SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM lO-Q (Mark One) [x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 1999 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ________________ to ________________ Commission file number 0-24168 ------- TF FINANCIAL CORPORATION - -------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) Delaware 74-2705050 - -------------------------------------------------------------------------------- (State or other jurisdiction of (I.R.S. employer incorporation or organization) identification no.) 3 Penns Trail, Newtown, Pennsylvania 18940 - -------------------------------------------------------------------------------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code 215-579-4000 ------------------------------ N/A - -------------------------------------------------------------------------------- Former name, former address and former fiscal year, if changed since last report. Indicate by check _ whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- --- APPLICABLE ONLY TO CORPORATE ISSUERS: Indicate the number of shares outstanding of each of the issuer's classes of common stock as of the latest practicable date May 14, 1999 ------------- Class Outstanding ----- ----------- $.10 par value common stock 2,755,279 shares 1 TF FINANCIAL CORPORATION AND SUBSIDIARIES FORM 1O-Q FOR THE QUARTER ENDED MARCH 31, 1999 INDEX Page Number ------ PART I - CONSOLIDATED FINANCIAL INFORMATION Item 1. Consolidated Financial Statements 3 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 8 Item 3. Quantitative and Qualitative Disclosures about Market Risk 15 PART II- OTHER INFORMATION Item 1. Legal Proceedings 16 Item 2. Changes in Securities 16 Item 3. Defaults upon Senior Securities 16 Item 4. Submission of Matters to a Vote of Security Holders 16 Item 5. Other Materially Important Events 16 Item 6. Exhibits and Reports on Form 8-K 16 SIGNATURES 18 2 TF FINANCIAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (in thousands) Unaudited Audited March December 31, 31, ASSETS 1999 1998 ----------- ---------- Cash and cash equivalents $35,795 42,703 Certificates of deposit in other financial institutions 2,038 2,238 Investment securities available for sale - at fair value 5,016 9,042 Investment securities held to maturity (fair value of $96,478 and $81,094, 96,651 80,895 respectively) Mortgage-backed securities available for sale - at fair value 69,682 75,285 Mortgage-backed securities held to maturity (fair value of $191,819 and $182,560, respectively) 191,321 180,964 Loans receivable, net 302,083 240,841 Federal Home Loan Bank stock - at cost 12,668 9,168 Accrued interest receivable 4,420 4,558 Real estate held for investment 2,348 2,348 Goodwill and other intangible assets 7,181 7,389 Premises and equipment, net 8,924 9,017 Other assets 1,290 1,160 --------- -------- Total Assets $739,417 $665,608 ========= ======== LABILITIES AND STOCKHOLDERS' EQUITY Liabilities Deposits $424,869 $438,913 Advances from the Federal Home Loan Bank 253,359 163,359 Advances from borrowers for taxes and insurance 1,111 1,204 Accrued interest payable 5,557 4,166 Other liabilities 3,256 5,306 --------- --------- Total Liabilities 688,152 612,948 Commitments and contingencies - - Stockholders' Equity Preferred stock, no par value; 2,000,000 shares authorized and none issued - - Common stock, $0.10 par value; 10,000,000 shares authorized, 5,290,000 issued; 2,755,279 and 2,857,932 shares outstanding at March 31, 1999 and December 31, 1998, net of treasury shares of 2,248,990 and 2,143,319 respectively. 529 529 Retained earnings 46,392 45,762 Additional paid-in capital 51,988 51,957 Unearned ESOP shares (2,857) (2,888) Shares acquired by MSBP (362) (468) Treasury stock - at cost (44,311) (42,386) Accumulated other comprehensive income (114) 154 --------- -------- Total Stockholders' Equity 51,265 52,660 --------- -------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $739,417 $665,608 ========= ======== See notes to consolidated financial statements 3 TF FINANCIAL CORPORATION AND SUBSIDIARIES UNAUDITED CONSOLIDATED STATEMENTS OF EARNINGS (in thousands, except per share data) For Three Months Ended March 31, 1999 1998 ---------- ----------- Interest income Loans $5,089 $4,904 Mortgage-backed securities 4,097 3,238 Investment securities 1,581 1,577 Interest bearing deposits and other 326 422 -------- -------- TOTAL INTEREST INCOME 11,093 10,141 Interest expense Deposits 3,857 4,314 Borrowings 2,775 1,348 -------- -------- TOTAL INTEREST EXPENSE 6,632 5,662 NET INTEREST INCOME 4,461 4,479 Provision for loan losses 30 15 -------- -------- NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 4,431 4,464 Non-interest income Gain on sale of real estate acquired through foreclosure 6 (1) Gain on sale of loans 0 74 Service fees, charges and other operating income 318 347 -------- -------- TOTAL NON-INTEREST INCOME 324 420 Non-interest expense Employee compensation and benefits 1,640 1,665 Occupancy