SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K
FOR ANNUAL AND TRANSITION REPORTS
PURSUANT TO SECTIONS 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2003
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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
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 Identification No.)
Incorporation or Organization)
3 Penns Trail, Newtown, Pennsylvania 18940
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(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (215) 579-4000
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Securities registered pursuant to Section 12(b) of the Act: None
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Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $.10 per share
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(Title of Class)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. YES X NO
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Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
Indicate by check mark whether the registrant is an accelerated filer as defined
in Exchange Act Rule 12b-2. YES NO X
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The aggregate market value of the voting common equity held by
non-affiliates of the registrant, based on the closing price of the registrant's
Common Stock as quoted on the Nasdaq System on June 30, 2003, was $65.6 million
(2,106,969 shares at $31.115 per share).
As of March 22, 2004 there were outstanding 2,885,502 shares of the
registrant's Common Stock.
DOCUMENTS INCORPORATED BY REFERENCE
1. Portions of the Annual Report to Stockholders for the Fiscal Year Ended
December 31, 2003. (Parts I, II and IV)
2. Portions of the Proxy Statement for the 2004 Annual Meeting of
Stockholders. (Part III)
PART I
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
ANNUAL REPORT ON FORM 10-K AND THE EXHIBITS HERETO), 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, MONETARY AND FISCAL POLICIES AND
LAWS, INCLUDING INTEREST RATE POLICIES OF THE BOARD OF GOVERNORS OF THE FEDERAL
RESERVE SYSTEM, INFLATION, INTEREST RATES, 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 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.
Item 1. Business
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BUSINESS OF THE COMPANY
On July 13, 1994, the Company consummated its public offering for 5,290,000
shares of its common stock and acquired Third Federal Savings Bank (the "Bank")
as part of the Bank's mutual-to-stock conversion. The Company was incorporated
under Delaware law in March 1994. The Company is a savings and loan holding
company and is subject to regulation by the Office of Thrift Supervision (the
"OTS"), the Federal Deposit Insurance Corporation (the "FDIC") and the
Securities and Exchange Commission (the "SEC"). The Company does not transact
any material business other than through its direct and indirect subsidiaries:
Third Federal Savings Bank, TF Investments Corporation, Teragon Financial
Corporation, Penns Trail Development Corporation and Third Delaware Corporation.
At December 31, 2003, the Company had total assets of $607 million, total
liabilities of $551 million and stockholders' equity of $56 million.
BUSINESS OF THE BANK
The Bank is a federally-chartered stock savings bank, which was originally
chartered in 1921 as a Pennsylvania-chartered building and loan association. The
Bank's deposits are insured up to the maximum amount allowable by the FDIC.
The Bank is a community oriented savings institution offering a variety of
financial services to meet the needs of the communities it serves. As of
December 31, 2003 the Bank operated fourteen branch offices in Bucks and
Philadelphia counties, Pennsylvania and in Mercer County, New Jersey.
2
The Bank attracts deposits from the general public and uses such deposits,
together with borrowings and other funds primarily to originate or purchase
loans secured by first mortgages on owner-occupied, one- to four-family
residences in its market area and to invest in mortgage-backed and investment
securities. At December 31, 2003, one- to four-family residential mortgage loans
totaled $277 million or 68% of the Bank's total loan portfolio. At that same
date, the Bank had approximately $130 million or 21% of total assets invested in
mortgage-backed securities and $25 million or 4% of total assets in investment
securities. To a lesser extent, the Bank also originates commercial real estate
and multi-family, construction and consumer loans. The Bank has one subsidiary,
Third Delaware Corporation, which was incorporated in 1998 for the purpose of
holding and managing mortgage-backed securities and investment securities for
the Bank.
Market Area
The Bank offers a wide range of consumer and business products at its
fourteen full service branch offices located in Bucks and Philadelphia Counties
in Pennsylvania, and Mercer County in New Jersey. Five of the branch offices are
located in Bucks County., the third wealthiest county in Pennsylvania. Bucks
County is a growing region offering opportunity for growth for the Bank. Six
branches are located in the northeast section of Philadelphia where the Bank was
founded. Although Philadelphia County is experiencing population decline, the
Bank's branches in this section of Philadelphia represent a deposit stronghold.
The remaining three branches are in Mercer County, New Jersey which has an
expanding population and represents another growth area for the Bank.
Competition
The Bank faces varying degrees of competition from local thrift
institutions and credit unions at its various branch locations. Stronger
competition has come from local and very large regional commercial banks based
in and around the Philadelphia area. Commercial banks hold approximately 78% of
the deposit market in Philadelphia County, 65% in Bucks County and 77% in Mercer
County. The Bank's share of the deposit market in Philadelphia, Bucks and Mercer
Counties is 0.7%, 1.6% and 1.2%, respectively.
Lending Activities
General. The Bank's loan portfolio composition consists primarily of
conventional adjustable-rate ("ARM") and fixed-rate first mortgage loans secured
by one- to four-family residences. The Bank also makes commercial real estate
and multi-family loans, construction loans and consumer and other loans. At
December 31, 2003, the Bank's mortgage loans outstanding were $358 million, of
which $277 million were secured by first mortgages on one- to four-family
residential property. Of the one- to four-family residential mortgage loans
outstanding at that date, 13% were ARM's and 87% were fixed-rate loans. Total
ARM loans in the Bank's portfolio at December 31, 2003, amounted to $88 million
or 22% of total loans. At that same date, commercial real estate and
multi-family residential and construction loans totaled $74 million and $7
million, respectively.
Consumer and other loans held by the Bank totaled $48 million or 12% of
total loans outstanding at December 31, 2003, of which $25 million or 52%
consisted of home equity and second mortgages. At that same date commercial
business loans, leases and other loans totaled $15 million, $1 million and $7
million, respectively.
3
The following table sets forth the composition of the Bank's loan portfolio
and mortgage-backed and related securities portfolios in dollar amounts and in
percentages of the respective portfolios at the dates indicated.
At December 31,
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2003 2002 2001 2000 1999
----------------- ----------------- ----------------- ----------------- -----------------
Percent Percent Percent Percent Percent
Amount of Total Amount of Total Amount of Total Amount of Total Amount of Total
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
(Dollars in thousands)
Loans:
Mortgage loans
One- to four-family ................. $276,849 68.22% $227,953 61.33% $222,016 58.42% $211,065 57.89% $168,057 58.00%
Commercial real estate and
multi-family ...................... 74,109 18.26 85,493 23.00 93,572 24.62 77,486 21.25 65,346 22.55
Construction ........................ 6,591 1.62 12,026 3.23 9,824 2.59 13,950 3.82 12,074 4.16
-------- ------ -------- ------ -------- ------ -------- ------ -------- ------
Total mortgage loans ........... 357,549 88.10 325,472 87.56 325,412 85.63 302,501 82.96 245,477 84.71
Consumer and other loans:
Home equity and second mortgage ..... 25,199 6.21 25,480 6.87 25,640 6.75 20,887 5.73 16,816 5.81
Commercial business ................. 15,185 3.74 8,005 2.15 9,285 2.44 14,630 4.01 9,339 3.22
Leases .............................. 1,371 0.34 2,246 0.60 3,544 0.93 3,493 0.96 3,195 1.10
Other ............................... 6,532 1.61 10,490 2.82 16,154 4.25 23,113 6.34 14,945 5.16
-------- ------ -------- ------ -------- ------ -------- ------ -------- ------
Total consumer and other loans . 48,287 11.90 46,221 12.44 54,623 14.37 62,123 17.04 44,295 15.29
-------- ------ -------- ------ -------- ------ -------- ------ -------- ------
Total loans .................... 405,836 100.00% 371,693 100.00% 380,035 100.00% 364,624 100.00% 289,772 100.00%
-------- ====== -------- ====== -------- ====== -------- ====== -------- ======
Less:
Unearned discount,(premium),
deferred loan fees, net............ (924) (446) 428 1,104 (124)
Allowance for loan losses............ 2,111 2,047 1,972 1,714 1,917
-------- -------- -------- -------- --------
Total loans, net...... $404,649 $370,092 $377,635 $361,806 $287,979
======== ======== ======== ======== ========
Mortgage-backed securities
held-to-maturity:
FHLMC................................ $ 8,407 35.58% $ 21,870 40.10% $ 35,000 37.50% $ 45,971 34.03% $ 52,625 32.91%
FNMA................................. 7,205 30.49 11,781 21.60 15,739 16.90 20,756 15.36 24,983 15.63
GNMA................................. 8,007 33.88 18,278 33.40 29,877 32.00 41,090 30.41 46,651 29.18
Real estate investment mortgage
conduit............................. 11 0.05 2,519 4.60 12,550 13.40 27,043 20.02 35,271 22.06
Other mortgage-backed securities..... -- -- 144 0.30 201 0.20 282 0.18 358 0.22
-------- ------ -------- ------ -------- ------ -------- ------ -------- ------
Total mortgage-backed and related
securities held-to-maturity...... $ 23,630 100.00% $ 54,592 100.00% $ 93,367 100.00% $135,142 100.00% $159,888 100.00%
======== ====== ======== ====== ======== ====== ======== ====== ======== ======
Mortgage-backed securities
available-for-sale:
FHLMC.............................. $ 8,525 7.98% $ 699 0.60% $ 1,108 1.10% $ 1,431 1.46% $ 7,233 5.46%
FNMA............................... 18,385 17.22 11,878 10.30 22,459 22.50 25,679 26.23 27,963 21.10
GNMA............................... -- -- -- -- 5,515 5.50 7,561 7.72 8,338 6.29
Real estate investment mortgage
conduit........................... 79,864 74.80 102,666 89.10 70,681 70.90 63,243 64.59 88,981 67.15
-------- ------ -------- ------ -------- ------ -------- ------ -------- ------
Total............................ $106,774 100.00% $115,243 100.00% $ 99,763 100.00% $ 97,914 100.00% $132,515 100.00%
======== ====== ======== ====== ======== ====== ======== ====== ======== ======
4
Loan Maturity and Repricing Information. The following table sets forth
certain information at December 31, 2003, regarding the dollar amount of loans
maturing in the Bank's loan and mortgage-backed securities portfolios based on
their maturity date. Demand loans, loans having no stated schedule of repayments
and no stated maturity, overdrafts and delinquent loans maturing prior to
December 31, 2004, are reported as due in one year or less. The table does not
include prepayments or scheduled principal repayments.
