SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
|X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 31, 1998
|_| TRANSITIONAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _______________________ to ______________________
Commission File Number: 0-24353
THISTLE GROUP HOLDINGS, CO.
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(Exact name of registrant as specified in its charter)
Pennsylvania 23-2960768
- --------------------------------------------- -------------------
(State or other jurisdiction of incorporation (IRS Employer
or organization) Identification No.)
6060 Ridge Avenue, Philadelphia, Pennsylvania 19128
- -------------------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (215) 483-2800
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Securities registered pursuant to Section 12(b) of the Act: None
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Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $.10 per share
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(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. YES X NO .
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
Based on the closing sales price of $8.938 per share of the
registrant's common stock on March 12, 1999, as reported on the Nasdaq National
Market System the aggregate market value of voting stock held by non-affiliates
of the registrant was approximately $59.6 million. On such date, 7,940,744
shares of the registrant's Common Stock were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
1. Portions of 1998 Annual Report to Stockholders (Parts II and IV)
2. Portions of Proxy Statement for the 1999 Annual Meeting of Stockholders.
(Part III)
PART I
Forward-Looking Statements
Thistle Group Holdings, Co. (the "Company") may from time to time make
written or oral "forward-looking statements," including statements contained in
the Company's filings with the Securities and Exchange Commission (including
this Annual Report on Form 10-K and the exhibits thereto), in its reports to
stockholders and in other communications by the Company, which are made in good
faith by the Company pursuant to the "safe harbor" provisions of the private
securities litigation reform act of 1995.
These forward-looking statements involve risks and uncertainties, such
as statements of the Company's plans, objectives, expectations, estimates and
intentions, that are subject to change based on various important factors (some
of which are beyond the Company's control). The following factors, among others,
could cause the Company's financial performance to differ materially from the
plans, objectives, expectations, estimates and intentions expressed in such
forward-looking statements: the strength of the United States economy in general
and the strength of the local economies in which the Company conducts
operations; the effects of, and changes in, trade, monetary and fiscal policies
and laws, including interest rate policies of the board of governors of the
federal reserve system, inflation, interest rate, market and monetary
fluctuations; the timely development of and acceptance of new products and
services of the Company and the perceived overall value of these products and
services by users, including the features, pricing and quality compared to
competitors' products and services; the willingness of users to substitute
competitors' products and services for the Company's products and services; the
success of the Company in gaining regulatory approval of its products and
services, when required; the impact of changes in financial services' laws and
regulations (including laws concerning taxes, banking, securities and
insurance); technological changes, acquisitions; changes in consumer spending
and saving habits; and the success of the Company at managing the risks involved
in the foregoing.
The Company cautions that the foregoing list of important factors is
not exclusive. The Company does not undertake to update any forward-looking
statement, whether written or oral, that may be made from time to time by or on
behalf of the Company.
Item 1. Business
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Thistle Group Holdings, Co. (the "Company") is a Pennsylvania
corporation organized in March 1998 at the direction of Roxborough-Manayunk Bank
(the "Bank") to acquire all of the capital stock of the Bank. The Bank is a
federally-chartered stock savings association, which was originally chartered as
a mutual savings association through the combination of 11 building and loan
associations as Roxborough-Manayunk Federal Savings and Loan Association (the
"Association") on May 3, 1939, at which time the Association's accounts were
insured by the Federal Savings and Loan Insurance Corporation ("FSLIC") and
currently the SAIF. In 1939, the Association became a member of the FHLB System.
On December 31, 1992, the Association reorganized from a mutual savings
association into a mutual holding company named FJF Financial, M.H.C. ("FJF
Financial") and chartered a new stock savings bank named Roxborough-Manayunk
Federal Savings Bank. On October 1, 1997, the Bank formed a middle-tier stock
holding company (Thistle Group Holdings, Inc.) whereby the Bank became a
wholly-owned subsidiary of Thistle Group Holdings, Inc.
In July 1998, the Bank, Thistle Group Holdings, Inc., and FJF Financial
completed their conversion and reorganization into the current corporate
structure of the Company and the Bank. Upon completion of the conversion and
reorganization, the Company became a unitary savings and loan holding
1
company which, under existing laws, is generally 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 Company is
not an operating company and primarily holds all of the outstanding stock of the
Bank. The Company does not employ any persons other than officers but utilizes
the support staff of the Bank from time to time.
The Company's and the Bank's main office is located at 6060 Ridge
Avenue, Philadelphia, Pennsylvania 19128, and the telephone number at that
office is (215) 483-2800. 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 one-to four-family
residential mortgages. Upon completion of the conversion and reorganization the
Bank changed its name to "Roxborough-Manayunk Bank." At December 31, 1998, the
Company had total assets, deposits, and stockholders' equity of approximately
$492.0 million, $276.4 million, and $100.2 million, respectively.
The principal business of the Bank is the acceptance of savings
deposits from the general public and the origination and purchase of mortgage
loans for the purpose of constructing, financing or refinancing one- to
four-family residences and other improved residential and commercial real
estate. The Bank's income is derived largely from interest and fees in
connection with its lending activities. Its principal expenses are interest paid
on savings deposits and borrowings and operating expenses.
