SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------------
FORM l0-Q
(Mark One)
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2001
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 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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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 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: October 26, 2001
----------------
Class Outstanding
--------------------------- ----------------
$.10 par value common stock 2,723,538 shares
TF FINANCIAL CORPORATION AND SUBSIDIARIES
FORM 1O-Q
FOR THE QUARTER ENDED SEPTEMBER 30, 2001
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 9
Item 3. Quantitative and Qualitative Disclosures about Market Risk 18
PART II- OTHER INFORMATION
Item 1. Legal Proceedings 19
Item 2. Changes in Securities and Use of Proceeds 19
Item 3. Defaults Upon Senior Securities 19
Item 4. Submission of Matters to a Vote of Security Holders 19
Item 5. Other Information 19
Item 6. Exhibits and Reports on Form 8-K 19
SIGNATURES 20
2
TF FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(in thousands)
Unaudited Audited Unaudited
September 30, December 31, September 30,
2001 2000 2000
---- ---- ----
Assets
Cash and cash equivalents $95,847 $10,618 $10,095
Certificates of deposit in other financial institutions 190 191 457
Investment securities available for sale - at fair value 10,760 18,865 22,742
Investment securities held to maturity (fair value of $8,870, $61,919 and 8,741 63,461 63,663
$62,428, respectively)
Mortgage-backed securities available for sale - at fair value 89,195 97,914 136,322
Mortgage-backed securities held to maturity (fair value of $109,866 107,024 135,142 141,415
$133,458, and $137,933, respectively)
Loans receivable, net 355,225 361,806 296,586
Federal Home Loan Bank stock - at cost 11,368 13,042 13,042
Accrued interest receivable 3,876 5,523 4,845
Goodwill and other intangible assets 5,267 5,809 5,989
Premises and equipment, net 7,700 9,410 9,301
Bank-owned life insurance 9,043 -- --
Other assets 385 1,516 2,282
-------- -------- --------
Total assets $704,621 $723,297 $706,739
======== ======== ========
Liabilities and stockholders' equity
Liabilities
Deposits $416,074 $400,851 $416,962
Advances from the Federal Home Loan Bank 222,359 244,859 204,159
Other borrowings -- 14,962 23,590
Advances from borrowers for taxes and insurance 771 1,158 885
Accrued interest payable 5,208 4,670 6,565
Other liabilities 3,063 3,688 3,472
-------- -------- --------
Total liabilities 647,475 670,188 655,633
-------- -------- --------
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; 2,468,197, 2,491,454, and 2,533,841 shares outstanding
at September 30, 2001, December 31, 2000 and September 30, 2000, net
treasury shares of 2,566,462, 2,534,088, and 2,488,662, respectively. 529 529 529
Retained earnings 54,447 51,604 50,619
Additional paid-in capital 52,244 52,161 52,139
Unearned ESOP shares (2,553) (2,644) (2,675)
Shares acquired by MSBP -- (4) (21)
Treasury stock - at cost (48,760) (48,173) (47,503)
Accumulated other comprehensive income (loss) 1,239 (364) (1,982)
-------- -------- --------
Total stockholders' equity 57,146 53,109 51,106
-------- -------- --------
Total liabilities and stockholders' equity $704,621 $723,297 $706,739
======== ======== ========
See notes to consolidated financial statements
3
TF FINANCIAL CORPORATION AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF EARNINGS
(in thousands, except per share data)
For the three months For the nine months
ended September 30, ended September 30,
------------------- -------------------
2001 2000 2001 2000
---- ---- ---- ----
Interest income
Loans $7,042 $5,918 $21,355 $17,325
Mortgage-backed securities 3,322 4,676 10,670 14,387
Investment securities 542 1,607 2,452 4,679
Interest bearing deposits and other 564 48 1,140 213
------ ------ ------ ------
Total interest income 11,470 12,249 35,617 36,604
------ ------ ------ ------
Interest expense
Deposits 3,548 3,909 10,716 11,297
Advances from the Federal Home Loan Bank and other borrowings 3,105 3,385 9,761 10,528
------ ------ ------ ------
Total interest expense 6,653 7,294 20,477 21,825
------ ------ ------ -----
Net interest income 4,817 4,955 15,140 14,779
Provision for loan losses 124 100 373 264
------ ------ ------ ------
Net interest income after provision for loan losses 4,693 4,855 14,767 14,515
------ ------ ------ ------
Non-interest income
Service fees, charges and other operating income 462 400 1,232 1,150
Gain on sale of premises and equipment -- -- 444 --
Gain (loss) on sale of loans and mortgage-backed securities available
for sale 12 -- 7 --
------ ------ ------ ------
Total non-interest income 474 400 1,683 1,150
------ ------ ------ ------
Non-interest expense
Compensation and benefits 1,965 1,945 5,801 5,741
Occupancy and equipment 622 638 1,847 1,881
Federal deposit insurance premium 18 21 57 64