Due 1/1/04 - Due 1/1/05 - Due After
12/31/04 12/31/08 12/31/08
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(In thousands)
Available for sale:
Mortgage-backed securities .............. $ 48 $ 4,238 $102,488
Held to Maturity:
One-to-four family ...................... $ 162 $ 3,712 $272,975
Commercial real estate and multi-family.. 1,318 16,800 55,991
Construction ............................ 4,423 2,168 --
Consumer and other ...................... 21,209 11,326 15,752
-------- -------- --------
Total loans receivable .................. 27,112 34,006 344,718
Mortgage-backed securities .............. 21 2,533 21,076
-------- -------- --------
Total.................................... $ 27,133 $ 36,539 $365,794
======== ======== ========
The following table sets forth the dollar amount of all loans and
mortgage-backed securities due after December 31, 2004, which have predetermined
interest rates and which have floating or adjustable interest rates.
Predetermined Floating or
Rates Adjustable Rate
------------- ---------------
(In thousands)
Available for sale:
Mortgage-backed securities ............... $106,726 $ --
-------- --------
Total..................................... $106,726 $ --
======== ========
Held to Maturity:
One-to-four family ....................... $239,324 $ 37,363
Commercial real estate and multi-family... 17,350 55,441
Construction ............................. -- 2,168
Consumer and other ....................... 16,026 11,052
-------- --------
Total loans receivable ................... 272,700 106,024
Mortgage-backed securities ............... 23,538 71
-------- --------
Total..................................... $296,238 $106,095
======== ========
One- to Four-Family Mortgage Lending. The Bank offers first mortgage loans
secured by one- to four-family residences in the Bank's lending area. Typically,
such residences are single-family homes that serve as the primary residence of
the owner. The Bank generally originates and invests in one- to four-family
residential mortgage loans in amounts up to 80% of the lesser of the appraised
value or selling price of the mortgaged property. Loans originated in amounts
over 80% of the lesser of the appraised value or selling price of the mortgaged
property, other than loans to facilitate the sale of real estate acquired
through foreclosure, must be owner-occupied and private mortgage insurance must
be provided on the amount in excess of 80%.
5
Loan originations are obtained from existing or past customers, members of
the local community, and referrals from established builders and realtors within
the Bank's lending area using direct advertising in local newspapers, branch
signage and promotions, and word of mouth referrals.
The Bank offers a variety of ARM loans with terms of 30 years which adjust
at the end of 6 months, one, three, five, seven and ten years and adjust by a
maximum of 1 to 2% per adjustment with a lifetime cap of 5 to 6% over the life
of the loan.
The Bank offers fixed-rate mortgage loans with terms of 10 to 30 years,
which are payable monthly. Interest rates charged on fixed-rate mortgage loans
are competitively priced based on market conditions. The origination fees for
fixed-rate loans range from 0% to 3% depending on the underlying loan coupon.
Generally, the Bank's standard underwriting guideline for fixed-rate mortgage
loans conform to the FHLMC and FNMA guidelines and may be sold in the secondary
market. While it does not presently do so, the Bank has in the past sold a
portion of its conforming fixed-rate mortgage loans in the secondary market to
FHLMC and FNMA while retaining the servicing rights on certain loans. The Bank,
however, has been primarily a portfolio lender. As of December 31, 2003, the
Bank's portfolio of loans serviced for FHLMC or FNMA totaled approximately $2
million.
Beginning in December 2003 the Bank initiated a mortgage lending department
that is separate as to its sales efforts from the consumer lending area of the
Bank. In connection with this initiative, the Bank has hired a mortgage lending
manager and several commissioned loan officers. The Bank will now offer, in
addition to its standard portfolio loan products, other types of mortgage loans
that will be originated in the name of, or sold on a servicing released basis
to, third party investors. The mortgage loan officers will support the Bank's
branches and customers, and additionally engage in calling efforts directed
toward realtors, builders, and others that can be sources of lending business
for the Bank. The Company expects to grow this line of business in the future,
and may resume selling loans to FHLMC, FNMA, or others on a servicing retained
basis.
Commercial Real Estate and Multi-Family Lending. The Bank originates loans
secured by commercial real estate including non-owner occupied residential
multi-family dwelling units (more than four units) primarily secured by
professional office buildings and apartment complexes. The Bank generally
originates commercial real estate and multi-family loans up to 75% of the
appraised value of the property securing the loan. Currently, it is the Bank's
philosophy to originate commercial real estate and multi-family loans only to
borrowers known to the Bank and on properties in its market area. The commercial
real estate and multi-family loans in the Bank's portfolio consist of
fixed-rate, ARM and balloon loans which were originated at prevailing market
rates for terms of up to 25 years. The Bank's current policy is to originate
commercial real estate and multi-family loans as ARM's that are generally
amortized over a period of 20 years or as balloon loans which generally have
terms of 5 to 10 years, with 20-25 year amortization.
Loans secured by commercial and multi-family real estate are generally
larger and involve a greater degree of risk than one- to four-family residential
mortgage loans. Of primary concern in commercial and multi-family real estate
lending is the borrower's creditworthiness and the feasibility and cash flow
potential of the project. Loans secured by income properties are generally
larger and involve greater risks than residential mortgage loans because
payments on loans secured by income properties are often dependent on successful
operation or management of the properties. As a result, repayment of such loans
may be subject to a greater extent than residential real estate loans to adverse
conditions in the real estate market or the economy. In order to monitor cash
flows on income properties, the Bank requires borrowers and loan guarantors, if
any, to provide annual financial statements and rent rolls on multi-family
loans. At December 31, 2003, the five largest commercial real estate and
multi-family loans totaled $22.2 million with no single loan larger than $6.5
million. At December 31, 2003, all such loans were current and the properties
securing such loans are in the Bank's market area.
Construction Lending. At December 31, 2003, the Bank had $7 million of
construction loans or 2% of the Bank's total loan portfolio. Construction
financing is generally considered to involve a higher degree of risk of loss
than long-term financing on improved, occupied real estate. Risk of loss on a
construction loan is dependent largely upon the accuracy of the initial estimate
of the property's value at completion of construction or development and the
estimated cost (including interest) of construction. During the construction
phase, a number of factors could result in delays and cost overruns. If the
estimate of construction costs proves to be inaccurate, the Bank may be required
to advance funds beyond the amount originally committed to permit completion of
the development. If the estimate of
6
value proves to be inaccurate, the Bank may be confronted, at or prior to the
maturity of the loan, with a project having a value which is insufficient to
assure full repayment.
Consumer and Other Lending. The Bank also offers consumer and other loans
in the form of home equity and second mortgage loans (referred to hereinafter
collectively as "second mortgage loans"), commercial business loans, automobile
loans and student loans. These loans totaled $48 million or 12% of the Bank's
total loan portfolio at December 31, 2003. Federal regulations permit federally
chartered thrift institutions to make secured and unsecured consumer loans up to
35% of an institution's assets. In addition, a federal thrift has lending
authority above the 35% category for certain consumer loans, property
improvement loans, and loans secured by savings accounts. The Bank originates
consumer loans in order to provide a wide range of financial services to its
customers and because the shorter terms and normally higher interest rates on
such loans help maintain a profitable spread between its average loan yield and
its cost of funds.
In connection with consumer loan applications, the Bank verifies the
borrower's income and reviews a credit bureau report. In addition, the
relationship of the loan to the value of the collateral is considered. All
automobile loan applications are reviewed and approved by the Bank. The Bank
reviews the credit report of the borrower as well as the value of the unit which
secures the loan.
The Bank focuses on the origination of consumer loans. Consumer loans tend
to be originated at higher interest rates than conventional residential mortgage
loans and for shorter terms which benefits the Bank's interest rate risk
management. Consumer loans, however, tend to have a higher risk of default than
residential mortgage loans. At December 31, 2003, $225,000 or 0.5% of the Bank's
consumer loans were delinquent more than 90 days.
The Bank offers second mortgage loans on one- to four-family residences. At
December 31, 2003, second mortgage and home equity loans totaled $25 million, or
6% of the Bank's total loan portfolio. Second mortgage loans are offered as
fixed-rate loans for a term not to exceed 15 years. Such loans are only made on
owner-occupied one- to four-family residences and are subject to a 75% combined
loan to value ratio. The underwriting standards for second mortgage loans are
the same as the Bank's standards applicable to one- to four-family residential
loans.
Business Lending. Federal thrift institutions are permitted to make secured
or unsecured loans for commercial, corporate, business or agricultural purposes,
including the issuance of letters of credit secured by real estate, business
equipment, inventories, accounts receivable and cash equivalents. The aggregate
amount of such loans outstanding may not exceed 10% of such institution's
assets.
