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EX-23 - EXHIBIT 23 - TF FINANCIAL CORPa2197589zex-23.htm
EX-21 - EXHIBIT 21 - TF FINANCIAL CORPa2197589zex-21.htm
EX-32 - EXHIBIT 32 - TF FINANCIAL CORPa2197589zex-32.htm
EX-13 - EXHIBIT 13 - TF FINANCIAL CORPa2197589zex-13.htm
EX-31.1 - EXHIBIT 31.1 - TF FINANCIAL CORPa2197589zex-31_1.htm
EX-31.2 - EXHIBIT 31.2 - TF FINANCIAL CORPa2197589zex-31_2.htm

 

 

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.  20549

 

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, 2009

 

or

 

o  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from                    to                    

 

Commission file number:  0-24168

 

TF FINANCIAL CORPORATION

(Exact Name of Registrant as Specified in Its Charter)

 

Delaware

 

74-2705050

(State or Other Jurisdiction of Incorporation
or Organization)

 

(I.R.S. Employer Identification No.)

 

 

 

3 Penns Trail, Newtown, Pennsylvania

 

18940

(Address of Principal Executive Offices)

 

(Zip Code)

 

Registrant’s telephone number, including area code: (215) 579-4000

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

 

Name of each exchange on which registered

Common Stock, par value $.10 per share

 

The Nasdaq Stock Market LLC

 

Securities registered pursuant to Section 12(g) of the Act: None

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.  YES o     NO x

 

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act.  YES o     NO x

 

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 o

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§229.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  o YES o NO

 

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.  o

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definition of “large accelerated filer”, “accelerated filer”, and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer  o

 

Accelerated filer  o

 

 

 

Non-accelerated filer  o

 

Smaller reporting company  x

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  YES o     NO x

 

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, 2009, was $31.4 million (1,771,565 shares at $17.71 per share).

 

As of March 08, 2010 there were outstanding 2,677,603 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, 2009. (Parts I, II and IV)

2.      Portions of the Proxy Statement for the 2010 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

 

BUSINESS OF THE COMPANY

 

On July 13, 1994, the Company consummated its public offering of 5,290,000 shares of its common stock and acquired Third Federal 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 Bank, TF Investments Corporation, Teragon Financial Corporation, Penns Trail Development Corporation and Third Delaware Corporation. At December 31, 2009, the Company had total assets of $714.1 million, total liabilities of $642.2 million and stockholders’ equity of $71.9 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, 2009 the Bank operated fourteen branch offices in Bucks and Philadelphia Counties, Pennsylvania and in Mercer County, New Jersey.

 

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, 2009, one-to-four family residential mortgage loans totaled $272.7 million or 51% of the Bank’s total loan portfolio.  At that same date, the Bank had approximately $81.9 million or 11% of total assets invested in mortgage-backed securities and $40.9 million or 6% of total assets in investment securities. The Bank also originates commercial real estate and multi-family, construction and consumer loans.

 

2



 

The Bank has two subsidiaries, Third Delaware Corporation, which was incorporated in 1998 for the purpose of holding and managing mortgage-backed securities and investment securities for the Bank, and Teragon Financial Corporation which holds a 75% limited partnership interest in a captive title insurance agency, Third Fed Abstract, L. P. During 2006, Teragon Financial Corporation was granted approval by the Commonwealth of Pennsylvania to conduct business as an insurance agency.

 

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. Seven 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 two 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 banks, 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.  Based upon the latest available data, at June 30, 2009 the Company’s share of deposits in each of the counties in which it operates was as follows:

 

County, State

 

Market Share for
Entire County

 

Market Share for ZIP Codes
Including Company Branches

 

Philadelphia, Pennsylvania

 

0.45

%

10.83

%

Bucks, Pennsylvania

 

1.61

%

5.51

%

Mercer, New Jersey

 

0.37

%

6.83

%

 

Lending Activities

 

General.  The Bank’s loan portfolio composition consists primarily of 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, 2009, the Bank’s mortgage loans outstanding were $437.0 million, of which $272.7 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, 22% were ARM’s and 78% were fixed-rate loans.  At that same date, commercial real estate and multi-family residential loans totaled $134.6 million, and construction loans totaled $29.7 million. The construction loans are predominately floating-rate, prime-rate-based loans.

 

Consumer and other loans held by the Bank totaled $57.4 million or 11% of total loans outstanding at December 31, 2009, of which $54.8 million consisted of home equity and second mortgage loans. At that same date commercial business loans totaled $41.0 million or 8% of total loans.

 

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.

 

3


 

 

 

At December 31,

 

 

 

2009

 

2008

 

2007

 

2006

 

2005

 

 

 

Amount

 

Percent
of Total

 

Amount

 

Percent
of Total

 

Amount

 

Percent
of Total

 

Amount

 

Percent
of Total

 

Amount

 

Percent 
of Total

 

 

 

(Dollars in thousands)

 

Loans receivable:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Mortgage loans:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

One-to-four family

 

$

271,651

 

50.85

%

$

281,870

 

51.48

%

$

272,840

 

52.55

%

$

266,789

 

54.91

%

$

289,678

 

58.76

%

Commercial real estate and multi-family

 

134,584

 

25.19

%

132,640

 

24.23

%

109,740

 

21.14

%

93,607

 

19.26

%

89,489

 

18.15

%

Construction

 

29,671

 

5.55

%

30,633

 

5.60

%

35,507

 

6.84

%

34,944

 

7.19

%

24,888

 

5.04

%

Total mortgage loans

 

435,906

 

81.59

%

445,143

 

81.31

%

418,087

 

80.53

%

395.340

 

81.36

%

404,055

 

81.95

%

Consumer loans:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Home equity and second mortgage

 

54,811

 

10.26

%

56,233

 

10.27

%

52,013

 

10.02

%

46,864

 

9.65

%

37,479

 

7.60

%

Other consumer

 

2,565

 

0.48

%

2,287

 

0.42

%

2,244

 

0.43

%

3,206

 

0.66

%

2,836

 

0.58

%

Total consumer and other loans

 

57,376

 

10.74

%

58,520

 

10.69

%

54,257

 

10.45

%

50,070

 

10.31

%

40,315

 

8.18

%

Commercial loans:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial -business real estate secured

 

33,514

 

6.27

%

35,591

 

6.50

%

41,473

 

7.99

%

34,472

 

7.09

%

42,217

 

8.56

%

Commercial -business non-real estate secured

 

7,462

 

1.40

%

8,227

 

1.50

%

5,377

 

1.03

%

6,022

 

1.24

%

6,440

 

1.31

%

Total commercial-business loans

 

40,976

 

7.67

%

43,818

 

8.00

%

46,850

 

9.02

%

40,494

 

8.33

%

48,657

 

9.87

%

Total loans

 

534,258

 

100.00

%

547,481

 

100.00

%

519,194

 

100.00

%

485,904

 

100.00

%

493,027

 

100.00

%

Net of:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Deferred loan origination costs and unamortized premiums

 

609

 

 

 

704

 

 

 

675

 

 

 

531

 

 

