SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X} QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1998
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OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 0-24353
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THISTLE GROUP HOLDINGS, CO.
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(Exact name of registrant as specified in its charter)
Pennsylvania 23-2960768
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(State or other jurisdiction of (I.R.S. employer identification no.)
incorporation or organization)
6060 Ridge Avenue, Philadelphia, Pennsylvania 19128
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (215) 483-2800
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N/A
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Former name, former address and former fiscal year,
if changed since last report.
Indicate by check x/ whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
--- ---
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date August 7, 1998.
Class Outstanding
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$.10 par value common stock 8,999,666 shares
THISTLE GROUP HOLDINGS, CO.
FORM 10-Q
FOR THE QUARTER ENDED JUNE 30, 1998
INDEX
Page
Number
------
PART I - CONSOLIDATED FINANCIAL INFORMATION OF
THISTLE GROUP HOLDINGS, CO.
Item 1. Financial Statements and Notes Thereto....................... 1
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations................. 9
PART II - OTHER INFORMATION
Item 1. Legal Proceedings............................................ 15
Item 2. Changes in Securities........................................ 15
Item 3. Defaults upon Senior Securities.............................. 15
Item 4. Submission of Matters to a Vote of Security Holders.......... 15
Item 5. Other Materially Important Events............................ 15
Item 6. Exhibits and Reports on Form 8-K............................. 15
SIGNATURES
THISTLE GROUP HOLDINGS, CO.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
June 30, December 31,
1998 1997
----------- ----------
(Unaudited)
ASSETS
Cash on hand and in banks.............................................. $4,253,373 $2,838,744
Interest-bearing deposits.............................................. 76,956,318 17,311,852
----------- ----------
Total cash and cash equivalents................................... 81,209,691 20,150,596
Investments held to maturity (approximate fair
value of $33,153,521 and $35,153,660)................................ 32,516,201 34,529,423
Investments available for sale at fair value
(amortized cost of $5,301,315 and $3,231,068)........................ 6,352,446 3,698,205
Mortgage-backed securities available for sale
at fair value (amortized cost of $113,428,279 and $109,847,299)...... 114,924,258 111,486,136
Loans receivable (net of allowance for loan losses of
$757,866 and $782,825)............................................... 95,884,015 96,280,105
Loans held for sale (amortized cost of $2,801,804
and $1,154,761)...................................................... 2,801,804 1,154,761
Accrued interest receivable:
Loans................................................................ 674,640 675,530
Mortgage-backed securities........................................... 700,462 684,637
Investments.......................................................... 534,707 435,053
Federal Home Loan Bank stock - at cost................................. 1,886,500 1,701,700
Real estate acquired through foreclosure - net......................... 160,789 116,262
Office properties and equipment - net.................................. 1,488,469 1,504,014
Prepaid expenses and other assets...................................... 4,821,961 4,233,765
----------- -----------
TOTAL ASSETS...................................................... $343,955,943 $276,650,187
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits............................................................. $249,499,600 $230,558,288
Accrued interest payable............................................. 82,627 67,200
Advances from borrowers for taxes and insurance...................... 1,649,662 2,186,283
FHLB advances........................................................ 7,884,000 7,884,000
Accounts payable and accrued expenses................................ 53,472,960 4,206,179
Dividends payable.................................................... -- 365,400
Accrued income taxes................................................. 1,484,418 2,096,000
Deferred income taxes................................................ 357,385 816,521
----------- ------------
TOTAL LIABILITIES................................................. 314,430,652 248,179,871
----------- -----------
1
June 30, December 31,
1998 1997
----------- ----------
(Unaudited)
Commitments and Contingencies
Stockholders' Equity:
Preferred stock, no par value - 2,000,000 shares
authorized, none issued............................................ -- --
Common stock, $.10 par; 8,000,000
shares authorized; 1,621,000 shares
issued and outstanding............................................. 162,100 162,100
Additional paid-in capital........................................... 18,455,330 18,455,330
Unrealized gain on securities available for sale,
net of tax......................................................... 1,681,110 1,389,963
Retained earnings - partially restricted............................. 9,226,751 8,462,923
------------ -----------
Total stockholders' equity........................................ 29,525,291 28,470,316
------------ -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY............................. $343,955,943 $276,650,187
=========== ===========
See notes to unaudited consolidated financial statements.
2
THISTLE GROUP HOLDINGS, CO.