The Bank makes commercial business loans on a secured basis. The terms of
such loans generally do not exceed five years. The majority of these loans have
floating interest rates which adjust with changes in market driven indices. The
Bank's commercial business loans primarily consist of short-term loans for
equipment, working capital, business expansion and inventory financing. The Bank
customarily requires a personal guaranty of payment by the principals of any
borrowing entity and reviews the financial statements and income tax returns of
the guarantors. At December 31, 2003, the Bank had approximately $15 million
outstanding in commercial business loans, which represented approximately 4% of
its total loan portfolio.
Prior to 2002 the Bank purchased commercial leases; however, the Bank no
longer engages in this activity. These lessees are generally small medical
practitioners located throughout the United States. The average lease amount is
less than $100,000. At December 31, 2003 the purchased lease portfolio totaled
$1 million or 0.3% of total assets.
Loan Approval Authority and Underwriting. The Board of Directors of the
Bank sets the authority to approve loans based on the amount, type of loan
(i.e., secured or unsecured) and total exposure to the borrower. Where there are
one or more existing loans to a borrower, the level of approval required is
governed by the proposed total exposure including the new loan. The Board has
approved loan authority and limits for certain of the bank's lending personnel
and senior officers, including the president of the bank. Approval authority
ranges from $25,000 to $500,000 for secured loans, and $5,000 to $25,000 for
unsecured loans. Members of an in-house loan committee comprising the four most
senior members of management approve all loans over $500,000. Any two members
may combine their lending authority. A majority of the members may approve
secured loans up to $1.5 million and unsecured loans up to $200,000. All loans
of $1.5 million through $5 million require the approval of a Board Loan
Committee composed of
7
four members of the Board of Directors of the Bank. All loans over $5 million or
loans that cause the aggregate lending relationship to exceed $5 million must be
approved by the Bank's Board of Directors.
One- to four-family residential mortgage loans are generally underwritten
according to FHLMC and FNMA guidelines. For all loans originated by the Bank,
upon receipt of a completed loan application from a prospective borrower, a
credit report is ordered, income and certain other information is verified and,
if necessary, additional financial information is requested. An appraisal of the
real estate intended to secure the proposed loan is required which currently is
performed by an independent appraiser designated and approved by the Bank. The
Bank makes construction/permanent loans on individual properties. Funds advanced
during the construction phase are held in a loan-in-process account and
disbursed based upon various stages of completion. The independent appraiser or
loan officer determines the stage of completion based upon its physical
inspection of the construction. It is the Bank's policy to obtain title
insurance or a title opinion on all real estate first mortgage loans. Borrowers
must also obtain hazard or flood insurance (for loans on property located in a
flood zone) prior to closing the loan. For loans in excess of 80% of the loan to
value ratio, borrowers are generally required to advance funds on a monthly
basis together with each payment of principal and interest to an escrow account
from which the Bank makes disbursements for items such as real estate taxes and
hazard insurance premiums.
Loans to One Borrower. Current regulations limit loans to one borrower in
an amount equal to 15% of unimpaired capital and retained income on an unsecured
basis and an additional amount equal to 10% of unimpaired capital and retained
income if the loan is secured by readily marketable collateral (generally,
financial instruments, not real estate) or $500,000, whichever is higher.
Penalties for violations of the loan-to-one borrower statutory and regulatory
restrictions include cease and desist orders, the imposition of a supervisory
agreement and civil money penalties. The Bank's maximum loan-to-one borrower
limit was approximately $7.0 million as of December 31, 2003.
At December 31, 2003, the Bank's five largest aggregate lending
relationships had balances ranging from $4.8 to $6.6 million. At December 31,
2003, all of these loans were current.
Mortgage-Backed Securities
To supplement lending activities, the Bank invests in residential
mortgage-backed securities. Although the majority of such securities are held to
maturity, they can serve as collateral for borrowings and, through repayments,
as a source of liquidity.
The mortgage-backed securities portfolio as of December 31, 2003, consisted
of pass-through certificates issued by the Federal Home Loan Mortgage
Corporation ("FHLMC") ($17 million), Government National Mortgage Association
("GNMA"), ($8 million) Federal National Mortgage Association ("FNMA") ($25
million), and real estate mortgage investment conduits formed by these same
agencies ("REMICs") ($80 million.).
At December 31, 2003, the amortized cost of mortgage-backed securities
totaled $131 million, or 22% of total assets, and the market value of such
securities totaled approximately $132 million.
The Bank's mortgage-backed securities are so-called "pass-throughs" which
represent a participation interest in a pool of single-family or multi-family
mortgages, the principal and interest payments on which are passed from the
mortgage originators, through intermediaries (generally quasi-governmental
agencies) that pool and repackage the participation interests in the form of
securities, to investors such as the Bank. Such quasi-governmental agencies,
which guarantee the payment of principal and interest to investors, primarily
include FHLMC, FNMA and GNMA. The REMIC securities are composed of the same loan
types as the pass through certificates, but offer differing characteristics as
to their expected cash flows depending on the class of such securities
purchased. The Bank's REMICs are primarily "planned amortization classes" and
"very accurately defined maturity classes" that, when purchased, offered a high
probability of predictable cash flows.
8
The following table sets forth the carrying value of the Bank's
mortgage-backed securities held in portfolio at the dates indicated.
At December 31,
---------------
2003 2002 2001
-------- -------- --------
(In thousands)
Held to maturity:
GNMA-fixed rate .......................... $ 8,007 $ 18,278 $ 29,877
FHLMC ARMs ............................... 71 91 131
FHLMC-fixed rate ......................... 8,336 21,779 34,869
FNMA-fixed rate .......................... 7,205 11,781 15,739
REMICs ................................... 11 2,519 12,550
Other mortgage-backed securities ......... -- 144 201
-------- -------- --------
Total mortgage-backed securities
held to maturity ..................... $ 23,630 $ 54,592 $ 93,367
======== ======== ========
Available-for-sale:
FHLMC .................................... $ 8,525 $ 699 $ 1,108
FNMA ..................................... 18,385 11,878 22,459
GNMA ..................................... -- -- 5,515
REMICs ................................... 79,864 102,666 70,681
-------- -------- --------
Total mortgage-backed securities
available-for-sale ................... $106,774 $115,243 $ 99,763
======== ======== ========
Mortgage-Backed Securities Maturity. The following table sets forth the
maturity and the weighted average coupon ("WAC") of the Bank's mortgage-backed
securities portfolio at December 31, 2003. The table does not include estimated
prepayments. Adjustable-rate mortgage-backed securities are shown as maturing
based on contractual maturities.
Contractual
Contractual Held Available
To Maturity -For-Sale
Maturities Due WAC Maturities Due WAC
-------------- --- -------------- ---
(Dollars in thousands)
Less than 1 year ..................... $ 21 9.25% $ 49 7.00%
1 to 3 years ......................... 78 7.89 3,828 4.00
3 to 5 years ......................... 2,456 7.36 410 7.16
5 to 10 years ........................ 1,428 7.13 38,116 5.71
10 to 20 years ....................... 2,283 5.66 42,932 4.74
Over 20 years ........................ 17,364 6.51 21,439 4.71
-------- ---- -------- ----
Total mortgage-backed securities ..... $ 23,630 6.56% $106,774 5.06%
======== ==== ======== ====
9
Non-Performing and Problem Assets
Loan Collection. When a borrower fails to make a required payment on a
loan, the Bank takes a number of steps to have the borrower cure the delinquency
and restore the loan to current status. In the case of residential mortgage
loans and consumer loans, the Bank generally sends the borrower a written notice
of non-payment after the loan is 15 days past due. In the event payment is not
then received, additional letters and phone calls are made. If the loan is still
not brought current and it becomes necessary for the Bank to take legal action,
which typically occurs after a loan is delinquent more than 90 days, the Bank
will commence foreclosure proceedings against any real property that secures the
loan and attempt to repossess any personal property that secures a consumer
loan. If a foreclosure action is instituted and the loan is not brought current,
paid in full, or refinanced before the foreclosure sale, the real property
securing the loan generally is sold at foreclosure.
In the case of commercial real estate and multi-family loans, and
construction loans, the Bank generally attempts to contact the borrower by
telephone after any loan payment is ten days past due and a senior loan officer
reviews all collection efforts made if payment is not received after the loan is
30 days past due. Decisions as to when to commence foreclosure actions for
commercial real estate and multi-family loans and construction loans are made on
a case by case basis. The Bank may consider loan work-out arrangements with
these types of borrowers in certain circumstances.
On mortgage loans or loan participations purchased by the Bank, the Bank
receives monthly reports from its loan servicers with which it monitors the loan
portfolio. Based upon servicing agreements with the servicers of the loan, the
Bank relies upon the servicer to contact delinquent borrowers, collect
delinquent amounts and to initiate foreclosure proceedings, when necessary, all
in accordance with applicable laws, regulations and the terms of the servicing
agreements between the Bank and its servicing agents. At December 31, 2003 the
Bank used third-party servicers to service $94.3 million in mortgage loans,
including one servicer that serviced $73.4 million. All of the Bank's
third-party mortgage loan servicers are regulated financial institutions or are
approved by either HUD, FNMA, or FHLMC to service loans on their behalf.
Delinquent Loans. Generally, the Bank reserves for uncollected interest on
loans past due more than 90 days; these loans are included in the table of
nonaccrual loans below. Loans also are placed on a nonaccrual status when, in
the judgment of management, the probability of collection of interest is deemed
to be insufficient to warrant further collection. When a loan is placed on
nonaccrual status, previously accrued but unpaid interest is deducted from
interest income and the further accrual of interest ceases unless the underlying
facts that prompted a nonaccrual determination are deemed to have improved
significantly.