and equipment 494 439 Federal deposit insurance premium 68 70 Data processing 5 175 Professional fees 165 135 Amortization of goodwill and other intangible assets 209 225 Advertising 90 90 Other operating 549 576 -------- -------- TOTAL NON-INTEREST EXPENSE 3,220 3,375 INCOME BEFORE INCOME TAXES 1,535 1,509 Income taxes 551 516 -------- -------- NET INCOME $984 $993 ======== ======== Basic earnings per share $ 0.35 $ 0.34 Diluted earnings per share $ 0.33 $ 0.31 Weighted average number of shares outstanding - Basic 2,822 2,888 Weighted average number of shares outstanding - Diluted 2,996 3,242 See notes to consolidated financial statements 4 TF FINANCIAL CORPORATION AND SUBSIDIARIES UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) For the Three Months Ended March 31, 1999 1998 ---------- ---------- CASH FLOWS FROM OPERATING ACTIVITIES Net Income $984 $993 Adjustments to reconcile net income to net cash provided by operating activities: Amortization of: Mortgage loan servicing rights 3 6 Deferred loan origination fees (25) (59) Premiums and discounts on investment securities, net 23 31 Premiums and discounts on mortgage-backed securities and loans, net 230 85 Amortization of goodwill and other intangible assets 209 225 Provision for loan losses and provision for losses on real estate 30 15 Depreciation of premises and equipment 231 179 Recognition of ESOP and MSBP expenses 167 206 (Gain) loss on sale of real estate acquired through foreclosure (12) 1 (Gain) loss on sale of mortgage loans - (74) Decrease (increase) in Accrued interest receivable 138 (105) Other assets (167) (334) Increase (decrease) in Accrued interest payable 1,391 2,096 Other liabilities (2,222) (711) -------- -------- NET CASH PROVIDED BY OPERATING ACTIVITIES 980 2,554 CASH FLOWS FROM INVESTING ACTIVITIES Loan origination and principal payments on loans, net 15,253 (4,271) Purchases of loans (76,553) - Proceeds from loan sales - 14,527 Maturities (purchases) of certificates of deposit in other financial institutions, net 200 200 Maturities (purchases) of securities purchased under agreements to resell, net - 10,000 Purchases of investment securities available for sale - (73,998) Purchases of investment securities held to maturity (102,576) (16,415) Purchases of mortgage-backed securities available for sale (2,346) (10,154) Purchase of mortgage-backed securities held to maturity (41,632) (54,734) Proceeds from maturities of investment securities held to maturity 89,140 14,582 Proceeds from maturities of investment securities available for sale 2,000 62,265 Principal repayments from mortgage-backed securities held to maturity 31,162 9,072 Principal repayments from mortgage-backed securities available for sale 7,458 1,664 Purchases and redemption of Federal Home Loan Bank Stock, net (3,500) (1,500) Proceeds from sales of real estate acquired through foreclosure 60 50 Purchase of premises and equipment (138) (403) -------- -------- NET CASH USED IN INVESTING ACTIVITIES (81,472) (49,115) 5 TF FINANCIAL CORPORATION AND SUBSIDIARIES UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) For the Three Months Ended March 31, 1999 1998 CASH FLOWS FROM FINANCING ACTIVITIES Net increase (decrease) in deposits $ (14,044) $ 200 Advances from Federal Home Loan Bank , net 90,000 40,000 Net (decrease) increase in advances from borrowers for taxes and insurance (93) (149) Exercise of stock options 34 - Purchase of treasury stock (1,970) - Common stock cash dividend (343) (322) NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 73,584 39,729 NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (6,908) (6,832) Cash and cash equivalents at beginning of period 42,703 41,625 ----------- ---------- Cash and cash equivalents at end of period $ 35,795 $ 34,793 Supplemental disclosure of cash flow information Cash paid for Interest on deposits and advances $ 5,241 $ 3,565 Income taxes $ 512 $ 1,112 Non-cash transactions Transfers from loans to real estate acquired through foreclosure $ 13 $ - See notes to consolidated financial statements 6 TF FINANCIAL CORPORATION AND SUBSIDIARIES NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS NOTE 1 - PRINCIPLES OF CONSOLIDATION The consolidated financial statements as of March 31, 1999, December 31, 1998, and for the three month periods ended March 31, 1999 and 1998 include the accounts of TF Financial Corporation (the "Company") and its wholly owned subsidiaries Third Federal Savings Bank (the "Savings Bank"), TF Investments Corporation, Penns Trail Development Corporation and Teragon Financial Corporation. The Company's business is conducted principally through the Savings Bank. All significant intercompany accounts and transactions have been eliminated in consolidation. NOTE 2 - BASIS OF PRESENTATION The accompanying unaudited consolidated financial statements were prepared in accordance with instructions for Form 10-Q and, therefore, do not include all of the disclosures or footnotes required by generally accepted