Search the web
Welcome, Guest
[Sign Out, My Account]
EDGAR_Online

Quotes & Info
Enter Symbol(s):
e.g. YHOO, ^DJI
Symbol Lookup | Financial Search
THRD > SEC Filings for THRD > Form 10-Q on 14-Nov-2012All Recent SEC Filings

Show all filings for TF FINANCIAL CORP

Form 10-Q for TF FINANCIAL CORP


14-Nov-2012

Quarterly Report


ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Unaudited)

GENERAL

The Company may from time to time make written or oral "forward-looking statements", including statements contained in the Company's filings with the Securities and Exchange Commission (including this Quarterly Report on Form 10-Q and the exhibits 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, trade, monetary and fiscal policies and laws, including interest rate policies of the Board of Governors of the Federal Reserve System, inflation, interest rate, market and monetary fluctuations; the timely development of and acceptance of new products and services of the Company and the perceived overall value of these products and services by users, including the features, pricing and quality compared to competitors' products and services; the willingness of users to substitute competitors' products and services for the Company's products and services; the success of the Company in gaining regulatory approval of its products and services, when required; the impact of changes in financial services' laws and regulations (including laws concerning taxes, banking, securities and insurance); technological changes, acquisitions; changes in consumer spending and saving habits; and the success of the Company at managing the risks involved in the foregoing.

The Company cautions that the foregoing list of important factors is not exclusive. The Company does not undertake to update any forward-looking statement, whether written or oral, that may be made from time to time by or on behalf of the Company.

Financial Condition

The Company's total assets at September 30, 2012 and December 31, 2011 were $697.1 million and $681.9 million, respectively, representing an increase of $15.2 million during the nine-month period. Loans receivable, net increased by $39.9 million during the first nine months of 2012. Originations of consumer and single-family residential mortgage loans totaling $98.2 million and originations of commercial loans totaling $12.1 million were partially offset by principal repayments of $65.7 million. The Company increased the allowance for loan losses by $1.8 million and transferred $2.9 million from loans to real estate acquired through foreclosure. Loans receivable held for sale increased $400,000 primarily because originations of loans for sale in the secondary market of $39.7 million exceeded proceeds of $39.5 million from loan sales. Investment securities decreased by $8.1 million due to principal repayments and maturities totaling $26.3 million and net premium amortization of $361,000 which were offset by security purchases of $17.8 million and an increase in the fair value of available for sale securities of $870,000. Largely as a result of the increase in the loan portfolio, cash and cash equivalents decreased by $11.2 million during the first nine months of 2012. The decrease in other assets was mainly due to the sale of foreclosed real estate.

Total liabilities increased by $10.6 million during the first nine months of 2012. Advances from the FHLB increased by $28.2 million, the result of new long term fixed rate advances of $32.2 million and an increase in the outstanding balance of the line of credit of $14.3 million, offset by scheduled amortization and maturities of $18.3 million. Deposit balances decreased $18.0 million during the period with checking and savings accounts increasing by $12.7 million while money market accounts decreased $1.7 million. Retail certificates of deposit ("CDs") decreased $29.1 million during the first nine months of 2012, largely due to the maturity of CDs which had been originated during periods of higher market interest rates, and were converted into other non-CD products or were withdrawn from the Bank.

Total consolidated stockholders' equity of the Company was $82.0 million or 11.8% of total assets at September 30, 2012. At September 30, 2012, there were approximately 102,000 shares available for repurchase under the previously announced share repurchase plan.


Table of Contents

Asset Quality

Non-performing assets include real estate owned, which is carried at estimated
fair value less costs to sell and non-performing loans. Non-performing loans
include loan balances 90 days or more past due and impaired loans for which the
accrual of interest has been discontinued. The following table sets forth
information regarding the Company's non-performing assets:

