%
======= ====
Management believes that under current regulations, the Savings Bank will
continue to meet its minimum capital requirements in the foreseeable future.
Events beyond the control of the Savings Bank, such as increased interest rates
or a downturn in the economy in areas in which the Savings Bank operates, could
adversely affect future earnings and as a result, the ability of the Savings
Bank to meet its future minimum capital requirements.
The Savings Bank's liquidity is a measure of its ability to fund loans, pay
withdrawals of deposits, and other cash outflows in an efficient, cost effective
manner. The Savings Bank's primary source of funds are deposits and scheduled
amortization and prepayment of loan and mortgage backed principal. During the
past several years, the Savings Bank has used such funds primarily to fund
maturing time deposits, pay savings withdrawals, fund lending commitments,
purchase new investments, and increase liquidity. The Savings Bank is currently
able to fund its operations internally but has, when deemed prudent, borrowed
funds from the Federal Home Loan Bank of Pittsburgh. As of June 30, 1997, such
borrowed funds total $98.4 million. Loan payments, maturing investments and
mortgage-backed security prepayments are greatly influenced by general interest
rates, economic conditions and competition.
The Savings Bank is required under federal regulations to maintain certain
specified levels of "liquid investments", which include certain United States
government obligations and other approved investments. Current regulations
require the Savings Bank to maintain liquid assets of not less than 5% of its
net withdrawable accounts plus short term borrowings. Short term liquid assets
must consist of not less than 1% of such accounts and borrowings, which amount
is also included within the 5% requirement. These levels may be changed from
time to time by the regulators to reflect current economic conditions. The
Savings Bank has generally maintained liquidity far in excess of regulatory
requirements. The Savings Bank's regulatory liquidity was 14.5% and 12.3% at
June 30, 1997 and 1996, respectively, and its short term liquidity was 6.5% and
8.3%, at such dates, respectively.
The amount of certificate accounts which are scheduled to mature during the
twelve months ending June 30 1998, is approximately $134.9 million. To the
extent that these deposits do not remain at the Savings Bank upon maturity, the
Savings Bank believes that it can replace these funds with deposits, excess
liquidity, FHLB advances or outside borrowings. It has been the Savings Bank's
experience that a substantial portion of such maturing deposits remain at the
Savings Bank.
13
At June 30, 1997, the Savings Bank had outstanding commitments to originate
loans of $8.1 million. Also outstanding at June 30, 1997 were commitments to
purchase $334,000 of loans. Funds required to fill these commitments are derived
primarily from current excess liquidity, deposit inflows or loan and security
repayments. At June 30, 1997, the Savings Bank had outstanding commitments to
sell loans of $11.7 million.
14
TF FINANCIAL CORPORATION AND SUBSIDIARIES
PART II
ITEM 1. LEGAL PROCEEDINGS
Neither the Corporation nor the Savings Bank was
engaged in any legal proceeding of a material nature
at June 30, 1997. From time to time, the Corporation
is a party to legal proceedings in the ordinary
course of business wherein it enforces its security
interest in loans.
ITEM 2. CHANGES IN SECURITIES
Not applicable.
ITEM 3. DEFAULTS ON SENIOR SECURITIES
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
ITEM 5. OTHER MATERIALLY IMPORTANT EVENTS
Not applicable
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
None
(b) Reports on Form 8-K
On April 19, 1997, the Corporation filed a Current
Report on Form 8-K dated April 9, 1997, to report the
completion of the repurchase of 214,869 shares of the
Corporation's common stock
15
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Report to be signed on its behalf by the
undersigned, thereunto duly authorized.
TF FINANCIAL CORPORATION
Date: August 12, 1997 By: /s/ John R. Stranford
------------------------- ----------------------
John R. Stranford
President and CEO
(Principal Executive Officer)
Date: August 12, 1997 By: /s/ William C. Niemczura
------------------------- -------------------------
William C. Niemczura
Senior Vice President and
Chief Financial Officer
(Principal Financial & Accounting Officer)
16