accounting principles. In the opinion of management, all adjustments, consisting of normal recurring accruals, necessary for fair presentation of the consolidated financial statements have been included. The results of operations for the period ended March 31, 1999 are not necessarily indicative of the results which may be expected for the entire fiscal year or any other period. For further information, refer to consolidated financial statements and footnotes thereto included in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1998. NOTE 3 - CONTINGENCIES The Company, from time to time, is a party to routine litigation that arises in the normal course of business. In the opinion of management, the resolution of this litigation, if any, would not have a material adverse effect on the Company's consolidated financial condition or results of operations. NOTE 4 - OTHER COMPREHENSIVE INCOME On January 1, 1998, the Company adopted SFAS No. 130, "Reporting Comprehensive Income". The Company's comprehensive income consists of net unrealized gains on investment securities available for sale. Total comprehensive income for the three-month periods ended March 31, 1999 and 1998 was $716,000 and $1,020,000, net of applicable income taxes of $172,000 and $18,000, respectively. 7 TF FINANCIAL CORPORATION AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS --------------------------------------------- GENERAL TF Financial Corporation (the "Company") may from time to time make written or oral "forward-looking statements", including statements contained in the Company's filings with the Securities and Exchange Commission (including this Quarterly Report on Form 10-Q and the exhibits thereto), in its reports to stockholders and in other communications by the Company, which are made in good faith by the Company pursuant to the "Safe Harbor" Provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements involve risks and uncertainties, such as statements of the Company's plans, objectives, expectations, estimates and intentions, that are subject to change based on various important factors (some of which are beyond the Company's control). The following factors, among others, could cause the Company's financial performance to differ materially from the plans, objectives, expectations, estimates and intentions expressed in such forward-looking statements: the strength of the United States economy in general and the strength of the local economies in which the Company conducts operations; the effects of, and changes in, trade, monetary and fiscal policies and laws, including interest rate policies of the Board of Governors of the Federal Reserve System, inflation, interest rate, market and monetary fluctuations; the timely development of and acceptance of new products and services of the Company and the perceived overall value of these products and services by users, including the features, pricing and quality compared to competitors' products and services; the willingness of users to substitute competitors' products and services for the Company's products and services; the success of the Company in gaining regulatory approval of its products and services, when required; the impact of changes in financial services' laws and regulations (including laws concerning taxes, banking, securities and insurance); technological changes, acquisitions; changes in consumer spending and saving habits; and the success of the Company at managing the risks involved in the foregoing. The Company cautions that the foregoing list of important factors is not exclusive. The Company does not undertake to update any forward-looking statement, whether written or oral, that may be made from time to time by or on behalf of the Company. Financial Condition The Company's total assets at March 31, 1999 and December 31, 1998 totaled $739.4 million and $665.6 million, respectively, an increase of $73.8 million, or 11.1%, during the three month period. This increase was primarily the result of a $61.3 million increase in loans receivable, an $11.8 million increase in investment securities, a $4.7 million increase in mortgage-backed securities, and a $3.5 million increase in Federal Home Loan Bank stock. These increases were partially offset by the $6.9 million decrease in cash and cash equivalents. The increase in total assets was primarily funded by the $90.0 million increase in advances from the Federal Home Loan Bank. The net increase in loans receivable of $61.3 million, or 25.5%, from $240.8 million at December 31, 1998 to $302.1 million at March 31, 1999 was primarily the result of the purchase of $ 71.9 million of residential mortgage loans coupled with the purchase of $4.5 million of commercial mortgage loans, partially offset by loan repayments. While it is management's intent to originate the majority of its portfolio loans, similar loan products will be purchased in the secondary markets during periods when in-house originating capacity is being added or when