Professional fees 128 107 445 394
Amortization of goodwill and other intangible assets 180 195 540 584
Advertising 129 186 381 524
Other operating 585 678 1,853 1,921
------ ------ ------ ------
Total non-interest expense 3,627 3,768 10,924 11,109
------ ------ ------ ------
Income before income taxes 1,540 1,487 5,526 4,556
Income taxes 389 417 1,429 1,400
------ ------ ------ ------
Net income $1,151 $1,070 $4,097 $3,156
====== ====== ====== ======
Basic earnings per share $0.47 $0.42 $1.66 $1.24
Diluted earnings per share $0.43 $0.41 $1.54 $1.20
Weighted average number of shares outstanding - basic 2,462 2,533 2,466 2,547
Weighted average number of shares outstanding - diluted 2,703 2,616 2,663 2,627
See notes to consolidated financial statements
4
TF FINANCIAL CORPORATION AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
For the nine months ended
September 30,
2001 2000
---- ----
Cash flows from operating activities
Net Income $4,097 $3,156
Adjustments to reconcile net income to net cash provided by operating activities:
Mortgage loan servicing rights 10 10
Deferred loan origination fees (61) (24)
Premiums and discounts on investment securities, net 13 (35)
Premiums and discounts on mortgage-backed securities and loans, net (152) (2)
Amortization of goodwill and other intangible assets 540 581
Provision for loan losses 383 264
Depreciation of premises and equipment 649 778
Increase in bank-owned life insurance (43) --
Recognition of ESOP and MSBP expenses 178 204
Gain on sale of loans receivable (28) --
Loss on sale of mortgage backed securities available for sale 28 --
Gain on sale of investment securities available for sale (7) --
Gain on sale of premises and equipment (444) --
Gain on sale of real estate acquired through foreclosure (19) (19)
(Increase) decrease in:
Accrued interest receivable 1,647 113
Other assets 838 (1,054)
Increase (decrease) in:
Accrued interest payable 538 2,816
Other liabilities (1,451) 419
------- ------
Net cash provided by operating activities 6,716 7,207
------- ------
Cash flows from investing activities
Loan origination and principal payments on loans, net 34,396 (2,165)
Purchases of loans (29,341) (6,734)
Proceeds from loan sales 1,480 --
Maturities of certificates of deposit in other financial institutions, net -- 390
Purchases of investment securities available for sale (4,057) (429)
Purchases of investment securities held to maturity -- (82,081)
Purchases of mortgage-backed securities available for sale (8,464) (11,079)
Proceeds from sales of investment securities available for sale 507 --
Proceeds from sales of mortgage backed securities available for sale 4,309 --
Proceeds from maturities of investment securities held to maturity 51,233 85,219
Proceeds from maturities of investment securities available for sale 15,500 --
Principal repayments from mortgage-backed securities held to maturity 28,009 18,361
Principal repayments from mortgage-backed securities available for sale 14,935 8,677
Purchases and redemption of Federal Home Loan Bank Stock, net 1,674 --
Proceeds from sales of real estate acquired through foreclosure 134 318
Proceeds from sales of premises and equipment 1,784 --
Purchase of premises and equipment (119) (902)
Purchase of Bank-owned life insurance (9,000) --
------- ------
Net cash provided by (used in) investing activities 102,980 9,575
------- ------
See notes to consolidated financial statements
5
TF FINANCIAL CORPORATION AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
(in thousands)
For the nine months ended
September 30,
2001 2000
---- ----
Cash flows from financing activities
Net increase in deposits 15,223 15,264
Net decrease in advances from Federal Home Loan Bank (22,500) (44,374)
Net increase (decrease) in other borrowings (14,962) 7,824
Net decrease in advances from borrowers for taxes and insurance (387) (313)
Exercise of stock options 256 440
Purchase of treasury stock, net (998) (1,245)
Common stock cash dividend (1,099) (998)
-------- -------
Net cash used in financing activities (24,467) (23,402)
-------- -------
Net increase (decrease) in cash and cash equivalents 85,229 (6,620)
Cash and cash equivalents at beginning of period 10,618 16,715
-------- -------
Cash and cash equivalents at end of period $95,847 $10,095
======== =======
Supplemental disclosure of cash flow information
Cash paid for
Interest on deposits and advances $19,939 $19,009
Income taxes $ 1,595 $ 1,100
Non-cash transactions
Transfers from loans to real estate acquired through foreclosure $ -- $ 103
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 September 30, 2001,
December 31, 2000, September 30, 2000 and for the three-month and
nine-month periods ended September 30, 2001 and 2000 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
accounting principles generally accepted in the United States of
America. 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 September 30, 2001 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, 2000.