Non-Performing Assets. The following table sets forth information regarding
non-accrual loans and real estate owned by the Bank at the dates indicated. The
Bank had no loans contractually past due more than 90 days for which accrued
interest has been recorded.
10
Non-performing assets At December 31,
------------------------------------------
2003 2002 2001 2000 1999
------ ------ ------ ------ ------
(Dollars in thousands)
Loans accounted for on a non-accrual basis:
Mortgage loans:
One- to four-family ....................... $1,549 $1,013 $1,821 $ 869 $ 880
Commercial real estate and multi-family ... 296 1,677 1,725 180 24
Consumer and other .......................... 503 1,132 230 421 413
------ ------ ------ ------ ------
Total non-accrual loans .................. 2,348 3,822 3,776 1,470 1,317
------ ------ ------ ------ ------
Real estate owned, net ...................... 868 84 30 176 546
------ ------ ------ ------ ------
Total non-performing assets ................. $3,216 $3,906 $3,806 $1,646 $1,863
====== ====== ====== ====== ======
Total non-accrual loans to loans............. 0.58% 1.03% 0.99% 0.41% 0.45%
====== ====== ====== ====== ======
Total non-accrual loans to total assets...... 0.39% 0.53% 0.53% 0.20% 0.18%
====== ====== ====== ====== ======
Total non-performing assets to total assets.. 0.53% 0.54% 0.54% 0.23% 0.26%
====== ====== ====== ====== ======
At December 31, 2003, the Bank had no foreign loans and no loan
concentrations exceeding 10% of total loans not disclosed in above the table.
"Loan concentrations" are considered to exist when there are amounts loaned to a
multiple number of borrowers engaged in similar activities that would cause them
to be similarly impacted by economic or other conditions. Loans recorded in the
category of other real estate owned are valued at the lower of book value of
loans outstanding or fair market value less cost of disposal.
At December 31, 2003, the Bank was not aware of any potential problem loans
that are not otherwise included in the foregoing table. "Potential problem
loans" are loans where information about possible credit problems of borrowers
has caused management to have serious doubts about the borrowers' ability to
comply with present repayment terms.
Classified Assets. OTS regulations provide for a classification system for
problem assets of insured institutions which covers all problem assets. Under
this classification system, problem assets of insured institutions are
classified as "substandard," "doubtful," or "loss." An asset is considered
"substandard" if it is inadequately protected by the current net worth and
paying capacity of the obligor or of the collateral pledged, if any.
"Substandard" assets include those characterized by the "distinct possibility"
that the insured institution will sustain "some loss" if the deficiencies are
not corrected. Assets classified as "doubtful" have all of the weaknesses
inherent in those classified "substandard," with the added characteristic that
the weaknesses present make "collection or liquidation in full," on the basis of
currently existing facts, conditions and values, "highly questionable and
improbable." Assets classified as "loss" are those considered "uncollectible"
and of such little value that their continuance as assets without the
establishment of a specific loss reserve is not warranted. Assets designated
"special mention" by management are assets included on the Bank's internal
watchlist because of potential weakness but that do not currently warrant
classification in one of the aforementioned categories.
11
When an insured institution classifies problem assets as either substandard
or doubtful, it may establish general allowances for loan losses in an amount
deemed prudent by management. General allowances represent loss allowances which
have been established to recognize the inherent risk associated with lending
activities, but which, unlike specific allowances, have not been allocated to
particular problem assets. When an insured institution classifies all or a
portion of a problem asset as "loss," it is required either to establish a
specific allowance for losses equal to 100% of that portion of the asset so
classified or to charge off such amount. An institution's determination as to
the classification of its assets and the amount of its valuation allowances is
subject to review by the OTS, which may order the establishment of additional
general or specific loss allowances. A portion of general loss allowances
established to cover possible losses related to assets classified as substandard
or doubtful may be included in determining an institution's regulatory capital,
while specific valuation allowances for loan losses generally do not qualify as
regulatory capital.
The following table provides further information in regard to the Bank's
classified assets as of December 31, 2003.
At December 31, 2003
--------------------
(In thousands)
Special mention assets ............. $5,662
Substandard ........................ 3,073
Doubtful assets .................... 146
Loss ............................... --
------
Total classified assets.......... $8,881
======
Real Estate Owned. Real estate acquired by the Bank as a result of
foreclosure, judgment or by deed in lieu of foreclosure is classified as real
estate owned ("REO") until it is sold. When property is acquired it is recorded
at the lower of fair value, minus estimated cost to sell, or cost. If the
property subsequently decreases in estimated value from the initial recorded
amount, the Bank will provide an additional valuation allowance, through a
charge to earnings, if the decrease is judged by management to be temporary, or
the Bank will write the property down, through a charge to earnings, to the new
estimated value if the decrease is judged by management to be permanent.
The Bank records loans as in substance foreclosures if the borrower has
little or no equity in the property based upon its documented current fair value
and if the borrower has effectively abandoned control of the collateral or has
continued to retain control of the collateral but because of the current
financial status of the borrower it is doubtful the borrower will be able to
repay the loan in the foreseeable future. In substance foreclosures are
accounted for as loans until such time that title to the collateral is acquired
by the Bank. There may be significant other expenses incurred such as attorney
and other extraordinary servicing costs involved with in substance foreclosures.
Allowances for Loan Losses. The Bank provides valuation allowances for
estimated losses from uncollectible loans. Management determines the adequacy of
the allowance on a quarterly basis to ensure that a provision for loan losses
has been charged against earnings in an amount necessary to maintain the
allowance at a level that is appropriate based on management's estimate of
probable losses. Several sources of data are used in making the evaluation as to
the appropriateness of the allowance.
The Bank's watch list contains all loans which because of past payment
history, a review of recent financial information, or other facts regarding the
credit, pose a higher than normal amount of perceived risk of collection. Once a
loan is deemed to pose other than a normal level of risk of collection, it moves
to the classified asset list as either special mention, substandard, doubtful,
or loss as required by regulatory guidelines. Classified assets also include all
loans over 90 days past due according to the contractual repayment terms. These
loans are automatically considered at least substandard. All loans not on the
classified asset list are assigned a reserve factor that is based on the
Corporation's actual loss experience over the last three years, with a small
factor assigned to loans current as to their contractual payments, and an
increased factor if the loan is 30 of 60 days past due. Classified loans with
balances under $100,000 are typically pooled according to their underlying
collateral, and a reserve factor assigned based on historical loss experience.
Classified loans are evaluated on an individual basis if the loan balance
exceeds $100,000. In such a case, the value of the underlying collateral, which
is ordinarily real estate because of the nature of the Corporation's
12
predominant past lending activities, the cost of collection and disposition, and
other factors are considered and an estimated reserve level is established. In
establishing estimated reserves, current and projected economic conditions as
they may affect the borrower and the collateral are considered. If prospects
appear poor with respect to collateral disposition, for example, because of
economic factors, a lower disposition value and thus a higher reserve level
would be established. Similarly, the credit may be guaranteed by a governmental
agency, or the collateral value may greatly exceed the loan balance such that no
reserve is indicated for these loans that are nevertheless considered classified
assets because of their delinquency. If a loan or a portion of a loan is judged
to be unrecoverable, that amount is charged off. The calculated reserve
determined using the methodologies described above is compared to the actual
level of reserves; the difference reflects the imprecision of the multitude of
assumptions that are made combined with the variability that can occur with a
relatively small amount of troubled assets, and the reserve is maintained at
reasonable levels by adjusting the provision that is charged to earnings.
The following table sets forth information with respect to the Bank's
allowance for loan losses at the dates and for the periods indicated:
For the Years Ended December 31,
--------------------------------------------------
2003 2002 2001 2000 1999
---- ---- ---- ---- ----
(Dollars in thousands)
Balance at beginning of period....... $ 2,047 $ 1,972 $ 1,714 $ 1,917 $ 1,909
Provision for loan losses ........... 330 988 500 410 300
Charge-offs:
One- to four-family ............... (16) (13) -- -- --
Commercial and multi-family
real estate loans ............... -- -- -- -- --
Consumer and other loans .......... (541) (928) (430) (634) (296)
Recoveries:
One- to four-family ............... -- 3 -- -- --
Commercial and multi-family
real estate loans ............... -- -- -- -- --
Consumer and other loans .......... 291 25 188 21 4
------- ------- ------- ------- -------
Balance at end of year .............. $ 2,111 $ 2,047 $ 1,972 $ 1,714 $ 1,917
======= ======= ======= ======= =======
Ratio of net charge-offs during
the period to average loans
outstanding during the period...... 0.07% 0.25% 0.07% 0.20% 0.10%
Ratio of allowance for loan
losses to non-performing
loans at the end of the period..... 89.91% 53.56% 52.22% 116.0% 145.6%
Ratio of allowance for loan
losses to loans receivable
at the end of the period........... 0.52% 0.55% 0.52% 0.47% 0.66%
Ratio of allowance for loan
losses and foreclosed real
estate to total non-performing
assets at the end of the period.... 92.63% 52.41% 52.60% 114.8% 132.2%
13
The following table sets forth the allocation of the Bank's allowance for
loan losses by loan category and the percent of loans in each category to total
loans receivable, gross, at the dates indicated. The portion of the loan loss
allowance allocated to each loan category does not represent the total available
for future losses which may occur within the loan category since the total loan
loss allowance is a valuation reserve applicable to the entire loan portfolio.