opportunities to originate in local markets are not sufficient to satisfy portfolio loan capacity. Investment securities at March 31, 1999 totaled $101.7 million, which represents an increase of $11.8 million or 13.1% as compared to $89.9 million at December 31, 1998. This increase is primarily due to the reinvestment of cash and cash flow caused by repayments of mortgage loans and mortgage securities, coupled with the reinvestment of maturing investment securities. Mortgage-backed 8 securities aggregated $261.0 million at March 31, 1999 compared with $256.2 million at December 31, 1998. The increase in Federal Home Loan Bank stock balances was the result of the purchase of $3.5 million of stock required to support the increase in outstanding advances from the Federal Home Loan Bank. Total liabilities increased by $75.3 million during the first quarter of 1999 primarily as a result of the $90.0 million, or 55.1%, increase in advances from the Federal Home Loan Bank. This increase was offset by a $14.0 million, or 3.2%, decrease in total deposits balances. The increase in advances from the Federal Home Loan Bank primarily funded the purchase of loans. Total consolidated stockholders' equity of the Company decreased by $1.4 million or 2.7%, to $51.3 million, or 6.94% of total assets, at March 31, 1999, from $52.7 million or 8.0 % of total assets at December 31, 1998. The decrease resulted from the repurchase of 107,937 shares of common stock at a cost of approximately $2.0 million, partially offset by a net increase to retained earnings of $600 thousand for the three month period. On March 19, 1999 management announced the completion of its then current share repurchase program, and that the Company's board of directors had authorized the purchase of up to 152,052 additional shares of the Company's stock in the open market during the subsequent twelve months. 9 Average Balance Sheet The following table sets forth information relating to the Company's average balance sheet and reflects the average yield on assets and average cost of liabilities for the periods indicated. The yields and costs are computed by dividing income or expense by the average balance of interest-earning assets or interest-bearing liabilities, respectively for the periods indicated. Three Months Ended March 31, 1999 1998 ----- ---- Average Average Average Average Balance Interest Yld/Cost Balance Interest Yld/Cost ------- -------- -------- ------- -------- -------- (dollars in thousands) Assets: Interest-earning assets: Loans receivable (4)....................... $282,072 $5,089 7.22% $244,847 $4,904 8.01% Mortgage-backed securities................. 261,124 4,097 6.28% 202,952 3,238 6.38% Investment securities...................... 113,605 1,581 5.57% 104,046 1,577 6.06% Other interest-earning assets(1)........... 34,181 326 3.81% 36,046 422 4.68% ------ --- ------ --- Total interest-earning assets............ 690,982 11,093 6.42% 587,891 10,141 6.90% ------ ------ Non interest-earning assets.................. 24,562 21,529 ------ ------ Total assets............................. 715,544 609,420 ======= ======= Liabilities and Stockholders' Equity: Interest-bearing liabilities: Savings deposits......................... 430,115 $3,857 3.59% 450,952 $4,314 3.83% Advances from the FHLB................... 223,359 2,775 4.97% 98,359 1,348 5.48% ------- ----- ------ ----- Total interest-bearing liabilities..... 653,474 6,632 4.06% 549,311 5,662 4.12% ------- ----- ------- ----- Non interest-bearing liabilities............. 9,964 9,451 Total liabilities...................... 663,438 558,762 Stockholders' equity......................... 52,106 50,658 ------ ------ Total liabilities and $715,544 $609,420 ======== ======== Stockholders' equity............. Net interest income.......................... $4,461 $4,479 ====== ====== Interest rate spread (2)..................... 2.36% 2.78% Net yield on interest-earning assets (3)..... 2.58% 3.05% Ratio of average interest-earning assets to average interest bearing liabilities......... 106% 107% - ----------------------------- (1) Includes interest-bearing deposits in other banks. (2) Interest-rate spread represents the difference between the average yield on interest-earning assets and the average cost of interest-bearing liabilities. (3) Net yield on interest-earning assets represents net interest income as a percentage of average interest-earning assets. (4) Nonaccrual loans have been included in the appropriate average loan balance category, but interest on nonaccrual loans has not been included for purposes of determining interest income. 