Unless the context requires otherwise, any reference to the Company
includes the Bank on a consolidated basis.
Geographic Lending Area
Although authorized to make real estate loans throughout the United
States, the Company's lending area generally includes Philadelphia, Bucks,
Delaware, Chester, and Montgomery Counties, which comprise the Philadelphia
metropolitan area. The Company's primary lending area consists of the far
northwest sections of Philadelphia, South Philadelphia, and Montgomery County,
Pennsylvania. The Pennsylvania real estate market was generally depressed in the
late-1980s. The market has shown improvement in the 1990s, but whether the
recovery will continue is dependent upon general economic conditions, not just
in Pennsylvania, but in the United States as a whole.
Lending Activities
General. Historically, the principal lending activity of the Company
has been the origination of mortgage loans for the purpose of constructing,
financing or refinancing residential properties. In January of 1999 the Company
hired an experienced commercial real estate lender to assist in increasing such
lending.
2
Analysis of Loan Portfolio. The following table sets forth selected
data relating to the composition of the Company's loan portfolio by type of loan
and type of security on the dates indicated.
At December 31,
---------------
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
$ % $ % $ % $ % $ %
--- --- --- --- --- --- --- --- --- --
(Dollars in Thousands)
Real Estate Loans:(1)
Construction..................... $ 868 .64% $ 1,693 1.72% $ 964 .96% $ 495 .48% $ 910 .93%
Residential...................... 108,585 79.91 71,397 72.36 73,871 73.30 72,675 71.20 74,124 75.88
Multi-family and commercial...... 17,542 12.91 16,647 16.87 17,615 17.54 20,200 19.79 14,603 14.95
Home equity...................... 8,068 5.94 8,133 8.24 7,011 6.96 5,004 4.91 4,300 4.40
Home equity line of credit....... 202 .15 73 .07 - -
Loans secured by commercial
equipment leases................. - - - - - - 3,341 3.27 3,179 3.25
Commercial loans................... 269 .20 329 .33 770 .76 - - - -
Consumer loans:
Line of credit................... 76 .06 96 .10 92 .09 - - - -
Secured demand note.............. 50 .04 60 .06 - - - - - -
Share loans...................... 218 .15 243 .25 384 .38 347 0.34 537 0.55
Home improvement................. $ 3 4 - 8 .01 15 .01 24 .03
------- --- ------ ----- ------- ------ ------- ------ ------ ------
Total loans........................ $135,881 100% $98,675 100.00% $100,715 100.00% $102,077 100.00% $97,677 100.00%
======= === ====== ====== ======== ====== ======= ====== ====== ======
Less:
Premiums and (discounts)......... $ 344 $ 54 $ 76 $ 26 $ (61)
Deferred fees.................... (1,281) (1,233) (1,299) (1,221) (1,254)
Loans in process................. (433) (289) (156) (422)
Allowance for loan losses........ (1,036) (783) (577) (455) (417)
------- ------ ------- -------- -------
Total loans, net................. $133,908 $96,280 $ 98,626 $100,271 $95,523
======= ====== ======= ======= ======
- --------------
(1) Does not include $2,558, $1,155, $2,147, $1,613, and $1,198 of mortgage
loans classified as held for sale at December 31, 1998, 1997, 1996, 1995,
and 1994, respectively.
3
Residential Mortgage Loans. The Company offers first mortgage loans
secured by one- to four-family residences in the Company's primary lending area.
Typically, such residences are single family homes that serve as the primary
residence of the owner. The Company offers fixed-rate mortgage loans with terms
of up to 30 years and adjustable-rate mortgage loans that generally adjust every
year based upon selected published indices. Mortgage loans originated and held
by the Company in its portfolio generally include due-on sale clauses which
provide the Company with the contractual right to deem the loan immediately due
and payable in the event that the borrower transfers ownership of the property
without the Company's consent.
Adjustable-rate mortgage loans buffer the risks associated with changes
in interest rates, but involve other risks because as interest rates increase,
the underlying payments by the borrower increase, thus increasing the potential
for default. At the same time, the marketability of the underlying collateral
may be adversely affected by higher interest rates. The Company's
adjustable-rate loan underwriting policy recognizes these inherent risks and the
Company reviews a credit application accordingly. These risks have not had an
adverse effect on the Company to date. At December 31, 1998, 2.5% of the
Company's mortgage loan portfolio consisted of adjustable-rate loans.
Home Equity Loans and Home Equity Lines of Credit. The Company
originates home equity loans secured by single-family residences. These loans
are originated as fixed-rate loans with terms from 3 to 10 years. These loans
are made on owner-occupied, single-family residences or vacation homes. The
loans are generally subject to an 80% combined loan-to-value limitation,
including any other outstanding mortgages or liens. Home equity loans are
generally originated for retention in the Company's loan portfolio.