At December 31,
------------------------------------------------------------------------------------------------------
2003 2002 2001 2000 1999
------------------ ------------------ ------------------ ------------------ ------------------
Percent of Percent of Percent of Percent of Percent of
Loans to Loans to Loans to Loans to Loans to
Amount Total Loans Amount Total Loans Amount Total Loans Amount Total Loans Amount Total Loans
------ ----------- ------ ----------- ------ ----------- ------ ----------- ------ -----------
(Dollars in thousands)
At end of period
allocated to:
One- to four-family .. $ 277 68.2% $ 119 61.3% $ 216 58.4% $ 97 57.9% $ 242 58.0%
Commercial real estate
and multi-family .... 1,230 18.3 1,021 23.0 1,100 24.6 835 21.3 676 22.6
Construction ......... 109 1.6 90 3.2 74 2.6 105 3.8 172 4.2
Consumer and other
loans .............. 495 11.9 817 12.5 582 14.4 677 17.0 826 15.2
------ ----- ------ ----- ------ ----- ------ ----- ------ -----
Total allowance ...... $2,111 100.0% $2,047 100.0% $1,972 100.0% $1,714 100.0% $1,916 100.0%
====== ===== ====== ===== ====== ===== ====== ===== ====== =====
14
Investment Activities
The investment policy of the Bank, which is established by the Board of
Directors and implemented by the Asset Liability Committee, is designed
primarily to provide and maintain liquidity, to generate a favorable return on
investments without incurring undue interest rate and credit risk, and to
complement the Bank's lending activities. In establishing its investment
strategies, the Bank considers its business and growth plans, the economic
environment, the types of securities to be held and other factors. Federally
chartered savings institutions have the authority to invest in various types of
assets, including U.S. Treasury obligations, securities of various federal
agencies, certain certificates of deposit of insured banks and savings
institutions, certain bankers acceptances, repurchase agreements, loans on
federal funds, and, subject to certain limits, commercial paper and mutual
funds.
The following table sets forth certain information regarding the amortized
cost and fair values of the Bank's investments at the dates indicated.
At December 31,
-------------------------------------------------------------------
2003 2002 2001
------------------- -------------------- -------------------
Amortized Fair Amortized Fair Amortized Fair
Cost Value Cost Value Cost Value
--------- ------- --------- ------- --------- -------
(In thousands)
Interest-earning deposits ............. $ 508 $ 508 $93,143 $93,143 $58,157 $58,157
======= ======= ======= ======= ======= =======
Investment securities held-to-maturity:
U.S. government and agency
obligations ....................... $ 2,000 $ 2,011 $ 4,000 $ 4,125 $ -- $ --
State and political subdivisions .... 1,609 1,735 3,700 3,880 5,743 5,787
Corporate debt securities ........... 6,780 7,069 6,863 7,182 4,123 4,043
------- ------- ------- ------- ------- -------
Total ............................. $10,389 $10,815 $14,563 $15,187 $ 9,866 $ 9,830
======= ======= ======= ======= ======= =======
Securities available-for-sale:
U.S. government and agency
obligations ....................... $ 2,972 $ 2,947 $15,964 $16,084 $11,018 $10,929
State and political subdivisions .... 10,677 10,493 453 464 -- --
Corporate Debt Securities ........... 1,000 993 10,034 10,197 11,070 11,245
Mutual funds ........................ -- -- 500 498 500 497
------- ------- ------- ------- ------- -------
Total ............................. $14,649 $14,433 $26,951 $27,243 $22,588 $22,671
======= ======= ======= ======= ======= =======
15
Investment Portfolio Maturities
The following table sets forth certain information regarding the amortized
cost, weighted average yields and maturities of the Bank's investment securities
portfolio, exclusive of interest-earning deposits, at December 31, 2003. Yields
on tax exempt obligations have been computed on a tax equivalent basis.
One Year or Less One to Five Years Five to Ten Years More than Ten Years Total Investment Securities(1)
----------------- ----------------- ------------------ ------------------- ------------------------------
Amortized Average Amortized Average Amortized Average Amortized Average Amortized Average Fair
Cost Yield Cost Yield Cost Yield Cost Yield Cost Yield Value
---- ----- ---- ----- ---- ----- ---- ----- ---- ----- -------
(Dollars in thousands)
U.S. government agency... $ -- --% $ 4,972 4.14% $ -- --% $ -- --% $ 4,972 4.14% $ 4,957
Municipal obligations.... -- -- 1,394 9.17 611 4.05 10,281 5.41 12,286 5.77 12,229
Corporate obligations.... 1,004 4.03 6,776 4.23 -- -- -- -- 7,780 4.21 8,062
------- ---- -------- ---- ------- ---- -------- ---- -------- ---- -------
Total.................. $ 1,004 4.03% $ 13,142 4.72% $ 611 4.05% $ 10,281 5.41% $ 25,038 4.96% $25,248
======= ==== ======== ==== ======= ==== ======== ==== ======== ==== =======
- --------------------
(1) Includes $14.433 million of U.S. government agency and corporate
obligations which are carried as available-for-sale at December 31, 2003.
Investment securities available-for-sale are carried at fair value.
16
Sources of Funds
General. Deposits, borrowings, loan repayments and cash flows generated
from operations are the primary sources of the Bank's funds for use in lending,
investing and other general purposes.
Deposits. The Bank offers a variety of deposit accounts having a range of
interest rates and terms. The Bank's deposits consist of regular savings,
non-interest bearing checking, NOW checking, money market, and certificate
accounts. Of the deposit accounts, $31 million or 7% consist of IRA, Keogh or
SEP retirement accounts at December 31, 2003.
The flow of deposits is influenced significantly by general economic
conditions, changes in money market and prevailing interest rates and
competition. The Bank's deposits are primarily obtained from areas surrounding
its offices, and the Bank relies primarily on customer service and long-standing
relationships with customers to attract and retain these deposits. The Bank has
maintained a high level of core deposits consisting of regular savings, money
market, non-interest-bearing checking, and NOW checking, which has contributed
to a low cost-of-funds. At December 31, 2003, core deposits amounted to 68% of
total deposits.
The following table sets forth the distribution of the Bank's deposit
accounts at the dates indicated and the weighted average nominal interest rates
on each category of deposits presented. The Bank does not have significant
amount of deposits from out-of-state sources. Management does not believe that
the use of year end balances instead of average balances resulted in any
material difference in the information presented.
At December 31,
--------------------------------------------------------------------------------------------
2003 2002 2001
---------------------------- ------------------------------ ----------------------------
Weighted Weighted Weighted
Percent Average Percent of Average Percent Average
of Total Nominal Total Nominal of Total Nominal
Amount Deposits Rate Amount Deposits Rate Amount Deposits Rate
------ -------- -------- ------ ---------- -------- ------ -------- --------
(Dollars in thousands)
Transaction Accounts
Interest-bearing
checking accounts ...... $ 52,647 11.46 0.47% $ 48,496 10.96 0.60% $ 46,990 11.13 0.75%
Money market accounts ... 44,688 9.73 0.91 43,677 9.87 1.00 42,557 10.08 2.54
Non-interest-bearing
checking accounts ...... 26,375 5.74 0.00 20,810 4.70 0.00 18,200 4.31 0.00
-------- ------ ---- -------- ------ ---- -------- ------ ----
Total transaction
accounts ............ 123,710 26.93 112,983 25.53 107,747 25.52
Passbook accounts ...... 188,673 41.07 0.94 182,813 41.31 1.51 169,576 40.18 2.52
Certificates of deposit . 146,960 32.00 2.43 146,762 33.16 2.84 144,729 34.30 4.29
-------- ------ ---- -------- ------ ---- -------- ------ ----
Total deposits .......... $459,343 100.00% 1.31% $442,558 100.00% 1.73% $422,052 100.00% 2.82%
======== ====== ==== ======== ====== ==== ======== ====== ====
17
At December 31, 2003, the Bank had outstanding certificates of deposit in
amounts of $100,000 or more maturing as follows:
Amount
------
Maturing Period (In thousands)
- ---------------
Three months or less........................ $ 2,806
Over three through six months............... 2,343
Over six through 12 months.................. 7,018
Over 12 months.............................. 10,038
----------
Total................................... $ 22,205
==========
Borrowings
Deposits are the primary source of funds of the Bank's lending and
investment activities and for its general business purposes. The Bank may obtain
advances from the FHLB of Pittsburgh to supplement its supply of lendable funds.
Advances from the FHLB of Pittsburgh are typically secured by a pledge of the
Bank's stock in the FHLB of Pittsburgh and a portion of the Bank's first
mortgage loans and certain other assets. The Bank, if the need arises, may also
access the Federal Reserve Bank discount window. The following tables set forth
the maximum month-end balance, period ending balance, and weighted average
balance of outstanding FHLB advances at the dates and for the periods indicated,
together with the applicable weighted average interest rates.
At December 31,
---------------------------------------
2003 2002 2001
---- ---- ----
(Dollars in thousands)
FHLB advances and other borrowings.............. $ 86,853 $ 207,359 $ 223,359
========= ========= =========
Weighted average interest rate.................. 2.98% 5.46% 5.46%
Years Ended December 31,
---------------------------------------
2003 2002 2001
---- ---- ----
(Dollars in thousands)
Maximum balance of FHLB advances and
other borrowings outstanding................. $ 207,359 $ 222,359 $ 259,821
========= ========= =========
Weighted average balance of FHLB
advances and other borrowings
outstanding................................... $ 162,695 $ 218,578 $ 229,473
========= ========= =========
Weighted average interest rate of FHLB
advances and other borrowings................. 5.08% 5.46% 5.53%
==== ==== ====
18
Subsidiary Activity
The Bank is permitted to invest up to 2% of its assets in the capital stock
of, or secured or unsecured loans to, subsidiary corporations, with an
additional investment of 1% of assets when such additional investment is
utilized primarily for community development purposes. Under such limitations,
as of December 31, 2003, the Bank was authorized to invest up to approximately
$12.1 million in the stock of, or loans to, service corporations (based upon the
2% limitation). In addition, the Bank can designate a subsidiary as an operating
subsidiary, in which there is no percentage of assets investment limitation, if
it engages only in activities in which it would be permissible for the Bank to
engage. At December 31, 2003, the Bank had one subsidiary, Third Delaware
Corporation. Third Delaware Corporation is a wholly-owned operating subsidiary
of the Bank and was formed in 1998 for the purpose of investing in marketable
securities. At December 31, 2003, the Bank had $118 million invested in Third
Delaware Corporation.