 

505

 

 

 

Allowance for loan losses

 

(5,215

)

 

 

(3,855

)

 

 

(2,842

)

 

 

(2,865

)

 

 

(2,641

)

 

 

Total loans, held for investment, net

 

$

529,652

 

 

 

$

544,330

 

 

 

$

517,027

 

 

 

$

483,570

 

 

 

$

490,891

 

 

 

Loans held for sale:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Mortgage loans:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

One-to-four family

 

$

1,082

 

100.00

%

$

1,659

 

100.00

%

$

1,040

 

100.00

%

$

969

 

100.00

%

$

68

 

100.00

%

Total loans held for sale

 

$

1,082

 

100.00

%

$

1,659

 

100.00

%

$

1,040

 

100.00

%

$

969

 

100.00

%

$

68

 

100.00

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Mortgage-backed securities held-to-maturity:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Federal Home Loan Mortgage Corporation (“FHLMC”)

 

$

754

 

20.22

%

$

1,100

 

23.04

%

$

1,657

 

26.90

%

$

2,297

 

29.84

%

$

3,161

 

31.06

%

Federal National Mortgage Association (“FNMA”)

 

1,698

 

45.47

%

2,141

 

44.85

%

2,634

 

42.76

%

3,084

 

40.07

%

3,969

 

39.00

%

Government National Mortgage Association (“GNMA”)

 

1,281

 

34.31

%

1,533

 

32.11

%

1,869

 

30.34

%

2,316

 

30.09

%

3,040

 

29.87

%

Real estate investment mortgage conduit(“REMICs”)

 

 

 

 

 

 

 

 

 

7

 

0.07

%

Total mortgage-backed and related securities held-to-maturity

 

$

3,733

 

100.00

%

$

4,774

 

100.00

%

$

6,160

 

100.00

%

$

7,697

 

100.00

%

$

10,177

 

100.00

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Mortgage-backed securities available-for-sale:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

FHLMC

 

$

3,440

 

4.40

%

$

4,504

 

4.20

%

$

5,434

 

5.54

%

$

7,888

 

10.61

%

$

9,686

 

11.60

%

FNMA

 

9,146

 

11.70

%

12,320

 

11.49

%

11,183

 

11.39

%

10,330

 

13.90

%

12,173

 

14.58

%

GNMA

 

1,886

 

2.41

%

 

 

 

 

 

 

 

 

REMICs

 

63,726

 

81.49

%

90,393

 

84.31

%

81,561

 

83.07

%

56,120

 

75.49

%

61,652

 

73.82

%

Total mortgage-backed and related securities available-for-sale

 

$

78,198

 

100.00

%

$

107,217

 

100.00

%

$

98,178

 

100.00

%

$

74,338

 

100.00

%

$

83,511

 

100.00

%

 

4


 

Loan Maturity and Repricing Information.  The following table sets forth certain information at December 31, 2009, regarding the dollar amount of loans maturing in the Bank’s loan portfolio 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, 2009, are reported as due in one year or less.  The table does not include prepayments or scheduled principal repayments.

 

 

 

Due 1/1/10 -
12/31/10

 

Due 1/1/11 -
12/31/14

 

Due After
12/31/15

 

 

 

(In thousands)

 

Loans held for sale:

 

 

 

 

 

 

 

One-to-four family

 

$

 

$

 

$

1,082

 

Total loans held for sale

 

$

 

$

 

$

1,082

 

 

 

 

 

 

 

 

 

Loans receivable:

 

 

 

 

 

 

 

One-to-four family

 

$

869

 

$

6,918

 

$

263,864

 

Commercial real estate and multi-family

 

5,025

 

7,104

 

122,455

 

Construction

 

29,671

 

 

 

Consumer and other

 

212

 

4,190

 

52,974

 

Commercial loans

 

31,652

 

2,825

 

6,499

 

Total loans receivable

 

$

67,429

 

$

21,037

 

$

445,792

 

 

The following table sets forth the dollar amount of all loans due after December 31, 2010, which have predetermined interest rates and which have floating or adjustable interest rates. Loans which have rate adjustments after ten years are considered to have predetermined rates.

 

 

 

Predetermined
Rates

 

Floating or
Adjustable Rate

 

 

 

(In thousands)

 

Loans held for sale:

 

 

 

 

 

One-to-four family

 

$

1,082

 

$

 

Total loans held for sale

 

$

1,082

 

$

 

 

 

 

 

 

 

Loans receivable:

 

 

 

 

 

One-to-four family

 

$

212,092

 

$

58,690

 

Commercial real estate and multi-family

 

3,014

 

126,545

 

Construction

 

 

 

Consumer and other

 

32,731

 

24,433

 

Commercial loans and leases

 

7,550

 

1,774

 

Total loans receivable

 

$

255,387

 

$

211,442

 

 

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 must be owner-occupied and private mortgage insurance is typically required.

 

Loan originations are obtained through the Bank’s retail banking channels, 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 also has a mortgage lending department that is separate as to its sales efforts from the consumer lending area of the Bank. This department employs a lending manager and several commissioned loan officers. The mortgage loan officers support the Bank’s branches and customers, and additionally engage in calling efforts directed toward realtors, builders, other loan originators and others that can be sources of lending business for the Bank.

 

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 3% to 5% 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 guidelines for fixed-rate mortgage loans conform to the FHLMC and FNMA guidelines.

 

5



 

The Bank sells a portion of its conforming fixed-rate mortgage loan originations in the secondary market to FHLMC or FNMA while retaining the servicing rights on these loans. As of December 31, 2009, the Bank’s portfolio of loans serviced for FHLMC or FNMA totaled approximately $76.8 million. The Bank also brokers a small portion of its loan closings to correspondents on a servicing released basis. However, the Bank is primarily a portfolio lender.

 

Commercial Real Estate and Multi-Family Lending.  The Bank originates permanent loans secured by commercial real estate including non-owner occupied residential, multi-family dwelling units, professional office buildings and hotels/motels. 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 primarily on properties in its general market area.  The commercial real estate and multi-family loans in the Bank’s portfolio consist of fixed-rate, ARM and balloon loans originated at prevailing market rates for terms of up to 25 years and typically either have a scheduled interest rate reset or are callable by the Bank, after a 5 to 10 year period.

 

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 the feasibility and cash flow potential of the project and the borrower’s creditworthiness. 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 by a greater extent to adverse conditions in the real estate market or the economy than residential real estate loans.  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.  Similarly, on commercial office buildings and hotel properties, the Bank requires minimum debt service coverage and obtains operating statements of such properties. At December 31, 2009, the five largest commercial real estate and multi-family loans totaled $26.2 million with no single loan larger than $7.3 million.

 

Construction and Land Acquisition Lending.  At December 31, 2009, the Bank’s construction and land acquisition loans were $29.7 million or 6% 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 construction.  If the estimate of 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. Land acquisition lending is susceptible to the risks of obtaining necessary approvals and permits, and the feasibility of the project once such approvals are obtained. At December 31, 2009, the five largest construction land acquisition loans totaled $17.8 million with no single loan larger than $5.5 million.