NOTE 3 - CONTINGENCIES
The Company, from time to time, is a party to routine litigation that
arises in the normal course of business. In the opinion of management,
the resolution of this litigation, if any, would not have a material
adverse effect on the Company's consolidated financial condition or
results of operations.
NOTE 4 - OTHER COMPREHENSIVE INCOME
The Company's other accumulated comprehensive income consists of net
unrealized gains (losses) on investment securities and mortgage-backed
securities available for sale. Total comprehensive income for the
three-month periods ended September 30, 2001 and 2000 was $2,180,000
and $2,106,000, net of applicable income tax of $919,000 and $951,000,
respectively.
Total comprehensive income for the nine-month periods ended September
30, 2001 and 2000 was $5,700,000 and $4,260,000, net of applicable
income tax of $2,255,000 and $1,969,000, respectively.
NOTE 5- RECLASSIFICATIONS
Certain prior year amounts have been reclassified to conform to the
current period presentation.
7
TF FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(continued)
NOTE 6- RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
On June 29, 2001, the Financial Accounting Standards Board (FASB)
approved for issuance Statement of Financial Accounting Standards
(SFAS) 141, Business Combinations, and SFAS 142, Goodwill and
Intangible Assets. Major provisions of these Statements are as follows:
all business combinations initiated after June 30, 2001 must use the
purchase method of accounting; the pooling of interest method of
accounting is prohibited except for transactions initiated before July
1, 2001; intangible assets acquired in a business combination must
recorded separately from goodwill if they arise from contractual or
other legal rights or are separable from the acquired entity and can be
sold, transferred, licensed, rented or exchanged, either individually
or as part of a related contract, asset or liability; goodwill and
intangible assets with indefinite lives are not amortized but are
tested for impairment annually, except in certain circumstances, and
whenever there is an impairment indicator; all acquired goodwill must
be assigned to reporting units for purposes of impairment testing and
segment reporting; effective January 1, 2002, goodwill will no longer
be subject to amortization. Although it is still reviewing the
provisions of these Statements, management's preliminary assessment is
that these Statements will not have a material impact on the Company's
financial position or results of operations.
8
TF FINANCIAL CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
TF Financial Corporation may from time to time make written or oral
"forward-looking statements", including statements contained in the Company's
filings with the Securities and Exchange Commission (including this Quarterly
Report on Form 10-Q and the exhibits thereto), in its reports to stockholders
and in other communications by the Company, which are made in good faith by the
Company pursuant to the "Safe Harbor" Provisions of the Private Securities
Litigation Reform Act of 1995.
These forward-looking statements involve risks and uncertainties, such as
statements of the Company's plans, objectives, expectations, estimates and
intentions, that are subject to change based on various important factors (some
of which are beyond the Company's control). The following factors, among others,
could cause the Company's financial performance to differ materially from the
plans, objectives, expectations, estimates and intentions expressed in such
forward-looking statements: the strength of the United States economy in general
and the strength of the local economies in which the Company conducts
operations; the effects of, and changes in, trade, monetary and fiscal policies
and laws, including interest rate policies of the Board of Governors of the
Federal Reserve System, inflation, interest rate, market and monetary
fluctuations; the timely development of and acceptance of new products and
services of the Company and the perceived overall value of these products and
services by users, including the features, pricing and quality compared to
competitors' products and services; the willingness of users to substitute
competitors' products and services for the Company's products and services; the
success of the Company in gaining regulatory approval of its products and
services, when required; the impact of changes in financial services' laws and
regulations (including laws concerning taxes, banking, securities and
insurance); technological changes, acquisitions; changes in consumer spending
and saving habits; and the success of the Company at managing the risks involved
in the foregoing.