Personnel
As of December 31, 2003, the Bank had 161 full-time and 20 part-time
employees. None of the Bank's employees are represented by a collective
bargaining group. The Bank believes that its relationship with its employees is
good.
Executive Officers of the Registrant
Executive Officers of the Company and the Bank:
Kent C. Lufkin currently serves as President and Chief Executive Officer of
the Company and the Bank and was appointed to such offices effective June 30,
2003. Mr. Lufkin joined the Bank in 2000 and formerly served as Senior Vice
President and Retail Banking Officer. Prior to that, Mr. Lufkin was President
and Chief Executive Officer of Roebling Bank in Roebling, New Jersey since 1996.
Dennis R. Stewart has been Executive Vice President and Chief Financial
Officer of the Bank and the Company since July 2003, and Senior Vice President
and Chief Financial Officer of the Bank and the Company since 1999. Prior to
that, Mr. Stewart served as Executive Vice President and Chief Financial Officer
of First Coastal Bank in Virginia Beach, Virginia, where he had been employed
since 1990.
Elizabeth Davidson Maier is Senior Vice President and Secretary of the Bank
and the Company and has been with the Bank since 1964. Ms. Maier has been an
officer of the Bank since 1974. Prior to that, Ms. Maier held various positions
at the Bank.
Floyd P. Haggar has been with the Bank since 1998. Mr. Haggar currently
serves as Senior Vice President and Chief Lending Officer of the Bank. His prior
experience includes four years as Senior Vice President and Senior Loan Officer
at Carnegie Bank in Princeton, New Jersey.
Cynthia G. Mullen has been Senior Vice President and Retail Banking Officer
of the Bank since July 2003. Previously she was a twenty-three year employee of
Commonwealth Bank in Norristown, Pennsylvania, holding a variety of positions,
including Vice President of Traditional Banking.
The remaining information relating to Directors and Executive Officers of
the Registrant is incorporated herein by reference to the Registrant's Proxy
Statement for the 2004 Annual Meeting of Stockholders.
19
REGULATION
Set forth below is a brief description of all material laws and regulations
which relate to the regulation of the Bank and the Company. The description does
not purport to be complete and is qualified in its entirety by reference to
applicable laws and regulations.
On July 30, 2002, President Bush signed into law the Sarbanes-Oxley Act of
2002 (the "Act"). The Securities and Exchange Commission (the "SEC") has
promulgated new regulations pursuant to the Act and may continue to propose
additional implementing or clarifying regulations as necessary in furtherance of
the Act. The passage of the Act by Congress and the implementation of new
regulations by the SEC subject publicly-traded companies to additional and more
cumbersome reporting regulations and disclosure. Compliance with the Act and
corresponding regulations may increase the Company's expenses.
Company Regulation
General. The Company is a unitary savings and loan holding company subject
to regulatory oversight by the OTS. As such, the Company is required to register
and file reports with the OTS and is subject to regulation and examination by
the OTS. In addition, the OTS has enforcement authority over the Company and its
non-savings association subsidiaries, should such subsidiaries be formed, which
also permits the OTS to restrict or prohibit activities that are determined to
be a serious risk to the subsidiary savings association. This regulation and
oversight is intended primarily for the protection of the depositors of the Bank
and not for the benefit of stockholders of the Company. The Company is also
required to file certain reports with, and otherwise comply with, the rules and
regulations of the OTS and the SEC.
Financial Modernization. The Gramm-Leach-Bliley Act ("GLB") permits
qualifying bank holding companies to become financial holding companies and
thereby affiliate with securities firms and insurance companies and engage in
other activities that are financial in nature. GLB defines "financial in nature"
to include securities underwriting, dealing and market making; sponsoring mutual
funds and investment companies; insurance underwriting and agency; merchant
banking activities; and activities that the Federal Reserve Board has determined
to be closely related to banking. A qualifying national bank also may engage,
subject to limitations on investment, in activities that are financial in
nature, other than insurance underwriting, insurance company portfolio
investment, real estate development, and real estate investment, through a
financial subsidiary of the bank.
GLB also prohibits new unitary thrift holding companies from engaging in
nonfinancial activities or from affiliating with a nonfinancial entity. As a
grandfathered unitary thrift holding company, the Company has retained its
authority to engage in nonfinancial activities.
QTL Test. As a unitary savings and loan holding company, the Company
generally is not subject to activity restrictions, provided the Bank satisfies
the QTL test. If the Company acquires control of another savings association as
a separate subsidiary, it would become a multiple savings and loan holding
company, and the activities of the Company and any of its subsidiaries (other
than the Bank or any other SAIF-insured savings association) would become
subject to restrictions applicable to bank holding companies unless such other
associations each also qualify as a QTL and were acquired in a supervisory
acquisition.
Bank Regulation
General. As a federally chartered, SAIF-insured savings association, the
Bank is subject to extensive regulation by the OTS and the FDIC. Lending
activities and other investments must comply with various federal statutory and
regulatory requirements. The Bank is also subject to certain reserve
requirements promulgated by the Federal Reserve Board.
The OTS, in conjunction with the FDIC, regularly examines the Bank and
prepares reports for the consideration of the Bank's Board of Directors on any
deficiencies that they find in the Bank's operations. The Bank's relationship
with its depositors and borrowers is also regulated to a great extent by federal
law, especially in such matters as the ownership of savings accounts and the
form and content of the Bank's mortgage documents.
20
The Bank must file reports with the OTS and the FDIC concerning its
activities and financial condition, in addition to obtaining regulatory
approvals prior to entering into certain transactions such as mergers with or
acquisitions of other savings institutions. This regulation and supervision
establishes a comprehensive framework of activities in which an institution can
engage and is intended primarily for the protection of the SAIF and depositors.
The regulatory structure also gives the regulatory authorities extensive
discretion in connection with their supervisory and enforcement activities and
examination policies, including policies with respect to the classification of
assets and the establishment of adequate loan loss reserves for regulatory
purposes. Any change in such regulations, whether by the OTS, the FDIC or the
Congress could have a material adverse impact on the Company, the Bank and their
operations. The Company is also required to file certain reports with, and
otherwise comply with, the rules and regulations of the OTS and the SEC.
Insurance of Deposit Accounts. The Bank's deposit accounts are insured by
the SAIF to a maximum of $100,000 for each insured member (as defined by law and
regulation). The FDIC has the authority, should it initiate proceedings to
terminate an institution's deposit insurance, to suspend the insurance of any
such institution without tangible capital. However, if a savings association has
positive capital when it includes qualifying intangible assets, the FDIC cannot
suspend deposit insurance unless capital declines materially, the institution
fails to enter into and remain in compliance with an approved capital plan or
the institution is operating in an unsafe or unsound manner.
Regardless of an institution's capital level, insurance of deposits may be
terminated by the FDIC upon a finding that the institution has engaged in unsafe
or unsound practices, is in an unsafe or unsound condition to continue
operations or has violated any applicable law, regulation, rule, order or
condition imposed by the FDIC or the institution's primary regulator. The
management of the Bank is unaware of any practice, condition or violation that
might lead to termination of its deposit insurance.
The FDIC charges an annual assessment for the insurance of deposits based
on the risk a particular institution poses to its deposit insurance fund. This
risk classification is based on an institution's capital group and supervisory
subgroup assignment.
Regulatory Capital Requirements. OTS capital regulations require savings
institutions to meet three capital standards: (1) tangible capital equal to 1.5%
of total adjusted assets, (2) a leverage ratio (core capital) equal to at least
4% of total adjusted assets and (3) a risk-based capital requirement equal to
8.0% of total risk-weighted assets. In addition, the OTS prompt corrective
action regulation provides that a savings institution that has a leverage
capital ratio of less than 4% (3% for institutions receiving the highest
examination rating) will be deemed to be "undercapitalized" and may be subject
to certain restrictions.
At December 31, 2003, the Bank was in compliance with all of its regulatory
capital requirements.
Dividend and Other Capital Distribution Limitations. The Bank may not
declare or pay a cash dividend on its capital stock if the effect thereof would
be to reduce the regulatory capital of the Bank below the amount required for
the liquidation account established at the time of the Bank's mutual-to-stock
conversion.
Savings associations that would remain at least adequately capitalized
following the capital distribution, and that meet other specified requirements,
are not required to file a notice or application for capital distributions (such
as cash dividends) declared below specified amounts. Savings associations which
are eligible for expedited treatment under current OTS regulations are not
required to file an application with the OTS if (i) the savings association
would remain at least adequately capitalized following the capital distribution
and (ii) the amount of capital distribution does not exceed an amount equal to
the savings association's net income for that year to date, plus the savings
association's retained net income for the previous two calendar years. Thus,
only undistributed net income for the prior two years may be distributed in
addition to the current year's undistributed net income without the filing of an
application with the OTS. Savings associations which do not qualify for
expedited treatment or which desire to make a capital distribution in excess of
the specified amount, must file an application with, and obtain the approval of,
the OTS prior to making the capital distribution. A savings association such as
the Bank that is a subsidiary of a savings and loan holding company, and under
certain other circumstances, must file a notice with OTS prior to making the
capital distribution.