                                                                         At
                                               September 30,                             September 30,
Non-Performing Assets                              2012           December 31, 2011          2011
                                                               (Dollars in thousands)
Loans receivable, net:
Residential
Residential mortgages                          $       2,122     $             5,502     $       5,144
Commercial
Real estate-commercial                                 1,116                   2,711             5,317
Real estate-residential                                  839                       -                 -
Construction loans                                     6,119                   4,044             6,205
Commercial and industrial loans                            -                       6               160
Consumer
Home equity and second mortgage                          204                     277               277
Other consumer                                             -                       1                 -
Total non-performing loans                            10,400                  12,541            17,103
Real estate owned                                      7,619                  11,730             8,909
Total non-performing assets                    $      18,019     $            24,271     $      26,012
Total loans 90 days or more past due as to
interest or
   principal and accruing interest             $           -     $                 -     $           -
Ratio of non-performing loans to gross loans            1.92 %                  2.49 %            3.32 %
Ratio of non-performing loans to total
assets                                                  1.49 %                  1.84 %            2.46 %
Ratio of total non-performing assets to
total assets                                            2.59 %                  3.56 %            3.74 %

Non-performing commercial real estate loans include a loan with an unpaid principal balance of $1.5 million secured by two contiguous parcels of commercial real estate and a lien on the guarantor's personal residence. The Bank has recorded a partial charge-off of $932,000 from the allowance for loan losses, equal to the difference between the loan balance and the fair value based upon a recent appraisal. The Bank has initiated foreclosure proceedings and the borrower has filed for bankruptcy protection under Chapter 11 of the U.S. Bankruptcy Code. Additionally, $185,000 of the allowance for loan losses has been allocated to this loan for potential acquisition or selling costs related to the properties.

Non-performing construction loans include a loan with an unpaid principal balance of $1.8 million secured by five contiguous lots approved for construction of commercial and residential buildings. The Bank recorded a partial charge-off of $432,000 from the allowance for loan losses equal to the difference between the loan balance and a recent appraisal. In addition, $300,000 of the allowance for loan losses has been allocated to this loan for potential acquisition or selling costs related to the properties. The borrower is attempting to sell the properties and apply the proceeds toward the outstanding loan balance.

Non-performing construction loans also include two loans, with a combined balance of $2.0 million secured by a parcel of land. The Bank has recorded a partial charge-off of $202,000 from the allowance for loan losses equal to the difference between the recorded investment and a recent appraisal. The borrower is attempting to sell the property and intends to apply the sale proceeds to the outstanding loan balance. Additionally, $29,000 of the allowance for loan losses has been allocated to this loan for potential acquisition or selling costs related to the property.

Non-performing construction loans also include a participation in a commercial construction project with a principal balance due to the Bank of $3.1 million. The Bank has recorded a partial charge-off of $198,000 from the allowance for loan losses equal to the difference between the recorded investment and a recent appraisal.


Table of Contents

Foreclosed property at September 30, 2012 consisted of seven parcels of real estate with a combined carrying value of $7.6 million. During the first nine months of 2012, the Bank foreclosed on six mortgages secured by a residential property valued at $2.9 million in the aggregate which resulted in a charge to the allowance of $163,000. Also, the Bank sold 43 properties acquired through foreclosure with an aggregate book value of $7.0 million. All foreclosed properties are listed or are in the process of being listed with real estate agents for sale in a timely manner. Foreclosed real estate is included in other assets in the consolidated balance sheet.

Allowance for Loan Losses

The Bank provides valuation allowances for estimated losses from uncollectible loans. The allowance is increased by provisions charged to expense and reduced by net charge-offs. On a quarterly basis, the Company prepares an allowance for loan losses (ALLL) analysis. In the analysis, the loan portfolio is segmented into groups of homogeneous loans that share similar risk characteristics:
commercial loans secured by non-residential or non-owner occupied residential real estate, construction, commercial and industrial loans, single family residential, and consumer which is predominately real estate secured junior liens and home equity lines of credit. Each segment is assigned reserve factors based on quantitative and qualitative measurements. In addition, the Bank reviews its internally classified loans, its loans classified for regulatory purposes, delinquent loans, and other relevant information in order to isolate loans for further scrutiny as potentially impaired loans.

Quantitative factors include an actual expected loss factor based on historical loss experience over a relevant look-back period. Quantitative factors also include the Bank's actual risk ratings for the commercial loan segments as determined in accordance with loan review and loan grading policies and procedures, and additional factors as determined by management to be representative of additional risk due to the loan's geographic location, type, and other attributes. These quantitative factors are adjusted if necessary, up or down, based on actual experience and an evaluation of the qualitative factors.