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
For the Three Months For the Six Months
Ended June 30, Ended June 30,
------------------------------ -------------------------------
1998 1997 1998 1997
---------- ------------ ------------ -----------
INTEREST INCOME:
Interest on loans............................. $1,914,481 $2,302,063 $4,271,185 $4,378,135
Interest on mortgage-backed securities........ 1,862,426 1,536,908 3,707,402 3,127,939
Interest and dividends on investments......... 1,207,093 1,333,029 1,832,791 3,103,926
--------- --------- --------- ----------
Total interest income....................... 4,984,000 5,172,000 9,811,378 10,610,000
--------- --------- --------- ----------
INTEREST EXPENSE:
Interest on deposits.......................... 2,663,374 2,670,953 5,174,718 5,452,768
Interest on borrowed money.................... 113,626 114,047 229,592 230,232
--------- --------- --------- ---------
Total interest expense...................... 2,777,000 2,785,000 5,404,310 5,683,000
--------- --------- --------- ---------
NET INTEREST INCOME............................. 2,207,000 2,387,000 4,407,068 4,927,000
PROVISION FOR LOAN LOSSES....................... 15,000 30,000 30,000 60,000
--------- --------- --------- ---------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES..................... 2,192,000 2,357,000 4,377,068 4,867,000
---------- --------- --------- ---------
OTHER INCOME:
Gain on sales of loans held for sale.......... -- -- 1,564 --
Gain on sale of deposit liabilities........... -- 2,234,268 -- 2,234,268
Rental income................................. 41,451 47,822 77,968 86,514
Gain on sale of office property and -- 80,984 -- 80,984
equipment...................................
Other......................................... 101,549 57,926 184,468 149,234
--------- --------- --------- ---------
Total other income......................... 143,000 2,421,000 264,000 2,551,000
--------- --------- --------- ---------
OTHER EXPENSES:
Salaries...................................... 663,576 637,098 1,332,299 1,346,698
Office occupancy.............................. 127,722 128,582 240,147 258,788
Depreciation.................................. 56,898 59,319 113,918 120,147
Telephone and postage......................... 36,811 45,934 66,936 94,459
Pension and profit-sharing.................... 167,808 354,514 335,713 542,285
Federal insurance premium..................... 35,882 38,168 72,366 78,652
Stationery, printing and supplies............. 27,205 27,735 59,234 59,528
Payroll taxes................................. 45,590 48,423 100,966 106,980
Other employee benefits....................... 97,057 76,376 194,057 155,688
Directors' fees............................... 23,900 23,900 62,000 62,000
Furniture, fixture and equipment expense...... 52,602 53,483 109,635 108,551
Director, officer and employee expenses....... 48,969 42,792 104,898 74,868
Professional services......................... 63,183 52,381 136,412 119,847
Advertising................................... 36,870 24,956 75,067 64,888
Other......................................... 137,969 182,328 262,394 317,610
--------- --------- --------- ---------
Total other expenses....................... 1,622,042 1,795,989 3,266,042 3,510,989
INCOME BEFORE INCOME TAXES...................... 712,000 2,982,011 1,375,026 3,907,011
INCOME TAXES.................................... 271,500 1,120,800 514,500 1,441,800
--------- --------- --------- ---------
NET INCOME...................................... $ 440,500 $1,861,211 $ 860,526 $2,465,211
========= ========= ========= =========
BASIC EARNINGS PER SHARE........................ $ 0.27 $ 1.15 $ 0.53 $ 1.52
========= ========= ========= =========
DILUTED EARNINGS PER SHARE...................... $ 0.26 $ 1.13 $ 0.52 $ 1.50
========= ========= ========= =========
WEIGHTED AVERAGE SHARES
OUTSTANDING................................... 1,621,000 1,621,000 1,621,000 1,621,000
AVERAGE DILUTED SHARES
OUTSTANDING................................... 1,641,000 1,641,000 1,641,000 1,641,000
See notes to unaudited consolidated financial statements.