The Company cautions that the foregoing list of important factors is not
exclusive. The Company does not undertake to update any forward-looking
statement, whether written or oral, that may be made from time to time by or on
behalf of the Company.
Financial Condition
The Company's total assets at September 30, 2001 and December 31, 2000 totaled
$704.6 million and $723.3 million, respectively, a decrease of $18.7 million, or
2.3%, during the nine-month period. The decrease is mainly the result of a $66.7
million gross decrease in investment securities due to the maturity or exercise
of the call feature associated with these securities. In addition, there was a
$6.6 million decrease in loans receivable, net, a $36.8 million decrease in
mortgage-backed securities, partly due to the sale of $4.3 million of such
securities, and a $1.7 million decrease in premises and equipment due to the
sale of vacant land that had originally been purchased by the Company during
1993 as a possible administrative location. Offsetting these decreases was a
$85.2 million increase in cash and cash equivalents, and a $9 million increase
in bank-owned life insurance.
Total liabilities decreased by $22.7 million during the first nine months of
2001 primarily as a result of the use of deposit growth, which totaled $15.2
million, and excess cash and cash equivalents to repay a total of $37.5 million
in maturing advances from the Federal Home Loan Bank and other borrowings.
9
Total consolidated stockholders' equity of the Company was $57.1 million or
8.11% of assets at September 30, 2001, compared to $53.1 million or 7.34% of
assets at December 31, 2000, and $51.1 million or 7.23% of assets at September
30, 2000. During the first nine months of 2001, the net increase in retained
earnings, which is net income less dividends paid, plus the increase in
accumulated other comprehensive income, was partially offset by the net cost of
treasury shares purchased. During January of 2000 management announced that the
Company's board of directors had authorized the purchase of up to 142,638 shares
of the Company's stock in the open market. As of September 30, 2001, there were
approximately 22,000 shares available for repurchase under this plan, and the
Company will continue to repurchase shares as share availability and market
conditions permit.
10
Asset Quality
Non-performing loans at September 30, 2001 increased due to two loans to one
borrower totaling $1.671 million, which are secured by commercial real estate
that had been appraised at $2.5 million during the fourth quarter of 1999. These
loans became non-performing during the third quarter of 2001 when they became
past due more than 90 days. The Bank is presently working to recover its loan
balances or restore these loans to performing status, or, alternatively, to
foreclose on these properties. While management of the Bank presently believes
that it is adequately secured by the value of the collateral securing these
loans, there can be no assurances that the ultimate resolution of this situation
will not result in a charge to the Bank's allowance for loan losses or earnings,
or both.
The following table sets forth information regarding the Company's asset
quality (dollars in thousands):
September 30, December 31, September 30,
------------- ------------ -------------
2001 2000 2000
---- ---- ----
Non-performing loans $3,145 $1,478 $1,303
Ratio of non-performing loans to gross loans 0.96% 0.41% 0.44%
Ratio of non-performing loans to total assets 0.48% 0.20% 0.18%
Foreclosed property $51 $176 $247
Foreclosed property to total assets 0.01% 0.02% 0.03%
Ratio of total non-performing assets to total assets 0.49% 0.23% 0.22%
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):
2001 2000
---- ----
Beginning balance, January 1, $1,714 $1,917
Provision 373 264
Less: charge-off's (recoveries), net 167 284
------- ------
Ending balance, September 30, $1,920 $1,897
======= ======
11
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2001 AND 2000
Net Income. The Company recorded net income of $1,151,000, or $0.43 per diluted
share, for the three months ended September 30, 2001 as compared to $1,070,000,
or $0.41 per diluted share, for the three months ended September 30, 2000.