Multi-Family and Commercial Real Estate Loans. The Company originates
to a limited extent multi-family mortgage loans secured primarily by apartment
buildings located in its primary lending area. These loans are generally
fixed-rate loans with maturities up to 15 years, or amortized over 25 years with
a balloon payment after 5 to 7 years. The Company also originates
adjustable-rate multi-family loans which adjust with The Wall Street Journal
prime rate annually and have maturities of 5 to 10 years. These loans typically
amortize over 20 to 25 years. These loans are generally made in amounts up to
75% of the appraised value of the mortgaged property. In making such loans, the
Company evaluates the mortgage primarily on the net operating income generated
by the real estate to support the debt service. The Company also considers the
financial resources and income level of the borrower, the borrower's experience
in owning or managing similar property, the marketability of the property and
the Company's lending experience, if any, with the borrower. An origination fee
of 1.50% to 3% is usually charged on such loans. The typical multi-family
property in the Company's multi-family lending portfolio has between 5 and 25
dwelling units with an average loan balance of approximately $340,000. The
largest multi-family loan as of December 31, 1998 had an outstanding balance of
$1.7 million and was secured by 45 dwelling units.
The Company also originates commercial real estate loans secured by
property located within its primary market area. The Company's commercial real
estate loans are permanent loans secured by improved property such as office
buildings, retail stores, industrial facilities and other non-residential
buildings. Essentially all originated commercial real estate loans are within
the Company's market area. As of December 31, 1998, the Company had 102 loans
secured by commercial real estate, totaling $10.8 million or 8.0% of the
Company's total loan portfolio, with an average principal balance of $107,000.
None of the 102 loans had principal balances outstanding of over $1.4 million as
of December 31, 1998. The largest commercial real estate loan was secured by a
shopping center with an outstanding balance of $1.4 million on December 31,
1998. This loan represents approximately 8% of the Company's $17.5 million
multifamily and commercial real estate loans at December 31, 1998. Commercial
real estate loans
4
are generally originated in amounts ranging from 70% to 75% of the appraised
value of the mortgaged property, although sometimes commercial real estate loans
are made with an 80% loan to value ratio. The Company makes both adjustable and
fixed-rate commercial real estate loans. The adjustable-rate loans have terms of
up to 15 years, or are amortized over 25 years with a balloon payment after 5
and 7 years, if negotiated by management. The rate of interest on the
adjustable-rate loans is often tied to the Wall Street Journal stated prime
rate.
Construction Loans. The Company's construction loan portfolio consists
of substantially residential construction loans with initial terms of generally
12 to 18 months. Land acquisition and development loans are also made on a very
limited basis. The construction loans made by the Company have adjustable rates
tied to the Wall Street Journal stated prime rate, adjusting monthly. Generally,
such loans are repaid or converted to permanent loans when the property is
completed or sold. The permanent loan can be an adjustable or fixed-rate loan at
a rate equal to the prevailing rates offered by the Company 30 days prior to the
date of closing.
Loans Secured by Commercial Equipment Leases. The Company previously
invested in loans secured by commercial equipment leases from a single entity.
During 1996, the borrower declared bankruptcy. On December 27, 1996, the company
entered into an agreement with the trustee for the bankruptcy court whereby the
Company will receive approximately 65% of the cash receipts from the collateral
principal in exchange for all rights to the collateral. In connection with this
agreement, the company charged-off $1.2 million of the outstanding balance due
from the trustee at December 31, 1996. The Company has since discontinued such
lending and currently has no plans to re-enter such market. At December 31, 1998
the Company had an outstanding receivable of $11,000 which it expects to collect
in early 1999.
Consumer Loans. Office of Thrift Supervision regulations permit the
Company to make secured and unsecured consumer loans up to 35% of the Company's
assets. Consumer loans originated by the Company are loans secured by savings
deposits or fully marketable securities pledged as collateral.
Loan Underwriting Risks. While multi-family and commercial real estate,
construction, commercial business, and consumer loans provide benefits to the
Company's asset/liability management program and reduce exposure to interest
rate changes, such loans may entail significant additional credit and interest
rate risks compared to residential mortgage lending. Multi-family and commercial
real estate and construction mortgage loans may involve large loan balances to
single borrowers or groups of related borrowers. In addition, the ability to
make payments on loans secured by income producing properties is typically
dependent on the successful operation of the properties and thus may be subject
to a greater extent to adverse conditions in the real estate market or in the
general economy. Construction loans may involve additional risks attributable to
the fact that loan funds are advanced upon the security of the project under
construction. Moreover, because of the uncertainties inherent in estimating
construction costs, delays arising from labor problems, material shortages, and
other unpredictable contingencies, it is relatively difficult to evaluate
accurately the total loan funds required to complete a project, and related
loan-to-value ratios. Because of these factors, the analysis of prospective
construction loan projects requires an expertise that is different in
significant respects from the expertise required for residential mortgage
lending.
Loan Origination and Other Fees. In addition to interest earned on
loans, the Company recognizes service charges which consist primarily of loan
application fees, processing fees, and late charges. The Company recognized
service charges of $316,000 for the year ended December 31, 1998.