3
THISTLE GROUP HOLDINGS, CO.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
For the Six Months
Ended June 30,
-----------------------------------------
1998 1997
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OPERATING ACTIVITIES
Net income................................................................ $860,827 $2,465,212
Adjustments to reconcile income to net cash provided
by operating activities:
Provision for loan loss................................................. 30,000 60,000
Depreciation............................................................ 113,918 120,147
Amortization of:
Goodwill................................................................ -- 32,544
Net (discounts) and premiums on:
Loans purchased....................................................... 28,885 (119,026)
Investments........................................................... (449,415) 5,483
Mortgage-backed securities............................................ 334,925 187,367
Loss on sale of investments.............................................. -- 4,088
Gain on sale of deposits................................................. (2,234,268)
Loss (gain) on sale of loans............................................. -- --
Loss (gain) on sale of real estate owned................................. (1,564) 21,293
Changes in assets and liabilities which provided (used) cash:
Deferred income taxes..................................................... (609,125) (485,450)
Deferred loan fees........................................................ 78,157 118,666
Accrued interest receivable loans......................................... (239,587) 145,477
Accrued interest receivable mortgage-backed securities.................... (15,825) 44,225
Accrued interest receivable investments................................... 140,823 (250,750)
Prepaid expenses and other assets......................................... (666,353) (572,270)
Accrued interest payable.................................................. 15,427 (5,102)
Accounts payable and accrued expenses..................................... ^ 49,266,127 1,732,203
Dividends payable......................................................... (365,400) 41,200
Accrued income taxes...................................................... (611,582) 2,237,248
---------- ---------
Net cash provided by operating activities................................. 47,910,238 3,548,387
---------- ---------
INVESTING ACTIVITIES
Principal collected on:
Mortgage-backed securities............................................. 17,613,340 6,877,355
Long-term loans........................................................ 11,810,194 10,916,329
Long-term loans held for sale.......................................... 24,907 101,684
Other loans............................................................... 110,704 722,115
Long-term loans originated................................................ (12,899,706) (9,969,274)
Long-term loans acquired.................................................. (323,973) (820,605)
Other loans originated.................................................... (157,692) (825,544)
Purchases of:
Investments............................................................. (5,570,430) (9,612,553)
FHLB Stock.............................................................. (184,800) (10,500)
Mortgage-backed securities.............................................. (21,529,246) --
Office property and equipment........................................... (100,218) --
Proceeds from sale of:
Real estate owned....................................................... 33,486 115,880
Loans................................................................... -- 124,193
Mortgage-backed securities.............................................. -- --
Investments............................................................. -- 983,938
Office property and equipment........................................... -- 204,008
Maturities and calls of investments..................................... 6,000,000 3,000,000
---------- ---------
Net cash provided by (used in) investing activities....................... ($5,173,434) $1,807,028
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4
For the Six Months
Ended June 30,
-----------------------------------------
1998 1997
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FINANCING ACTIVITIES
Net (decrease) increase in deposits....................................... 18,941,312 (24,436,244)
Net decrease in advances from borrowers for
taxes and insurance..................................................... (536,621) (534,873)
Cash dividends declared................................................... (82,400) (82,400)
------------ ------------
Net cash (used in) provided by financing activities....................... $18,322,291 ($25,053,517)
----------- ------------
Net (decrease) increase in cash and cash equivalents...................... $61,059,095 ($19,698,102)
Cash and cash equivalents, beginning of period............................ 20,150,596 40,929,177
----------- -----------
Cash and cash equivalents, end of period.................................. $81,209,691 $21,231,075
=========== ===========
SUPPLEMENTAL DISCLOSURES
Loans transferred to real estate owned.................................... $108,324 --
Income taxes paid......................................................... 514,500 1,441,800
Interest paid on deposits................................................. 5,175,252 5,452,768
Funds borrowed............................................................ 7,884,000 7,884,000
See notes to unaudited consolidated financial statements.
5
THISTLE GROUP HOLDINGS, CO.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - PRINCIPLES OF CONSOLIDATION
The consolidated financial statements as of and for the three and six
month periods ended June 30, 1998 and 1997 include the accounts of
Thistle Group Holdings, Inc. (the "Company") and its subsidiary,
Roxborough-Manayunk Federal Savings Bank (the "Bank") which, as
discussed in Note 3, became the wholly owned subsidiary of Thistle
Group Holdings, Co. on July 14, 1998. The Company's business is
conducted principally through the Bank. All significant intercompany
accounts and transactions have been eliminated in consolidation.
NOTE 2 - BASIS OF PRESENTATION
The accompanying consolidated financial statements were prepared in
accordance with instructions for Form 10-Q and, therefore, do not
include all information necessary for a complete presentation of
consolidated financial condition, results of operations, and cash flows
in conformity with generally accepted accounting principles. However,
all adjustments, consisting of normal recurring accruals, which, in the
opinion of management, are necessary for a fair presentation of the
consolidated financial statements have been included. The results of
operations for the periods ended June 30, 1998 and 1997 are not
necessarily indicative of the results which may be expected for the
entire fiscal year or any other period.