10 Rate/Volume Analysis The following table presents, for the periods indicated, the change in interest income and interest expense (in thousands) attributed to (I) changes in volume (changes in the weighted average balance of the total interest earning asset and interest bearing liability portfolios multiplied by the prior year rate), and (ii) changes in rate (changes in rate multiplied by prior year volume). Changes attributable to the combined impact of volume and rate have been allocated proportionately based on the absolute value of changes due to volume and changes due to rate. Three Months Ended March 31, 1999 vs. 1998 -------------------------------------------- Increase (Decrease) Due to -------------------------------------------- Volume Rate Net -------------------------------------------- Interest income: Loans receivable, net $527 $(342) $185 Mortgage-backed securities 909 (50) 859 Investment securities 33 (29) 4 Other interest-earning assets (21) (75) (96) -------------------------------------------- Total interest-earning assets 1,448 (496) 952 ============================================ Interest expense Interest-bearing liabilities: Savings deposits (194) (263) (457) Advances from the FHLB 1,540 (113) 1,427 -------------------------------------------- Total interest-bearing liabilities 1,346 (376) 970 ============================================ Net change in net interest income $102 $(120) $(18) ============================================ 11 RESULTS OF OPERATIONS Net Income. The Company recorded net income of $984,000, or $0.33 per diluted share, for the three months ended March 31, 1999 as compared to $993,000, or $0.31 per diluted share, for the three months ended March 31, 1998. Total Interest Income. Total interest income increased by $992 thousand, or 9.9%, to $11.1 million for the three months ended March 31, 1999 compared with the first quarter of 1998 primarily because of increases in the average balance of loans receivable, mortgage-backed securities and investment securities. The increase in the interest on loans receivable is primarily attributable to the purchase of $76.4 million of mortgage loans in the first quarter of 1999. The increased interest income attributable to the purchase of mortgage loans was partially offset by the decrease to the average yield on loans receivable resulting from the repayment during the period of higher yielding mortgage loans. In addition, the yield on the $75.4 million of mortgage loans purchased was less than the average yield on the portfolio. Interest on mortgage-backed securities increased $900 thousand, or 28.1%, for the three-month period ended March 31, 1999, primarily as a result of a 28.6% increases in the average balances of mortgage-backed securities during the first quarter of 1999 compared with the first quarter of 1998. Total Interest Expense. Total interest expense increased to $6.6 million for the three-month period ended March 31, 1999 from $5.7 million for the same period in 1998 primarily due to increased advances from the Federal Home Loan Bank which were used to fund asset growth. The average rate paid on Federal Home Loan Bank advances decreased due to the effect of lower rates on new advances, and the Company's use of lower cost convertible advances for a portion of its funding needs. The average balance of savings deposits decreased $20.9 million, or 4.6%, from $451.0 million for the three month period ended March 31, 1998 to $430.1 million for the three month period ended March 31, 1999, as a result of deposit outflows associated with the decrease in market rates during the period. The average rate paid on savings deposits decreased from 3.83% for the three month period ended March 31, 1998 to 3.59% for the three month period ended March 31, 1999. The decrease in the average rate paid on savings deposits resulted from decreased market interest rates and management's efforts to price deposits at lower rates. Allowance for Loan Losses. Management maintains an allowance for loan losses at levels that are believed to be adequate; however, there can be no assurances that further additions will not be necessary or that losses inherent in the existing loan portfolios will not exceed the allowance. The following table sets forth the activity in the allowance for loan losses during the periods indicated: (in thousands) 1999 1998 ---- ---- Beginning balance, January 1, $1,909 $2,029 Provision 30 15 Charge-off's, net - (5) Ending balance, March 31, $1,939 $ 2,049 ======= ======= The following table sets forth additional information regarding the Company's asset quality (dollars in thousands): At March 31, 1999 1998 ------- ------- Non-performing loans $ 1,561 $ 1,616 Ratio of non-performing loans to gross loans 0.51% 0.66% Ratio of non-performing loans to total assets 0.21% 0.25% Foreclosed property $ 274 $ 301 Foreclosed property to total assets 0.04% 0.05% Ratio of total non-performing assets to total assets 0.25% 0.30% 12 Non-interest income. Total non-interest income was $324 thousand for the three month period ended March 31, 1999 compared with $420 thousand for the same period in 1998. The decrease of $96 thousand is primarily attributable to the decrease in the gain on sale of loans of $74 thousand caused by the Company discontinuing, during the second quarter of 1998, the origination of loans for sale into