5
Loan Maturity Schedules. The following table sets forth the maturity of
the Company's loan portfolio at December 31, 1998. The table does not include
prepayments or scheduled principal repayments. Prepayments and scheduled
principal repayments on loans totalled $28,509,000, $22,489,000, and $16,320,000
for the fiscal years ended December 31, 1998, 1997, and 1996, respectively. All
mortgage loans are shown as maturing based on contractual maturities.
Multi-Family
Residential and
and Commercial
Home Equity Real Estate Construction Consumer Commercial Total
----------- ----------- ------------ -------- ---------- -----
(In Thousands)
Non-performing.................. $ 393 $ - $ - $ - $ - $ 393
Amounts Due:
Within 3 months................. $ 5 $ 186 $ 172 $ 99 $ - $ 462
3 months to 1 Year.............. 1,076 620 696 100 - 2,492
After 1 year:
1 to 3 years.................. 1,367 3,823 - 8 128 5,326
3 to 5 years.................. 3,833 656 - - 4,489
5 to 10 years................. 19,655 5,770 - - 141 25,566
10 to 20 years................ 32,937 5,760 - - - 38,697
Over 20 years................. 57,589 727 - 140 58,456
------- ------ ----- --- ---- -------
Total due after one year........ 115,381 16,736 - 148 269 132,534
------- ------ ----- --- --- -------
Total amount due................ $116,855 $17,542 $ 868 $347 $269 $135,881
======= ====== ==== === === =======
The following table sets forth the dollar amount of all loans due after
December 31, 1999, which have pre-determined interest rates and which have
floating or adjustable interest rates.
Floating or
Fixed Rates Adjustable Rates Total
----------- ---------------- -----
(In Thousands)
Residential and home equity................... $113,987 $2,868 $116,855
Multi-family and commercial real estate....... 16,974 568 17,542
Construction.................................. 150 718 868
Consumer...................................... 2 345 347
Commercial.................................... 269 269
----------- ----- --------
Total....................................... $ 131,113 $4,768 $135,881
======== ===== =======
Loan Purchases. In the past, the Company purchased loans from a number
of financial institutions. Generally, such loans were fixed-rate loans secured
by single family residential loans located in Central and Eastern Pennsylvania,
New Jersey, New York and Delaware. At December 31, 1998, $51.7 million of such
loans were outstanding. In each transaction, the seller retained the loan
servicing. The Company purchased such loans to increase its residential loan
portfolio. Since the reorganization, the Company has purchased $36 million in
fixed rate residential mortgages located in North Jersey and Long Island as part
of its leverage program.
In 1994, the Company agreed to act as a correspondent with a bank in
Souderton, Pennsylvania. The correspondent bank originates fixed-rate
residential loans based on terms, conditions, fees, and rates posted by the
Company. All underwriting conforms to the Company's underwriting guidelines. The
6
Company receives from the correspondent bank a completed application to
underwrite and determine whether to issue a loan commitment. At December 31,
1998, the Company had a balance of $1.9 million of such loans outstanding. The
Company still maintains this relationship but only to a limited extent.
In loan purchase transactions, the Company typically receives a due
diligence package that provides loan level detail on a comparative basis against
the Federal Home Loan Mortgage Corporation ("FHLMC") underwriting guidelines.
All loans must be documented, including an original appraisal that substantiates
the value of the subject property at the time the loan was originated.
The Company obtains from the seller a duplicate copy of each original
loan file which generally includes an executed loan application, financial
statements, credit report, and original title policy and mortgage note. In the
event that a residential loan package has substantial seasoning and low original
loan-to-value ratios, or the market is well beyond the Company's primary lending
area, a fee appraiser may not be employed to underwrite the appraisal reports in
the loan files. The Company arranges with the seller/servicer an on site due
diligence review to physically review and document each loan file in a purchase
transaction.
The Company originates residential first mortgage loans that conform to
the FHLMC and Federal National Mortgage Association ("FNMA") guidelines. It is
the Company's intent to retain servicing for loans originated for sale or to
subsequently package them as participations. Primary markets for loans sold will
be GSEs and other secondary market investors.
Loans Available For Sale. The Company holds as available for sale
certain residential mortgage loans that have an annual yield determined by
Management to be at rates not compatible with its asset management strategy.
These loans conform to FHLMC and FNMA guidelines and are readily salable in the
secondary market.
7
Origination, Purchase and Sale of Loans. The following table sets forth
total loans originated, purchased, sold, and repaid during the periods
indicated.