These statements should be read in conjunction with the consolidated
financial statements and related notes which are incorporated by
reference in the Company's Prospectus dated May 14, 1998.
NOTE 3 - CONVERSION AND REORGANIZATION
On July 14, 1998 FJF Financial, M.H.C. (the "Mutual Holding Company")
completed its mutual to stock conversion ("Conversion and
Reorganization"). In connection with the Conversion and Reorganization,
Thistle Group Holdings, Co., a Pennsylvania corporation, 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,
existing stockholders of the Company, other than the Mutual Holding
Company, converted each share of the Company into 5.5516 shares of
common stock of Thistle Group Holdings, Co. ("Exchange"). Upon
completion of the Conversion and Reorganization, the Mutual Holding
Company and the Company ceased to exist and the Bank changed its name
to Roxborough-Manayunk Bank and became the wholly owned subsidiary of
Thistle Group Holdings, Co. A total of 9,000,000 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.
For the purpose of granting eligible members of the Mutual Holding
Company a priority in the event of further liquidation, the Bank
established a liquidation account in accordance with applicable
regulations. In the event (and only in such event) of future
liquidation of the Bank, an eligible savings account holder who
continues to maintain a savings account shall be entitled to receive a
distribution from the liquidation account, in the proportionate amount
of the then-
6
current adjusted balance of the savings deposits then held, before any
distributions may be made with respect to capital stock.
The common stock of Thistle Group Holdings, Co. began trading on the
Nasdaq National Market under the symbol "THTL" on July 14, 1998.
NOTE 4 - RECENT ACCOUNTING PRONOUNCEMENTS
Comprehensive Income. Effective January 1, 1998, the Company
adopted Statement of Financial Accounting Standard ("SFAS") No. 130,
"Reporting Comprehensive Income." Statement No. 130 requires the
reporting of comprehensive income in addition to net income from
operations. Comprehensive income is a more inclusive financial
reporting methodology that includes disclosure of certain financial
information that historically has not been recognized in the
calculation of net income. As required, the provisions of Statement No.
130 have been retroactively applied to previously reported periods. The
application of Statement No. 130 had no material effect on the
Company's consolidated financial condition or operations. For the three
and six months ended June 30, 1998, the Company reported other
comprehensive income of $278,889 and $1,151,673, respectively, and
$2,361,559 and $2,526,066 for the same periods in 1997. Such increased
income consisted entirely of unrealized gains, net of taxes, on
available for sale securities.
FASB Statement on Earnings Per Share. In March 1997, FASB issued
SFAS No. 128. The Statement establishes standards for computing and
presenting earnings per share and applies to entities with publicly
held common stock or potential common stock. This Statement simplifies
the standards for computing earnings per share previously found in
Accounting Principles Board ("APB") Opinion No. 15, Earnings per Share
("EPS"), and makes them comparable to international EPS standards. It
replaces the presentation of primary EPS with a presentation of basic
EPS. It also requires dual presentation of basic and diluted EPS on the
face of the income statement for all entities with complex capital
structures and requires a reconciliation of the numerator and the
denominator of the basic EPS computation to the numerator and
denominator of the diluted EPS computation. Basic EPS excludes dilution
and is computed by dividing income available to common stockholders by
the weighted-average number of common shares outstanding for the
period. Diluted EPS reflects the potential dilution that could occur if
securities or other contracts to issue common stock were exercised or
converted into common stock or resulted in the issuance of common stock
that then shared in the earnings of the entity. Diluted EPS is computed
similarly to fully diluted EPS pursuant to APB Opinion No. 15. This
statement supersedes Opinion 15 and American Institute of Certified
Public Accountants ("AICPA") Accounting Interpretation 1-102 of Opinion
15. This statement is effective for financial statements issued for
periods ending after December 15, 1997, including interim periods. SFAS
No. 128 has been adopted by the Company.
FASB Statement on Disclosure of Information about Capital Structure.
In February 1997, the FASB issued SFAS No. 129. The Statement
incorporates the disclosure requirements of APB Opinion No. 15,
Earnings per Share, and makes them applicable to all public and
nonpublic entities that have issued securities addressed by the
Statement. APB Opinion No. 15 requires disclosure of descriptive
information about securities that is not necessarily related to the
computation of earnings per share. This statement continues the
previous requirements to disclose certain information about an
entity's capital structure found in APB Opinions No. 10, Omnibus
Opinion- 1966, and No. 15, Earnings per Share, and FASB Statement No.