21
Qualified Thrift Lender Test. The Home Owners' Loan Act ("HOLA"), as
amended, requires savings institutions to meet a QTL test. If the Bank maintains
an appropriate level of Qualified Thrift Investments (primarily residential
mortgages and related investments, including certain mortgage-backed securities)
("QTIs") and otherwise qualifies as a QTL, it will continue to enjoy full
borrowing privileges from the FHLB of Pittsburgh. The required percentage of
QTIs is 65% of portfolio assets (defined as all assets minus intangible assets,
property used by the institution in conducting its business and liquid assets
equal to 10% of total assets). Certain assets are subject to a percentage
limitation of 20% of portfolio assets. In addition, savings associations may
include shares of stock of the FHLBs, FNMA and FHLMC as qualifying QTIs. The
FDICIA also amended the method for measuring compliance with the QTL test to be
on a monthly basis in nine out of every 12 months, as opposed to on a daily or
weekly average of QTIs. As of December 31, 2003, the Bank was in compliance with
its QTL requirement with 78% of its assets invested in QTIs.
Federal Home Loan Bank System. The Bank is a member of the FHLB of
Pittsburgh, one of 12 regional FHLBs that administer the home financing credit
function of savings associations. Each FHLB serves as a reserve or central bank
for its members within its assigned region. It is funded primarily from proceeds
derived from the sale of consolidated obligations of the FHLB System. It makes
loans to members (i.e., advances) in accordance with policies and procedures
established by the Board of Directors of the FHLB.
As a member, the Bank is required to purchase and maintain stock in the
FHLB of Pittsburgh in an amount equal to at least 1% of its aggregate unpaid
residential mortgage loans, home purchase contracts or similar obligations at
the beginning of each year. At December 31, 2003, the Bank had $6.8 million in
FHLB stock, which was in compliance with this requirement.
Federal Reserve System. The Federal Reserve Board requires all depository
institutions to maintain non-interest bearing reserves at specified levels
against their transaction accounts (primarily checking, NOW and Super NOW
checking accounts) and non-personal time deposits. The balances maintained to
meet the reserve requirements imposed by the Federal Reserve Board may be used
to satisfy the liquidity requirements that are imposed by the OTS. At December
31, 2003, the Bank's total transaction accounts required a reserve level of $4.7
million which was offset by the Bank's vault cash on hand and cash on deposit at
the Federal Reserve Bank of Philadelphia.
Savings associations have authority to borrow from the Federal Reserve Bank
"discount window," but Federal Reserve policy generally requires savings
associations to exhaust all OTS sources before borrowing from the Federal
Reserve System. The Bank had no such borrowings at December 31, 2003.
22
Item 2. Properties
- -------------------
The Company is located and conducts its business at 3 Penns Trail, Newtown,
Pennsylvania. At December 31, 2003, the Bank operated from its administrative
offices and fourteen branch offices located in Philadelphia and Bucks Counties,
Pennsylvania and Mercer County, New Jersey. The Bank also owns two parcels of
land and a building behind its Doylestown branch office. The parcel with the
building is available to be leased to a third-party and the other parcel is used
as a parking lot for employees of the Bank and tenants. The net book value of
the two lots was $100,000. In addition, a subsidiary of the Company, Penns Trail
Development Corporation, owns investment property with a book value of $761,000.
The following table sets forth certain information regarding the Bank's
operating properties:
Leased or Leased or
Location Owned Location Owned
-------- -------- -------- ---------
ADMINISTRATIVE OFFICE OPERATIONS OFFICE
Newtown Office Operations Center
3 Penns Trail 62 Walker Lane
Newtown, PA 18940 Owned Newtown, PA 18940(1) Owned
BRANCH OFFICES
Frankford Office Newtown Office
4625 Frankford Avenue 950 Newtown Yardley Road
Philadelphia, PA 19124 Leased Newtown, PA 18940 Leased
Ewing Office Mayfair Office
2075 Pennington Road Roosevelt Blvd. at Unruh
Ewing, NJ 08618 Owned Philadelphia, PA 19149 Owned
Hamilton Office Doylestown Office
1850 Route 33 60 North Main Street
Hamilton Square, NJ 08690 Owned Doylestown, PA 18901 Owned
Fishtown Office Feasterville Office
York & Memphis Streets Buck Hotel Complex
Philadelphia, PA 19125 Owned Feasterville, PA 19053 Leased
Cross Keys Office Quakerbridge Office
834 North Easton Highway 590 Lawrence Square Blvd.
Doylestown, PA 18901 Owned Lawrenceville, NJ 08648 Leased
Bridesburg Office Woodhaven Office
Orthodox & Almond Streets Knights Road Center
Philadelphia, PA 19137 Owned 4014 Woodhaven Road
Philadelphia, PA 19154 Leased
New Britain Office Northern Liberties Office
600 Town Center 905 North 2nd Street
New Britain, PA 18901 Leased Philadelphia, PA 19123 Leased
(1) This office serves as the computer operations center, check processing area,
training center, mail processing and storage center for the Bank.
23
Item 3. Legal Proceedings
- --------------------------
Neither the Company nor its subsidiaries are involved in any pending legal
proceedings, other than routine legal matters occurring in the ordinary course
of business, which in the aggregate involve amounts which are believed by
management to be immaterial to the consolidated financial condition or results
of operations of the Company.
Item 4. Submission of Matters to a Vote of Security Holders
- ------------------------------------------------------------
None.
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
- ------------------------------------------------------------------------------
Information relating to the market for Registrant's common equity and
related stockholder matters appears under the section captioned "Stock Market
Information" in the Registrant's 2003 Annual Report to Stockholders and is
incorporated herein by reference.
Item 6. Selected Financial Data
- --------------------------------
The above-captioned information appears under the section captioned
"Selected Financial and Other Data" in the Registrant's 2003 Annual Report to
Stockholders and is incorporated herein by reference.
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
- --------------------------------------------------------------------------------
The information under the section captioned "Management's Discussion and
Analysis of Financial Condition and Results of Operations" in the Registrant's
2003 Annual Report to Stockholders is incorporated herein by reference.
Item 7A. Quantitative and Qualitative Disclosures about Market Risk
- --------------------------------------------------------------------
Asset and Liability Management
Managing Interest Rate Risk. Interest rate risk is defined as the
sensitivity of the Bank's current and future earnings as well as its capital to
changes in the level of market interest rates. The Bank's exposure to interest
rate risk results from, among other things, the difference in maturities in
interest-earning assets and interest-bearing liabilities. Since the Bank's
assets currently have a longer maturity than its liabilities, the Bank's
earnings could be negatively impacted during a period of rising interest rates
and conversely, positively impacted during a period of falling interest rates.
The relationship between the interest rate sensitivity of the Bank's assets and
liabilities is continually monitored by management. In this regard, the Bank
emphasizes the origination of shorter term or adjustable rate assets for
portfolio.
The Bank utilizes its investment and mortgage-backed security portfolios to
generate additional interest income and in managing its liquidity. These
securities are readily marketable and provide the Bank with a cash flow stream
to fund asset growth or liability maturities.
A significant portion of the Bank's assets has been funded with CDs
including jumbo CDs. Unlike other deposit products such as checking and savings
accounts, CDs carry a high degree of interest rate sensitivity and, therefore,
their renewal will vary based on the competitiveness of the Bank's interest
rates. At December 31, 2003, approximately 32% of the Bank's deposits were CDs.
The Bank utilizes borrowings from the FHLB in managing its interest rate
risk and as a tool to augment deposits in funding asset growth. The Bank may
utilize these funding sources to better match its longer term repricing assets
(i.e., between one and five years).
24
The nature of the Bank's current operations is such that it is not subject
to foreign currency exchange or commodity price risk. Additionally, neither the
Company nor the Bank owns any trading assets. At December 31, 2003, the Bank did
not have any hedging transactions in place such as interest rate swaps, caps, or
floors.
As part of its interest rate risk management, the Bank uses the Interest
Rate Risk Exposure Report, which is generated quarterly by the OTS. This report
forecasts changes in the Bank's market value of portfolio equity ("MVPE") under
alternative interest rate environments. The MVPE is defined as the net present
value of the Bank's existing assets, liabilities and off-balance sheet
instruments. The calculated estimates of change in MVPE at December 31, 2003 are
as follows:
MVPE
-------------------------------------------------
Change in Interest Rates (1) Amount % Change
---------------------------- ------ --------
(In Thousands)
+300 Basis Points $ 43,395 -44%
+200 Basis Points $ 54,954 -29%
+100 Basis Points $ 66,554 -14%
Flat Rates $ 77,479 0%
-100 Basis Points $ 83,333 +8%
- ---------------------
(1) The -200 and -300 bp scenarios are not shown due to the low interest rate
environment.
Management believes that the assumptions utilized by OTS in evaluating the
vulnerability of the Company's capital to changes in interest rates are
reasonable; however, the interest rate sensitivity of the Bank's assets and
liabilities as well as the estimated effect of changes in interest rates on MVPE
could vary substantially if different assumptions are used or actual experience
differs from the experience on which the assumptions were based.
In the event the Bank should measure an excessive decline in its MVPE as
the result of an immediate and sustained change in interest rate, it has a
number of options which it could utilize to remedy that situation. The Bank
could restructure its investment portfolio through sale or purchase of
securities with more favorable repricing attributes. It could also emphasize
loan products with appropriate maturities or repricing attributes, or it could
attract deposits or obtain borrowings with desired maturities.