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 September 30,
--------------------------------
2001 2000
----------------------------------- ----------------------------------
Average Average Average Average
Balance Interest Yld/Cost Balance Interest Yld/Cost
------- -------- -------- ------- -------- --------
(dollars in thousands)
Assets:
Interest-earning assets:
Loans receivable (4)....................... $361,960 $7,042 7.72% $296,873 $5,918 7.93%
Mortgage-backed securities................. 205,605 3,322 6.41% 282,986 4,676 6.57%
Investment securities...................... 34,769 542 6.18% 102,280 1,607 6.25%
Other interest-earning assets(1)........... 66,116 564 3.38% 2,810 48 6.80%
-------- ------ -------- ------
Total interest-earning assets............ 668,450 11,470 6.81% 684,949 12,249 7.11%
------ ------
Non interest-earning assets.................... 28,862 27,351
-------- --------
Total assets............................. 697,312 712,300
======== ========
Liabilities and stockholders' equity:
Interest-bearing liabilities
Deposits................................... 411,985 3,548 3.42% 417,960 3,909 3.72%
Advances from the FHLB and other
borrowings............................... 222,368 3,105 5.54% 235,682 3,385 5.71%
-------- ------ -------- ------
Total interest-bearing liabilities....... 634,353 6,653 4.16% 653,642 7,294 4.44%
------ ------
Non interest-bearing liabilities............... 7,414 9,935
-------- --------
Total liabilities........................ 641,767 663,577
Stockholders' equity........................... 55,545 48,723
-------- --------
Total liabilities and stockholders' equity.. $697,312 $712,300
======== ========
Net interest income............................ $4,817 $4,955
====== ======
Interest rate spread (2)....................... 2.65% 2.68%
Net yield on interest-earning assets (3)....... 2.86% 2.88%
Ratio of average interest-earning assets to
average interest bearing liabilities..... 105% 105%
(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.
12
Rate/Volume Analysis
The following table presents, for the periods indicated, the change in interest
income and interest expense (in thousands) attributed to (i) changes in volume
(changes in the weighted average balance of the total interest earning asset and
interest bearing liability portfolios multiplied by the prior year rate), and
(ii) changes in rate (changes in rate multiplied by prior year volume). Changes
attributable to the combined impact of volume and rate have been allocated
proportionately based on the absolute value of changes due to volume and changes
due to rate.
Three months ended
September 30,
2001 vs. 2000
------------------------------------------------------
Increase (decrease)
due to
------------------------------------------------------
Volume Rate Net
------------------------------------------------------
Interest income:
Loans receivable, net $2,121 $(997) $1,124
Mortgage-backed securities (1,243) (111) (1,354)
Investment securities (1,048) (17) (1,065)
Other interest-earning assets 693 (177) 516
------------------------------------------------------
Total interest-earning assets 523 (1,302) (779)
======================================================
Interest expense:
Deposits (54) (307) (361)
Advances from the FHLB and other borrowings (183) (97) (280)
------------------------------------------------------
Total interest-bearing liabilities (237) (404) (641)
======================================================
Net change in net interest income $760 $(898) $(138)
======================================================
Total interest income. Total interest income decreased by $779,000 or 6.4% to
$11.5 million for the three months ended September 30, 2001 compared with the
third quarter of 2000. Average earning assets decreased by $16.5 million during
the same periods. However, because of the change in the mix of the Company's
interest-earning assets the Company's interest income experienced a positive
$523,000 volume-based improvement. During the third quarter of 2001, loans
receivable, which carried higher yields than other earning assets, were 54.1% of
total interest-earning assets compared to 43.3% during the third quarter of
2000. The increase in loans is the direct result of the Company's successful
efforts to increase its purchases of seasoned, single-family residential loans.
Offsetting the volume-based interest income increase was a $1,302,000 rate-based
decrease in interest income, primarily the direct result of generally lower
market interest rates and the lowering by the Federal Reserve Board of the fed
funds rate during 2001 by 400 basis points. A lower fed funds rate resulted in a
lowering of the prime rate, and thus the interest income earned on the Company's
prime rate-based loans. In addition, the Corporation's cash and cash equivalents
earn approximately the federal funds rate of 2.50% at September 30, 2001.