47, Disclosure of Long-Term Obligations, for entities that were
subject to the requirements of those
7
standards. This Statement eliminates the exemption of nonpublic
entities from certain disclosure requirements of Opinion 15 as provided
by FASB Statement No. 21, Suspension of the Reporting of Earnings per
Share and Segment Information by Nonpublic Enterprises. It supersedes
specific disclosure requirements of Opinions 10 and 15 and Statement 47
and consolidates them in this Statement for ease of retrieval and for
greater visibility to nonpublic entities. The Statement is effective
for financial statements for periods ending after December 15, 1997.
SFAS No. 129 has been adopted by the Company.
FASB Statement on Accounting for Stock-Based Compensation. In
October 1995, the FASB issued SFAS No. 123. SFAS No. 123 defines a
"fair value based method" of accounting for an employee stock option
whereby compensation cost is measured at the grant date based on the
value of the award and is recognized over the service period. FASB has
encouraged all entities to adopt the fair value based method, however,
it will allow entities to continue the use of the "intrinsic value
based method" prescribed by APB Opinion No. 25. Under the intrinsic
value based method, compensation cost is the excess of the market price
of the stock at the grant date over the amount an employee must pay to
acquire the stock. However, most stock option plans have no intrinsic
value at the grant date and, as such, no compensation cost is
recognized under APB Opinion No. 25. Entities electing to continue use
of the accounting treatment of APB Opinion No. 25 must make certain pro
forma disclosures as if the fair value based method had been applied.
The accounting requirements of SFAS No. 123 are effective for
transactions entered into in fiscal years beginning after December 15,
1995. Pro forma disclosures must include the effects of all awards
granted in fiscal years beginning after December 15, 1994. The Mid-Tier
Holding Company expects to use the "intrinsic value based method" as
prescribed by APB Opinion No. 25.
FASB Statement on Segments of an Enterprise and Related
Information. Also in June 1997, the FASB issued SFAS No. 131,
Disclosures About Segments of an Enterprise and Related Information.
SFAS No. 131 requires an entity to disclose financial information in a
manner consistent to internally used information and requires more
detailed disclosures of operating and reporting segments that are
currently in practice. SFAS No. 131 is applicable for years beginning
after December 15, 1997. Management does not believe the adoption of
this statement will have on the Company's consolidated financial
condition or results of operations.
FASB Statement on Employers' Disclosure About Pensions and Other
Postretirement Benefits. In February 1998, the FASB issued SFAS No.
132, Employers' Disclosure About Pensions and Other Postretirement
Benefits. SFAS No. 132 revises employers' disclosures about pension and
other postretirement benefit plans. It does not change the measurement
or recognition of those plans. SFAS No. 132 is applicable for years
beginning after December 15, 1997. Management does not believe the
adoption of this statement will have a material adverse effect on the
Company's consolidated financial condition or results of operations.
8
THISTLE GROUP HOLDINGS, CO.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
---------------------------------------------
General
The Company is a Pennsylvania corporation organized in May 1997 at the
direction of the Board of Directors of the Bank to become an intermediate stock
holding company of the Bank in May 1997. Thistle Group Holdings, Co. is a
Pennsylvania Corporation organized in March 1998 to acquire all of the Capital
Stock of the Bank in the Conversion and Reorganization. Thistle Group Holdings,
Co. is a unitary savings and loan 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.
The Bank is a federally-chartered stock savings bank. The Bank serves
the Pennsylvania counties of Philadelphia and Delaware through 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 loans secured by one to four-family residences. In addition, the
Bank originates consumer loans, such as home equity loans, and multi-family and
nonresidential real estate loans. Such loans generally provide for higher
interest rates and shorter terms than single-family residential real estate
loans. To a lesser extent, the Bank originates loans secured by existing
multi-family residential and nonresidential real estate.
Because the Conversion and Reorganization was not completed until July
14, 1998, the information provided herein is that of the Company and the Bank,
and not that of Thistle Group Holdings, Co.
Comparison of Financial Condition
Total assets increased $67.3 million at June 30, 1998 as compared to
December 31, 1997. Interest-bearing deposits increased $59.6 million due to the
receipt of $50.4 million in stock subscriptions in connection with the
Conversion and Reorganization. Net loans and other investments remained
relatively stable.