Item 8. Financial Statements and Supplementary Data
- ----------------------------------------------------
The Consolidated Financial Statements of TF Financial Corporation and its
subsidiaries included in the Registrant's 2003 Annual Report to Stockholders are
incorporated herein by reference.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
- ------------------------------------------------------------------------
None.
Item 9A. Controls and Procedures
- ---------------------------------
(a) Evaluation of disclosure controls and procedures. Based on their
-----------------------------------------------------
evaluation of the Company's disclosure controls and procedures (as defined in
Rule 13a-15(e) under the Securities Exchange Act of 1934 (the "Exchange Act")),
the Company's principal executive officer and principal financial officer have
concluded that as of the end of the period covered by this Annual Report on Form
10-K such disclosure controls and procedures are effective to ensure that
information required to be disclosed by the Company in reports that it files or
submits under the Exchange Act is recorded, processed, summarized and reported
within the time periods specified in Securities and Exchange Commission rules
and forms.
25
(b) Changes in internal control over financial reporting. During the last
quarter of the year under report there was no change in the Company's internal
control over financial reporting that has materially affected, or is reasonably
likely to materially affect, the Company's internal control over financial
reporting.
PART III
Item 10. Directors and Executive Officers of the Registrant
- ------------------------------------------------------------
The information contained under the sections captioned "Proposal 1 -
Election of Directors -- General Information and Nominees" and "-- Biographical
Information" and "Additional Information About Directors and Executive Officers
- -- Section 16(a) Beneficial Ownership Reporting Compliance" in the Registrant's
definitive proxy statement for the Registrant's 2004 Annual Meeting of
Stockholders (the "Proxy Statement") is incorporated herein by reference.
Additional information concerning executive officers is included under
"Item 1. Business -- Executive Officers of the Registrant."
The Company has adopted a Code of Ethics that applies to its principal
executive officer, principal financial officer, principal accounting officer or
persons performing such functions. The Code of Ethics can be obtained without
charge by sending a written request to the Corporate Secretary, TF Financial
Corporation, 3 Penns Trail, Newtown, Pennsylvania 18940.
Item 11. Executive Compensation
- --------------------------------
The information relating to executive compensation is incorporated herein
by reference to the information contained under the section captioned "Director
and Executive Officer Compensation" in the Registrant's Proxy Statement.
Item 12. Security Ownership of Certain Beneficial Owners and Management
- ------------------------------------------------------------------------
(a) Security Ownership of Certain Beneficial Owners
Information required by this item is incorporated herein by reference
to the Section captioned "Voting Securities and Principal Holders
Thereof" in the Registrant's Proxy Statement.
(b) Security Ownership of Management
Information required by this item is incorporated herein by reference
to the section captioned "Proposal 1 -- Election of Directors" in the
Registrant's Proxy Statement.
(c) Management of the Company knows of no arrangements, including any
pledge by any person of securities of the Company, the operation of
which may at a subsequent date result in a change in control of the
registrant.
(d) Securities Authorized for Issuance Under Equity Compensation Plans
26
Set forth below is information as of December 31, 2003 with respect to
compensation plans under which equity securities of the Registrant are
authorized for issuance.
EQUITY COMPENSATION PLAN INFORMATION
(a) (b) (c)
Number of securities
Number of securities Weighted-average remaining available for
to be issued upon exercise price of future issuance under equity
exercise of outstanding compensation plans
outstanding options, options, warrants (excluding securities
warrants and rights and rights reflected in column (a))
------------------- ---------- ------------------------
Equity compensation plans
approved by shareholders(1)......... 560,714 $15.43 695
Equity compensation plans
not approved by shareholders(2)..... 25,000 14.75 --
------- ------ ---
TOTAL............................ 585,714 $15.40 695
======= ====== ===
- ------------
(1) Plans approved by stockholders include: TF Financial Corporation 1994 Stock
Option Plan, TF Financial Corporation 1997 Stock Option Plan.
(2) Plans not approved by stockholders include: TF Financial Corporation 1996
Directors Stock Option Plan For information regarding the material features
of these plans, see Note A8 to the Consolidated Financial Statements
included as part of Exhibit 13 to this report.
Item 13. Certain Relationships and Related Transactions
- --------------------------------------------------------
The information relating to certain relationships and related transactions
is incorporated herein by reference to the information contained under the
section captioned "Additional Information About Directors and Executive Officers
- -- Certain Relationships and Related Transactions" in the Registrant's Proxy
Statement.
Item 14. Principal Accounting Fees and Services
- ------------------------------------------------
The information relating to this item is incorporated herein by reference
to the information contained under the section captioned "Principal Accounting
Firm Fees" in the Registrant's Proxy Statement.
27
PART IV
Item 15. Exhibits, Financial Statements and Reports on Form 8-K
- ----------------------------------------------------------------
(a) The following documents are filed as a part of this report:
(1) The following financial statements and the report of the independent
auditor of the Company included in the Company's 2003 Annual Report to
Stockholders are incorporated herein by reference.
Independent Auditors' Report
Consolidated Statements of Financial Position as of December 31,
2003 and 2002
Consolidated Statements of Earnings For the Years Ended December 31,
2003, 2002 and 2001
Consolidated Statement of Changes in Stockholders' Equity and
Comprehensive Income for the Years Ended December 31, 2003, 2002
and 2001
Consolidated Statements of Cash Flows for the Years Ended December 31,
2003, 2002 and 2001
Notes to Consolidated Financial Statements
The remaining information appearing in the Annual Report to Stockholders is
not deemed to be filed as part of this report, except as expressly provided
herein.
(2) All schedules are omitted because they are not required or applicable,
or the required information is shown in the consolidated financial statements or
the notes thereto.
(3) Exhibits
(a) The following exhibits are filed as part of this report.
3.1 Certificate of Incorporation of TF Financial Corporation (1)
3.2 Bylaws of TF Financial Corporation (1)
4.0 Stock Certificate of TF Financial Corporation (1)
4.1 The Company's Rights Agreement dated November 22, 1995 (2)
10.1 Third Federal Savings and Loan Association Management Stock
Bonus Plan (1)
10.2 TF Financial Corporation 1994 Stock Option Plan (1)
10.3 Third Federal Savings Bank Directors Consultation and Retirement
Plan (3)
10.4 TF Financial Corporation Incentive Compensation Plan (3)
10.5 Severance Agreement with Kent C. Lufkin (4)
10.6 Severance Agreement with Floyd P. Haggar (4)
10.7 Severance Agreement with Dennis R. Stewart (5)
10.8 TF Financial Corporation 1997 Stock Option Plan (6)
10.9 Severance Agreement with Robert N. Dusek (7)
10.10 TF Financial Corporation 1996 Directors Stock Option Plan (8)
10.11 Retirement and Non-Competition Agreement with John R. Stranford
10.12 Employment Agreement with John R. Stranford
13.0 2003 Annual Report to Stockholders
21.0 Subsidiary Information
23.0 Consent of Independent Auditor
31.0 Certification pursuant to Section 302 of the Sarbanes-Oxley Act
of 2002
32.0 Certification pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002
28
- ---------------
(1) Incorporated herein by reference from the Exhibits to Form S-1,
Registration Statement, File No. 33-76960.
(2) Incorporated herein by reference to the Registrants Form 8-A filed with the
Securities and Exchange Commission on November 22, 1995.
(3) Incorporated herein by reference to the Registrant's Annual Report on Form
10-K for the fiscal year ended December 31, 1995.
(4) Incorporated herein by reference to the Registrant's Annual Report on Form
10-K for the fiscal year ended December 31, 2000.
(5) Incorporated herein by reference to the Registrant's Annual Report on Form
10-K for the fiscal year ended December 31, 1999.
(6) Incorporated herein by reference to the Registrant's Annual Report on Form
10-K for the fiscal year ended December 31, 1997.
(7) Incorporated herein by reference to the Registrant's Annual Report on Form
10-K for the fiscal year ended December 31, 2001.
(8) Incorporated herein by reference to the Registrant's Annual Report on Form
10-K for the fiscal year ended December 31, 2002.
(b) Reports on Form 8-K.
On October 28, 2003 the Company filed Form 8-K wherein the Company included
the press release announcing the Company's earnings for the third quarter
of 2003.
29
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, the Registrant has duly caused this Report to
be signed on its behalf by the undersigned, thereunto duly authorized.
TF FINANCIAL CORPORATION
Dated: March 26, 2004 By: /s/ Kent C. Lufkin
-------------------------------
Kent C. Lufkin
President, Chief Executive Officer
(Duly Authorized Representative)
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, this Report has been signed below by the following persons on behalf of
the Registrant and in the capacities indicated as of March 26, 2004.
By: /s/ Kent C. Lufkin By: /s/ Dennis R. Stewart
---------------------------------- ---------------------------------
Kent C. Lufkin Dennis R. Stewart
President, Chief Executive Officer Executive Vice President, Chief
(Principal Executive Officer) Financial Officer and Treasurer
(Principal Financial and
Accounting Officer)
By: /s/ Carl F. Gregory By: /s/ Robert N. Dusek
---------------------------------- ---------------------------------
Carl F. Gregory Robert N. Dusek
Director Chairman of the Board
By: /s/ Dennis L. McCartney By: /s/ George A. Olsen
---------------------------------- ---------------------------------
Dennis L. McCartney George A. Olsen
Director Director
By: /s/ Albert M. Tantala By: /s/ John R. Stranford
---------------------------------- ---------------------------------
Albert M. Tantala John R. Stranford
Director Director
30