the secondary market. In addition, there was a decrease of $29 thousand in service fees, charges and other operating income, which was caused by a reduction, due to loan prepayments, in fee producing loan servicing. Non-interest expense. Total non-interest expense decreased $155 thousand to $3.2 million for the three months ended March 31, 1999 compared to the same period in 1998. Data processing decreased by $170 thousand as a result of conversion to an in-house data processing system. Professional fees increased by $30 thousand as a result of consulting fees associated with Year 2000 compliance remediation and testing, while office occupancy and equipment increased by $55 thousand also as a result of the conversion to an in-house data processing system. Liquidity and Capital Resources Liquidity The Savings Bank's liquidity is a measure of its ability to fund loans, pay withdrawals of deposits, and other cash outflows in an efficient, cost-effective manner. There has been no material adverse change during three month period ended March 31, 1999 in the ability of the Savings Bank to fund its operations. The Savings Bank is required under federal regulations to maintain certain specified levels of "liquid investments", which include certain United States government obligations and other approved investments. Current regulations require the Savings Bank to maintain liquid assets of not less than 4% of its net withdrawable accounts plus short term borrowings. Short term liquid assets must consist of not less than 1% of such accounts and borrowings, which amount is also included within the 4% requirement. These levels may be changed from time to time by the regulators to reflect current economic conditions. The Savings Bank's regulatory liquidity was 27.8% and 19.8% at March 31, 1999 and 1998, respectively. The amount of certificate accounts that are scheduled to mature during the twelve month period ending March 31, 2000 is approximately $122.0 million. To the extent that these deposits do not remain at the Savings Bank upon maturity, the Savings Bank believes that it can replace these funds with deposits, broker deposits, excess liquidity, or advances from the Federal Home Loan Bank. It has been the Savings Bank's experience that a substantial portion of such maturing deposits remain at the Savings Bank. At March 31, 1999, the Savings Bank had outstanding commitments to originate loans of $19.7 million, to purchase loans of $194 thousand and to fund undisbursed balances of closed loans and lines of credit of $22.0 million. Funds required to fill these commitments are derived primarily from current excess liquidity or loan and security repayments. At March 31, 1999, the Savings Bank had no outstanding commitments to sell loans. Capital Requirements The Savings Bank is in compliance with all of its capital requirements as of March 31, 1999. 13 Year 2000 Readiness Efforts In 1998, a comprehensive project plan ("Plan") to address the Year 2000 problem and related issues as those relate to the Company's operations was developed, approved by the Board of Directors and implemented. The Company's Year 2000 effort is proceeding in accordance with the written Plan. Progress reports are provided to the Board at least monthly. The Year 2000 issue is the result of potential problems with software and computer systems or any equipment with computer chips that store the year portion of the date as just two-digits. Systems using this two-digit approach may not be able to determine whether 00 represents the year 2000 or 1900. The problem, if not corrected, could make those systems fail altogether or possibly cause them to generate incorrect calculations resulting in a disruption of normal computer and related operations. The Company's Plan is divided into four broad areas of concern: hardware, software, service providers and customers. Year 2000 issues being addressed in each of these areas include both information related technology and non-information related technology. A project team that consists of key members of the Company's technology staff, representatives of functional business units and senior management was developed. From the assessment, the Company identified and prioritized those systems deemed to be mission critical or those that have a significant impact on normal operations. Formal communications with those providers of data processing capabilities and other external counter parties were initiated in 1997 and 1998 to assess the Year 2000 readiness of their products and services. Thus far, responses indicate that most of the significant providers are currently following plans developed to address processing of transactions beginning January 1, 2000. At March 31, 1999, there are no material, incomplete tasks pursuant to the Company's Plan. Costs The total cost to the Company of these Year 2000 compliance activities has not been and is not anticipated to be material to its financial position or results of operations in any