Qualitative factors are based upon: (1) changes in lending policies and procedures, including but not limited to changes in underwriting standards and collection, charge-off, and recovery practices not considered elsewhere in estimating credit losses; (2) changes in international, national, regional, and local economic and business conditions and developments that affect the collectability of the portfolio, including the condition of various market segments; (3) changes in the nature and volume of the portfolio and in the terms of loans; (4) changes in the experience, ability, and depth of lending management and other relevant staff; (5) changes in the volume and severity of past due loans, the volume of nonaccrual loans, and the volume and severity of adversely classified or graded loans; (6) changes in the quality of the loan review system; (7) changes in the value of underlying collateral for collateral dependent loans; (8) the existence and effect of any concentration of credit, and changes in the level of such concentrations; and (9) the effect of other external factors such as competition and legal and regulatory requirements on the level of estimated credit losses in the existing loan portfolio.

Potentially impaired loans selected for individual evaluation are reviewed in accordance with US GAAP which governs the accounting for impaired assets, as well as regulatory guidance regarding treatment of troubled, collateral-dependent loans. Each potentially impaired loan is evaluated using all available information such as recent appraisals, whether the loan is currently on accrual or non-accrual status, discounted cash flow analyses, guarantor financial strength, the value of additional collateral, and the loan's and borrower's past performance to determine whether in management's best judgment it is probable that the Bank will be unable to collect all contractual interest and principal in accordance with the loan's terms. Loans deemed not to be impaired are assigned a reserve factor based upon the segment from which they were selected.

Loans deemed impaired are evaluated to determine the estimated fair value of the collateral, and a portion of the ALLL will be allocated to the deficiency. Troubled collateral-dependent real estate secured loans are valued using the appraised value of the collateral, and a portion of the ALLL will be allocated to these loans based on the difference between the loan amount and the appraised value. If such amounts are judged by management to be permanent, they will be charged-off. In addition, if foreclosure is probable, a portion of the ALLL will be allocated to the estimated additional costs to acquire and the estimated costs to sell. Upon completion of the foreclosure process, these amounts will be charged-off.

The ALLL needed as a result of the foregoing evaluation is compared with the unadjusted amount, and an adjustment is made by means of a provision to the allowance for loan losses. Recognizing the inherently imprecise nature of the loss estimates and the large number of assumptions needed in order to perform the analysis, the required reserve may be less than the actual level of reserves at the end of any evaluation period, and thus there may be an unallocated portion of the ALLL. Management adjusts the unallocated portion to an amount which management considers reasonable under the circumstances.


Table of Contents

RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2012 AND 2011

Net Income. The Company recorded net income of $1.5 million, or $0.54 per diluted share, for the three months ended September 30, 2012 as compared to net income of $1.1 million, or $0.40 per diluted share, for the three months ended September 30, 2011.

Average Balance Sheet

The following table sets forth information (dollars in thousands) relating to
the Company's average balance sheet and reflects the average yield on assets and
average cost of liabilities for the periods indicated. Yields and costs are
computed by dividing income or expense by the average daily balance of
interest-earning assets or interest-bearing liabilities, respectively, for the
three-month periods indicated.

