Description

Description (from the company’s website):

TF Financial Corporation is the savings and loan holding company of 3rd Fed Bank (the Bank). The Bank is a state chartered stock savings bank that offers a variety of financial services to the communities it serves. The Bank operates 18 branch offices in Bucks and Philadelphia counties, Pennsylvania and in Burlington, Mercer and Ocean counties, New Jersey. The Bank attracts deposits from the general public and uses such deposits, together with borrowings and other funds to originate or purchase loans secured by first mortgages on owner-occupied, one- to four-family residences in its market area. The Bank also originates commercial real estate and non-real estate secured loans, construction and consumer loans. To a lesser extent, the Bank also invests in mortgage-backed and investment securities.

The specific branch footprint is as follows: five in Bucks County, PA, six in Philadelphia County, PA, four in Burlington County, NJ, two in Mercer County, NJ, and one in Ocean County, NJ.

Recent Acquisition:

Historically the company was solely a Pennsylvania based bank but last year acquired the stock of publicly traded Roebling Financial for cash and stock on quite attractive terms. The last publicly filed data on Roebling showed total assets of 156mm, deposits of 133mm, equity of roughly 17mm, and relatively benign credit with NPLs at 2.4%. For this, TF paid 14.5mm. The CEO of TF, Kent Lufkin, was a past President of Roebling which lends some comfort that they understood the geography and culture fairly well before the acquisition.

Thesis:

There’s nothing too proprietary here. TF is a clean bank with a desirable footprint, trading at a discount to what its franchise is worth to numerous larger institutions who have shown a desire to gain share in the region. In addition, despite the challenging environment for making money, TF is reasonably profitable and thus the current earnings multiple is palatable. Management and the board are older, have a significant amount of skin in the game and have, in aggregate, been increasing their stakes in recent months. Predicting a deal is a fool’s errand but in the absence of one, we are content to own this franchise at a quite undemanding multiple.

Valuation and Statistics:

P/B: 97%

P/tangible book: 102%

Tier 1 risk-based capital ratio: 16.4%

NPLs/total loans: 1.07%

Allowance for loan losses/NPLs: 97%

Recent  Financials:

Insider Ownership (latest proxy):

Insider Activity:

ROBERT N DUSEK,C.O.B.,BUYS 1,055 ON 9/30/13 OF THRD

ROBERT N DUSEK,C.O.B.,BUYS 100 ON 9/25/13 OF THRD

ROBERT N DUSEK,C.O.B.,BUYS 240 ON 9/19/13 OF THRD

DENNIS POLLACK,Director,BUYS 197 ON 9/12/13 OF THRD

ALBERT M TANTALA,Director,BUYS 747 ON 8/15/13 OF THRD

ROBERT N DUSEK,C.O.B.,BUYS 1,070 FROM 7/30/13-8/1/13 OF THRD

While in the aggregate these amounts aren’t significant, we believe the purchases are meaningful given the ages of the parties involved and the fact that they are already significant holders of the stock.

*Comparable Transaction Analysis (from BCSB deal proxy):

Acquiror                        Target                            Annc Date                       Deal Value                P/B                P/TBV             Core Dep Premium

WesBanco                Fidelity Bancorp                   7/19/12                        72.9mm                      1.57             1.67              5.5%

FNB                            Parkvale Financial              6/15/11                        163mm                       1.38            1.98              5.2%

Susquehanna              Abington Bancorp              1/26/11                        273.8mm                     1.24             1.24              9.1%                

Norwood                    North Penn Bancorp           12/14/10                     27.4mm                       1.25             1.25              6.4%

*please note that the deal list is a bit stale and that multiples in the space have only increased since 2012 

Miscellaneous:

• Adding to our comfort with the investment is the presence of Dennis Pollack on the board of directors. He is the personally appointed representative of Lawrence Seidman, a leading thrift activist. While we have no reason to believe that this management team needs policing, we view the activist presence as a risk mitigant.

• TF is approaching its 20^th anniversary as a stock institution which qualifies it as the Betty White of thrift conversions

• A man by the name of John Stranford had run the institution for over a decade and was on the board of directors until 2012. He passed away in May of last year and his estate owns approximately 4.5% of the outstanding shares. In so far as he had deep relationships with other board members, the likelihood of an eventual deal is increased.

Catalyst