Total deposits increased, after interest credited, by $18.9 million.
Accounts payable increased $9.2 million due to the above mentioned stock
subscriptions.
Total stockholders' equity increased by $1 million, primarily due to
earnings and unrealized gains on securities available for sale during the
period.
9
Non-performing Assets
The following table sets forth information regarding non-performing
loans and real estate owned.
At At
June 30, December 31,
-------- ------------
1998 1997
---- ----
(Dollars in Thousands)
Total non-performing loans.......... $ 609 $ 716
Real estate owned................... 160 116
---- ----
Total non-performing assets......... $ 769 $ 832
==== ====
Total non-performing loans to
total loans....................... .80% .74%
==== ====
Total non-performing assets to
total assets...................... .22% .30%
==== ====
Of the $107,000 decrease in non-performing loans, $76,000 represented
three foreclosures transferred to real estate owned. Furthermore, two loans
previously non-performing were reclassified as performing.
Comparison of Earnings for the Three and Six Months Ended June 30, 1998 and 1997
Net Income. Net income for the three and six months ended June 30, 1998
decreased 1,420,000 or 76% and $1,605,000 or 66%, respectively, over the same
periods in 1997. These decreases were due primarily to decreases in other income
and net interest income, offset somewhat by decreased income tax expense caused
by the sale of deposit liabilities in 1997.
Total Interest Income. Interest income decreased $188,000 or .4%, and
$799,000 or 8%, for the three and six months ended June 30, 1998, respectively,
as compared to the same periods in 1997. These decreases were due in most part
to decreases of $37 million in the average balances of interest earning assets,
primarily mortgage-backed securities and liquid assets, due to the branch sale
in May 1997.
Total Interest Expense. Interest expense remained relatively stable for
the three months ended June 30, 1998 and 1997, and decreased by $278,000 or 5%
for the six months ended June 30, 1998. Interest expense decreased for the six
months ended June 30, 1998 primarily due to the decreases of $37 million in the
average balance of interest bearing deposits due to the sale of the two branch
offices as previously discussed, offset somewhat by the increased cost of funds
from 4.40% to 4.44%.
Net Interest Income. Net interest income decreased $165,000 or 7% and
$490,000 or 10%, due to the reasons discussed in the two previous sections. In
addition, the net interest spread, the difference between the average rate
earned and the average rate paid, decreased by 12 basis points to 2.46% for the
quarter ended June 30, 1998 and decreased 7 basis points to 3.20% for the six
months ended June 30, 1997.
10
Provision for Losses on Loans. The provision for losses on loans for
the three and six months ended June 30, 1998 totaled $15,000 and $30,000,
respectively, compared to $30,000 and $60,000 for the same periods in 1997.
Provisions for losses included charges to reduce the recorded balances of
mortgage loans receivable and the collateral real estate to their estimated net
realizable value or fair value, as applicable. Such provisions are based on
management's estimate of net realizable value or fair value of the collateral,
as applicable, considering the current and currently anticipated further
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 its collateral is dependent to a great extent on economic,
operating and other conditions that may be beyond the Bank's control.
Management will continue to review its loan portfolio to determine the
extent, if any, to which further additional loss provisions may be deemed
necessary. There can be no assurance that the allowance for losses will be
adequate to cover losses which may in fact be realized in the future and that
additional provisions for losses will not be required.
Other Income. Other income decreased $2,278,000 and $2,287,000 during
the three and six months ended June 30, 1998 as compared to the same periods in
1997 due primarily to the absence of a $2,234,000 gain on the sale of deposits
and a $80,000 gain on the sale of assets due to the sale of two branches of the
Bank in May 1997. Other income increased $43,000 and $35,000 during the same
period due to an increase in fee income.
Other Expenses. Other expenses decreased by $174,000 and $245,000
during the three and six months ended June 30, 1998 primarily due to a $186,000
reduction in profit sharing costs. Profit sharing cost decreased due to a
decrease in net income.
The Company expects increased costs due to being a public company.
Income Tax Expanse. Income tax expense decreased significantly due to
decreased earnings.