Total Interest Expense. Total interest expense decreased to $6.7 million for the
three-month period ended September 30, 2001 from $7.3 million for the same
period in 2000 primarily due to generally lower market interest rates which
resulted in a lowering of the Company's deposit interest expense. In addition,
decreased advances from the Federal Home Loan Bank and other borrowings resulted
in an overall decrease in average interest-bearing liabilities.
Non-interest income. Total non-interest income was $474,000 for the three-month
period ended September 30, 2001 compared with $400,000 for the same period in
2000. The increase is due to a $62,000 increase in service fees.
13
Non-interest expense. Total non-interest expense decreased by $141,000 to $3.6
million for the three months ended September 30, 2001 compared to the same
period in 2000. Operating expenses decreased in part due to the consolidation of
one branch during the first quarter of 2001, thus enabling the Company to avoid
the personnel, occupancy, and other costs associated with operating that branch.
In addition, the Company spent less for its marketing and sales personnel, and
reduced its expenditures for direct advertising.
14
RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2001 AND 2000
Net Income. The Company recorded net income of $4,097,000, or $1.54 per diluted
share, for the nine months ended September 30, 2001 as compared to $3,156,000,
or $1.20 per diluted share, for the nine months ended September 30, 2000.
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.
Nine months ended September 30,
2001 2000
------------------------------------ ---------------------------------
Average Average Average Average
Balance Interest Yld/Cost Balance Interest Yld/Cost
------- -------- -------- ------- -------- --------
(dollars in thousands)
Assets:
Interest-earning assets:
Loans receivable (4)....................... $360,781 $21,355 7.91% $293,647 $17,325 7.88%
Mortgage-backed securities................. 218,401 10,670 6.53% 288,866 14,387 6.65%
Investment securities...................... 54,614 2,452 6.00% 101,202 4,679 6.18%
Other interest-earning assets(1)........... 39,088 1,140 3.90% 4,724 213 6.02%
-------- ------- -------- -------
Total interest-earning assets............ 672,884 35,617 7.08% 688,439 36,604 7.10%
------- -------
Non interest-earning assets.................... 27,432 29,150
-------- --------
Total assets............................. 700,316 717,589
======== ========
Liabilities and stockholders' equity:
Interest-bearing liabilities
Deposits................................... 405,332 10,716 3.53% 412,351 11,297 3.66%
Advances from the FHLB and other
borrowings............................... 232,679 9,761 5.61% 247,887 10,528 5.67%
-------- ------- -------- -------
Total interest-bearing liabilities....... 638,011 20,477 4.29% 660,238 21,825 4.42%
------- -------
Non interest-bearing liabilities............... 7,986 9,197
-------- --------
Total liabilities.......................... 645,997 669,435
Stockholders' equity........................... 54,319 48,154
-------- --------
Total liabilities and stockholders' equity.... $700,316 $717,589
======== ========
Net interest income............................ $15,140 $14,779
======= =======
Interest rate spread (2)....................... 2.79% 2.69%
Net yield on interest-earning assets (3)....... 3.01% 2.87%
Ratio of average interest-earning assets to
average interest bearing liabilities..... 105% 104%
(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.
15
Rate/Volume Analysis
The following table presents, for the periods indicated, the change in interest
income and interest expense (in thousands) attributed to (i) changes in volume
(changes in the weighted average balance of the total interest earning asset and
interest bearing liability portfolios multiplied by the prior year rate), and
(ii) changes in rate (changes in rate multiplied by prior year volume). Changes
attributable to the combined impact of volume and rate have been allocated
proportionately based on the absolute value of changes due to volume and changes
due to rate.
Nine months ended
September 30,
2001 vs. 2000
------------------------------------------------------
Increase (decrease)
due to
------------------------------------------------------
Volume Rate Net
------------------------------------------------------
Interest income:
Loans receivable, net $3,956 $74 $4,030
Mortgage-backed securities (3,465) (252) (3,717)
Investment securities (2,096) (131) (2,227)
Other interest-earning assets 1,075 (148) 927
------------------------------------------------------
Total interest-earning assets (530) (457) (987)
======================================================
Interest expense:
Deposits (193) (388) (581)
Advances from the FHLB and other borrowings (652) (115) (767)
------------------------------------------------------
Total interest-bearing liabilities (845) (503) (1,348)
======================================================
Net change in net interest income $315 $46 $361
======================================================
Total Interest Income. Total interest income decreased by $987,000 or 2.7% to
$35.6 million for the nine months ended September 30, 2001 compared with the
first nine months of 2000. Average earning assets decreased by $15.6 million
during the same periods. However, there was a substantial change in the mix of
the Company's interest-earning assets. During the first nine months of 2001,
loans receivable, which carried higher yields than other earning assets, were
53.6% of total interest-earning assets compared to 42.7% during the first nine
months of 2000. The increase in loans is the direct result of the Company's
successful efforts to increase its purchases of seasoned, single-family
residential loans.