given year. In total, the Company estimates that its costs, excluding personnel expenses, for Year 2000 remediation and testing of its computer systems will amount to less than $90 thousand for the twelve month period ending December 31, 1999. Risk Assessment Based upon current information related to the progress of its major vendors and service providers, management has determined that the Year 2000 issue will not pose significant operational problems for its computer systems. The determination is based on the ability of vendors and service providers to renovate, in a timely manner, the products and services on which the Company's systems rely. To date, management has received assurances by the majority of its vendors and service providers that they will be Year 2000 compliant by June 30, 1999. While most are on schedule, the Company can give no assurance that the systems of these suppliers will be timely renovated. The Company is exposed to operational disruptions from external entities that have direct or indirect business relationships with the Company, such as telecommunications service providers, customers, vendors, payment systems providers and others. Despite the best efforts of management to address these issues, the vast number of external business relationships makes it impossible to assure that a failure to achieve compliance by one or more of these entities would not have a material adverse impact on the operations of the Company. Contingency Plan Realizing that some disruption may occur despite its best efforts, the Company is in the process of developing contingency 14 plans for each critical system in the event that one or more of those systems fail. While this is an ongoing process, the Company expects to have the contingency plan substantially completed by July 31, 1999. The Company's contingency plan will provide for the replacement, as soon as practicable, of any service provider that has not demonstrated compliance by June 30, 1999. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Asset and Liability Management The Company's market risk exposure is predominately caused by interest rate risk, which is defined as the sensitivity of the Company's current and future earnings, the values of its assets and liabilities, and the value of its capital to changes in the level of market interest rates. Management of the Company believes that there has not been a material adverse change in market risk during the three months ending March 31, 1999. 15 TF FINANCIAL CORPORATION AND SUBSIDIARIES PART II ITEM 1. LEGAL PROCEEDINGS Not applicable. ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS Not applicable. ITEM 3. DEFAULTS UPON SENIOR SECURITIES Not applicable. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS The 1999 Annual Meeting of Stockholders (the "Meeting") of the Company was held on April 28, 1999. There were outstanding and entitled to vote at the Meeting 3,041,010 shares of Common Stock of the Company. There were present at the meeting or by proxy the holders of 2,815,387 shares of Common Stock representing 92.58% of the total eligible votes to be cast. Proposal 1 was to elect John R. Stranford as director of the Company. Proposal 2 was a shareholder proposal to repeal or amend various provisions of the Company's Certificate of Incorporation and by-laws. Proposal 3 was a shareholder proposal recommending that the Board of Directors take certain action to initiate a possible sale of the Company. The results of the voting at the Meeting are as follows (percentages in terms of votes cast): Proposal 1 FOR: 2,610,220 PERCENT FOR: 92.7% Proposal 2 FOR: 452,739 PERCENT FOR: 21.4% AGAINST: 1,636,953 PERCENT AGAINST: 77.8% ABSTAIN: 16,510 PERCENT ABSTAIN: 0.8% Proposal 3 FOR: 302,492 PERCENT FOR: 14.4% AGAINST: 1,774,032 PERCENT AGAINST: 84.2% ABSTAIN: 29,678 PERCENT ABSTAIN: 1.4% ITEM 5. OTHER INFORMATION None ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits 16 None (b) Reports on Form 8-K On March 19, 1999 a Current Report on Form 8-K was filed with the SEC to report the completion of the then existing common stock repurchase program and the adoption of a new common stock repurchase program. The new program provides for the repurchase, during the subsequent twelve months in the open market, of up to 5% of the Company's common stock. On April 30, 1999, a Current Report on Form 8-K was filed with the SEC to report the results of voting at the Company's 1999 Annual Meeting of Stockholders and the appointment of a new Senior Vice President and Chief Financial Officer for the Company. 17 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized. TF FINANCIAL CORPORATION /s/ John R. Stranford ---------------------------------- Date: May 17, 1999 John R. Stranford President and CEO (Principal Executive Officer) /s/ Dennis R. Stewart --------------------------------- Date: May 17, 1999 Dennis R. Stewart Senior Vice President and Chief Financial Officer (Principal Financial & Accounting Officer) 18