Liquidity and Capital Resources
On June 30, 1998, the Bank was in compliance with its three regulatory
capital requirements as follows:
Amount Percent
------ -------
(Dollars in thousands)
Tangible capital...................... $27,844 8.09%
Tangible capital requirement.......... 10,318 3.00
------ ----
Excess over requirement............... $17,525 5.09%
====== ====
Core capital.......................... $27,844 8.09%
Core capital requirement.............. 5,159 1.50%
------ ----
Excess over requirement............... $22,685 6.59%
====== ====
Risk based capital.................... $27,844 26.15%
Risk based capital requirement........ 8,517 8.00%
------ -----
Excess over requirement............... $19,327 18.15%
====== =====
11
The Bank'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 Bank is the origination and
purchase of mortgage loans, mortgage-backed securities and other investments.
During the six months ended June 30, 1998, the Bank originated $12,900,000 of
mortgage loans. The Bank also purchases loans and mortgage-backed securities to
reduce liquidity not otherwise required for local loan demand. Purchases of
mortgage loans and mortgage-backed securities totaled $324,000 and $21.5
million, respectively, during the six month period. Other investment activities
include investment in short term certificates of deposit of other financial
institutions, FHLB of Pittsburgh stock, consumer loans and the U.S. government
and federal agency obligations.
The Bank has other sources of liquidity if a need for additional funds
arises. Although the Bank has historically not utilized borrowings as a source
of funds, at June 30, 1998, the Bank had outstanding $7.9 million in advances
from the FHLB of Pittsburgh. In addition, other sources of liquidity can be
found in the Bank's balance sheet, such as investment securities maturing within
one year and unencumbered mortgage-backed securities that are readily
marketable.
The Bank 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 Bank's liquidity ratio was 41.81% at June
30, 1998.
The Bank's most liquid assets are cash and cash equivalents, which
include investments in highly liquid short-term investments. The level of these
assets are dependent on the Bank's operating, financing and investing activities
during any given period. At June 30, 1998, cash and cash equivalents totalled
$81.2 million due primarily to the stock subscription offering.
The Bank anticipates that it will have sufficient funds available to
meet its current commitments. As of June 30, 1998, the Bank had $1.6 million in
commitments to fund loans. Certificates of deposit which were scheduled to
mature in one year or less as of June 30, 1998 totaled $102.3 million.
Management believes that a significant portion of such deposits will remain with
the Bank.
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
require 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.
12
Additional Key Operating Ratios
For the For the
Three Months Ended Six Months Ended
June 30, June 30,
-------------------------- ----------------------
1998(1) 1997(1) 1998(1) 1997(1)
---------- -------------- ----------- --------
Return on average assets..... .56% 2.70% .55% 1.79%
Return on average equity..... 6.07% 28.79% 5.93% 19.05%
Interest rate spread......... 2.46% 3.26% 2.46% 3.20%
Net interest margin.......... 3.02% 4.04% 3.011% 3.63%
At June 30, At December 31,
1998 1997
----------- ---------------
Tangible book value per share........ $17.18 $16.70
- ----------------
(1) The ratios for the three and six month period are annualized.
Year 2000
A great deal of information has been disseminated about the global
computer year 2000. Many computer programs that can only distinguish the final
two digits of the year entered (a common programming practice in earlier years)
are expected to read entries for the year 2000 as the year 1900 and compute
payment, interest or delinquency based on the wrong date or are expected to be
unable to compute payment, interest or delinquency. Rapid and accurate data
processing is essential to the operation of the Bank. Data processing is also
essential to most other financial institutions and many other companies.
Based on a recognized need to upgrade the data processing system, to be
more competitive in the marketplace and to address the year 2000 problem, the
Bank signed an agreement with Open Solutions Incorporated, Glastonbury,
Connecticut, to purchase its information processing system. The system has been
certified by its vendor as year 2000 compliant. This system, which is scheduled
to be installed at the Bank in late July 1998, is a PC-based client server
system which, management believes, will serve the Bank well beyond the year
2000. It is estimated the total cost of this system will be approximately $1.2
million with an annual cost of approximately $344,000 including depreciation,
software cost and maintenance.
Market Risk Analysis
The goal of the Bank's asset/liability policy is to manage interest
rate risk so as to maximize net interest income over time in changing interest
rate environments. Management monitors the Bank'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
13
offers deposit rates and loan rates in an attempt to maximize net interest
income. Management also attempts to fund the Bank's assets with liabilities of a
comparable duration to minimize the impact of changing interest rates on the
Bank's net interest income. Since the relative spread between financial assets
and liabilities is constantly changing, the Bank's current net interest income
may not be an indication of future net interest income.