                                                 Three Months Ended September 30,
                                         2012                                        2011
                         Average                      Average        Average                      Average
                         balance       Interest       yld/cost       balance       Interest       yld/cost
ASSETS
Interest-earning
assets:
Loans receivable(1)     $ 527,195     $    6,436           4.86 %   $ 502,574     $    6,667           5.26 %
Mortgage-backed
securities                 55,820            453           3.23 %      66,283            702           4.20 %
Investment
securities(2)              64,304            699           4.32 %      67,662            705           4.13 %
Other
interest-earning
assets(3)                     393              - *            - %       3,237              - *            - %
Total
interest-earning
assets                    647,712          7,588           4.66 %     639,756          8,074           5.01 %
Non interest-earning
assets                     46,168                                      53,907
Total assets            $ 693,880                                   $ 693,663
LIABILITIES AND
STOCKHOLDERS' EQUITY
Interest-bearing
liabilities:
Deposits                $ 538,637     $      803           0.59 %   $ 555,713     $    1,430           1.02 %
Borrowings from the
FHLB                       66,740            338           2.01 %      54,709            473           3.43 %
Total
interest-bearing
liabilities               605,377          1,141           0.75 %     610,422          1,903           1.24 %
Non interest-bearing
liabilities                 7,179                                       7,075
Total liabilities         612,556                                     617,497
Stockholders' equity       81,324                                      76,166
Total liabilities and
stockholders' equity    $ 693,880                                   $ 693,663
Net interest
income-tax equivalent
basis                                      6,447                                       6,171
Interest rate
spread(4)-tax
equivalent basis                                           3.91 %                                      3.77 %
Net yield on interest-earning
assets(5)-tax
   equivalent basis                                        3.96 %                                      3.83 %
Ratio of average interest-earning
assets to
    average interest-bearing
liabilities                                              106.99 %                                    104.81 %
Less: tax-equivalent
interest adjustments                        (193 )                                      (166 )
Net interest income                   $    6,254                                  $    6,005
Interest rate
spread(4)                                                  3.79 %                                      3.67 %
Net yield on
interest-earning
assets(5)                                                  3.84 %                                      3.72 %

(1 ) Non-performing loans have been included in the appropriate average loan balance category, but interest on non-performing loans has not been included for purposes of determining interest income.
(2 ) Tax equivalent adjustments to interest on investment securities were $193,000 and $166,000 for the quarters ended September 30, 2012 and 2011, respectively. Tax equivalent interest income is based upon a marginal effective tax rate of 34%.
(3 ) Includes interest-bearing deposits in other banks.
Interest rate spread represents the difference between the average yield on interest-earning assets and the average cost of (4 ) interest-bearing liabilities.
Net yield on interest-earning assets represents net interest income as (5 ) a percentage of average interest-earning assets.
* Is less than $500 for period indicated.


Table of Contents

Rate/Volume Analysis

The following table presents, for the periods indicated, the change in interest income and interest expense (dollars in thousands) attributed to (i) changes in volume (changes in the weighted average balance of the total interest earning asset and interest bearing liability portfolios multiplied by the prior year rate), and (ii) changes in rate (changes in rate multiplied by prior year volume). Changes attributable to the combined impact of volume and rate have been allocated proportionately based on the absolute value of changes due to volume and changes due to rate.

                                           For the three months ended September 30,
                                                         2012 vs 2011
                                                  Increase (decrease) due to
                                        Volume                Rate                Net
Interest income:
Loans receivable, net                $       1,496       $       (1,727 )     $      (231 )
Mortgage-backed securities                    (101 )               (148 )            (249 )
Investment securities (1)                     (137 )                131                (6 )
Other interest-earning assets                    -                    -                 -
Total interest-earning assets                1,258               (1,744 )            (486 )
Interest expense:
Deposits                                       (43 )               (584 )            (627 )
Borrowings from the FHLB                       491                 (626 )            (135 )

Total interest-bearing liabilities             448               (1,210 )            (762 )
Net change in net interest income    $         810       $         (534 )     $       276



       (1 )          Tax equivalent adjustments to interest on investment securities
                     were $193,000 and $166,000 for the quarters ended September 30,
                     2012 and 2011, respectively. Tax equivalent interest income is
                     based upon a marginal effective tax rate of 34%.

Total Interest Income. Total interest income, on a taxable equivalent basis, decreased by $486,000, or 6.0%, to $7.6 million for the quarter ended September 30, 2012 compared with the third quarter of 2011. Interest income from loans receivable decreased by $231,000, the result of a decrease in the average yield on loans of 40 basis points netted against the effect of a $24.6 million increase in the average balance of loans outstanding. The decrease in the yield was caused by the combined effect of a large number of higher rate loans being prepaid, and new loans added to the portfolio with a lower yield than the existing portfolio loans that matured or refinanced. Interest income from mortgage-backed securities was lower in the 2012 quarter in comparison to the same period of 2011 mainly because the yield associated with principal repayments was higher than the yield on mortgage-backed securities purchased in the intervening period.