Year Ended December 31,
-----------------------
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
(In Thousands)
Total gross loans receivable at
beginning of period ........ $ 98,675 $ 100,775 $ 102,077 $ 97,677 $ 100,990
========= ========= ========= ========= =========
Loans originated:
Construction loans .......... $ 360 $ 1,570 $ 1,055 $ 430 $ 660
Residential and home equity . 26,973 14,795 13,546 7,064 11,378
Multi-family and commercial
real estate ............... 438 2,211 810 1,962 2,015
Consumer .................... 252 372 368 190 327
Commercial .................. 1,927 707 770 -- --
--------- --------- --------- --------- ---------
Total loans originated ........ $ 29,950 $ 19,655 $ 16,549 $ 9,646 $ 14,380
========= ========= ========= ========= =========
Loans purchased:
Residential ................. $ 36,098 $ 1,088 $ 2,360 $ 4,363 $ 1,860
Multi-family and commercial
real estate ............... -- -- -- 2,897 --
Commercial equipment leases . -- -- -- 1,629 1,600
--------- --------- --------- --------- ---------
Total loans purchased ......... 36,098 1,088 2,360 8,889 3,460
--------- --------- --------- --------- ---------
Total loans sold .............. -- 383 -- -- --
--------- --------- --------- --------- ---------
Loan principal repayments ..... 28,509 22,489 16,320 13,984 20,005
--------- --------- --------- --------- ---------
Other (debits less credits) ... (333) (29) (3,891) (151) (1,148)
--------- --------- --------- --------- ---------
Net loan activity ............. $ 37,206 $ (2,100) $ (1,302) $ 4,400 $ (3,313)
========= ========= ========= ========= =========
Total gross loans receivable at
end of period ............... $ 135,881 $ 98,675 $ 100,775 $ 102,077 $ 97,677
========= ========= ========= ========= =========
Loan Commitments. The Company generally grants commitments to fund
fixed-rate single-family mortgage loans for periods of up to 90 days at a
specified term and interest rate. The Company also makes loan commitments for
non-conforming or commercial real estate loans for up to 90 days, which
generally carry additional requirements for funding. The total amount of the
Company's commitments to originate loans as of December 31, 1998 was $1.2
million.
Loan Servicing and Servicing Fees. The Company has retained servicing
on loans it has sold to FHLMC and FNMA. The Company also services all of its own
loans. As of December 31, 1998, 1997 and 1996, the Company serviced loans for
others totaling $2.3 million, $3.7 million, and $3.5 million respectively. Loan
servicing fees have not constituted a material source of income.
Asset Quality
Non-Performing Assets and Asset Classification. The Company's
collection procedures provide that when a loan is 30 days or more delinquent,
the borrower is contacted by mail and telephone and payment is requested. If the
delinquency continues, subsequent efforts will be made to contact the delinquent
borrower. In certain instances, the Company may modify the loan or grant a
limited
8
moratorium on loan payments to enable the borrower to reorganize his financial
affairs. If the loan continues in a delinquent status for 60 days, the Company
will initiate foreclosure proceedings. Any property acquired as the result of
foreclosure or by deed in lieu of foreclosure is classified as REO until such
time as it is sold or otherwise disposed of by the Company. When REO is
acquired, it is recorded at the lower of the unpaid principal balance of the
related loan or its fair market value. Any write-down of the property is charged
to the allowance for losses.
Loans are reviewed on a regular basis and are placed on a non-accrual
status when, in the opinion of management, the collection of additional interest
is doubtful. The Company continues to accrue for residential mortgage loans 90
days or more past due, however a reserve is set up for such loans. Consumer
loans generally are charged off when the loan becomes 90 days or more
delinquent. Commercial business and real estate loans are placed on non-accrual
status when the loan is 90 days or more past due. Interest accrued and unpaid at
the time a loan is placed on non-accrual status is charged against interest
income. Subsequent payments are either applied to the outstanding principal
balance or recorded as interest income, depending on the assessment of the
ultimate collectibility of the loan.
At December 31, 1998, the Company had approximately $263,000 of loans
that were 60-89 days delinquent, all of which were secured by residential
properties.
The following table sets forth information with respect to the
Company's non-performing assets for the periods indicated. At the dates
indicated, the Company had no accruing loans past due 90 days or more and no
restructured loans within the meaning of SFAS No. 15.
At December 31,
---------------
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
(In Thousands)
Loans accounted for on a non-accrual basis .. $ -- $ -- $ -- $ -- $ --
Accruing loans which are contractually past
due 90 days or more:
Residential and home equity ............... $393 $ 716 $1,357 $1,441 $1,244
Construction loans ........................ -- -- 109 133 --
Multi-family and commercial real estate ... -- -- 1,533 565 --
Consumer .................................. -- -- -- -- 7
---- ------- ------ ------ ------
Total ....................................... $393 $ 716 $2,999 $2,139 $1,251
==== ======= ====== ====== ======
Real estate owned ........................... $ 82 $ 116 $ 186 $ 227 $ 88
==== ======= ====== ====== ======
Total non-performing assets ................. $475 $ 832 $3,185 $2,366 $1,339
==== ======= ====== ====== ======
Total non-accrual and accrual loans to
net loans ................................. .28% .74% 3.04% 2.35% 1.40%
==== ======= ====== ====== ======
Total non-performing assets to total assets . .09% .30% 1.08% .82% .49%
==== ======= ====== ====== ======
Non-performing assets decreased $357,000 or 42.9% due to foreclosure
and subsequent liquidation of non-performing assets in addition to normal
collections.
Management of the Company regularly reviews the loan portfolio in order
to identify potential problem loans and classifies any potential problem loan as
a special mention, substandard, doubtful or loss asset according to the OTS
classification of asset regulations.