Total Interest Expense. Total interest expense decreased to $20.5 million for
the nine-month period ended September 30, 2001 from $21.8 million for the same
period in 2000 primarily due to decreased advances from the Federal Home Loan
Bank and other borrowings, which resulted in an overall decrease in average
interest-bearing liabilities. In addition, generally lower market interest rates
resulted in a lowering of the Company's deposit interest expense, and the
Company's average deposits decreased by $7.0 million due mainly to lower
balances in certificates of deposit.
Non-interest income. Total non-interest income was $1,683,000 for the nine-month
period ended September 30, 2001 compared with $1,150,000 for the same period in
2000. The increase is mainly due to a $444,000 gain on the sale of vacant land
that the Company had purchased during 1993 for potential use as an
administrative location.
Non-interest expense. Total non-interest expense decreased by $185,000 to $10.9
million for the nine months ended September 30, 2001 compared to the same period
in 2000. Operating expenses decreased in part due to the consolidation of one
branch during the first quarter of 2001, thus enabling the Company to
16
avoid the personnel, occupancy, and other costs associated with operating that
branch. In addition, the Company reduced its expenditures for direct advertising
by $143,000 during the first nine months of 2001 compared with the same period
in 2000.
17
LIQUIDITY AND CAPITAL RESOURCES
Liquidity
The Company's liquidity is a measure of its ability to fund loans, pay
withdrawals of deposits, and other cash outflows in an efficient, cost-effective
manner. The Company's short-term sources of liquidity include maturity,
repayment and sales of assets, excess cash and cash equivalents, new deposits,
broker deposits, other borrowings, and new advances from the Federal Home Loan
Bank. There has been no material adverse change during nine-month period ended
September 30, 2001 in the ability of the Company and its subsidiaries to fund
their operations.
At September 30, 2001, the Company had commitments outstanding under letters of
credit of $1.6 million, commitments to originate loans of $13.1 million, and
commitments to fund undisbursed balances of closed loans and unused lines of
credit of $25.7 million.
Capital Requirements
The Savings Bank is in compliance with all of its capital requirements as of
September 30, 2001.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Asset and Liability Management
The Company's market risk exposure is predominately caused by interest rate
risk, which is defined as the sensitivity of the Company's current and future
earnings, the values of its assets and liabilities, and the value of its capital
to changes in the level of market interest rates. Management of the Company
believes that there has not been a material adverse change in market risk during
the nine months ended September 30, 2001.
18
TF FINANCIAL CORPORATION AND SUBSIDIARIES
PART II
ITEM 1. LEGAL PROCEEDINGS
Not applicable.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
Not applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable
ITEM 5. OTHER INFORMATION
On October 22, 2001 TF Financial Corporation
announced that its subsidiary Third Federal
Savings Bank had entered into a definitive
purchase and assumption agreement with First
County Bank, Doylestown, Pennsylvania for the
sale of Third Federal's Warminster,
Pennsylvania branch office. The transaction is
expected to close in 2001 and is subject to
banking regulatory approval. At September 30,
2001 the deposits at Third Federal's Warminster
branch totaled approximately $12.9 million. No
loans are to be sold as part of this
transaction. The branch is a leased location
and the lease is scheduled to expire at
December 31, 2001.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit 99--Press Release dated October 26, 2001
(b) Reports on Form 8-K
None
19
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: October 26, 2001 John R. Stranford
--------------------------------
President and CEO
(Principal Executive Officer)
/s/ Dennis R. Stewart
----------------------------
Date: October 26, 2001 Dennis R. Stewart
-------------------------------
Senior Vice President and
Chief Financial Officer
(Principal Financial &
Accounting Officer)
20