 

Consumer and Other Loans.  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”), automobile loans and student loans.  These loans totaled $57.4 million or 11% of the Bank’s total loan portfolio at December 31, 2009.  The Bank originates consumer loans through its retail banking channel and mortgage loan department.

 

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 evaluated.  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 vehicle which secures the loan.

 

Consumer loans tend to be originated at higher interest rates than conventional residential mortgage loans and for shorter terms, thus facilitating the Bank’s interest rate risk management.  Consumer loans can have a higher risk of default than residential mortgage loans.  However, at December 31, 2009, $107,000 or 0.2% of the Bank’s consumer loans were delinquent more than 90 days, compared to $1.1 million or 0.4% of residential one-to-four family loans.

 

The Bank offers second mortgage loans on one-to-four family residences.  At December 31, 2009, second mortgage and home equity loans totaled $54.8 million, or 10% of the Bank’s total loan portfolio.  Second mortgage loans are offered as fixed-rate loans for a term not to exceed 15 years or prime-rate-based floating rate loans with amortization periods up to 15 years and in some cases, an interest-only period of up to the first 60 months of the loan term.  Such loans are only made on owner-occupied one-to-four family residences and are subject to a 90% 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.  The Bank makes commercial business loans predominantly on a secured or guaranteed basis.  The terms of these loans generally do not exceed five years. These loans can have floating interest rates which adjust with changes in market interest rates, usually the prime rate, or have a fixed rate related to their term to maturity.  The Bank’s commercial business loans primarily consist of short-term loans for equipment, working capital, business expansion and inventory financing, and typically have some real estate collateral.

 

6



 

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, 2009, the Bank had approximately $41.0 million outstanding in commercial business loans, which represented approximately 8% of its total loan portfolio. At December 31, 2009, the five largest commercial business loans totaled $20.0 million with no single loan larger than $5.5 million.

 

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.  Individual approval authority ranges from $75,000 to $750,000 for secured loans, and $10,000 to $100,000 for unsecured loans. Members of an in-house loan committee including four senior members of management can approve in certain combinations all loans over $750,000 up to $2.5 million. The committee has the authority to approve secured loans up to $2.5 million and unsecured loans up to $200,000. All loans greater than $2.5 million through $5.0 million require the approval of the Director’s Board Loan Committee composed of 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 $5.0 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 obtained, income and certain other information is verified and, if necessary, additional financial information may be required.  The Bank does not engage in sub-prime, stated income or “no-doc” style portfolio lending. An appraisal of the real estate intended to secure the proposed loan is required and 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.  An independent appraiser or loan officer determines the stage of completion based upon a physical inspection of the construction and funds are advanced only for work in place.  It is the Bank’s policy to obtain title insurance or a title opinion on all real estate first mortgage loans in excess of $500,000.  Borrowers must also obtain hazard or flood insurance (for loans on property located in a flood zone) prior to closing the loan.

 

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 $10.3 million as of December 31, 2009 and the Bank’s five largest aggregate lending relationships pursuant to the loans to one borrower regulations had balances ranging from $6.5 to $9.0 million.

 

Mortgage-Backed Securities

 

To supplement lending activities, the Bank invests in residential mortgage-backed securities.  Although the majority of such securities are available for sale. In addition, they serve as collateral for borrowings and, through repayments, are a source of liquidity.

 

The mortgage-backed securities portfolio as of December 31, 2009, consisted of pass-through certificates issued by the FHLMC ($4.2 million), GNMA, ($3.2 million), FNMA ($10.8 million), and REMICs formed from pass-through certificates issued by these same agencies ($58.2 million), and issued by private issuers ($5.5 million).

 

At December 31, 2009, the amortized cost of mortgage-backed securities totaled $79.7 million, or 11% of total assets, and the fair value of such securities totaled approximately $82.2 million.

 

The Bank’s mortgage-backed securities which are so-called “pass-through” represent a participation interest in a pool of single-family or multi-family mortgages, the principal and interest payments on which are passed through intermediaries (generally quasi-governmental agencies) to investors such as the Bank.  Such quasi-governmental agencies, which guarantee the payment of principal and interest to investors, 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” (“PAC”) and “very accurately defined maturity” (“VADM”) classes that, when purchased, offered a high probability of predictable cash flows.

 

7



 

Mortgage-Backed Securities Carrying Value. 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,

 

 

 

2009

 

2008

 

2007

 

 

 

(In thousands)

 

Held to maturity:

 

 

 

 

 

 

 

GNMA-fixed rate

 

$

1,281

 

$

1,533

 

$

1,869

 

FHLMC ARMs

 

16

 

19

 

27

 

FHLMC-fixed rate

 

738

 

1,081

 

1,630

 

FNMA-fixed rate

 

1,698

 

2,141

 

2,634

 

Total mortgage-backed securities held to maturity

 

$

3,733

 

$

4,774

 

$

6,160

 

Available-for-sale:

 

 

 

 

 

 

 

GNMA-fixed rate

 

$

1,886

 

$

 

$

 

FHLMC-fixed rate

 

3,440

 

4,504

 

5,434

 

FNMA-fixed rate

 

9,146

 

12,320

 

11,183

 

REMICs-fixed rate

 

63,726

 

90,393

 

81,561

 

Total mortgage-backed securities available-for-sale

 

$

78,198

 

$

107,217

 

$

98,178

 

 

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, 2009.  The table does not include estimated prepayments.  Adjustable-rate mortgage-backed securities are shown as maturing based on contractual maturities.

 

Contractually
Due

 

Held
to maturity

 

WAC

 

Available
-for-sale

 

WAC

 

 

 

(Dollars in thousands)

 

Less than 1 year

 

 

%

 

%

1 to 3 years

 

43

 

7.76

%

893

 

4.38

%

3 to 5 years

 

 

%

12,729

 

4.71

%

5 to 10 years

 

618

 

4.94

%

21,774

 

4.78

%

10 to 20 years

 

2,264

 

6.78

%

20,493

 

4.71

%

Over 20 years

 

808

 

5.31

%

22,309

 

4.98

%

Total mortgage-backed securities

 

$

3,733

 

6.17

%

$

78,198

 

4.80

%

 

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 obtained by the Bank 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 and serviced by others, 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, 2009 the Bank used third-party servicers to service $6.7 million in mortgage loans. 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.

 

8



 

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 accrual.  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.