Total Interest Expense. Total interest expense decreased by $762,000 to $1.1 million during the three-month period ended September 30, 2012 as compared with the same period in 2011. The average interest rates paid on the Bank's deposits was 43 basis points lower in 2012 due to the maturity of certificates of deposit with higher interest rates than current market rates offered on the products into which the maturing CDs were renewed or reinvested, and a favorable change in the deposit mix and pricing. Interest expense associated with borrowings from the FHLB decreased $135,000 between the third quarter of 2012 and the same quarter of 2011. During the intervening period, the Bank increased its average outstanding borrowings by $12.0 million, which included increases in long-term and short-term advances with rates lower than the maturing advances, which resulted in a decrease in the cost of borrowed funds of 142 basis points.

Non-Interest Income. Total non-interest income was $914,000 for the third quarter of 2012 compared with $583,000 for the same period in 2011. Gain on the sale of loans was $257,000 higher during the third quarter of 2012 as a result of a higher level of residential loan sales activity in the quarter.

Non-Interest Expense. Total non-interest expense decreased by $200,000 to $4.5 million for the three months ended September 30, 2012 compared to the same period in 2011. Foreclosed real estate expense decreased $239,000 in the 2012 quarter as compared to the same period in 2011 mainly due to net losses totaling $254,000 in 2011 that resulted from valuation adjustments and


Table of Contents

disposition of real estate acquired through foreclosure. Other operating expenses were $93,000 lower in the third quarter of 2012 due to a decrease of $40,000 in loan servicing expense and a $27,000 decrease in supervisory examination costs due to the Bank's conversion to a state charter during the first quarter of 2012. Compensation and benefit expense increased by $67,000, mainly due to the increased costs associated with the defined benefit plan which increased $87,000 between the two quarters. Professional fees increased $86,000 between the two periods as costs were higher during 2012 due to an increase in consulting services.

Income Tax Expense. The Company's effective tax rate was 24.5% for the quarter ended September 30, 2012 compared to 22.5% for the quarter ended September 30, 2011. These effective tax rates are lower than the Company's marginal tax rate of 34% largely due to the tax-exempt income associated with the Company's investments in tax-exempt municipal bonds and bank owned life insurance.


Table of Contents

RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2012 AND 2011

Net Income. The Company recorded net income of $3.9 million, or $1.42 per diluted share, for the nine months ended September 30, 2012 as compared to net income of $2.4 million, or $0.89 per diluted share, for the nine months ended September 30, 2011.

Average Balance Sheet

The following table sets forth information (dollars in thousands) relating to
the Company's average balance sheet and reflects the average yield on assets and
average cost of liabilities for the periods indicated. Yields and costs are
computed by dividing income or expense by the average daily balance of
interest-earning assets or interest-bearing liabilities, respectively, for the
nine-month periods indicated.

                                                  Nine Months Ended September 30,
                                         2012                                        2011
                         Average                      Average        Average                      Average
                         balance       Interest       yld/cost       balance       Interest       yld/cost
ASSETS
Interest-earning
assets:
Loans receivable(1)     $ 507,521     $   18,864           4.96 %   $ 501,052     $   19,946           5.32 %
Mortgage-backed
securities                 59,776          1,556           3.48 %      65,541          2,068           4.22 %
Investment
securities(2)              66,498          2,154           4.33 %      67,714          2,155           4.25 %
Other
interest-earning
assets(3)                   5,676              2           0.05 %       4,970              1           0.03 %
Total
interest-earning
assets                    639,471         22,576           4.72 %     639,277         24,170           5.05 %
Non interest-earning
assets                     48,345                                      49,759
Total assets            $ 687,816                                   $ 689,036
. . .
  Add THRD to Portfolio     Set Alert         Email to a Friend  
Get SEC Filings for Another Symbol: Symbol Lookup
Quotes & Info for THRD - All Recent SEC Filings
Copyright © 2014 Yahoo! Inc. All rights reserved. Privacy Policy - Terms of Service
SEC Filing data and information provided by EDGAR Online, Inc. (1-800-416-6651). All information provided "as is" for informational purposes only, not intended for trading purposes or advice. Neither Yahoo! nor any of independent providers is liable for any informational errors, incompleteness, or delays, or for any actions taken in reliance on information contained herein. By accessing the Yahoo! site, you agree not to redistribute the information found therein.