OTS regulations provide for savings institutions to classify their
loans and other assets as substandard, doubtful, or loss assets. Assets
classified as substandard are those inadequately protected by the current net
worth and paying capacity of the obligor or the pledged collateral. They are
9
characterized by the distinct possibility that the institution will sustain some
loss if the deficiencies are not corrected. Assets classified as doubtful have
all the weaknesses of those classified as substandard with the additional
characteristic that the weaknesses make collection or liquidation in full highly
questionable and improbable. Assets classified as "loss" are considered
uncollectible and of such little value that their continuance as assets without
the establishment of a specific reserve is not warranted. Assets that do not
currently expose a savings institution to a sufficient degree of risk to warrant
classification but do possess credit deficiencies or potential weaknesses
deserving management's close attention are designated "special mention." Special
mention assets have a potential weakness or pose an unwarranted financial risk
that, if not corrected, could weaken the asset and increase risk in the future.
Assets designated as substandard or doubtful are recorded at fair value. At
December 31, 1998, the Company had $2.2 million of classified assets, all of
which were classified as substandard and none of which were classified as loss.
Furthermore, at December 31, 1998, $704,000 of assets were designated special
mention.
Allowance for Losses on Loans and REO. The Company's management
evaluates the need to establish reserves against losses on loans and other
assets each year based on estimated losses on specific loans and on any real
estate held for sale or investment when a finding is made that a loss is
estimable and probable. Such evaluation includes a review of all loans for which
full collectibility may not be reasonably assured and considers, among other
matters, the estimated market value of the underlying collateral of problem
loans, prior loss experience, economic conditions and overall portfolio quality.
These provisions for losses are charged against earnings in the year they are
established.
While the Company believes it has established its existing allowance
for loan losses in accordance with GAAP and the Interagency Policy Statement on
the Allowance for Loan and Lease Losses issued by the OTS, in conjunction with
the OCC, FDIC and FRB, there can be no assurance that the applicable regulators,
in reviewing the Company's loan portfolio, will not request the Company to
significantly increase its allowance for loan losses, or that changes in the
real estate market or local or national economy will not cause the Company to
significantly increase its allowance for loan losses, thereby negatively
affecting the Company's financial condition and earnings.
In making loans, the Company recognizes that credit losses will be
experienced and that the risk of loss will vary with, among other things, the
type of loan being made, the creditworthiness of the borrower over the term of
the loan and, in the case of a secured loan, the quality of the security for the
loan. It is the Company's policy to review its loan portfolio, in accordance
with regulatory classification procedures, on a quarterly basis. Additionally,
the Company maintains a program of reviewing loan applications prior to making
the loan and immediately after loans are made in an effort to maintain loan
quality.
10
The following table sets forth information with respect to the
Company's allowance for loan losses at the dates indicated:
At December 31,
---------------------------------------------------------------
1998 1997 1996 1995 1994
--------- --------- --------- --------- ---------
(Dollars in Thousands)
Total loans outstanding, net(1) ........ $ 133,908 $ 96,280 $ 98,626 $ 100,271 $ 95,524
========= ========= ========= ========= =========
Average loans outstanding, net(1) ...... $ 110,059 $ 101,472 $ 101,726 $ 99,194 $ 97,302
========= ========= ========= ========= =========
Allowance balances (at beginning of
period) .............................. $ 783 $ 577 $ 455 $ 417 $ 450
Provision:
Residential .......................... 270 37 -- 24 49
Multi-family and commercial
real estate ........................ -- 83 139 27 9
Consumer ............................. -- -- -- 84 2
Net Charge-offs (recoveries):
Residential .......................... (17) (86) 17 97 83
Multi-family and commercial
real estate ........................ -- -- -- -- --
Consumer ............................. -- -- -- -- 10
--------- --------- --------- --------- ---------
Allowance balance (at end of period) ... $ 1,036 $ 783 $ 577 $ 455 $ 417
========= ========= ========= ========= =========
Allowance for loan losses as a percent
of total loans outstanding ........... .77% .85% .59% .45% .44%
Net loans charged off (recovery) as
a percent of average loans outstanding .01% (.08)% .02% .09% .10%
- ---------------
(1) Does not include loans available for sale.
11
The following table sets forth certain information regarding
the allocation of the allowance for loan losses by type.
At December 31,
--------------------------------------------------------------------------------------------------
1998 1997 1996 1995 1994
------------------- ------------------ ------------------ ----------------- ------------------
Percent of Percent of Percent of Percent of Percent of
Loans to Loans to Loans to Loans to Loans to
Total Total Total Total Total
Amount Loans Amount Loans Amount Loans Amount Loans Amount Loans
------ ------- ------ ------- ------ ------- ------ ------- ------ ------
(Dollars in Thousands)
Residential and home equity(1).. $ 487 86.64% $234 82.39% $197 81.22% $275 79.86% $262 84.47%
Multi-family and commercial
real estate................... 549 12.91 549 16.87 380 17.54 106 19.79 55 14.95
Consumer loans.................. - .25 - 0.41 - 0.48 - 0.35 - 0.58
Commercial loans(2)............. - .20 - 0.33 - 0.76 74 - 100 -
------ ------- ---- ------ ---- ------ --- ------- --- -------
Total allowance............... $1,036 100.00% $783 100.00% $577 100.00% $455 100.00% $417 100.00%
===== ====== === ====== === ====== === ====== === ======
- --------------------
(1) Includes residential construction loans.
(2) Includes loans secured by commercial equipment leases at December 31, 1995
and 1994.
12
Investment Activities
General. The investment policy of the Company, which is established by
senior management and approved by the Board of Directors, is based upon its
asset and liability management goals and is designed primarily to provide a
portfolio of high quality, diversified investments while seeking to optimize net
interest income within acceptable limits of safety and liquidity. The current
investment goal is to invest available funds in instruments that meet specific
requirements of the Company's asset and liability management goals. The
investment activities of the Company consist primarily of investments in fixed
and adjustable-rate mortgage-backed securities and U.S. Government agency bonds.
At December 31, 1998, the Company had a mortgage-backed securities portfolio
with a market value of $229.9 million, all of which was held for sale. At
December 31, 1998, the Company had an investment securities portfolio of
approximately $74.4 million consisting of U.S. Government treasury, agency
securities, and municipal and equity securities. The market value of such
securities at December 31, 1998 was $74.2 million.
Mortgage-Backed Securities. The Company also purchases mortgage-backed
securities guaranteed by Government National Mortgage Association ("GNMA") and
FNMA and issued by the FHLMC which are secured by fixed-rate and adjustable-rate
mortgages. GNMA mortgage-backed securities are pass-through certificates issued
and backed by the GNMA and are secured by interests in pools of mortgages which
are fully insured by the Federal Housing Administration ("FHA") or partially
guaranteed by the Department of Veterans' Affairs ("VA"). The FNMA
mortgage-backed securities consist of pass-through certificates and real estate
mortgage investment conduits ("REMICs"). FHLMC mortgage-backed securities
consist of both REMICs and pass-through certificates issued and guaranteed by
the FHLMC and secured by interests in pools of conventional mortgages originated
by savings institutions. As of December 31, 1998, the Company's mortgage-backed
securities amounted to $229.9 million, or 46.7% of total assets, all of which
are currently classified as available for sale.
REMICs held by the Company at December 31, 1998 consisted of
floating-rate tranche, in the amount of $3.0 million. The interest rate of all
of the Company's floating-rate securities adjusts monthly and provides the
institution with net interest margin protection in an increasing market interest
rate environment. The securities are backed by mortgages on one- to four-family
residential real estate and have contractual maturities up to 30 years. At
December 31, 1998, none of these securities are deemed to be "High Risk"
according to Federal Financial Institutions Examination Council ("FFIEC")
guidelines which have been adopted by the OTS. The securities are primarily
companion tranche to "PACs" and "TACs". PACs and TACs (Planned and Targeted
Amortization Classes) are designed to provide a specific principal and interest
cash-flow. Principal payments that are received in excess of the amount needed
for the PACs and TACs is allocated to the companion tranche. When the PACs and
TACs are repaid in full, all principal is then used to pay the companion
tranche.
Investment Securities. Income from investment securities provides a
significant source of income for the Company. The Company maintains a portfolio
of investment securities such as U.S. government and agency securities,
non-governmental securities, municipal bonds, debt and equity investments in
financial services firms, FHLB stock and interest-bearing deposits, in addition
to the Company's mortgage-backed securities portfolio. The Company is required
by federal regulation to maintain a minimum percentage of its liquidity base in
the form of qualifying long and short-term liquid assets. Currently, the
liquidity requirement is 4.0%. In addition, longer-term corporate, agency and
government debt securities may be held subject to similar creditworthiness,
ratings and maturity criteria. As of December 31, 1998, the Company's, liquidity
ratio was 19.02%. The balance of short-term security investments in excess of
regulatory requirements reflects management's response to the significantly
increasing percentage of savings deposits with short maturities. It is the
intention of management to maintain shorter maturities in the Company's
investment portfolio in order to better match
13
the interest rate sensitivities of its assets and liabilities. However, during
periods of rapidly declining interest rates, the yield on such investments also
declines at a faster rate than does the yield on long-term investments.
Investment decisions are made within policy guidelines established by
the Board of Directors and the Asset/Liability Committee. As of December 31,
1998, the Company's investment portfolio (including investment securities
classified as available for sale) (the "investment portfolio") totalled $74.4
million.
The following table sets forth the fair value or amortized cost (as
applicable) of the Company's investment portfolio, short-term investments, and
FHLB stock at the dates indicated. The amounts for securities held to maturity
are listed at amortized cost; amounts for securities available for sale are
listed at approximate market value.
Investment Portfolio. The following table sets forth the carrying value
(market value or amortized cost, as applicable) of the Company's investment
securities portfolio, short-term investments, FHLB stock, and mortgage-backed
securities at the dates indicated.
At December 31,
-----------------------------------
1998 1997 1996
-------- -------- --------
(In Thousands)
Investment Securities:
U.S. Treasury Securities ....... $ 5,032 $ 5,403 $ 5,055
FHLB bonds ..................... 10,154 17,284 22,000
Other agencies(1) .............. 8,178 4,168 19,160
Municipal bonds ................ 30,765 8,034 --
Mutual funds(2) ................ 1,285 1,222 1,147
FHLMC preferred stock(2) ....... -- -- 985
Capital trust securities(2)(3) . 11,647 1,060 --
Subordinated debt(3) ........... 750 250 250
-------- -------- --------
Total investment securities .. 67,811 37,061 48,597
-------- -------- --------
Interest-bearing deposits ....... 21,614 15,312 36,067
Federal funds sold .............. 2,000 2,000 2,000
FHLB of Pittsburgh stock ........ 5,344 1,701 1,691
Mortgage-backed securities(2) ... 229,883 111,486 93,410
Equity investments(2)(3) ........ 6,592 1,166 499
-------- -------- --------
Total Investments ............ $333,244 $168,726 $182,264
======== ======== ========
- ----------------
(1) Consists of FNMA, FHLMC, SLMA debentures and certificates of deposit.
(2) Classified as available for sale and carried at approximate fair value. All
other investment securities are classified as held to maturity.
(3) Investments held by the Company in 1998 and Thistle Group Holdings, Inc. in
prior years.
14
Investment Portfolio Maturities. The following table sets forth certain
information regarding the carrying values, weighted average yields and
maturities of the Company's investment securities portfolio at December 31,
1998.
As of December 31, 1998
One Year or Less One to Five Years Five to Ten Years More than Ten Years Total Investment Securities
------------------ ------------------- ----------------- ------------------- ---------------------------
Carrying Average Carrying Average Carrying Average Carrying Average Carrying Average Market
Value Yield Value Yield Value Yield Value Yield Value Yield Value
------- ------- ------- ------- ------- ------- -------- ------- ------- ------- -------
(Dollars in Thousands)
U.S. Treasury Securities... $ - -% $5,032 7.24% $ - -% $ - -% $ 5,032 7.24% $ 5,356
FHLB bonds and notes....... - - - - - - 10,154 7.40 10,154 7.40 9,768
Other agencies(1).......... 178 5.25 - - 3,000 6.02 5,000 6.83 8,178 6.50 8,163
Municipal bonds............ - - - - - - 30,765 4.89 30,765 4.89 30,671
Subordinated debt ......... - - - - 750 8.25 - - 750 8.25 750
Capital securities......... - - - - 2,750 8.05 9,024 8.57 11,774 8.44 11,647
Mutual funds............... 1,285 5.01 - - - - - - 1,285 5.01 1,285
Mortgage-backed securities:
GNMA pass-through........ - - - - 3,628 7.14 130,588 5.68 134,216 5.72 134,781
FNMA pass-through........ - - - - - - 64,852 6.45 64,852 6.45 65,129
FHLMC pass-through....... - - 1,339 6.50 3,245 8.97 21,928 6.55 26,512 6.84 27,068
FHLMC REMICs............. - - - - 602 5.91 2,392 6.06 2,994 6.03 2,905
------ ------ ------ ------ ------- ---- ------- ---- ------- ---- -------
Total.................... $1,463 5.04% $6,371 7.08% $13,975 7.51% $274,703 6.03% $296,512 6.11% $297,523
====== ====== ====== ====== ======= ==== ======= ==== ======= ==== =======
- ---------------
(1) Consists of FNMA, FHLMC, and SLMA debentures and certificates of deposit.
15
Unrealized holding gains and losses for trading securities are included
in earnings. Unrealized gains and losses for available-for-sale securities are
excluded from earnings and reported net of income tax effect as a separate
component of stockholders' equity until realized. Investments classified as held
to maturity are accounted for at amortized cost.
Sources of Funds
General. Deposits are the major source of the Company's funds for
lending and other investment purposes. In addition to deposits, the Company
derives funds from loan and mortgage-backed securities principal repayments, and
proceeds from the sale of loans, mortgage-backed securities and investment
securities. Loan and mortgage-backed securities principal repayments are a
relatively stable source of funds, while deposit inflows are significantly
influenced by general interest rates and money market conditions. Borrowings may
be used on a short-term basis to compensate for reductions in the availability
of funds from other sources. They also may be used on a longer-term basis for
general business purposes.
Deposits. The Company offers a wide variety of deposit accounts,
although a majority of such deposits are in fixed-term, market-rate certificate
accounts. Deposit account terms vary, primarily as to the required minimum
balance amount, the amount of time that the funds must remain on deposit and the
applicable interest rate.
The Company also offers standardized individual retirement accounts
("IRAs"), as well as qualified defined master plans for self- employed
individuals. IRAs are marketed in the form of all of the available savings
deposits and certificates.
The Company had no brokered certificates of deposit as of December 31,
1998.
The Company pays interest rates on its certificate accounts which are
competitive in its market. Interest rates on deposits are reviewed weekly by
management based on a combination of factors, including the need for funds and
local competition.
Deposits in the Company as of December 31, 1998 were represented by
various types of savings programs described below.
16
Deposit Portfolio. