Exhibit 13
Management's Discussion and Analysis of Financial Condition Thistle Group, Holdings Co. and Subsidiaries
and Results of Operations
This discussion and analysis should be read in conjunction with the
Consolidated Financial Statements and related notes.
The Private Securities Litigation Reform Act of 1995 contains safe harbor
provisions regarding forward-looking statements. When used in this discussion,
the words "believes," "anticipates," "contemplates," "expects," and similar
expressions are intended to identify forward-looking statements. Such statements
are subject to certain risks and uncertainties which could cause actual results
to differ materially from those projected. Those risks and uncertainties include
changes in interest rates, risks associated with the effect of opening a new
branch, the ability to control costs and expenses, and general market
conditions. Thistle Group Holdings, Co. undertakes no obligation to publicly
release the results of any revisions to those forward-looking statements which
may be made to reflect events or circumstances after the date hereof or to
reflect the occurrence of unanticipated events.
General
Thistle Group Holdings, Co. (the "Company") is a Pennsylvania Corporation
which was organized in March 1998 to acquire all of the capital stock of
Roxborough-Manayunk Bank (the "Bank") in the Conversion and Reorganization.
Thistle Group Holdings, Co. is a unitary thrift holding company which, under
existing laws, generally is not restricted in the types of business activities
in which it may engage provided that the Bank retains a specified amount of its
assets in housing-related investments.
Roxborough-Manayunk Bank is a federally chartered stock savings bank. The
Bank serves the Pennsylvania counties of Philadelphia and Delaware through its
transactional web site RMBgo.com and a network of six offices, providing a full
range of retail banking services, with emphasis on the origination of one-to
four-family residential mortgages.
The Bank is primarily engaged in attracting deposits from the general
public through its offices and using those and other available sources of funds
to originate and purchase loans secured by one-to four-family residences,
existing multi-family residential and nonresidential real estate. In addition,
the Bank originates consumer loans, such as home equity loans, and home equity
lines of credit. Such loans generally provide for higher interest rates and
shorter terms than single-family residential real estate loans.
Asset and Liability Management
The principal objective of the Company's asset and liability management
function is to evaluate the interest rate risk existing in certain assets and
liabilities, determine the level of risk appropriate given the Company's
business focus, operating environment, capital and liquidity requirements and
performance objectives, establish prudent asset concentration guidelines and
manage the risk consistent with Board approved guidelines. Through asset and
liability management, the Company seeks to reduce both the vulnerability and
volatility of its operations to changes in interest rates and to manage the
ratio of interest rate sensitive assets to interest rate sensitive liabilities
within specified maturities or repricing periods. The Company's actions in this
regard are taken under the guidance of the Asset/Liability Committee ("ALCO"),
which is chaired by the Company's CEO and comprised of members of the Company's
senior management. The ALCO meets at least monthly to review, among other
things, liquidity and cash flow needs, current market conditions and interest
rate environment, the sensitivity to interest rate changes of the Company's
assets and liabilities, the book and market values of assets and liabilities,
unrealized gains and losses, and the purchase and sale activity and maturities
of investments, deposits and borrowings. In addition, the Chief Financial
Officer reviews the pricing of the Company's residential loans and deposits at
least weekly. The ALCO reports to the Board of Directors on at least a quarterly
basis.
The Company's primary asset/liability monitoring tool consists of various
asset/liability simulation models which are prepared on a quarterly basis and
are designed to capture the dynamics of the balance sheet as well as rate and
spread movements and to quantify variations in net interest income under
different interest rate environments.
A more conventional but limited asset/liability monitoring tool involves an
analysis of the extent to which assets and liabilities are interest rate
sensitive and measures an institution's interest rate sensitivity gap. An asset
or liability is said to be interest rate sensitive within a specific time period
if it will mature or reprice within that time period. The interest rate
sensitivity gap is defined as the difference between interest-earning assets and
interest-bearing liabilities maturing or repricing within a given time period. A
gap is considered positive when the amount of interest rate sensitive assets
exceeds the amount of interest rate sensitive liabilities. A gap is considered
negative when the amount of interest rate sensitive liabilities exceeds interest
rate sensitive assets. During a period of
9
Management's Discussion and Analysis of Financial Condition Thistle Group, Holdings Co. and Subsidiaries
and Results of Operations (continued)
rising interest rates, a negative gap would tend to adversely affect net
interest income, while a positive gap would tend to result in an increase in net
interest income. During a period of falling interest rates, a negative gap would
tend to result in an increase in net interest income, while a positive gap would
tend to affect net interest income adversely. While a conventional gap measure
may be useful, it is limited in its ability to predict trends in future
earnings. It makes no presumptions about changes in prepayment tendencies,
deposit or loan maturity preferences or repricing time lags that may occur in
response to a change in the interest rate environment. For the purposes of the
table below, loans and mortgage-backed securities are presented in the period in
which they amortize, reprice, or mature and do not contain prepayment
assumptions. Passbook and statement savings accounts are assumed to decay at a
rate of 30.0%, 30.0%, and 40.0% in each of the first three years, respectively.
Money Market ("MMDA") and negotiable order of withdrawal ("NOW") accounts are
assumed to decay at a rate of 75% and 25%, in one year or less and over one
year, respectively. Roxborough-Manayunk Bank's passbook, statement savings, MMDA
and NOW accounts are generally subject to immediate withdrawal. However,
management considers a portion of these deposits to be core deposits having
significantly longer effective maturities based upon the Company's retention of
such deposits in changing interest rate environments.
Management believes that the assumptions used by it to evaluate the
vulnerability of the Company's operations to changes in interest rates are
conservative and consider them reasonable. However, the interest rate
sensitivity of the Company's assets and liabilities as portrayed in the table
below could vary substantially if different assumptions were used or actual
experience differs from the assumptions used in the table.
The following table summarizes the anticipated maturities or repricing of
the Company's interest-earning assets and interest- bearing liabilities as of
December 31, 1999, based on the information and assumptions set forth above.
Dollar amounts are expressed in thousands.
Within Six to More than More than
Six Twelve One Year to Three Years Over Five
Months Months Three Years to Five Years Years Total
----------------------------------------------------------------------------------
Interest-earning assets:
Loans receivable $ 7,200 $ 10,650 $ 18,009 $ 19,775 $105,524 $161,158
Mortgage-backed securities 3,958 3,979 16,154 16,524 164,091 204,706
Investment securities 687 750 122,870 124,307
Interest-earning deposits 17,703 17,703
----------------------------------------------------------------------------------
Total interest-earning assets $ 29,548 $ 14,629 $ 34,163 $ 37,049 $392,485 $507,874
----------------------------------------------------------------------------------
Interest-bearing liabilities:
Deposits $ 89,577 $ 70,579 $ 125,533 $ 6,930 $292,619
Advances from borrowers for taxes and insurance 2,472 2,472
Other borrowings 3,000 3,000
FHLB Advances 30,000 10,000 $136,884 176,884
----------------------------------------------------------------------------------
Total interest-bearing liabilities $122,049 $ 70,579 $ 138,533 $ 6,930 $136,884 $474,975
----------------------------------------------------------------------------------
Excess (deficiency) of interest-earning assets
over interest-bearing liabilities $ (92,501) $ (55,950) $(104,370) $ 30,119 $255,601 $ 32,899
----------------------------------------------------------------------------------
Cumulative excess (deficiency) of interest-earning
assets over interest-bearing liabilities $ (92,501) $(148,451) $(252,821) $(222,702) $ 32,899
----------------------------------------------------------------------------------
Cumulative excess (deficiency) of interest-earning
assets over interest-bearing liabilities as a
percentage of total assets (16.67%) (26.76%) (45.57%) (40.14%) 5.93%
----------------------------------------------------------------------------------
Market Risk Analysis
Qualitative Analysis
Management monitors the Company's net interest spreads (the difference
between yields received on assets and rates paid on liabilities) and, although
constrained by market conditions, economic conditions, and prudent underwriting
standards, it offers deposit rates and loan rates in an attempt to maximize net
interest income. Management also attempts to fund the
10
Management's Discussion and Analysis of Financial Condition Thistle Group, Holdings Co. and Subsidiaries
and Results of Operations (continued)
Company's assets with liabilities of a comparable duration to minimize the
impact of changing interest rates on the Company's net interest income. Since
the relative spread between financial assets and liabilities is constantly
changing, the Company's current net interest income may not be an indication of
future net interest income.
The Company constantly monitors its deposits in an effort to decrease their
interest rate sensitivity. Rates of interest paid on deposits at the Company are
priced competitively in order to meet the Company's asset/liability management
objectives and spread requirements. As of December 31, 1999, the Company's
savings accounts, checking accounts and money market deposit accounts totaled
$127.9 million of its total deposits. The Company believes, based on historical
experience, that a substantial portion of such accounts represents core
deposits.
Quantitative Interest Rate Sensitivity Analysis
The value of the Company's loan, mortgage-backed securities and investments
portfolio will change as interest rates change. Rising interest rates will
decrease the Company's net portfolio value, while falling interest rates
increase the value of that portfolio.
The following table sets forth, quantitatively, for the Bank only, as of
December 31, 1999, the Office of Thrift Supervision ("OTS") estimate of the
projected changes in net portfolio value ("NPV") in the event of 100, 200, and
300 basis points ("bp") instantaneous and permanent increase and decrease in
market interest rates. Dollar amounts are expressed in thousands.
Net Portfolio Value Net Portfolio Value as a % of Assets
- ------------------------------------------------------------------------------------------------------
Changes in Rates Percentage Net Portfolio Basis Point
in Basis Points Dollar Amount Dollar Change Change Value Ratio Change
- ------------------------------------------------------------------------------------------------------
300 $33,576 $(32,999) -50% 7.00% (538)
200 45,432 (21,143) -32% 9.10% (328)
100 58,269 (8,306) -12% 11.19% (118)
66,575 12.38%
(100) 79,546 12,971 19% 14.18% 181
(200) 77,600 11,025 17% 13.62% 124
(300) 74,780 8,204 12% 12.92% 55
The OTS model is based on only the Bank level balance sheet. When various
asset categories are adjusted to reflect assets held at the holding company, NPV
increases to $84.5 million. In the event of an instantaneous and permanent
increase of 200 basis points, NPV would decrease $23.4 million to $61.1 million,
or 28%.
Computations of prospective effects of hypothetical interest rate changes
are calculated by the OTS from data provided by the Bank and are based on
numerous assumptions, including relative levels of market interest rates, loan
repayments and deposit runoffs, and should not be relied upon as indicative of
actual results. Further, the computations do not contemplate any actions the
Company may undertake in response to changes in interest rates.
Management cannot predict future interest rates or their effect on the
Company's NPV in the future. Certain shortcomings are inherent in the method of
analysis presented in the computation of NPV. For example, although certain
assets and liabilities may have similar maturities or periods to repricing, they
may react in differing degrees to changes in market interest rates.
Additionally, certain assets, such as adjustable rate loans, have features which
restrict changes in interest rates during the initial term and over the
remaining life of the asset. In addition, the proportion of adjustable rate
loans in the Company's portfolio could decrease in future periods due to
refinancing activity if market interest rates remain or decrease in future
periods. Further, in the event of a change in interest rates, prepayment and
early withdrawal levels could deviate significantly from those assumed in the
table. Finally, the ability of many borrowers to service their adjustable rate
debt may decrease in the event of an interest rate increase.
The Company's Board of Directors is responsible for reviewing and approving
the asset and liability policies. The Board meets quarterly to review interest
rate risk and trends, as well as
11
Management's Discussion and Analysis of Financial Condition Thistle Group, Holdings Co. and Subsidiaries
and Results of Operations (continued)
liquidity and capital ratios and requirements. The Company's management is
responsible for administering the policies and determinations of the Board of
Directors with respect to the Company's asset and liability goals and
strategies. Management expects that the Company's asset and liability policies
and strategies will continue as described above so long as competitive and
regulatory conditions in the financial institution industry and market interest
rates continue as they have in recent years.
Changes in Financial Condition
General
Total assets of the Company increased by $62.7 million or 12.7%, from
$492.0 million at December 31, 1998 to $554.8 million at December 31, 1999. The
increase is primarily attributable to growth in cash and cash equivalents, loans
receivable and investments available for sale, offset by a decrease in
mortgage-backed securities available for sale and investments held to maturity.
Growth in assets was funded by advances from the Federal Home Loan Bank of
Pittsburgh and customer deposits, net of cash used to repurchase common stock.
Cash and Investments
Cash and investments (including investments available for sale and held to
maturity) increased by $52.1 million, or 51.8%, to $152.7 million at December
31, 1999 compared to $100.5 million at December 31, 1998. The increase is
primarily attributable to increases in cash and cash equivalents and investments
of approximately $11.1 million and $41.1 million, respectively. The increase in
investments available for sale resulted from the Company's increases in the
portfolio of government agency securities as well as tax exempt securities. The
increase in cash and cash equivalents resulted from the Company increasing its
liquidity for anticipated cash needs relating to the end of century rollover.
Loans Held for Sale and Loans Receivable, Net
Aggregate loans receivable (loans receivable, net and loans held for sale)
increased $24.7 million, or 18.1%, to $161.2 million at December 31, 1999
compared to $136.5 million at December 31, 1998. The increase is generally
attributable to increases in commercial mortgage loans of $12.3 million,
commercial business loans of $5.2 million and construction loans of $4.5
million.
Mortgage-Backed Securities Available for Sale
Mortgage-backed securities available for sale decreased $25.2 million, or
11%, to $204.7 million at December 31, 1999 compared to $229.9 million at
December 31, 1998. The decrease was the result of repayments, sales and an
increase in the unrealized loss offset by purchases.
Non-Performing Assets
The Company's non-performing loans amounted to $223,000 at December 31,
1999, a decrease of $167,000 from $390,000 at December 31, 1998, or .04% of
total assets at year-end. Real estate acquired through foreclosure increased
slightly to $104,000 at December 31, 1999 compared to $82,000 at December 31,
1998.
Deposits
Deposits increased by $16.2 million, or 5.9%, to $292.6 million at December
31, 1999 from $276.4 million at December 31, 1998. This increase was primarily
attributable to increases in certificates of deposit of $21.0 million offset by
a decrease of $4.9 million in money market accounts.
Borrowings
Since the Conversion and Reorganization, the Company entered into a series
of borrowings to fund purchases of mortgage-backed securities, government agency
securities and one-to four-family residential mortgage loans. The Company's
total borrowings increased $70 million to $176.9 million at December 31, 1999
from $106.9 million at December 31, 1998. These transactions were structured to
achieve targeted spreads in order to enhance return on equity. The Federal Home
Loan Bank advances have varying maturities and have a weighted average interest
rate of 5.03% at December 31, 1999.
Equity
At December 31, 1999 total stockholders' equity was $74.7 million, or 13.5%
of total assets, compared to $100.2 million, or 20.4% of total assets at
December 31, 1998. The $25.5 million decrease was due to the combination of a
decrease of $14.1 million in unrealized gains on available for sale securities
as well as the cost of the Company's stock repurchases of $13.3 million and
dividends paid aggregating $1.7 million offset, in part, by the Company's net
income of $5.3 million. The decrease in unrealized gains on available for sale
securities was due to general increases in market interest rates.
12
Management's Discussion and Analysis of Financial Condition Thistle Group, Holdings Co. and Subsidiaries
and Results of Operations (continued)
Average Balances, Net Interest Income, Yields Earned, and Rates Paid
The following table sets forth, for the periods indicated, information
regarding (i) the total dollar amount of interest income of the Company from
interest-earning assets and resultant average yields; (ii) the total dollar
amount of interest expense on interest-bearing liabilities and the resultant
average rate; (iii) net interest income; (iv) interest rate spread; and (v) net
interest margin. Average balances are derived from month-end balances.
Management does not believe that the use of month-end balances instead of
average daily balances has caused any material differences in the information
presented.
Year Ended December 31,
At 1999 1998 1997
--------------------------------------------------------------------------------------------------------
12/31/99 Average Average Average
Yield/ Average Yield/ Average Yield/ Average Yield/
Cost Balance Interest Cost Balance Interest Cost Balance Interest Cost
--------------------------------------------------------------------------------------------------------
(Dollars in Thousands)
Interest-earning assets:
Loans receivable 7.73% $144,808 $11,443 7.90% $110,059 $ 8,933 8.12% $101,472 $ 8,763 8.64%
Mortgage-backed securities 6.62% 213,971 13,745 6.42% 158,400 9,633 6.08% 93,427 6,491 6.95%
Cash and investment
securities 6.25% 96,225 6,545 6.80% 64,905 4,407 6.79% 75,802 5,164 6.81%
Tax exempt securities (1) 5.02% 49,569 2,425 4.89% 14,721 710 4.82% 3,328 164 4.94%
------------------ ------------------- ------------------
Total interest-earning assets 6.72% $504,573 $34,158 6.77% $348,085 $23,683 6.80% $274,029 $20,582 7.51%
------------------ ------------------- ------------------
Non-interest-earning assets 21,725 12,037 10,013
Total assets $526,298 $360,122 $284,042
------------------ ------------------- ------------------
Interest-bearing liabilities:
Savings accounts 3.26% $100,455 $ 3,238 3.22% $ 97,634 $ 3,590 3.68% $101,316 $ 3,806 3.76%
Certificate accounts 5.27% 149,592 7,777 5.20% 127,478 6,825 5.35% 116,523 6,223 5.34%
Other deposit accounts 1.65% 30,551 661 2.18% 22,749 535 2.35% 24,550 509 2.07%
------------------ ------------------- ------------------
Total deposits 4.19% $280,598 $11,676 4.16% $247,861 $10,951 4.42% $242,389 $10,538 4.35%
Borrowings 5.07% 154,801 7,964 5.14% 38,884 1,956 5.03% 7,884 436 5.53%
Other liabilities (escrow) 2.00% 1,687 32 1.92% 1,620 26 1.60% 1,730 28 1.62%
------------------ ------------------- ------------------
Total interest-bearing
liabilities 4.51% $437,086 $19,672 4.50% $288,365 $12,933 4.48% $252,003 $11,002 4.37%
------------------ ------------------- ------------------
Non-interest-bearing
liabilities 6,349 7,119 5,020
------------------ ------------------- ------------------
Total liabilities 443,435 295,484 257,023
------------------ ------------------- ------------------
Retained earnings 82,863 64,638 27,019
------------------ ------------------- ------------------
Total liabilities and retained
earnings $526,298 $360,122 $284,042
------------------ ------------------- ------------------
Net interest income $14,486 $10,750 $ 9,580
------------------ ------------------- ------------------
Interest rate spread 2.21% 2.27% 2.32% 3.15%
Net yield on interest-
earning assets 2.87% 3.09% 3.50%
Ratio of average interest-
earning assets to average
interest-bearing liabilities 115.44% 120.71% 108.74%
- -----------------------------------------------------------------------------------------------------------------------------------
(1) Tax exempt securities are presented on a coupon basis.
13
Management's Discussion and Analysis of Financial Condition Thistle Group, Holdings Co. and Subsidiaries
and Results of Operations (continued)
Rate/Volume Analysis
The following table describes the extent to which changes in interest rates
and changes in volume of interest-related assets and liabilities have affected
the Company's interest income and expense during the periods indicated. For each
category of interest-earning assets and interest-bearing liabilities,
information is provided on changes attributable to (i) changes in volume (change
in volume multiplied by prior year rate); (ii) changes in rate (change in rate
multiplied by prior year volume); and (iii) total change in rate and volume. The
combined effect of changes in both rate and volume has been allocated
proportionately to the change due to rate and the change due to volume.
Year Ended December 31,
-----------------------------------------------------------------------------------------------
1999 vs. 1998 1998 vs. 1997
-----------------------------------------------------------------------------------------------
Increase (Decrease) Due to Increase (Decrease) Due to
-----------------------------------------------------------------------------------------------
Rate/ Rate/
Volume Rate Volume Net Volume Rate Volume Net
-----------------------------------------------------------------------------------------------
(Dollars in Thousands)
Interest Income:
Loans receivable $ 2,820 $(236) $ (74) $ 2,510 $ 742 $ (527) $ (45) $ 170
Mortgage-backed securities 3,380 542 190 4,112 4,514 (809) (563) 3,142
Cash and investment securities 2,127 8 4 2,139 (742) (17) 2 (757)
Tax exempt securities 1,681 10 24 1,715 563 (4) (13) 546
-----------------------------------------------------------------------------------------------
Total interest-earning assets $10,008 $ 324 $144 $10,476 $5,076 $(1,357) $(618) $3,101
-----------------------------------------------------------------------------------------------
Interest expense:
Deposit accounts $ 1,446 $(637) $ (84) $ 725 $ 238 $ 171 $ 4 $ 413
Borrowings 5,831 44 132 6,007 1,714 (39) (155) 1,520
Other liabilities 1 5 6 (2) (2)
-----------------------------------------------------------------------------------------------
Total interest-bearing liabilities$ 7,278 $(588) $ 48 $ 6,738 $1,950 $ 131 $(151) $1,931
-----------------------------------------------------------------------------------------------
Net change in interest income $ 2,730 $ 912 $ 96 $ 3,738 $3,126 $(1,489) $(467) $1,170
-----------------------------------------------------------------------------------------------
Results of Operations
General
The Company reported net income of $5.3 million, $2.4 million and $3.4
million for the years ended December 31, 1999, 1998 and 1997, respectively. The
$2.9 million increase in net income for the year ended December 31, 1999
compared to the year ended December 1998 was primarily due to a $3.8 million or
35.9% increase in net interest income as well as a decrease in the effective tax
rate paid by the Company from 38.5% in 1998 to 23.3% in 1999 offset in part by a
$1.1 million increase in operating expenses.
The $1.0 million decrease in net income for the year ended December 31,
1998 compared to December 1997 was primarily due to a non-recurring gain of $2.2
million from the sale of two branch offices in 1997, offset by an increase of
$1.0 million in net interest income during 1998.
Net Interest Income
Net interest income is determined by interest rate spread (i.e., the
difference between the yields earned on interest-earning assets and the rates
paid on interest-bearing liabilities) and the relative amounts of
interest-earning assets and interest-bearing liabilities. The Company's average
interest rate spread was 2.27%, 2.32%, and 3.15% during the years ended December
31, 1999, 1998, and 1997, respectively. The Company's interest rate spread was
2.21% at December 31, 1999. The Company's net interest margin (i.e., net
interest income as a percentage of average interest-earning assets) was 2.87%,
3.09%, and 3.50% during the years ended December 31, 1999, 1998, and 1997,
respectively.
Net interest income increased $3.7 million, or 34.8%, to $14.5 million in
the year ended December 31, 1999 from $10.8 million in 1998. The increase came
as a result of a $10.5 million increase in interest income offset by a $6.7
million increase in interest expense. Net interest income increased $1.2
million, or 12.5%, in the year ended December 31, 1998 to $10.8 million compared
to $9.6 million in 1997. Increases in interest income of $3.1 million were
offset by increases in interest expense of $1.9 million.
Interest Income
Total interest income amounted to $34.2 million for the year ended December
31, 1999 compared to $23.7 million for the year ended December 31, 1998. The
increase in 1999 of $10.5 million, or 44.2%, over 1998 was primarily due to an
increase in income from all interest-earning assets, resulting from an
14
increase of $156.5 million, or 45%, in the average balance outstanding of those
assets. This increase was partially offset by a 3 basis point decrease in the
related yield (with 100 basis points being equal to 1%). The increase in average
balances was due to the investing of proceeds from the stock sale in July 1998
and the leveraging of the Company's capital base, while the slight decrease in
yield reflects the effects of the interest rate environment existing during
1999.
Interest Expense
Total interest expense increased by $6.7 million or 52.1% for the year
ended December 31, 1999 compared to 1998. The increase was primarily
attributable to a $6.0 million increase in interest expense in Federal Home Loan
Bank ("FHLB") borrowings and a $699,000 increase in interest on deposits.
Interest expense on FHLB borrowings increased due to a $115.9 million increase
in the average balance of such borrowings combined with a 11 basis point
increase in the average rate paid. The interest expense on deposits increased
due to a $32.7 million increase in the average balance of deposits offset by a
26 basis point decline in the average rate paid. The increase in average
borrowings and deposits was used to fund loan originations and purchase
investment securities and mortgage-backed securities.
Total interest expense increased by $1.9 million, or 17.5%, for the year
ended December 31, 1998 compared to 1997. The primary reason for this increase
was a $1.5 million increase in interest expense on Federal Home Loan Bank
("FHLB") borrowings, and a $439,000 increase in interest on deposits. The
increase in interest expense on FHLB borrowings was due to a $31 million
increase in the average balance of such borrowings, offset by a 50 basis point
decline in the average rate paid. The increase in interest expense on deposits
was due to a $5.5 million increase in the average balance of deposits combined
with a 7 basis point increase in the average rate paid. The increase in average
borrowings and deposits was used to fund loan originations as well as purchases
of loans and mortgage-backed securities.
Provision for Loan Losses
Provisions for loan losses are charged to earnings to bring the total
allowance for loan losses to a level considered appropriate by management based
on historical experience, the volume and type of lending conducted by the
Company, the amount of the Company's classified assets, the status of past due
principal and interest payments, general economic conditions, particularly as
they relate to the Company's primary market area, and other factors related to
the collectibility of the Company's loan portfolio. Management of the Company
assesses the allowance for loan losses on a monthly basis and makes provisions
for loan losses as deemed appropriate in order to maintain the adequacy of the
allowance for loan losses. For the year ended December 31, 1999, the provision
for loan losses amounted to $240,000 as compared to $270,000 in 1998. For the
year ended December 31, 1997, the provision for loan losses was $120,000. At
December 31, 1999 the Company's allowance for loan losses amounted to 553% of
total non-performing loans and .78% of net loans receivable.
Although management of the Company believes that the Company's allowance
for loan losses was adequate at December 31, 1999, based on facts and
circumstances available to it, there can be no assurances that additions to such
allowance will not be necessary in future periods, which would adversely affect
the Company's results of operations for such periods. In addition, various
regulatory agencies, as an integral part of their examination process,
periodically review the Company's provision for loan losses and the carrying
value of its other non-performing assets based on their judgements about
information available to them at the time of their examination.
Other Income
Other income for the year ended December 31, 1999 was $951,000 as compared
to $415,000 for 1998. The $536,000 increase in other income resulted from a
$137,000 net gain on asset sales in 1999 and the absence of a $115,000 net loss
on such sales during 1998, a $228,000 recovery of an accrual for interest and
penalties on a state income tax case that was settled during the year combined
with an $80,000 recovery on loans secured by commercial equipment lines that had
been charged off in prior years.
For the year ended December 31, 1998, the Company reported other income of
$415,000 compared to $2.8 million for 1997. The primary reason for the $2.4
million decrease in other income in 1998 was the absence of a $2.2 million gain
on sale of deposits recorded in 1997 and, to a much lesser extent, a net loss on
sales of certain mortgage-backed securities in 1998 totaling $74,000. These
mortgage-backed securities were sold to improve yield, liquidity and duration of
the portfolio.
Other Expenses
Other expenses include salaries and employee benefits, occupancy and
equipment, Federal Deposit Insurance Corporation ("FDIC") insurance premiums,
fees, advertising and other items. Other expenses increased $1.1 million or
16.2% for the year ended December 31, 1999 compared to 1998 and amounted to $8.2
million in 1999 compared to $7.1 million in 1998.
Salaries and employee benefits increased $307,000 due to normal salary
increases, addition of personnel and compensation expenses related to the
restricted stock plan. Occupancy and equipment costs increased $177,000 due to
increased depreciation related to the purchase of a new computer system in
August 1998 and to increased costs for maintenance contracts
15
Management's Discussion and Analysis of Financial Condition Thistle Group, Holdings Co. and Subsidiaries
and Results of Operations (continued)
related to the addition of new hardware. Professional costs increased $260,000
due to accounting and legal fees associated with being a listed company, legal
costs incurred related to the adoption of the Company's stock plans and various
corporate and regulatory actions, the outsourcing of the Company's internal
audit function, and consulting fees related to Y2K contingency planning.
Advertising and promotion increased $112,000 as the Company began a focused
strategic marketing effort in the latter half of 1999, which included additional
media costs for new product campaigns. Increases in other expenses amounted to
$269,000 due to costs associated with the production of the Company's initial
annual report and proxy statements, transfer agent and Nasdaqt listing fees as
well as other expenses related to the in house computer system.
Other expenses increased $251,000, or 3.6%, for the year ended December 31,
1998 compared to 1997, and amounted to $7.1 million in 1998 compared to $6.8
million in 1997. Salaries and employee benefits contributed to this increase, up
a net of $93,000, or 2.4%, for the year ended December 31, 1998 compared to
1997. The increase was attributable to a non-recurring charge of $150,000
triggered by the death of the former Chairman, normal salary increases and
addition of personnel, partially offset by the absence of salaries of branch
personnel at the branches sold in May 1997. Costs associated with the Employee
Stock Ownership Plan that was established at conversion were offset by the
decrease in profit-sharing, which was suspended in July 1998.
Increases in other expenses includes $50,000 of non-recurring charges
relating to training on the new computer system and an additional $50,000
relating to the termination of the mid-tier holding company.
Income Taxes
Income tax expense for the year ended December 31, 1999 was $1.6 million or
23.3% of pre-tax income as compared to expense of $1.5 million or 38.4% in 1998.
The primary reason for the decrease in the effective tax rate was the reduction
in state taxes resulting from purchases of tax exempt securities. The Company
has also employed various strategies to reduce both federal and state taxes.
The Company recognized income tax expenses of $1.5 million, or 38.4%, of
re-tax income for the year ended December 31, 1998, compared to $2.1 million,
or 40.0%, of pre-tax income in 1997. Pre-tax income was higher in 1997 resulting
in a higher total amount of tax expense in 1997.
Liquidity and Capital Resources
The Company's primary sources of funds are deposits and proceeds from
principal and interest payments on loans, mortgage-backed securities and other
investments. While maturities and scheduled amortization of loans and
mortgage-backed securities are a predictable source of funds, deposit flows and
mortgage prepayments are greatly influenced by general interest rates, economic
conditions, competition, and the consolidation of the financial institution
industry.
The primary investment activity of the Company is the origination and
purchase of mortgage loans, commercial business loans, mortgage-backed
securities, and other investments. During the years ended December 31, 1999,
1998, and 1997, the Company originated loans in the amounts of $47.5 million,
$28.0 million, and $19.8 million, respectively. The Company also purchases loans
and mortgage-backed securities to reduce liquidity not otherwise required for
local loan demand and, in 1998, as part of its leveraging strategy. Purchases of
loans and mortgage-backed securities totaled $67.0 million, $220.3 million, and
$33.0 million, respectively, in those same periods. Other investment activities
include investment in U.S. government and federal agency obligations, municipal
bonds, debt and equity investments in financial services firms, FHLB of
Pittsburgh stock and consumer loans.
Until 1998, the Company had historically not utilized borrowings as a
source of funds. In 1998 and 1999, the Company utilized FHLB advances to
leverage its balance sheet as discussed earlier. In addition, other sources of
liquidity can be found in the Company's balance sheet, such as investment
securities maturing within one year and unencumbered mortgage-backed securities
that are readily marketable. The Company has other sources of liquidity if a
need for additional funds arises.
The Company is required to maintain minimum levels of liquid assets as
defined by OTS regulations. The requirement, which may be varied at the
direction of the OTS depending upon economic conditions and deposit flows, is
based upon a percentage of deposits and short-term borrowings. The required
minimum ratio is currently 4.0%. The Company's liquidity ratio was 13.53% at
December 31, 1999.
The Company's most liquid assets are cash and cash equivalents, which
include investment in highly liquid short-term investments. The level of these
assets is dependent on the Company's operating, financing and investing
activities during any given period. At December 31, 1999, cash and cash
equivalents totaled $37.2 million.
16
The Company anticipates that it will have sufficient funds available to
meet its current commitments. As of December 31, 1999, the Company had $16.3
million in commitments to fund loans. Certificates of deposit which were
scheduled to mature in one year or less as of December 31, 1999 totaled $108.6
million. Management believes that a significant portion of such deposits will
remain with the Company.
The Bank had core, tangible and total risk-based capital ratios of 10.6%,
10.6% and 30.9%, respectively, at December 31, 1999, which significantly
exceeded the OTS's respective minimum requirements of 3.00%, 1.50%, and 8.00%.
The Bank was classified as a "well capitalized" institution on December 31,
1999. See Note 10 to the Consolidated Financial Statements.
Recent Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities." This statement requires that an entity recognize all
derivatives as either assets or liabilities in the statement of financial
condition and measure those instruments at fair value. The accounting for
changes in the fair value of a derivative depends on the intended use of the
derivative and the resulting designation. The Company adopted this statement on
January 1, 1999. The adoption of this statement did not have a material impact
on the Company's financial position or results of operations.
Impact of Inflation and Changing Prices
The consolidated financial statements of the Company and notes thereto,
presented elsewhere herein, have been prepared in accordance with GAAP, which
requires the measurement of financial position and operating results in terms of
historical dollars without considering the change in the relative purchasing
power of money over time due to inflation. The impact of inflation is reflected
in the increased cost of the Company's operations. Unlike most industrial
companies, nearly all the assets and liabilities of the Company are financial.
As a result, interest rates have a greater impact on the Company's performance
than do the effects of general levels of inflation. Interest rates do not
necessarily move in the same direction or to the same extent as the prices of
goods and services.
Year 2000
Like many financial institutions, we rely on computers to conduct our
business and information systems processing. Industry experts were concerned
that on January 1, 2000, some computers might not be able to interpret the new
year properly, causing computer malfunctions. Some banking industry experts
remain concerned that some computers may not be able to interpret additional
dates in the year 2000 properly. We have operated and evaluated our computer
operating systems following January 1, 2000 and have not identified any errors
or experienced any computer system malfunctions. We will continue to monitor our
information systems to assess whether our systems are at risk of misinterpreting
any future dates and will develop appropriate contingency plans to prevent any
potential system malfunction or correct any system failures. The Company has not
been informed of any such problem experienced by its vendors or its customers,
nor by any of the municipal agencies that provide services to the Company.
Nevertheless, it is too soon to conclude that there will not be any
problems arising from the Year 2000 problem, particularly at some of the
Company's vendors. The Company will continue to monitor its significant vendors
of goods and services with respect to Year 2000 problems they may encounter as
those companies may affect the Company's ability to continue operations, or
might adversely affect the Company's financial position, results of operations
and cash flows. The Company does not believe at this time that these potential
problems will materially impact the ability of the Company to continue its
operations, however, no assurance can be given that this will be the case.
The expectations of the Company contained in this section on Year 2000 are
forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995 and involve substantial risks and uncertainties
that may cause actual results to differ materially from those indicated by the
forward-looking statements. All forward-looking statements in this section are
based on information available to the Company on the date of this document, and
the Company assumes no obligation to update such forward-looking
statements.
17
Selected Consolidated Financial Data and Other Data
Thistle Group
Holdings, Co. and Subsidiaries (Dollars in thousands, except per share data)
1999 1998 1997 1996 1995
---------------------------------------------------
Income Statement Data:
Interest income $ 34,158 $23,682 $ 20,582 $ 20,264 $ 19,790
Interest expense 19,672 12,933 11,002 11,069 10,646
Net interest income 14,486 10,749 9,580 9,195 9,144
Provision for loan losses 240 270 120 139 135
Noninterest income 951 415 2,808 583 544
Noninterest expense (1) 8,221 7,075 6,824 9,890 7,234
Income (loss) before income taxes 6,796 3,819 5,444 (251) 2,319
Net income (loss) 5,348 2,350 3,354 (363) 1,432
Balance Sheet Data:
Total assets 554,759 492,039 276,650 294,332 288,199
Loans (net) 161,158 136,466 97,435 100,773 101,884
Mortgage-backed securities available
for sale 204,706 229,883 111,486 93,410 98,315
Investment securities held to maturity 54,129 34,529 46,464 44,024
Investment securities available for sale 115,463 20,274 3,698 2,631 1,566
Deposits 292,619 276,390 230,558 256,546 250,179
FHLB Advances 176,884 106,884 7,884 7,884 7,884
Stockholders' equity 74,660 100,229 28,470 24,581 25,148
Per Share Data:
Basic earnings per share (2) 0.73 0.17 NM NM NM
Diluted earnings per share (2) 0.72 0.16 NM NM NM
Cash dividends per share (2) 0.21 0.05 NM NM NM
Tangible book value per share (3) 9.60 11.14 NM NM NM
Selected Ratios: (4)
Performance
Return on average assets 1.02% .65% 1.18% (.13)% .51%
Return on average equity 6.45 3.63 12.41 (1.45) 5.98
Stockholders' equity to assets 13.46 20.37 10.27 8.35 8.72
Net interest margin (5) 2.87 3.09 3.50 3.29 3.37
Interest rate spread (5) 2.27 2.32 3.14 2.99 3.06
Asset Quality
Non-performing loans to total loans (6) 0.14 0.28 0.74 3.04 2.13
Non-performing assets to total assets (6) 0.07 0.09 0.30 1.08 .82
Allowance for loan losses as a percent of
non-performing loans 553.00 264.00 109.36 21.24 17.43
Allowance for loan losses as a percent of
total average loans at end of period 0.85 0.94 0.77 0.63 .46
Net charge-offs (recoveries) as a percent of
average loans 0.03 0.01 (.08) 0.02 0.09
(1) Includes a special assessment of $1,533 to recapitalize the Savings
Association Insurance Fund ("SAIF") and a $1,181 write-down of lease
receivables during 1996.
(2) There were no shares outstanding until July 1998.
(3) Book value per share represents stockholders' equity divided by the number
of shares issued and outstanding.
(4) With the exception of end of period ratios, all ratios are based on average
monthly balances during indicated periods.
(5) Interest rate spread represents the difference between the average yield on
interest-earning assets and the average cost of interest-bearing
liabilities, and net interest margin represents net interest income as a
percent of average interest-earning assets.
(6) Non-performing loans consist of non-accrual loans and accruing loans 90
days or more overdue; and non-performing assets consist of non-performing
loans and real estate owned, in each case net of related reserves. NM--Not
meaningful as a result of the conversion and reorganization completed in
July 1998.
18
Consolidated Statements of Financial Condition Thistle Group Holdings, Co. and Subsidiaries
(Dollars in thousands, except per share data)
December 31,
1999 1998
----------------------------
ASSETS
Cash on hand and in banks $ 19,494 $ 2,522
Interest-bearing deposits 17,703 23,614
----------------------------
Total cash and cash equivalents 37,197 26,136
Investments held to maturity (approximate fair value--1998, $53,958) 54,129
Investments available for sale at fair value (amortized cost--1999, $128,729; 1998, $20,133) 115,463 20,274
Mortgage-backed securities available for sale at fair value
(amortized cost--1999, $211,304; 1998, $228,574) 204,706 229,883
Loans receivable (net of allowance for loan losses--1999, $1,234; 1998, $1,036) 157,233 133,908
Loans held for sale 3,925 2,558
Accrued interest receivable 3,692 3,265
Federal Home Loan Bank stock--at cost 8,844 5,344
Real estate acquired through foreclosure--net 104 82
Office properties and equipment--net 2,853 2,487
Prepaid expenses and other assets 1,145 3,163
Cash surrender value of life insurance 11,590 10,810
Deferred income taxes 8,007
----------------------------
TOTAL ASSETS $554,759 $492,039
----------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits $292,619 $276,390
FHLB advances 176,884 106,884
Other borrowings 3,000
Accrued interest payable 835 469
Advances from borrowers for taxes and insurance 2,472 2,229
Accounts payable and accrued expenses 3,790 3,465
Dividends payable 467 450
Accrued income taxes 32 1,476
Deferred income taxes 447
----------------------------
Total liabilities 480,099 391,810
----------------------------
Commitments and Contingencies
Stockholders' Equity:
Preferred stock, no par value--10,000,000 shares authorized, none issued in
1999 or 1998 Common stock, $.10 par value, 40,000,000 shares authorized,
8,999,989 issued and
7,780,432 outstanding in 1999; 8,999,989 shares issued and outstanding in 1998 900 900
Additional paid-in capital 93,400 94,616
Common stock acquired by stock benefit plans (8,199) (6,075)
Treasury stock at cost, 1,219,557 shares (11,787)
Accumulated other comprehensive (loss) income (13,108) 957
Retained earnings--partially restricted 13,454 9,831
----------------------------
Total stockholders' equity 74,660 100,229
----------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $554,759 $492,039
----------------------------
See notes to consolidated financial statements.
19
Consolidated Statements of Financial Condition Thistle Group Holdings, Co. and Subsidiaries
(Dollars in thousands, except per share data)
Year Ended December 31,
1999 1998 1997
---------------------------------------
INTEREST INCOME:
Interest on loans $11,443 $ 8,933 $ 8,763
Interest on mortgage-backed securities 13,745 9,632 6,491
Interest and dividends on investments 8,970 5,117 5,328
---------------------------------------
Total interest income 34,158 23,682 20,582
---------------------------------------
INTEREST EXPENSE:
Interest on deposits 11,676 10,977 10,538
Other 7,996 1,956 464
---------------------------------------
Total interest expense 19,672 12,933 11,002
---------------------------------------
NET INTEREST INCOME 14,486 10,749 9,580
PROVISION FOR LOAN LOSSES 240 270 120
---------------------------------------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 14,246 10,479 9,460
---------------------------------------
OTHER INCOME (LOSS):
Service charges and other fees 355 367 391
Loss on sale of real estate owned (2) (49)
Loss on sale of mortgage-backed securities available for sale (16) (74)
Gain on sale of investments available for sale 155 8
Gain on sale of deposit liabilities 2,234
Gain on sale of loans held for sale 9
Rental income 151 163 174
Other income 308
---------------------------------------
Total other income 951 415 2,808
---------------------------------------
OTHER EXPENSES:
Salaries and employee benefits 4,227 3,920 3,827
Occupancy and equipment 1,168 991 933
Federal insurance premium 166 145 158
Professional fees 541 281 322
Advertising 244 132 118
Other 1,875 1,606 1,466
---------------------------------------
Total other expenses 8,221 7,075 6,824
---------------------------------------
INCOME BEFORE INCOME TAXES 6,976 3,819 5,444
---------------------------------------
INCOME TAXES:
Current 2,835 1,322 2,083
Deferred (1,207) 147 7
---------------------------------------
Total income taxes 1,628 1,469 2,090
---------------------------------------
NET INCOME $ 5,348 $ 2,350 $ 3,354
---------------------------------------
BASIC EARNINGS PER SHARE $ 0.73 $ 0.17
---------------------------------------
DILUTED EARNINGS PER SHARE $ 0.72 $ 0.16
---------------------------------------
See notes to consolidated financial statements.
20
Consolidated Statements of Changes
in Stockholders' Equity Thistle Group Holdings, Co. and Subsidiaries
(Dollars in thousands)
Common
Stock Accumulated
Acquired Other Retained
Additional by Stock Compre-hensive Earnings Total
Common Paid-In Benefit Treasury Income Partially Stockholders'
Stock Capital Plans Stock (Loss) Restricted Equity
-------------------------------------------------------------------------------------------
BALANCE, JANUARY 1, 1997 $ 1,621 $16,997 $ (45) $ 735 $ 5,273 $24,581
Comprehensive Income
Net Income 3,354 3,354
Other comprehensive income, net of tax:
Net unrealized gain on investment
and mortgage-backed securities
available for sale, net of
reclassification adjustment (1) 655 655
------------
Comprehensive income -- -- -- -- -- -- 4,009
------------
Cash dividends declared (165) (165)
ESOP stock committed to be released 33 33
Release of Management Recognition
Plan shares 12 12
Thistle Group Holdings, Inc.
formation (Note 1) (1,459) 1,458 1
-------------------------------------------------------------------------------------------
BALANCE DECEMBER 31,1997 162 18,455 1,390 8,463 28,470
-------------------------------------------------------------------------------------------
Comprehensive income:
Net income 2,350 2,350
Other comprehensive income,
net of tax:
Net unrealized loss on investment
and mortgage-backed securities
available for sale, net of
reclassification adjustment (1) (433) (433)
------------
Comprehensive income -- -- -- -- -- -- 1,917
------------
Dividends paid - pre-organization (82) (82)
Stock conversion 738 76,171 (6,285) 70,624
ESOP stock committed to be released 210 210
Excess of cost of ESOP shares
committed to be released above
fair value (10) (10)
Dividends paid (900) (900)
-------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1998 900 94,616 (6,075) 957 9,831 100,229
-------------------------------------------------------------------------------------------
Comprehensive loss:
Net income 5,348 5,348
Other comprehensive income, net of
tax:
Net unrealized loss on
investment and mortgage-backed
securities available for sale, net
of reclassification adjustment (1) (14,065) (14,065)
------------
Comprehensive loss -- -- -- -- -- -- (8,717)
------------
ESOP stock committed to be released 418 418
Excess of cost of ESOP shares
committed to be released above
fair value (41) (41)
Purchase of treasury stock $(13,326) (13,326)
Common stock acquired by stock
benefit plans (2,761) (2,761)
Restricted stock plan amortization 219 219
Exercise of stock options (1,175) 1,539 364
Dividends paid (1,725) (1,725)
-------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1999 $ 900 $ 93,400 $ (8,199) $ (11,787) $ (13,108) $ 13,454 $ 74,660
-------------------------------------------------------------------------------------------
(1) Disclosure of reclassification amount, net of tax for the years ended: 1999 1998 1997
--------------------------------
Net unrealized (depreciation) appreciation arising during the year $ (14,157) $ (345) $ 655
Net gains (losses) included in net income 92 (88)
--------------------------------
Net unrealized (loss) gain on securities $ (14,065) (433) $ 655
21
Consolidated Statements of Cash Flows Thistle Group Holdings, Co. and Subsidiaries
(Dollars in thousands)
Year Ended December 31,
1999 1998 1997
------------------------------------------
OPERATING ACTIVITIES:
Net income $ 5,348 $ 2,350 $ 3,354
Adjustments to reconcile net income to net cash (used in) provided by operating activities:
Provision for loan losses 240 270 120
Depreciation 466 319 240
Amortization of stock benefit plans 571 (10) 12
Loans held for sale originated (1,687) (1,845) (76)
Amortization of:
Goodwill 32
Net premiums (discounts) on:
Loans purchased (23) (286) 22
Investments (1,263) (1,011) (294)
Mortgage-backed securities 1,496 1,305 (506)
Gain on sale of investments (155) (8)
Gain on sale of loans held for sale (9)
Loss on sale of mortgage-backed securities 16 74
Gain on sale of deposit liabilities (2,234)
Loss on sale of real estate owned 2 49 50
Proceeds from sale of loans held for sale 1,055
(Increase) decrease in other assets (322) (11,182) 356
Increase (decrease) in other liabilities (674) (797) 4,206
------------------------------------------
Net cash provided by (used in) operating activities 4,015 (10,772) 6,328
------------------------------------------
INVESTING ACTIVITIES:
Principal collected on:
Mortgage-backed securities 46,475 47,504 15,171
Loans 30,246 24,818 22,496
Loans originated (45,854) (26,181) (19,778)
Loans acquired (7,720) (36,098) (821)
Purchases of:
Investments (72,492) (57,750) (43,354)
Mortgage-backed securities (59,279) (184,234) (32,216)
Property and equipment (832) (1,304) (119)
FHLBstock (3,500) (3,642) (10)
Proceeds from the sale of:
Real estate owned 40 180 269
Maturities of investments 2,333 20,902 54,000
Mortgage-backed securities 28,561 15,898
Investments 17,108 2,147 984
Property and equipment 204
------------------------------------------
Net cash provided by (used in) investing activities (64,914) (197,760) (3,174)
------------------------------------------
FINANCING ACTIVITIES:
Net (decrease) increase in deposits 16,229 45,832 (23,754)
Net increase (decrease) in advances from borrowers for taxes and insurance 243 43 (13)
Net increase in FHLB borrowings 70,000 99,000
Increase in other borrowings 3,000
Purchase of treasury stock (13,326)
Purchase of restricted stock plan shares (2,761)
Net proceeds from the exercise of stock options 300
Proceeds from the stock offering, net of offering costs 70,624
Cash dividends (1,725) (982) (165)
------------------------------------------
Net cash provided by (used in) financing activities 71,960 214,517 (23,932)
------------------------------------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 11,061 5,985 (20,778)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 26,136 20,151 40,929
------------------------------------------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 37,197 $ 26,136 $ 20,151
------------------------------------------
SUPPLEMENTAL DISCLOSURES:
Interest paid on deposits and funds borrowed $ 19,306 $ 11,325 $ 11,071
Income taxes paid 1,267 1,570 81
Noncash transfers from loans to real estate owned 101 168 250
Noncash transfer of investments held to maturity to available for sale 54,129
See notes to consolidated financial statements.
22
Notes to Consolidated Financial Statements Thistle Group Holdings, Co. and Subsidiaries
Years Ended December 31, 1999, 1998 and 1997
(Dollars in thousands, except per share data)
1. NATURE OF OPERATIONS
On July 14, 1998, Thistle Group Holdings, Inc. (the "Mid-Tier Holding
Company") completed its mutual to stock conversion (the "Conversion and
Reorganization"). In connection with the Conversion and Reorganization, Thistle
Group Holdings, Co. ("the Company"), a unitary thrift holding company
incorporated in Pennsylvania, sold 7,856,370 shares of its common stock in
subscription and community offerings at $10.00 per share. Furthermore, based on
an independent appraisal of the Company, existing minority stockholders of the
Mid-Tier Holding Company converted each share of the Mid-Tier Holding Company
into 5.5516 shares of common stock of Thistle Group Holdings, Co. (the
"Exchange"). Upon completion of the Conversion and Reorganization, the Mid-Tier
Holding Company and FJF Financial, M.H.C. were merged with and into the Bank and
the Bank changed its name to Roxborough-Manayunk Bank and became the
wholly-owned subsidiary of Thistle Group Holdings, Co. A total of 8,999,989
shares of common stock of Thistle Group Holdings, Co. (excluding fractional
shares issued in the Exchange) were issued in connection with the Conversion and
Reorganization. After the effect of establishing the Employee Stock Ownership
Plan (see Note 12) and reorganization and stock offering costs of approximately
$1.7 million, the Company realized net proceeds of approximately $70.6 million.
The primary business of the Company is to act as a holding company for
Roxborough-Manayunk Bank (the "Bank"), a federally chartered capital stock
savings bank, and TGH Corp., which holds investments. The Bank has three
subsidiaries, Ridge Service Corporation, which is inactive, Montgomery Service
Corporation, which manages a small commercial real estate property, and Roxdel
Corp., which holds investments. The primary business of the Bank is attracting
customer deposits from the general public through its six branches and investing
these deposits, together with funds from borrowings and operations, primarily in
single-family residential loans, commercial real estate loans and
mortgage-backed securities, and to a lesser extent in secured consumer, home
improvement and commercial loans and investment securities. The Bank's primary
regulator is the Office of Thrift Supervision ("OTS").
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation--The consolidated financial statements contained
herein for the periods prior to July 14, 1998 are those of Thistle Group
Holdings, Inc. (the "Mid-Tier Holding Company"), which was organized for the
purpose of holding all of the capital stock of Roxborough-Manayunk Bank. The
consolidated statements contained herein for the periods subsequent to July 14,
1998 are those of Thistle Group Holdings, Co., which was organized in March of
1998, and its subsidiaries. Thistle Group Holdings, Co. has two wholly-owned
subsidiaries, TGH Corp. and Roxborough-Manayunk Bank. Roxborough-Manayunk Bank
has three wholly-owned subsidiaries, Roxdel Corp., Montgomery Service Corp. and
Ridge Service Corp. The Company's business is conducted principally through the
Bank. All significant intercompany accounts and transactions have been
eliminated in consolidation.
Use of Estimates in the Preparation of Financial Statements--The preparation of
financial statements in conformity with generally accepted accounting principles
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
income and expenses during the reporting period. Actual results could differ
from those estimates.
Cash and Cash Equivalents--The Company considers all highly liquid investments
with an original maturity of three months or less to be cash equivalents.
Investment and Mortgage-Backed Securities--Debt and equity securities are
classified and accounted for as follows:
Held to Maturity--Debt securities that management has the positive intent
and ability to hold until maturity are classified as held to maturity and
are carried at their remaining unpaid principal balance, net of unamortized
premiums or unaccreted discounts. Premiums are amortized and discounts are
accreted using the interest method over the estimated remaining term of the
underlying security.
Available for Sale--Debt and equity securities that will be held for
indefinite periods of time, including securities that may be sold in
response to changes to market interest or prepayment rates, needs for
liquidity and changes in the availability of and the yield of alternative
investments are classified as available for sale. These assets are carried
at fair value. Fair value is determined using published quotes as of the
close of business. Unrealized gains and losses are excluded from earnings
and are reported net of tax as a separate component of stockholders' equity
until realized. Realized gains and losses on the sale of investment or
mortgage-backed securities are reported in the consolidated statement of
operations and are determined using the specific identification method.
23
Notes to Consolidated Statements Thistle Group Holdings, Co. and Subsidiaries
Years Ended December 31, 1999, 1998 and 1997
(Dollars in thousands, except per share data) (continued)
Interest Income--Interest income on loans and investment and mortgage-backed
securities is recognized as earned. Income recognition is generally discontinued
when loans become 90 days contractually past due. An allowance for any
uncollected interest is established at that time by a charge to operations.
Loans Held for Sale--The Company originates loans for portfolio investment or
for sale in the secondary market. During the period of origination, loans are
designated as held for sale or held for investment. Loans held for sale are
carried at the lower of cost or fair value, determined on an aggregate basis.
Loans receivable designated as held for portfolio have been so designated due to
management's intent and ability to hold such loans until maturity or pay-off.
Provisions for Losses--Provisions for losses include charges to reduce the
recorded balances of loans receivable to their estimated net realizable value or
fair value, as applicable. Such provisions are based on management's estimate of
net realizable value and/or fair value of the collateral, as applicable,
considering the current and currently anticipated future operating or sales
conditions, thereby causing these estimates to be particularly susceptible to
changes that could result in a material adjustment to results of operations in
the near term. Recovery of the carrying value of such loans and real estate is
dependent to a great extent on economic, operating and other conditions that are
beyond the Company's control.
The Company accounts for impaired loans in accordance with Statement of
Financial Accounting Standards ("SFAS") No. 114, Accounting by Creditors for
Impairment of a Loan and SFAS No. 118, Accounting by Creditors for Impairment of
a Loan--Income Recognition and Disclosure. The Company values impaired loans
using the fair value of the collateral. Any reserves determined under SFAS No.
114 would be included in the allowance for loan losses.
Real Estate Acquired Through Foreclosure--Real estate acquired through
foreclosure is carried at the lower of fair value or balance of the loan on the
property at date of acquisition less estimated selling costs. Costs relating to
the development and improvement of property are capitalized, and those relating
to holding the property are charged to expense.
Office Properties and Equipment--Office properties and equipment are recorded at
cost. Depreciation is computed using the straight-line method over the expected
useful lives of the related assets which range from three to twenty years. The
costs of maintenance and repairs are expensed as incurred, and renewals and
betterments are capitalized.
Cash Surrender Value of Life Insurance--The Company is the beneficiary of
insurance policies on the lives of officers and employees of the Bank. The
Company has recognized the amount that could be realized under the insurance
policies as an asset in the statement of financial condition.
Interest Rate Risk--At December 31, 1999, the Company's assets consist primarily
of assets that earned interest at fixed interest rates. Those assets were funded
primarily with short-term liabilities that have interest rates that vary with
market rates over time.
The shorter duration of the interest-sensitive liabilities indicates that
the Company is exposed to interest rate risk because, in a rising rate
environment, liabilities will be repricing faster at higher interest rates,
thereby reducing the market value of long-term assets and net interest income.
Loan Fees--The Company defers all loan fees, net of certain direct loan
origination costs, and recognizes income as a yield adjustment over the
contractual life of the loan considering prepayments using the interest method.
Unearned Discounts and Premiums--Unearned discounts and premiums are accreted
over the expected average lives of the loans purchased using the interest
method.
Income Taxes--Deferred income taxes are recognized for the tax consequences of
"temporary differences" by applying enacted statutory tax rates applicable to
future years to differences between the financial statement carrying amounts and
the tax bases of existing assets and liabilities. The effect on deferred taxes
of a change in tax rates is recognized in income in the period that includes the
enactment date.
Accounting for Stock-Based Compensation--The Company accounts for stock options
in accordance with SFAS No. 123, Accounting for Stock-Based Compensation, which
allows an entity to choose between the intrinsic value method, as defined in
Accounting Principals Board ("APB") Opinion No. 25, Accounting for Stock Issued
to Employees or the fair value method of accounting for stock-based compensation
described in SFAS No. 123. An entity using the intrinsic value method must
disclose pro forma net income and earnings per share as if the stock-based
compensation was accounted for using the fair value method. The Company
continues to account for stock-based compensation using the intrinsic value
method and has not recognized compensation expense under this method.
Earnings Per Share--Basic earnings per share for 1999 and 1998 is computed by
dividing income available to common stockholders (for 1998 the amount calculated
was net income from July 14, 1998 through December 31, 1998 or $1,400) by the
weighted-average number of common shares outstanding for the period. Diluted
earnings per share for 1999 and 1998 is computed using the weighted average
number of common shares outstanding and common share equivalents that would
24
arise from the exercise of stock options. Prior period information is not
comparative and therefore not presented. The weighted average shares used in the
basic and diluted earnings per share computations for the year ended December
31, 1999 and for the period July 14, 1998 through December 31, 1998 are as
follows:
July 14,
1998 to
December December
31, 1999 31, 1998
------------------------
Average common shares outstanding--basic 7,359,241 8,372,155
Increase in shares due to dilutive options 90,626 174,732
------------------------
Adjusted shares outstanding--diluted 7,449,867 8,546,887
Dividends--Prior to the reorganization discussed in Note 1, during 1998, the
Mid-Tier Holding Company had declared two dividends each at $.20 per share. No
dividends were paid to FJF Financial, M.H.C. as a result of a waiver received
from the OTS. The Bank is subject to certain restrictions on the amount of
dividends that it may declare without prior regulatory approval. The Company
declared and paid a $.05 per share dividend for the quarter ended September 30,
1998 and declared a dividend of $.05 per share payable January 15, 1999 to
shareholders of record on December 31, 1998. The Company declared and paid a
$.05 per share dividend for the quarters ended March 31, 1999 and June 30, 1999
and a $.06 per share dividend for the quarter ended September 30, 1999. A $.06
per share dividend was declared and payable on January 15, 2000 to shareholders
of record on December 31, 1999.
Comprehensive Income--In accordance with SFAS No. 130, Reporting Comprehensive
Income, the Company presents, as a component of comprehensive income, the
amounts from transactions and other events which currently are excluded from the
statement of income and are recorded directly to stockholders' equity.
Recent Accounting Pronouncements--In June 1998, the FASB issued SFAS No. 133,
Accounting for Derivative Instruments and Hedging Activities. This statement
requires that an entity recognize all derivatives as either assets or
liabilities in the statement of financial condition and measure those
instruments at fair value. The accounting for changes in fair value of a
derivative depends on the intended use of the derivative and the resulting
designation. The Company adopted this statement on January 1, 1999. The adoption
of this statement did not have a material impact on the Company's financial
position or results of operations. In accordance with the provisions of this
statement, the Company transferred $54,129 of investments held to maturity to
available for sale.
Reclassifications--Certain items in the 1998 and 1997 consolidated financial
statements have been reclassified to conform with the presentation in the 1999
consolidated financial statements.
3. INVESTMENTS
A comparison of cost and approximate fair value of investments, by
maturity, is as follows:
Available for Sale December 31, 1999
--------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Approximate
Cost Gains Losses Fair Value
--------------------------------------------------
U.S. Treasury securities and securities of U.S. Government agencies:
1 to 5 years $ 3,000 $ 166 $ 2,834
5 to 10 years 3,017 52 2,965
More than 10 years 42,000 3,294 38,706
FHLB and FHLMC Bonds--More than 10 years 17,622 3,961 13,661
Municipal bonds--More than 10 years 41,613 4,484 37,129
Mutual Funds 1,345 1,345
Capital Trust securities 12,900 1,560 11,340
Equity investments 5,795 $795 544 6,046
Other 1,437 1,437
--------------------------------------------------
Total $128,729 $795 $14,061 $115,463
--------------------------------------------------
25
Notes to Consolidated Statements Thistle Group Holdings, Co. and Subsidiaries
Years Ended December 31, 1999, 1998 and 1997
(Dollars in thousands, except per share data) (continued)
Available for Sale December 31, 1998
Gross Gross
Amortized Unrealized Unrealized Approximate
Cost Gains Losses Fair Value
---------------------------------------------------
Mutual Funds $ 1,285 $ 1,285
Capital Trust securities 11,774 $ (127) 11,647
Equity investments 6,324 $268 6,592
Other 750 750
---------------------------------------------------
Total $ 20,133 $268 $ (127) $ 20,274
---------------------------------------------------
Held to Maturity December 31, 1998
---------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Approximate
Cost Gains Losses Fair Value
---------------------------------------------------
U.S. Treasury securities and securities of U.S. Government agencies:
1 to 5 years $ 5,032 $324 $ 5,356
5 to 10 years 3,000 $ 15 2,985
More than 10 years 5,000 5,000
FHLB and FHLMC Bonds--More than 10 years 10,154 85 471 9,768
Municipal bonds--More than 10 years 30,765 276 370 30,671
Other 178 178
---------------------------------------------------
Total $ 54,129 $685 $ 856 $ 53,958
---------------------------------------------------
In connection with the adoption of SFAS No. 133, the Company transferred
$54,129 of investment securities held to maturity to available for sale.
Proceeds from the sale of investments available for sale during the year
ended December 31, 1999 were $17,108 resulting in a gain of $155. Proceeds from
the sale of investments available for sale during the year ended December 31,
1998 were $2,147 resulting in a gain of $8. There were no sales of investment
securities during the year ended December 31, 1997.
4. MORTGAGE-BACKED SECURITIES AVAILABLE FOR SALE
Mortgage-backed securities available for sale are summarized as follows:
December 31, 1999
---------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Approximate
Cost Gains Losses Fair Value
---------------------------------------------------
GNMA pass-through certificates $111,825 $ 324 $3,186 $108,963
FNMA pass-through certificates 77,567 69 3,835 73,801
FHLMC pass-through certificates 20,550 260 189 20,621
FHLMC real estate mortgage investment conduits 1,362 41 1,321
---------------------------------------------------
Total $211,304 $ 653 $7,251 $204,706
---------------------------------------------------
December 31, 1998
---------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Approximate
Cost Gains Losses Fair Value
---------------------------------------------------
GNMA pass-through certificates $134,216 $ 635 $ 70 $134,781
FNMA pass-through certificates 64,852 326 49 65,129
FHLMC pass-through certificates 26,512 580 24 27,068
FHLMC real estate mortgage investment conduits 2,994 89 2,905
---------------------------------------------------
Total $228,574 $1,541 $ 232 $229,883
---------------------------------------------------
Proceeds from the sale of mortgage-backed securities during the year ended
December 31, 1999 were $28,561 resulting in a loss of $16. Proceeds from the
sale of mortgage-backed securities during the year ended December 31, 1998 were
$15,898 resulting in a loss of $74. There were no sales of mortgage-backed
securities during the year ended December 31, 1997.
26
5. LOANS RECEIVABLE
Loans receivable consist of the following:
December 31,
1999 1998
----------------------
Mortgage loans:
1 to 4 Family residential $110,032 $108,585
Commercial real estate 29,867 17,542
Home equity lines of credit
and improvement loans 8,518 8,273
Commercial nonmortgage loans 5,496 269
Construction loans--net 5,365 868
Loans on savings accounts 170 218
Consumer loans 126 126
----------------------
Total loans 159,574 135,881
Plus unamortized premiums 373 374
Less:
Net discounts on loans purchased
and loans acquired through merger (28) (30)
Deferred loan fees (1,452) (1,281)
Allowance for loan losses (1,234) (1,036)
----------------------
Total $157,233 $133,908
----------------------
The Company originates loans to customers in its local market area,
principally Philadelphia, Pennsylvania and the four adjoining counties. The
Company occasionally purchases loans in Pennsylvania, New Jersey and Delaware.
The ultimate repayment of these loans is dependent to a certain degree on the
local economy and real estate market.
Originated or purchased commercial real estate loans totaled $29,867 and
$17,542 at December 31, 1999 and 1998, respectively. Of the commercial real
estate loans, as of December 31, 1999 and 1998, $19,490 and $10,862 are
collateralized by multi-family residential property; $10,377 and $6,680 by
business property, respectively.
At December 31, 1999, 1998 and 1997, the Company was servicing loans for
others amounting to $1,706, $2,558 and $3,695, respectively. Servicing loans for
others generally consists of collecting mortgage payments, maintaining escrow
accounts, disbursing payments to investors and foreclosure processing. Loan
servicing income is recorded on the accrual basis and includes servicing fees
from investors and certain charges collected from borrowers, such as late
payment fees. In connection with these loans serviced for others, the Company
held borrower's escrow balances of approximately $124, $167 and $234 at December
31, 1999, 1998 and 1997, respectively.
Following is a summary of changes in the allowance for loan losses:
Year Ended December 31,
1999 1998 1997
---------------------------
Balance, beginning $1,036 $ 783 $577
Provision 240 270 120
Charge-offs (42) (85) (83)
Recoveries 68 169
---------------------------
Balance, ending $1,234 $1,036 $783
---------------------------
The provision for loan losses charged to expense is based upon past loan
and loss experience and an evaluation of probable losses in the current loan
portfolio, including the evaluation of impaired loans under SFAS Nos. 114 and
118. A loan is considered to be impaired when, based upon current information
and events, it is probable that the Company will be unable to collect all
amounts due according to the contractual terms of the loan. An insignificant
delay or shortfall in amount of payments does not necessarily result in the loan
being identified as impaired. For this purpose, delays less than 90 days are
considered to be insignificant. As of December 31, 1999 and 1998, 100% of the
impaired loan balance was measured for impairment based on the fair value of the
loans' collateral. Impairment losses are included in the provision for loan
losses. SFAS Nos. 114 and 118 do not apply to large groups of smaller balance
homogeneous loans that are collectively evaluated for impairment, except for
those loans restructured under a troubled debt restructuring. Loans collectively
evaluated for impairment include consumer loans and residential real estate
loans and are not included in the data that follows:
December 31,
1999 1998
-------------------------
Impaired loans with no related
reserve for loan losses calculated
under SFAS No. 114 $1,707 $1,734
Year Ended December 31,
1999 1998 1997
---------------------------
Average impaired loans $1,246 $1,265 $1,274
Interest income recognized
on impaired loans 100 101 109
No cash basis interest income was recognized in 1999, 1998 or 1997 for the
impaired loans included above. Nonaccrual loans for which interest has been
fully reserved totaled approximately $223 and $393 at December 31, 1999 and
1998, respectively.
The Company originates and purchases fixed and adjustable interest rate
loans and mortgage-backed securities. At December 31, 1999 fixed rate loans and
mortgage-backed securities were approximately $330,000, and adjustable interest
rate loans and mortgage-backed securities were approximately $31,900.
As of December 31, 1999, the Company had approximately $16,300 in
outstanding loan commitments with interest rates ranging from 7.50% to 9.125%.
These commitments are subject to normal credit risk and have commitment terms of
ninety days or less.
Certain directors and officers of the Company have loans with the Company.
Such loans were made in the ordinary course of business and do not represent
more than a normal risk of collection. Total loans to these persons amounted to
$1,167, $1,872 and $1,226 at December 31, 1999, 1998 and 1997, respectively.
Originations to these persons were $52, $470 and $159 for the years ended
December 31, 1999, 1998 and 1997, respectively. Loan repayments for the years
ended December 31, 1999, 1998 and 1997 were $757, $176 and $98, respectively.
27
Notes to Consolidated Statements Thistle Group Holdings, Co. and Subsidiaries
Years Ended December 31, 1999, 1998 and 1997
(Dollars in thousands, except per share data) (continued)
6. OFFICE PROPERTIES AND EQUIPMENT
Office properties and equipment are summarized by major classification as
follows:
December 31,
1999 1998
-------------------
$ 528 $ 528
Buildings 2,909 2,768
Furniture and equipment 3,189 2,586
Leasehold improvements 87 87
-------------------
Total 6,713 5,969
Accumulated depreciation and amortization (3,860) (3,482)
-------------------
Net $ 2,853 $ 2,487
-------------------
7. DEPOSITS
Deposits consist of the following major classifications:
December 31,
1999 1998
----------------------------------
Weighted Weighted
Interest Interest
Amount Rate Amount Rate
----------------------------------
NOW accounts and
transaction checking $ 19,880 1.28% $ 18,142 1.40%
Money Market
Demand accounts 8,963 3.43 13,857 3.49
Passbook accounts 99,018 3.26 100,627 3.25
Certificate accounts 164,758 5.27 143,764 5.32
----------------------------------
Total $292,619 4.26% $276,390 4.22%
----------------------------------
At December 31, 1999 and 1998, the Company had deposits of $100,000 or
greater totaling approximately $34,032 and $34,978, respectively. Deposits in
excess of $100,000 are not federally insured.
In May 1997, the Bank sold approximately $37,000 in deposits and two branch
buildings to a local financial institution. A gain of approximately $2,200 was
realized on the sale during the year ended December 31, 1997.
While frequently renewed at maturity rather than paid out, certificate
accounts were scheduled to mature contractually within the following periods:
December 31,
1999 1998
----------------------
1 year or less $108,647 $118,170
1 year to 3 years 49,174 18,516
3 years to 5 years 6,937 7,078
----------------------
Total $164,758 $143,764
----------------------
Interest expense on deposits is as follows:
Year Ended December 31,
1999 1998 1997
------------------------------
NOW and MMDA $ 661 $ 534 $ 508
Passbook 3,238 3,603 3,807
Certificates 7,800 6,851 6,235
Early withdrawal penalties (23) (11) (12)
------------------------------
Total $11,676 $10,977 $10,538
------------------------------
8. FHLB ADVANCES AND OTHER BORROWINGS
A summary of advances from the Federal Home Loan Bank ("FHLB") of Pittsburgh
follows:
December 31,
1999 1998
-----------------------------------
Weighted Weighted
Average Average
Interest Interest
Amount Rate Amount Rate
-----------------------------------
Advances from FHLB
due by December 31,
2000 $ 30,000 4.06%
2001
2002 10,000 5.05
Thereafter 136,884 5.24 $106,884 5.20%
-----------------------------------
Total $176,884 5.03% $106,884 5.20%
-----------------------------------
The advances are collateralized under a blanket collateral lien agreement.
The $30,000 of advances due by December 31, 2000 were borrowed under an
overnight line of credit. The interest rate on these advances adjusts daily.
Also, included in the table above at December 31, 1999 and 1998 are convertible
advances whereby the FHLB has the option at a predetermined time to convert the
fixed interest rate to an adjustable rate tied to LIBOR. The Company then has
the option to prepay these advances if the FHLB converts the interest rate.
These advances are included in the year in which they mature.
The Company has other borrowings of $3,000 at December 31, 1999 from an
unaffiliated lender. The borrowing carries a variable interest rate which was
7.5% at December 31, 1999 and is due in December 2002.
9. INCOME TAXES
As of January 1, 1996, the Bank changed its method of computing reserves
for bad debts to the experience method. The bad debt deduction allowable under
this method is available to small banks with assets less than $500 million.
Beginning January 1, 1999, the Bank changed its method of computing reserves for
bad debts to the specific charge-off method. The bad debt deduction allowable
under this method is available to large banks with assets greater than $500
million. Generally, this method allows the Bank to deduct an annual addition to
the reserve for bad debts equal to its net charge-offs.
28
A thrift institution required to change its method of computing reserves
for bad debts to the experience method treats such change as a change in a
method of accounting determined solely with respect to the "applicable excess
reserves" of the institution. The amount of the applicable excess reserves is
taken into account ratably over a six taxable-year period, beginning with the
first taxable year beginning after December 31, 1995. For financial reporting
purposes, the Company has not incurred any additional tax expense. Amounts that
had been previously deferred will be reversed for financial reporting purposes
and will be included in the income tax return of the Company, increasing income
tax payable. The change from the experience method to the specific charge-off
method in 1999 will not result in a recapture of bad debt reserves for tax
purposes. Retained earnings at December 31, 1999 and 1998 includes approximately
$5.4 million of income for which no deferred income taxes will need to be
provided.
Income tax expense consists of the following components:
Year Ended December 31: Federal State Total
--------------------------
1999 $1,628 $1,628
1998 1,258 $211 1,469
1997 1,870 220 2,090
The Company's provision for income taxes (benefit) differs from the amounts
determined by applying the statutory federal income tax rate to income before
income taxes for the following reasons:
Year Ended December 31,
1999 1998 1997
---------------------------------------------------------------
Amount Percent Amount Percent Amount Percent
---------------------------------------------------------------
Tax at federal tax rate $2,371 34.0% $1,298 34.0% $1,776 34.0%
Tax-exempt income (727) (10.4) (202) (5.3) (45) (0.9)
Decrease resulting from amortization of goodwill
premiums and discounts related to an acquisition--net (4) (0.1)
State income tax expense, net of federal income tax 139 3.6 145 2.8
Other (16) (0.3) 234 6.1 218 4.2
---------------------------------------------------------------
Total $1,628 23.3% $1,469 38.4% $2,090 40.0%
---------------------------------------------------------------
Items that give rise to significant portions of the deferred tax accounts
are as follows:
December 31,
1999 1998
------------------
Deferred tax assets:
Unrealized loss on investments
and mortgage-backed securities $6,754
Deferred loan fees 493 $ 436
Allowance for loan losses 313 159
Reserve for uncollected interest 16 19
Supplemental pension and other
retirement accruals 561 468
Office properties and equipment 58
------------------
8,137 1,140
------------------
Deferred tax liabilities:
Office properties and equipment (12)
State taxes (614)
Unrealized gain on investments
and mortgage-backed securities (493)
Other (118) (480)
------------------
(130) (1,587)
------------------
Total $8,007 $ (447)
------------------
10. REGULATORY CAPITAL REQUIREMENTS
The Bank is subject to various regulatory capital requirements administered
by the federal and state banking agencies.
Failure to meet minimum capital requirements can initiate certain mandatory, and
possibly additional, discretionary actions by regulators that, if undertaken,
could have a direct material effect on the Bank's financial statements. Under
capital adequacy guidelines and the regulatory framework for prompt corrective
action, the Bank must meet specific capital guidelines that involve quantitative
measures of the Bank's assets, liabilities and certain off-balance sheet items
as calculated under regulatory accounting practices. The Bank's capital amounts
and classification are also subject to qualitative judgments by the regulators
about components, risk weightings and other factors.
Quantitative measures established by regulation to ensure capital adequacy
require the Bank to maintain minimum amounts and ratios (set forth in the table
below) of tangible and core capital (as defined in the regulations) to total
adjusted assets (as defined), and of risk-based capital (as defined) to
risk-weighted assets (as defined). Management believes, as of December 31, 1999,
that the Bank meets all capital adequacy requirements to which it is subject.
As of December 31, 1999, the most recent notification from the Office of
Thrift Supervision categorized the Bank as well-capitalized under the regulatory
framework for prompt corrective action. To be categorized as well-capitalized,
the Bank must maintain minimum tangible, core and risk-based ratios as set forth
in the table. There are no conditions or events since that notification that
management believes have changed the Bank's category.
29
Notes to Consolidated Statements Thistle Group Holdings, Co. and Subsidiaries
Years Ended December 31, 1999, 1998 and 1997
(Dollars in thousands, except per share data) (continued)
Well-Capitalized
Required for Under Prompt
Capital Adequacy Corrective Action
Actual Purposes Provisions
------------------------------------------------------------------
Amount Ratio Amount Ratio Amount Ratio
------------------------------------------------------------------
At December 31, 1999:
Tangible $57,781 10.6% $ 8,214 1.5% N/A N/A
Core (Leverage) 57,781 10.6 16,429 3.0 $27,381 5.0%
Tier 1 risk-based 57,781 30.2 N/A N/A 32,857 6.0
Total risk-based 59,015 30.9 15,296 8.0 19,120 10.0
Well-Capitalized
Required for Under Prompt
Capital Adequacy Corrective Action
Actual Purposes Provisions
------------------------------------------------------------------
Amount Ratio Amount Ratio Amount Ratio
------------------------------------------------------------------
At December 31, 1998:
Tangible $60,672 12.9% $ 7,065 1.5% N/A N/A
Core (Leverage) 60,672 12.9 14,129 3.0 $23,549 5.0%
Tier 1 risk-based 60,672 45.8 N/A N/A 28,259 6.0
Total risk-based 61,708 46.6 10,605 8.0 13,256 10.0
Capital at December 31, 1999 for financial statement purposes differs from
tangible, core (leverage), and Tier 1 risk-based capital amounts by $12,247
representing the exclusion of unrealized loss on securities available for sale
and $29,126 of capital maintained at the holding company. Total risk-based
capital differs from tangible, core (leverage), and Tier 1 risk-based by the
allowance for loan losses.
Capital at December 31, 1998 for financial statement purposes differs from
tangible, core (leverage), and Tier 1 risk-based capital amounts by $864
representing the exclusion of unrealized gain on securities available for sale
and $38,693 of capital maintained at the holding company. Total risk-based
capital differs from tangible, core (leverage), and Tier 1 risk-based by the
allowance for loan losses.
At the date of the conversion and reorganization, the Bank established a
liquidation account in the amount equal to its retained earnings at December 31,
1997, the date of the latest balance sheet contained in the final prospectus
utilized in the Company's public offering. The liquidation account will be
maintained for the benefit of eligible account holders who continue to maintain
their accounts at the Bank after conversion. The liquidation account will be
reduced annually to the extent that eligible account holders have reduced their
qualifying deposits as of each anniversary date. Subsequent increases will not
restore the eligible account holder's interest in the liquidation account. In
the event of a complete liquidation of the Bank each eligible account holder
will be entitled to receive a distribution from the liquidation account in an
amount proportionate to the current adjusted qualifying balances for accounts
then held.
11. PENSION AND PROFIT-SHARING PLANS
The Company has a defined benefit pension plan which covers all eligible
employees. The plan may be terminated at any time at the discretion of the Board
of Directors. Benefits under the above are based upon years of service and the
employees' average compensation during the term of employment. The Company's
policy is to fund amounts as are necessary to at least meet the minimum funding
standards of ERISA. On November 18, 1999, the Board of Directors elected to
terminate the defined benefit pension plan effective December 31, 1999 and is
currently waiting for approval of such termination from the Internal Revenue
Service. The amounts shown for December 31, 1999 are after the effect of
curtailment. The curtailment will not result in any additional funding or
expenses for the Company.
The following table sets forth the plan's net periodic pension cost at
December 31, 1999, 1998 and 1997:
1999 1998 1997
--------------------------
Service cost--benefits earned
during the period $103 $106 $ 95
Interest cost on projected
benefit obligation 97 119 103
Actual return on plan assets (70) (97) (81)
Net amortization and deferral (9) (17) (19)
--------------------------
Net periodic pension cost $121 $111 $ 98
--------------------------
30
The following table sets forth the plan's prepaid pension asset at December
31, 1999 and 1998:
1999 1998
------------------
Actuarial present value of benefit obligations:
Vested benefits $1,168 $1,602
Nonvested benefits 4
------------------
Accumulated benefit obligation 1,168 1,606
Effect of future salary increases 588
------------------
Projected benefit obligation 1,168 2,194
Plan assets at fair value 1,408 1,852
------------------
Plan assets greater than (less than)
projected benefit obligation 240 (342)
Unrecognized:
Prior service cost 24
Net loss from past experience 1 518
Net asset at date of transition (52) (59)
------------------
Prepaid pension asset $ 189 $ 141
------------------
The following table sets forth a reconciliation of beginning and ending
balances of the benefit obligation:
Year Ended
December 31,
1999 1998
--------------------
Balance, beginning $2,194 $1,852
Service cost 103 106
Interest cost 97 115
Actuarial gains and losses 41 50
Benefits paid (710) (42)
Plan amendments 113
Reduction due to curtailment (557)
--------------------
Balance, ending $1,168 $2,194
--------------------
The following table sets forth a reconciliation of beginning and ending
balances of the fair value of plan assets:
Year Ended
December 31,
1999 1998
--------------------
Balance, beginning $1,852 $1,631
Actual return on plan assets 70 97
Contributions by employer 196 166
Benefits paid (710) (42)
--------------------
Balance, ending $1,408 $1,852
--------------------
The weighted-average discount rate and rate of increase in future
compensation levels used in determining the actuarial present value of the
projected benefit obligation was 6.0% for the years ended December 31, 1999 and
1998, respectively. The expected long-term rate of return on assets was 6.0% for
1999 and 1998, respectively. Plan assets consist primarily of certificates of
deposit at the Bank.
The Company also maintains a profit-sharing plan for eligible employees.
Profit-sharing contributions are at the discretion of the Board of Directors.
The contribution was $114 in 1998 and $463 in 1997. As of July 1998,
contributions to the profit-sharing plan were suspended. Plan assets consist
primarily of a diversified stock portfolio.
Effective January 1, 2000, the Company amended the profit-sharing plan and
instituted a 401(k) defined contribution plan which provides for pre-tax
contributions by eligible employees with matching contributions at the
discretion of the Board of Directors.
12. EMPLOYEE STOCK OWNERSHIP PLAN
As part of the conversion and reorganization, in July 1998, the ESOP borrowed
$6,285 from the Company in order to purchase 628,509 shares of the common stock
of the Company. Since the Company's ESOP is internally leveraged, the Company
does not report the loan receivable from the ESOP as an asset and does not
report the ESOP as a liability. The Company accounts for its ESOP in accordance
with AICPA Statement of Position 93-6, Employers' Accounting for Employee Stock
Ownership Plans, which requires the Company to recognize compensation expense
equal to the fair value of the ESOP shares during the periods in which they
become committed to be released. To the extent that the fair value of the ESOP
shares differs from the cost of such shares, this differential is charged or
credited to equity as additional paid-in capital. Management expects the
recorded amount of expense to fluctuate as continuing adjustments are made to
reflect changes in the fair value of the ESOP shares. As of December 31, 1999,
62,850 shares were committed to be released of which 41,900 shares have not yet
been allocated to participant accounts.
The Company recorded compensation and employee benefit expense related to the
ESOP of $350 and $200 for the years ended December 31, 1999 and 1998,
respectively.
13. OTHER EMPLOYEE BENEFITS
Stock Option Plans--The 1994 and 1992 Stock Option Plans were adopted by the
Board of Directors to provide additional incentive to retain officers, directors
and key employees. Options were granted at the estimated fair value at the date
of grant. Options for the 1992 plan vested over a five year period. Options for
the 1994 plan vested immediately. In connection with the conversion and
reorganization, the options were adjusted to reflect the exchange ratio (see
Note 1). At December 31, 1999, options outstanding under the 1994 and 1992 Plans
totaled 66,623 with an exercise price ranging from $1.80 to $2.07.
During the year ended December 31, 1999, the stockholders of the Company
approved the adoption of the 1999 Stock Option Plan. Common stock totaling
785,637 shares has been reserved for issuance under the Plan. An aggregate of
502,985 shares have been granted to the Company's executive officers,
non-employee directors and other key employees subject to vesting and other
provisions of the Plan.
31
Notes to Consolidated Statements Thistle Group Holdings, Co. and Subsidiaries
Years Ended December 31, 1999, 1998 and 1997
(Dollars in thousands, except per share data) (continued)
The following table summarizes transactions regarding the stock option
plans:
Weighted Weighted
Number Average Average
of Exercise Exercise Remaining
Option Price Price Contractual
Shares Range Per Share Life
-----------------------------------------------------
Outstanding at January 1, 1997 222,064 $1.80-$2.07 $1.94
Granted
Canceled
Exercised
---------------------------------------
Outstanding at December 31, 1997 222,064 $1.80-$2.07 $1.94 72 months
---------------------------------------
Exercisable at December 31, 1997 222,064 $1.80-$2.07 $1.94
---------------------------------------
Granted
Canceled
Exercised
---------------------------------------
Outstanding at December 31, 1998 222,064 $1.80-$2.07 $1.94 60 months
---------------------------------------
Exercisable at December 31, 1998 222,064 $1.80-$2.07 $1.94
---------------------------------------
Granted 502,985 $7.00-$8.94 $8.88
Canceled
Exercised 155,441 $1.80-$2.07 $1.93
---------------------------------------
Outstanding at December 31, 1999 569,608 $1.80-$8.94 $8.07 112 months
---------------------------------------
Exercisable at December 31, 1999 460,231 $1.80-$8.94 $7.93
---------------------------------------
The Company applies APB Opinion No. 25 in accounting for stock options and,
accordingly, no compensation expense has been recognized in the financial
statements. Had the Company determined compensation expense based on the fair
value at the grant date for its stock options under SFAS No. 123, the Company's
net income and income per share would have been reduced to the pro forma amounts
indicated below:
December 31,
1999
------------
Net income:
As reported $5,348
Pro forma 4,667
Net income per common and common equivalent share:
Earnings per common share
As reported $ 0.72
Pro forma $ 0.63
Weighted average fair value of
options granted during the period $ 1.77
The binomial option-pricing model was used to determine the grant date fair
value of options. Significant assumptions used to calculated the above fair
value of the awards are as follows:
December 31,
1999
-------------
Risk free interest rate of return 6.50%
Expected option life (months) 120
Expected volatility 27.11%
Expected dividends 3.4%
Restricted Stock Plan--In prior years the Company's Board of Directors had
adopted Management Recognition Plans. All shares under these plans were granted
prior to December 31, 1997. The Company recognized compensation and employee
benefit expense of $12 for the year ended December 31, 1997. All shares are
fully vested.
During the year ended December 31, 1999, the stockholders of the Company
approved the adoption of the 1999 Restricted Stock Plan ("RSP"). There are
314,254 shares authorized under the RSP. As of December 31, 1999, the Company
had outstanding awards aggregating to 243,460 shares to the Company's Board of
Directors, executive officers and other key employees subject to vesting and
other provisions of the RSP. At December 31, 1999, the deferred cost of the
unearned RSP shares totaled $2,542 and is recorded as a charge against
stockholders' equity. Compensation expense will be recognized ratably over a
five year vesting period for executive officers and other key employees and over
a four year vesting period for non-employee directors. For the year ended
December 31, 1999, the Company recognized compensation and employee benefit
expense of $219 related to the RSP.
Supplemental Retirement Benefits--In November 1995, the Company entered into a
Nonqualified Retirement and Death Benefit Agreement (the "Agreement") with
certain officers of the Company. The purpose of the Agreement is to provide the
officers with supplemental retirement benefits equal to a specified percentage
of final compensation and a preretirement death benefit if the officer does not
attain age 65. Total expense
32
relating to this benefit was approximately $179, $328 and $184 for the years
ended December 31, 1999, 1998 and 1997, respectively.
14. SHAREHOLDER RIGHTS PLAN
On September 13, 1999, the Company's Board of Directors adopted a Shareholder
Rights Plan. Under the Plan, each shareholder of record at the close of business
on September 30, 1999 received a dividend distribution of one Right for each
outstanding share of common stock. The Rights expire on September 13, 2009 and
thereafter have no further value. They are redeemable by the Board of Directors
at a price of $.01 per Right at any time within the ten year period until a
person or group has acquired 15% or more of the then outstanding common stock.
The rights will be exercisable only if a person or group acquires 15% or more of
the Company's common stock or announces a tender offer, the consummation of
which would result in ownership by a person or group of 15% of the common stock.
15. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following disclosure of the carrying amounts and the estimated fair
value of financial instruments is made in accordance with the requirements of
SFAS No. 107, Disclosures about Fair Value of Financial Instruments. The
estimated fair value amounts have been determined by the Company using available
market information and appropriate valuation methodologies. However,
considerable judgment is necessarily required to interpret market data to
develop the estimates of fair value. Accordingly, the estimates presented herein
are not necessarily indicative of amounts the Bank could realize in a current
market exchange. The use of different market assumptions and/or estimation
methodologies may have a material effect on the estimated fair value amounts.
December 31,
1999 1998
-----------------------------------------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
-----------------------------------------------------
Assets:
Cash and cash equivalents $ 37,197 $ 37,197 $ 26,136 $ 26,136
Investments held to maturity 54,129 53,958
Investments available for sale 115,463 115,463 20,274 20,274
Mortgage-backed securities available for sale 204,706 204,706 229,883 229,883
Loans receivable 157,233 154,756 133,908 135,906
Loans held for sale 3,925 3,925 2,558 2,558
Federal Home Loan Bank stock 8,844 8,844 5,344 5,344
Liabilities:
NOW, MMDA and Passbook accounts 127,861 127,861 132,636 132,636
Certificate accounts 164,758 164,224 143,764 144,389
FHLB Advances 176,884 150,225 106,884 121,250
Other borrowings 3,000 3,000
Cash and Cash Equivalents--For cash and cash equivalents, the carrying amount
is a reasonable estimate of fair value.
Investment and Mortgage-backed Securities--Fair values are based on quoted
market prices or dealer quotes.
Loans Receivable--Fair values are based on broker quotes.
Federal Home Loan Bank Stock--Although FHLB Stock is an equity interest in an
FHLB, it is carried at cost because it does not have a readily determinable fair
value.
NOW, MMDA, Passbook, Certificate Accounts and FHLB Advances--The fair value of
NOW, MMDA and Passbook accounts is the amount payable on demand at the reporting
date. The fair value of certificate accounts and FHLB Advances is estimated
using rates currently offered for deposits and advances of similar remaining
maturities.
Other Borrowings--As the borrowing is variable rate, the carrying value is a
reasonable estimate of fair value.
Commitments to Extend Credit and Letters of Credit--Fair values for off-balance
sheet commitments are based on fees currently charged to enter into similar
agreements, taking into account the remaining terms of the agreements and the
counterparties' credit standings. The fair value of commitments is deemed
immaterial for disclosures in the table above.
The fair value estimates presented herein are based on pertinent information
available to management as of December 31, 1999 and 1998. Although management is
not aware of any factors that would significantly affect the fair value amounts,
such amounts have not been comprehensively revalued for purposes of these
consolidated financial statements since that date and, therefore, current
estimates of fair value may differ significantly from the amounts presented
herein.
33
Notes to Consolidated Statements Thistle Group Holdings, Co. and Subsidiaries
Years Ended December 31, 1999, 1998 and 1997
(Dollars in thousands, except per share data) (continued)
16. PARENT COMPANY FINANCIAL INFORMATION
Condensed financial statements of Thistle Group Holdings, Co. are as
follows:
Condensed Statements of Financial Condition
December 31,
1999 1998
---------------------
Assets
Cash and cash equivalents $ 5,139 $ 13,390
Investments available for sale 3,651 18,989
Investment in subsidiaries 61,458 61,537
Loans receivable 8,199 6,075
Accrued interest receivable 356
Prepaid expenses and other assets 103 556
---------------------
Total assets $78,550 $100,903
---------------------
Liabilities and Stockholders' Equity
Other borrowings $ 3,000
Dividends payable 467 $ 450
Other liabilities 423 224
---------------------
Total liabilities 3,890 674
---------------------
Stockholders' equity 74,660 100,229
---------------------
Total liabilities and stockholders' equity $78,550 $100,903
---------------------
Condensed Statements of Income
Year Ended
December 31,
1999 1998
----------------------
Income:
Interest on loans $ 521 $ 215
Interest and dividends on investments 558 374
Gain on sale of investments 262 8
----------------------
Total income 1,341 597
----------------------
Interest on other borrowings 78
----------------------
Operating expenses 150 23
----------------------
Income before income taxes and equity
in undistributed income of subsidiaries 1,113 574
Income tax expense 347 176
----------------------
Income before equity in undistributed
income of subsidiaries 766 398
Equity in undistributed income of subsidiaries4,582 1,952
----------------------
Net income $ 5,348 $ 2,350
----------------------
Condensed Statements of Cash Flows
Year Ended
December 31,
1999 1998
----------------------
Operating activities:
Net income $ 5,348 $ 2,350
Adjustments to reconcile net income to
net cash provided by operating activities:
(Equity in) undistributed earnings
of subsidiary (4,582) (1,952)
Gain on sale of investments (262) (8)
Decrease (increase) in other assets 809 (912)
Increase in other liabilities 216 452
----------------------
Net cash provided by (used in)
operating activities 1,529 (70)
----------------------
Investing activities:
Purchase of investments (6,600) (14,820)
Increase in loans receivable (2,124) (6,075)
Proceeds from the sale of investments 5,895 2,147
Dividends received from subsidiaries 4,800 900
----------------------
Net cash provided by (used in)
investing activities 1,971 (17,848)
----------------------
Financing activities:
Net proceeds from stock offering 70,624
Proceeds from other borrowings 3,000
Capital contribution to subsidiary (38,632)
Purchase of treasury stock (13,326)
Dividends paid (1,725) (900)
Net proceeds from exercise of
stock options 300
----------------------
Net cash (used in) provided by
financing activities (11,751) 31,092
----------------------
(Decrease) increase in cash (8,251) 13,174
Cash, beginning of year 13,390 216
----------------------
Cash, end of year $ 5,139 $ 13,390
----------------------
Supplemental Disclosure:
Noncash transfer of investments
to subsidiary $ 16,162
34
17. QUARTERLY FINANCIAL DATA (Unaudited)
Unaudited quarterly financial data for the years ended December 31, 1999
and 1998 is as follows:
1999 1998
----------------------------------------------------------------------------------
First Second Third Fourth First Second Third Fourth
Quarter Quarter Quarter Quarter Quarter Quarter Quarter Quarter
----------------------------------------------------------------------------------
Interest income $7,770 $8,311 $8,924 $9,153 $4,827 $4,984 $6,575 $7,296
Interest expense 4,300 4,688 5,167 5,517 2,626 2,777 3,324 4,206
----------------------------------------------------------------------------------
Net interest income 3,470 3,623 3,757 3,636 2,201 2,207 3,251 3,090
Provision for loan losses 30 120 45 45 15 15 15 225
----------------------------------------------------------------------------------
Net interest income after provision for loan losses 3,440 3,503 3,712 3,591 2,186 2,192 3,236 2,865
----------------------------------------------------------------------------------
Non-interest income 148 400 146 257 124 143 134 14
Non-interest expense 1,921 2,067 2,276 1,957 1,644 1,639 1,953 1,839
----------------------------------------------------------------------------------
Income before taxes 1,667 1,836 1,582 1,891 666 696 1,417 1,040
Provision for income taxes 462 427 292 447 243 272 524 430
----------------------------------------------------------------------------------
Net income $1,205 $1,409 $1,290 $1,444 $ 423 $ 424 $ 893 $ 610
----------------------------------------------------------------------------------
Per share:
Earnings per share--basic $ 0.16 $ 0.19 $ 0.18 $ 0.20 $ 0.10 $ 0.07
Earnings per share--diluted 0.15 0.19 0.18 0.20 0.09 0.07
Common stock price range of the Company:
High 9.94 9.25 9.00 7.69 10.06 9.81
Low 8.50 8.25 7.00 6.62 7.50 7.75
Independent Auditors' Report
To the Board of Directors of
Thistle Group Holdings, Co. and Subsidiaries:
We have audited the accompanying consolidated statements of financial
condition of Thistle Group Holdings, Co. and subsidiaries (the "Company") as of
December 31, 1999 and 1998, and the related consolidated statements of income,
changes in stockholders' equity and cash flows for each of the three years in
the period ended December 31, 1999. These consolidated financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the consolidated financial position of Thistle Group
Holdings, Co. and subsidiaries at December 31, 1999 and 1998, and the results of
their operations and their cash flows for each of the three years in the period
ended December 31, 1999 in conformity with generally accepted accounting
principles.
/s/ Deloitte & Touche LLP
Philadelphia, Pennsylvania
January 24, 2000
35
Corporate Information Thistle Group Holdings, Co. and Subsidiaries
Headquarters
Thistle Group Holdings, Co. Market Makers Branch Offices
6060 Ridge Avenue
Philadelphia, Pennsylvania 19128 Sandler O'Neill & Partners 6060 Ridge Avenue
F.J. Morrissey & Co., Inc. Philadelphia, Pennsylvania 19128
Annual Shareholders' Meeting Tucker Anthony Inc. (215) 483-2800
Trident Securities, Inc.
Thistle Group Holdings, Co.'s Friedman Billings Ramsey & Co., Inc. 7568 Ridge Avenue
Annual shareholders' meeting will Ryan Beck & Co., Inc. Philadelphia, Pennsylvania 19128
be held on April 19, 2000 at 9:30 a.m. (215) 483-1434
at the Williamson's restaurant atop the Annual Report & Form 10-K
GSBBuilding, One Belmont Avenue 8345 Ridge Avenue
Philadelphia, Pennsylvania. Copies of Thistle Group Philadelphia, Pennsylvania 19128
Holdings, Co.'s Annual Report and (215) 483-1200
Dividend Reinvestment Plan Form 10-K are available without
charge by writing: 4370 Main Street
Thistle Group Holdings, Co. offers Philadelphia, Pennsylvania 19127
its shareholders a convenient method Thistle Group Holdings, Co. (215) 483-1500
of increasing their investment in Shareholder Relations
the Company. Through the Automatic 6060 Ridge Avenue 1024 Church Lane
Dividend Reinvestment Plan stock- Philadelphia, Pennsylvania 19128 Yeadon, Pennsylvania 19151
holders may have their dividends and (610) 622-4567
optional cash contributions of Stock Listing
between $100 and $1000 per quarter 6503-15 Haverford Avenue
reinvested in additional common Shares of Thistle Group Holdings, Philadelphia, Pennsylvania 19151
shares without incurring brokerage Co.'s common stock are traded on (215) 748-6312
commissions or service charges. Share- The Nasdaq Stock Market under
holders not enrolled in this plan, as the symbol THTL.
well as brokers and custodians who
hold stock for clients, may receive a Transfer Agent and Registrar
copy of the plan and enrollment card
by contacting Registrar and Transfer Registrar and Transfer Company
Investor Relations Department at 10 Commence Street
(800) 368-5948 or Pam Cyr, Vice Cranford, NewJersey 07016
President, Finance at (215)483-2800.
Independent Auditors
Deloitte & Touche LLP
24th Floor
1700 Market Street
Philadelphia, Pennsylvania 19103-3984
Special Counsel
Malizia, Spidi, & Fisch, P.C.
One Franklin Square
1301 K Street, N.W., Suite 700 East
Washington, D.C. 20005
36