The Bank has sought to manage its interest rate risk by maintaining a
high degree of liquid assets and short-term securities, coupled with the
purchase of mortgage-backed securities secured by adjustable rate mortgage
loans.
The Bank is also managing interest rate risk by the origination of
multi-family residential loans with a balloon payment after five to seven years.
In general, these loans have higher yields, shorter maturities and greater
interest rate sensitivity than traditional one- to four-family residential real
estate loans.
The Bank constantly monitors its deposits in an effort to decrease
their interest rate sensitivity. Rates of interest paid on deposits at the Bank
are priced competitively in order to meet the Bank's asset/liability management
objectives and spread requirements. As of June 30, 1998, the Bank's savings
accounts, checking accounts and money market deposit accounts totaled $125.0
million or 50.1% of its total deposits. The Bank believes, based on historical
experience, that a substantial portion of such accounts represent non-interest
rate sensitive core deposits.
The Bank'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 liquidity and capital ratios and
requirements. The Bank's management is responsible for administering the
policies and determinations of the Board of Directors with respect to the Bank's
asset and liability goals and strategies. Management expects that the Bank'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.
14
THISTLE GROUP HOLDINGS, CO.
PART II
ITEM 1. LEGAL PROCEEDINGS
Neither the Company nor the Bank was engaged in any legal proceeding
of a material nature at June 30, 1997. From time to time, the Company
is a party to routine legal proceedings in the ordinary course of
business, such as claims to enforce liens, condemnation proceedings on
properties in which the Company holds security interests, claims
involving the making and servicing of real property loans, and other
issues incident to the business of the Company. There were no lawsuits
pending or known to be contemplated against the Company at June 30,
1998 that would have a material effect on the operations or income of
the Company or the Bank, taken as a whole.
ITEM 2. CHANGES IN SECURITIES
Not applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On June 26, 1998, the Company held a Special Meeting of Stockholders
to vote upon the Plan. The Plan was approved by a vote of 1,602,000
for, 0 against and 0 abstained.
ITEM 5. OTHER MATERIALLY IMPORTANT EVENTS
See Note 3 to the Unaudited Consolidated Financial Statements
regarding the Conversion and Reorganization.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
Exhibit 2 Plan of Conversion and Reorganization of FJF Financial, M.H.C.
and Plans of Merger between FJF Financial, M.H.C., Thistle
Group Holdings, Inc. and Roxborough-Manayunk Federal Savings
Bank*
Exhibit 3(i) Articles of Incorporation of Thistle Group Holdings, Co.*
Exhibit 3(ii) Bylaws of Thistle Group Holdings, Co.*
Exhibit 4 Specimen Stock Certificate of Thistle Group Holdings, Co.*
Exhibit 10.1 1992 Stock Option Plan of Roxborough-Manayunk Federal Savings
Bank*
15
Exhibit 10.2 1992 Management Stock Bonus Plan of Roxborough-Manayunk
Federal Savings Bank*
Exhibit 10.3 1994 Stock Option Plan of Roxborough-Manayunk Federal Savings
Bank*
Exhibit 10.4 1994 Management Stock Bonus Plan of Roxborough-Manayunk
Federal Savings Bank*
Exhibit 10.5 Employment Agreement with John F. McGill*
Exhibit 10.6 Employment Agreement with Jerry Naessens*
Exhibit 10.7 Employment Agreement with John F. McGill, Jr.*
Exhibit 99 Proxy Material for Thistle Group Holdings, Inc.*
Exhibit 27 Financial Data Schedule (in electronic filing only)
(b) Reports on Form 8-K - None.
On July 14, 1998, Thistle Group Holdings, Co., filed a
Current Report on Form 8-K announcing the completion of the
Conversion and Reorganization, including the sale and
issuance of 9,000,000 shares of common stock of Thistle
Group Holdings, Co.
- -------------------
* Incorporated by reference to the Registrant's Registration Statement on
Form S-1 initially filed with the Commission on March 26, 1998 (File No.
333-48749).
16
THISTLE GROUP HOLDINGS, CO. AND SUBSIDIARY
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
THISTLE GROUP HOLDINGS, CO.
Date: September 2, 1998 By: /s/John F. McGill, Jr.
-------------------------------------
John F. McGill, Jr.
President and Chief Executive Officer
(Principal Executive Officer)
Date: September 2, 1998 By: /s/Jerry Naessens
-------------------------------------
Jerry Naessens
Chief Financial Officer and Secretary
(Principal Officer)