 

 

 

At December 31,

 

 

 

2009

 

2008

 

2007

 

2006

 

2005

 

 

 

(Dollars in thousands)

 

Loans accounted for on a non-accrual basis:

 

 

 

 

 

 

 

 

 

 

 

Mortgage loans:

 

 

 

 

 

 

 

 

 

 

 

One-to-four family

 

$

1,117

 

$

780

 

$

165

 

$

141

 

$

392

 

Commercial real estate and multi-family

 

2,506

 

606

 

39

 

61

 

877

 

Construction

 

4,554

 

3,017

 

3,280

 

 

 

Consumer and other

 

107

 

126

 

34

 

68

 

170

 

Commercial-business loans

 

 

750

 

1,840

 

1,840

 

150

 

Total non-accrual loans

 

8,284

 

5,279

 

5,358

 

2,110

 

1,589

 

 

 

 

 

 

 

 

 

 

 

 

 

Real estate owned, net

 

1,279

 

 

 

 

700

 

Total non-performing assets

 

$

9,563

 

$

5,279

 

$

5,358

 

$

2,110

 

$

2,289

 

Total non-accrual loans to loans

 

1.56

%

0.96

%

1.03

%

0.43

%

0.32

%

Total non-accrual loans to total assets

 

1.16

%

0.72

%

0.76

%

0.32

%

0.24

%

Total non-performing assets to total assets

 

1.34

%

0.72

%

0.76

%

0.32

%

0.35

%

 

Non-performing assets included a construction loan with a balance of $2.4 million, secured by a largely completed and partially occupied commercial office building, and the personal guarantee of the borrowers.  At December 31, 2009, this loan was impaired and the Bank had allocated a portion of the allowance for loan losses equal to the difference between the loan balance and the value based upon a recent appraisal, while the borrower attempted to find additional tenants or a buyer of the building.  Subsequent to year end, the Bank initiated foreclosure proceedings.

 

Non-performing assets also included a construction loan with a balance of $1.5 million secured by two contiguous parcels of commercial real estate and a first-position lien on the guarantor’s personal residence.  The combined value of the collateral based on recent appraisals was in excess of the loan balance, and the Bank was in the midst of foreclosure proceedings at year end.  Subsequent to year end, the borrower has filed for bankruptcy protection under Chapter 11 of the U.S. Bankruptcy Code, and there is a dispute with another bank as to the validity of the lien on the personal residence.

 

Real estate owned included one property with a carrying value of $906,000.  Subsequent to year end, the Bank has accepted an offer to purchase the property, which will result in estimated net proceeds of $790,000 if this transaction is consummated.  The Bank expects to establish a valuation allowance of $116,000 by means of a charge to earnings during the first quarter of 2010.

 

Not included in non-performing assets at December 31, 2009 are two loans with a combined balance of $5.9 million to a single borrower, secured by undeveloped commercial real estate and personal guarantees of several individuals.  These loans were current at year end.  However, subsequent to year end the borrower has informed the Bank that it will not be able to continue to make the loan payments in full. The Bank has placed these loans on non-accrual status and is negotiating with the borrower in order to resolve the matter.  A recent appraisal of the property indicated an appraised value in excess of the loan balances.

 

9



 

Not included in non-performing assets at December 31, 2009 are four loans with a combined balance of $2.4 million to a single borrower, secured by 35 residential rental properties located in the greater Philadelphia area, and the personal guarantees of the borrowers. These loans were current at year end.  However, subsequent to year end the borrower has experienced financial difficulties and informed the Bank that it will not be able to continue to make the loan payments in full at the present time. The Bank has placed these loans on non-accrual status and is negotiating with the borrower in order to resolve the matter.

 

The Bank was not aware of any other significant potential problem loans. “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.

 

At December 31, 2009, the Bank had no foreign loans and no loan concentrations exceeding 10% of total loans not disclosed in the table on page 4. “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.

 

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 may be 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 the establishment of a specific loss reserve is warranted.  Assets designated “special mention” by management are assets that have potential weakness but that do not currently warrant classification in one of the aforementioned categories.

 

For regulatory purposes, the Bank’s allowance for loan losses is either general or specific.  General allowances for OTS purposes 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.  However, 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 determine that general or specific allowances are insufficient.  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, 2009.

 

 

 

At December 31, 2009

 

 

 

(In thousands)

 

 

 

 

 

Special mention assets

 

$

20,005

 

Substandard

 

31,454

 

Doubtful assets

 

 

Loss

 

 

Total classified assets

 

$

51,459

 

 

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 the recorded investment in the loan.  If the property subsequently decreases in estimated value from the initial recorded amount, the Bank will provide a valuation allowance, through a charge to earnings, if the decrease is judged by management to be temporary. If the decrease is judged to be permanent, the Bank will reduce the recorded amount, through a charge to earnings, to the new estimated value.

 

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 upon management’s estimate of probable losses. Several sources of data are used in making the evaluation as to the appropriateness of the allowance.

 

In establishing allowances, a specific allowance is established for 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. In addition, an allowance is assigned based upon qualitative and quantitative risk factors which are inherent in segments of the loan portfolio.

 

10



 

Although the allowance has been determined based on loan segments, the total allowance is available to absorb any and all losses from any segment of the loan portfolio. At December 31, 2009, management believes that the allowance for loan losses is at an acceptable level.

 

The following table sets forth information with respect to the allocation of the Bank’s allowance for loan losses by loan type at the dates and for the periods indicated:

 

 

 

For the Years Ended December 31,

 

 

 

2009

 

2008

 

2007

 

2006

 

2005

 

 

 

(Dollars in thousands)

 

Balance at beginning of period

 

$

3,855

 

$

2,842

 

$

2,865

 

$

2,641

 

$

2,307

 

Provision for loan losses

 

2,930

 

1,500

 

 

150

 

540

 

Charge-offs:

 

 

 

 

 

 

 

 

 

 

 

One-to-four family

 

(149

)

(12

)

(27

)

 

 

Commercial and multi-family real estate loans

 

(278

)

 

 

 

 

Construction

 

(1,092

)

(347

)

 

 

 

Consumer and other loans

 

(88

)

(55

)

(69

)

(55

)

(122

)

Commercial-business loans

 

(9

)

(160

)

(1

)

(1

)

(286

)

Recoveries:

 

 

 

 

 

 

 

 

 

 

 

Construction

 

5

 

 

 

 

 

Consumer and other loans

 

13

 

19

 

13

 

65

 

39

 

Commercial loans and leases

 

28

 

68

 

61

 

65

 

163

 

Balance at end of year

 

$

5,215

 

$

3,855

 

$

2,842

 

$

2,865

 

$

2,641

 

 

 

 

 

 

 

 

 

 

 

 

 

Ratio of net charge-offs (net recoveries) during the period to average loans outstanding during the period

 

0.29

%

0.09

%

0.02

%

(0.01

)%

0.04

%

Ratio of allowance for loan losses to non-performing loans at the end of the period

 

63.0

%

73.0

%

53.0

%

135.8

%

166.3

%

Ratio of allowance for loan losses to loans receivable at the end of the period

 

0.98

%

0.71

%

0.55

%

0.59

%

0.54

%

Ratio of allowance for loan losses and foreclosed real estate to total non-performing assets at the end of the period

 

54.5

%

73.0

%

53.0

%

135.8

%

115.4

%

 

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.

 

 

 

At December 31,

 

 

 

2009

 

2008

 

2007

 

2006

 

2005

 

 

 

Amount

 

Percent of
Loans to
Total Loans

 

Amount

 

Percent of
Loans to
Total Loans

 

Amount

 

Percent of
Loans to
Total Loans

 

Amount

 

Percent of
Loans to
Total Loans

 

Amount

 

Percent of
Loans to
Total Loans

 

 

 

(Dollars in thousands)

 

At end of period allocated to:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

One-to-four family

 

$

962

 

18.4

%

$

1,461

 

37.9

%

$

504

 

17.8

%

$

332

 

54.9

%

$

154

 

58.8

%

Commercial real estate and multi-family

 

1,275

 

24.5

%

845

 

21.9

%

667

 

23.5

%

665

 

19.3

%

1,010

 

18.2

%

Construction

 

1,736

 

33.3

%

953

 

24.7

%

1,018

 

35.8

%

621

 

7.2

%

738

 

5.0

%

Consumer and other loans

 

317

 

17.7

%

259

 

6.7

%

246

 

8.6

%

248

 

10.3

%

115

 

8.2

%

Commercial -business loans

 

925

 

6.1

%

337

 

8.8

%

407

 

14.3

%

999

 

8.3

%

624

 

9.8

%

Total allowance

 

$

5,215

 

100.0

%

$

3,855

 

100.0

%

$

2,842

 

100.0

%

$

2,865

 

100.0

%

$

2,641

 

100.0

%

 

Investment Securities

 

The purchase of investment securities 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.

 

11



 

The following table sets forth certain information regarding the amortized cost and fair values of the Bank’s investment securities at the dates indicated.

 

 

 

At December 31,

 

 

 

2009

 

2008

 

2007

 

 

 

Amortized
Cost

 

Fair
Value

 

Amortized
Cost

 

Fair
Value

 

Amortized
Cost

 

Fair
Value

 

 

 

(In thousands)

 

Interest-earning deposits

 

$

9,971

 

$

9,971

 

$

56

 

$

56

 

$

123

 

$

123

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Investment securities held-to-maturity:

 

 

 

 

 

 

 

 

 

 

 

 

 

State and political subdivisions

 

$

 

$

 

$

 

$

 

$

244

 

$

246

 

Total

 

$

 

$

 

$

 

$

 

$

244

 

$

246

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Securities available-for-sale:

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. government and agency obligations

 

$

3,000

 

$

2,945

 

$

2,944

 

$

3,173

 

$

2,996

 

$

2,982

 

State and political subdivisions

 

33,180

 

34,241

 

24,532

 

24,996

 

24,628

 

24,833

 

Corporate debt securities

 

3,340

 

3,517

 

3,340

 

3,285

 

4,340

 

4,377

 

Equities

 

150

 

150

 

150

 

165

 

150

 

171

 

Total

 

$

39,670

 

$

40,853

 

$

30,966

 

$

31,619

 

$

32,114

 

$

32,363

 

 

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 equities and interest-earning deposits, at December 31, 2009.  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
Cost

 

Average
Yield

 

Amortized
Cost

 

Average
Yield

 

Amortized
Cost

 

Average
Yield

 

Amortized
Cost

 

Average
Yield

 

Amortized
Cost

 

Average
Yield

 

Fair
Value

 

 

 

(Dollars in thousands)

 

U.S. government and agency obligations

 

$

 

 

$

3,000

 

2.13

%

$

 

 

$

 

 

$

3,000

 

2.13

%

$

2,945

 

State and political subdivisions

 

592

 

 

4,095

 

3.38

%

18,514

 

3.73

%

9,979

 

3.99

%

33,180

 

3.75

%

34,241

 

Corporate debt securities

 

 

 

3,340

 

5.50

%

 

 

 

 

3,340

 

5.50

%

3,517

 

Total

 

$

592

 

%

$

10,435

 

3.70

%

$

18,514

 

3.73

%

$

9,979

 

3.99

%

$

39,520

 

3.76

%

$

40,703

 

 


(1)

 

Excludes equity securities with amortized cost and fair value of $150,000.

 

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, $40.3 million or 7% consist of IRA, Keogh or SEP retirement accounts at December 31, 2009.

 

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 historically 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, 2009, core deposits amounted to 59% 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 outside its

 

12



 

market area. 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,

 

 

 

2009

 

2008

 

2007

 

 

 

Amount

 

Percent
of Total
Deposits

 

Weighted
Average
Nominal
Rate

 

Amount

 

Percent
of Total
Deposits

 

Weighted
Average
Nominal
Rate

 

Amount

 

Percent
of Total
Deposits

 

Weighted
Average
Nominal
Rate

 

 

 

(Dollars in thousands)

 

Transaction Accounts:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest-bearing checking accounts

 

$

52,988

 

9.59

%

0.42

%

$

46,907

 

9.58

%

0.45

%

$

46,543

 

9.85

%

0.48

%

Money market accounts

 

141,286

 

25.56

%

1.07

%

88,609

 

18.09

%

2.15

%

79,267

 

16.78

%

3.69

%

Non-interest-bearing checking accounts

 

37,288

 

6.75

%

 

36,871

 

7.53

%

 

35,904

 

7.60

%

 

Total transaction accounts

 

231,562

 

41.90

%

 

 

172,387

 

35.20

%

 

 

161,714

 

34.23

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Passbook accounts

 

96,061

 

17.38

%

0.45

%

111,591

 

22.77

%

1.12

%

130,423

 

27.61

%

1.79

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Certificates of deposit

 

225,093

 

40.72

%

2.75

%

205,872

 

42.03

%

3.58

%

180,257

 

38.16

%

4.50

%

Total deposits

 

$

552,716

 

100.00

%

1.51

%

$

489,850

 

100.00

%

2.19

%

$

472,394

 

100.00

%

2.88

%

 

At December 31, 2009, the Bank had outstanding certificates of deposit in amounts of $100,000 or more maturing as follows:

 

Maturing Period

 

Amount

 

 

 

(In thousands)

 

Three months or less

 

$

14,993

 

Over three through six months

 

7,806

 

Over six through 12 months

 

10,535

 

Over 12 months

 

23,510

 

Total

 

$

56,844

 

 

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 Federal Home Loan Bank, (“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 may also access the Federal Reserve Bank, (“FRB”) discount window. The following tables set forth the maximum month-end balance, period ending balance, and weighted average balance of outstanding FHLB and FRB advances at the dates and for the periods indicated, together with the applicable weighted average interest rates.

 

 

 

At December 31,

 

 

 

2009

 

2008

 

2007

 

 

 

(Dollars in thousands)

 

 

 

 

 

 

 

 

 

FHLB advances

 

$

80,241

 

$

158,148

 

$

153,221

 

FRB advances

 

$

 

$

10,000

 

$

 

Total advances

 

$

80,241

 

$

168,148

 

$

153,221

 

 

 

 

 

 

 

 

 

Weighted average interest rate

 

4.21

%

3.52

%

4.19

%

 

 

 

Years Ended December 31,

 

 

 

2009

 

2008

 

2006

 

 

 

(Dollars in thousands)

 

Maximum balance of FHLB/FRB advances

 

$

177,249

 

$

170,988

 

$

153,221

 

Weighted average balance of FHLB/FRB advances

 

$

120,631

 

$

159,268

 

$

112,277

 

Weighted average interest rate of FHLB/FRB advances

 

3.67

%

3.90

%

4.17

%

 

13



 

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, 2009, the Bank was authorized to invest up to approximately $17.1 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, 2009, the Bank had two wholly-owned operating subsidiaries, Third Delaware Corporation and Teragon Financial Corporation. Third Delaware Corporation was formed in 1998 for the purpose of investing in marketable securities. At December 31, 2009, the Bank had $144.0 million invested in Third Delaware Corporation. During 2004, Teragon Financial Corporation (“Teragon”) invested $7,500 in a limited partnership entitled Third Fed Abstract, L. P., whose purpose is to operate a title insurance agency, primarily to capture certain title insurance premiums generated by the Bank’s lending activities. At December 31, 2009 the Bank had an investment of $74,000 in Teragon. During 2006, Teragon was granted approval by the state of Pennsylvania to conduct business as an insurance agency, and during 2009, Teragon received $23,000 of insurance commissions.

 

Personnel

 

As of December 31, 2009, the Company had 162 full-time and 29 part-time employees. None of the Company’s employees are represented by a collective bargaining group. The Company believes that its relationship with its employees is good.

 

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.

 

Recent Legislation

 

The economy is experiencing significantly reduced business activity as a result of, among other factors, disruptions in the financial system during the past year. Declines in the housing market during the past year, due to falling home prices and increased foreclosures and unemployment, have resulted in substantial declines in mortgage-related asset values, which have had a dramatic negative impact on government-sponsored entities and major commercial and investment banks.

 

Reflecting concern about the stability of the finance markets in general and the strength of counterparties, many lenders and institutional investors have reduced, and in some cases, ceased, to provide funding and liquidity to borrowers, including other financial institutions. In response to the financial crisis affecting the banking system and financial markets and going concern threats to investment banks and other financial institutions, on October 3, 2008, the Emergency Economic Stabilization Act of 2008 (the “EESA”) was signed into law.  Pursuant to the EESA, specifically the Troubled Asset Relief Program (“TARP”) thereunder, the U.S. Treasury will have the authority to, among other things, purchase up to $700 billion of mortgages, mortgage-backed securities and certain other financial instruments from financial institutions for the purpose of stabilizing and providing liquidity to the U.S. financial markets.

 

On October 14, 2008, the Secretary of the Department of the Treasury announced the Department of the Treasury will purchase equity stakes in a wide variety of banks and thrifts through TARP’s Capital Purchase Program (“CPP”). Under this program, from the $700 billion authorized by the EESA, the Treasury made $250 billion of capital available to U.S. financial institutions in the form of preferred stock. In conjunction with the purchase of preferred stock, the Treasury received, from participating financial institutions, warrants to purchase common stock with an aggregate market price equal to 15% of the preferred stock investment. Participating financial institutions were required to adopt the Treasury’s standards for executive compensation and corporate governance for the period during which the Treasury holds equity in such institution issued under the CPP.  The Company did not participate in the CPP

 

On February 17, 2009, the American Recovery and Reinvestment Act of 2009 (“ARRA”) was signed into law by President Obama.  The ARRA includes a wide variety of programs intended to stimulate the economy and provide for extensive infrastructure, energy, health, and education needs. In addition, the ARRA imposes certain new executive compensation and corporate expenditure limits on all current and future TARP recipients until the institution has repaid the U.S. Treasury, which is now permitted under the ARRA without penalty and without the need to raise new capital, subject to the U.S. Treasury’s consultation with the recipient’s appropriate regulatory agency.

 

14


 

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, 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.

 

Sarbanes-Oxley Act of 2002. The Sarbanes-Oxley Act of 2002 (the “Act”) implemented legislative reforms intended to address corporate and accounting fraud and improve public company reporting. 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.

 

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.

 

Qualified Thrift Lender 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. See “Bank Regulation — Qualified Thrift Lender 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) 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, FDIC-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.

 

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 FDIC 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.

 

Loan Limitations.  Regulations limit the amount of non-residential mortgage loans a savings institution may hold as a percentage of assets or capital.  Separate from the qualified thrift lender test, regulations limit a savings institution to a maximum of 10% of its assets in large commercial loans (defined as loans in excess of $2 million), with another 10% of assets permissible in “small business loans.”  Commercial loans secured by real estate can be made in an amount up to four times an institution’s capital. 

 

15



 

An institution can also have commercial leases, in addition to the above items, up to 10% of its assets. Commercial paper, corporate bonds, and consumer loans cannot collectively exceed 35% of an institution’s assets.  For this purpose, however, residential mortgage loans (including securities backed by such loans) and credit card loans are not considered consumer loans, and are both unlimited in amount.

 

Federal Deposit Insurance. The Bank’s deposits are insured to applicable limits by the FDIC.  The maximum deposit insurance amount has been increased from $100,000 to $250,000 until December 31, 2013.  On October 13, 2008, the FDIC established a Temporary Liquidity Guarantee Program under which the FDIC fully guarantees all non-interest-bearing transaction accounts until December 31, 2009 (the “Transaction Account Guarantee Program”) and all senior unsecured debt of insured depository institutions or their qualified holding companies issued between October 14, 2008 and June 30, 2009, with the FDIC’s guarantee expiring by June 30, 2012 (the “Debt Guarantee Program”).  Senior unsecured debt would include federal funds purchased and certificates of deposit standing to the credit of the bank.  After November 12, 2008, institutions that did not opt out of the Programs by December 5, 2008 were assessed at the rate of ten basis points for transaction account balances in excess of $250,000 and at a rate between 50 and 100 basis points of the amount of debt issued.  In May, 2009, the Debt Guarantee Program issue end date and the guarantee expiration date were both extended, to October 31, 2009 and December 31, 2012, respectively.  Participating holding companies that have not issued FDIC-guaranteed debt prior to April 1, 2009 must apply to remain in the Debt Guarantee Program.  Participating institutions will be subject to surcharges for debt issued after that date.  Effective October 1, 2009, the Transaction Account Guarantee Program was extended until June 30, 2010, with an increased assessment after December 31, 2009.  The Bank did not opt out of Transaction Account Guarantee Program or its extension but did opt out of the Debt Guarantee Program.

 

The FDIC has adopted a risk-based premium system that provides for quarterly assessments based on an insured institution’s ranking in one of four risk categories based on their examination ratings and capital ratios. Well-capitalized institutions with the CAMELS ratings of 1 or 2 are grouped in Risk Category I and, until 2009, were assessed for deposit insurance at an annual rate of between five and seven basis points with the assessment rate for an individual institution determined according to a formula based on a weighted average of the institution’s individual CAMELS component ratings plus either five financial ratios or the average ratings of its long-term debt. The Bank is included in Risk Category I. Institutions in Risk Categories II, III and IV were assessed at annual rates of 10, 28 and 43 basis points, respectively.  Insured depository institutions that were in existence on December 31, 1996 and paid assessments prior to that date (or their successors) were entitled to a one-time credit against future assessments based on their past contributions to the predecessor to the Deposit Insurance Fund.  The Bank used its special assessment credit to offset the cost of its deposit insurance premium until September 30, 2009 when the credit was exhausted.

 

Pursuant to the Federal Deposit Insurance Reform Act of 2005 (the “Reform Act”), the FDIC is authorized to set the reserve ratio for the Deposit Insurance Fund annually at between 1.15% and 1.5% of estimated insured deposits.  Due to recent bank failures, the FDIC determined that the reserve ratio was 1.01% as of June 30, 2008.  In accordance with the Reform Act, as amended by the Helping Families Save Their Home Act of 2009, the FDIC has established and implemented a plan to restore the reserve ratio to 1.15% within eight years.  For the quarter beginning January 1, 2009, the FDIC raised the base annual assessment rate for institutions in Risk Category I to between 12 and 14 basis points while the base annual assessment rates for institutions in Risk Categories II, III and IV were increased to 17, 35 and 50 basis points, respectively.  For the quarter beginning April 1, 2009 the FDIC set the base annual assessment rate for institutions in Risk Category I to between 12 and 16 basis points and the base annual assessment rates for institutions in Risk Categories II, III and IV at 22, 32 and 45 basis points, respectively.  An institution’s assessment rate could be lowered by as much as five basis points based on the ratio of its long-term unsecured debt to deposits or, for smaller institutions based on the ratio of certain amounts of Tier 1 capital to adjusted assets.  The assessment rate may be adjusted for Risk Category I institutions that have a high level of brokered deposits and have experienced higher levels of asset growth (other than through acquisitions) and could be increased by as much as ten basis points for institutions in Risk Categories II, III and IV whose ratio of brokered deposits to deposits exceeds 10%.  Reciprocal deposit arrangements like CDARS® were treated as brokered deposits for Risk Category II, III and IV institutions but not for institutions in Risk Category I.  An institution’s base assessment rate would also be increased if an institution’s ratio of secured liabilities (including FHLB advances and repurchase agreements) to deposits exceeds 25%.  The maximum adjustment for secured liabilities for institutions in Risk Categories I, II, III and IV would be 8, 11, 16 and 22.5 basis points, respectively, provided that the adjustment may not increase an institution’s base assessment rate by more than 50%. The Bank’s assessment rate is 13 basis points.

 

16



 

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, 2009, 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.

 

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 method for measuring compliance with the QTL test requires an institution to be in compliance nine out of every 12 months. As of December 31, 2009, the Bank was in compliance with its QTL requirement with 70.62% 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 an investment in the capital stock of the FHLB of Pittsburgh in an amount equal to 4.55% of its advances outstanding from the FHLB plus 0.55% of its unused borrowing capacity. At December 31, 2009, the Bank had $10.0 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, 2009, the Bank’s total transaction accounts required a reserve level of $50,000 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.”

 

Item 1A.               Risk Factors

 

Not applicable.

 

17



 

Item 1B.               Unresolved Staff Comments

 

None.

 

Item 2.                        Properties

 

The Company is located and conducts its business at 3 Penns Trail, Newtown, Pennsylvania. At December 31, 2009, 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 $726,000.

 

The following table sets forth certain information regarding the Bank’s operating properties:

 

Location

 

Leased or
Owned

ADMINISTRATIVE OFFICE

 

Owned

Newtown Office

 

 

3 Penns Trail

 

 

Newtown, PA 18940

 

 

 

 

 

DEPOSIT OPERATIONS

 

Leased

828C Newtown-Yardley Road

 

 

Suite 301B

 

 

Newtown, PA 18940

 

 

 

 

 

BRANCH AND LOAN OFFICES

 

Leased

Frankford Office

 

 

4625 Frankford Avenue

 

 

Philadelphia, PA 19124

 

 

 

 

 

Ewing Office

 

Owned

2075 Pennington Road

 

 

Ewing, NJ 08618

 

 

 

 

 

Hamilton Office

 

Owned

1850 Route 33

 

 

Hamilton Square, NJ 08690

 

 

 

 

 

Fishtown Office

 

Owned

York & Memphis Streets

 

 

Philadelphia, PA 19125

 

 

 

 

 

Cross Keys Office

 

Owned

834 North Easton Highway

 

 

Doylestown, PA 18901

 

 

 

 

 

Bridesburg Office

 

Owned

Orthodox & Almond Streets

 

 

Philadelphia, PA 19137

 

 

 

 

 

New Britain Office

 

Leased

600 Town Center

 

 

New Britain, PA 18901

 

 

 

 

 

Newtown Office

 

Leased

950 Newtown Yardley Road

 

 

Newtown, PA 18940

 

 

 

 

 

Mayfair Office

 

Owned

Roosevelt Blvd. at Unruh

 

 

Philadelphia, PA 19149

 

 

 

 

 

Doylestown Office

 

Owned

60 North Main Street

 

 

Doylestown, PA 18901

 

 

 

 

 

Feasterville Office

 

Leased

Buck Hotel Complex

 

 

Feasterville, PA 19053

 

 

 

 

 

Woodhaven Office

 

Leased

4014 Woodhaven Road

 

 

Philadelphia, PA 19154

 

 

 

 

 

Girard Office

 

Leased

136 West Girard Avenue

 

 

Philadelphia, PA 19123

 

 

 

 

 

Northern Liberties Office

 

Leased

905 North 2nd Street

 

 

Philadelphia, PA 19123

 

 

 

 

 

PROCESSING OPERATIONS

 

Owned

Operations Center

 

 

62 Walker Lane

 

 

Newtown, PA 18940(1)

 

 

 

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 that 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.

 

18



 

Item 4.                        [Reserved]

 

PART II

 

Item 5.                        Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

 

Information relating to the market for Registrant’s common equity and related stockholder matters appears under the section captioned “Corporate “Corporate Profile and Related Information —Stock Market Information,” “—Dividend Policy” and “—Stock Price and Dividend History” in the Registrant’s 2009 Annual Report to Stockholders and is incorporated herein by reference.

 

The following table provides information on repurchases by the Company of its common stock in each month for the three months ended December 31, 2009:

 

Month

 

Total Number of
Shares Purchased

 

Average Price
Paid per Share

 

Total Number of
Shares Purchased as
Part of Publicly
Announced Plan or
Program

 

Maximum Number of
Shares that may yet
be Purchased Under
the Plans or
Programs

 

October 1, 2009 - October 31, 2009

 

 

 

 

101,597

 

 

 

 

 

 

 

 

 

 

 

November 1, 2009 - November 30, 2009

 

 

 

 

101,597

 

 

 

 

 

 

 

 

 

 

 

December 1, 2009 - December 31, 2009

 

 

 

 

101,597

 

 

Item 6.                        Selected Financial Data

 

Not applicable.

 

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 2009 Annual Report to Stockholders is incorporated herein by reference.

 

Item 7A.               Quantitative and Qualitative Disclosures about Market Risk

 

The information under the section captioned “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in the Registrant’s 2009 Annual Report to Stockholders is incorporated herein by reference.

 

Item 8.                        Financial Statements and Supplementary Data

 

The Consolidated Financial Statements of TF Financial Corporation and its subsidiaries included in the Registrant’s 2009 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(T).  Controls and Procedures

 

(a)                                                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.

 

(b)                                                Internal Control Over Financial Reporting

 

Management’s report on internal control over financial reporting is included in the Registrant’s 2009 Annual Report to Stockholders and is incorporated herein by reference. Neither this Annual Report on Form 10-K nor the Annual Report to

 

19



 

Stockholders includes an attestation report of the Company’s registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by the Company’s registered public accounting firm pursuant to the temporary rules of the Securities and Exchange Commission that permit the Company to provide only management’s report in this Annual Report on Form 10-K.

 

(c)  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.

 

Item 9B.            Other Information

 

None.

 

PART III

 

Item 10.                 Directors, Executive Officers and Corporate Governance

 

The information contained under the sections captioned “Proposal I - Election of Directors — General Information and the Nominee” and “— Biographical Information”, “—Meetings and Committees of the Board of Directors,” “—Director Nomination Process,”“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 2010 Annual Meeting of Stockholders (the “Proxy Statement”) is incorporated herein by reference.

 

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 sections captioned “Executive Compensation” and “Director Compensation” in the Registrant’s Proxy Statement.

 

Item 12.                 Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters

 

(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 sections captioned “Security Ownership of Certain Beneficial Owners and Management” and Proposal I — 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

 

Set forth below is information as of December 31, 2009 with respect to compensation plans under which equity securities of the Registrant are authorized for issuance.

 

20



 

EQUITY COMPENSATION PLAN INFORMATION

 

 

 

(a)
Number of securities
to be issued upon
exercise of
outstanding options,
warrants and rights

 

(b)
Weighted-average
exercise price of
outstanding
options, warrants
and rights

 

(c)
Number of securities
remaining available for
future issuance under
equity compensation plans
(excluding securities
reflected in column (a))

 

Equity compensation plans approved by shareholders(1)

 

271,646

 

 

1,334

 

Equity compensation plans not approved by shareholders

 

 

 

 

TOTAL

 

271,646

 

 

1,334

 

 


(1)            Plans approved by stockholders include: TF Financial Corporation 1997 Stock Option Plan, and TF Financial Corporation 2005 Stock-Based Incentive Plan.

 

For information regarding the material features of these plans, see Notes A10, A11, J3 and J4 to the Consolidated Financial Statements included as part of Exhibit 13 to this report.

 

Item 13.                 Certain Relationships and Related Transactions, and Director Independence

 

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 and Director Independence” in the Registrant’s Proxy Statement.

 

Item 14.                 Principal Accountant Fees and Services

 

The information relating to this item is incorporated herein by reference to the information contained under the section captioned Additional Information about Directors and Executive Officers - “Principal Accounting Firm Fees” in the Registrant’s Proxy Statement.

 

PART IV

 

Item 15.                 Exhibits and Financial Statement Schedules

 

(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 2009 Annual Report to Stockholders are incorporated herein by reference.

 

Management’s Report on Internal Control

Report of Independent Registered Public Accounting Firm

Consolidated Statements of Financial Condition as of December 31, 2009 and 2008

Consolidated Statements of Income For the Years Ended December 31, 2009 and 2008

Consolidated Statements of Changes in Stockholders’ Equity and Comprehensive Income for the Years Ended December 31, 2009 and 2008

Consolidated Statements of Cash Flows for the Years Ended December 31, 2009 and 2008

Notes to Consolidated Financial Statements

 

(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.

 

21



 

(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)

10.1

Third Federal Savings and Loan Association Management Stock Bonus Plan (1)

10.2

Third Federal Savings Bank Directors Consultation and Retirement Plan (2)

10.3

Severance Agreement with Kent C. Lufkin (3)

10.4

Severance Agreement with Floyd P. Haggar (3)

10.5

Severance Agreement with Dennis R. Stewart (4)

10.6

TF Financial Corporation 1997 Stock Option Plan (5)

10.7

Severance Agreement with Robert N. Dusek (6)

10.8

TF Financial Corporation 1996 Directors Stock Option Plan (7)

10.9

Retirement and Non-Competition Agreement with John R. Stranford (8)

10.10

Employment Agreement with John R. Stranford (8)

10.11

TF Financial Corporation Incentive Compensation Plan (9)

10.12

TF Financial Corporation 2005 Stock-Based Incentive Plan (10)

10.13

Severance Agreement with Elizabeth Kaspern (11)

10.14

TF Financial Corporation Stock Repurchase Plan (12)

10.15

TF Financial Corporation Amended and Restated Bylaws (13)

13.0

2009 Annual Report to Stockholders

21.0

Subsidiary Information

23.0

Consent of Independent Registered Public Accounting Firm

31.1

Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.2

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

 


(1)

Incorporated herein by reference to the Exhibits to Form S-1, Registration Statement, File No. 33-76960.

 

 

(2)

Incorporated herein by reference to the Registrant’s Annual Report on Form 10-K for the fiscal year ended December 31, 1995.

 

 

(3)

Incorporated herein by reference to the Registrant’s Annual Report on Form 10-K for the fiscal year ended December 31, 2000.

 

 

(4)

Incorporated herein by reference to the Registrant’s Annual Report on Form 10-K for the fiscal year ended December 31, 1999.

 

 

(5)

Incorporated herein by reference to the Registrant’s Annual Report on Form 10-K for the fiscal year ended December 31, 1997.

 

 

(6)

Incorporated herein by reference to the Registrant’s Annual Report on Form 10-K for the fiscal year ended December 31, 2001.

 

 

(7)

Incorporated herein by reference to the Registrant’s Annual Report on Form 10-K for the fiscal year ended December 31, 2002.

 

 

(8)

Incorporated herein by reference to the Registrant’s Annual Report on Form 10-K for the fiscal year ended December 31, 2003.

 

 

(9)

Incorporated herein by reference to the Registrant’s Form 8-K filed with the Securities and Exchange Commission on October 20, 2004.

 

 

(10)

Incorporated herein by reference to the Registrant’s Form S-8 filed with the Securities and Exchange Commission on May 20, 2005.

 

 

(11)

Incorporated herein by reference to the Registrant’s Annual Report on Form 10-K for the fiscal year ended December 31, 2006.

 

 

(12)

Incorporated herein by reference to the Registrant’s Form 8-K filed with the Securities and Exchange Commission on October 25, 2007.

 

 

(13)

Incorporated herein by reference to the Registrant’s Form 8-K filed with the Securities and Exchange Commission on October 26, 2007.

 

22



 

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 30, 2010

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 Dated: March 30, 2009.

 

 

By:

/s/ Kent C. Lufkin

 

By:

/s/ Dennis R. Stewart

 

Kent C. Lufkin

 

 

Dennis R. Stewart

 

President, Chief Executive Officer
(Principal Executive Officer)

 

 

Executive Vice President, Chief Financial Officer and Treasurer

 

 

 

 

(Principal Financial and Accounting Officer)

 

 

 

 

 

 

 

 

 

 

By:

/s/ Carl F. Gregory

 

By:

/s/ Robert N. Dusek

 

Carl F. Gregory</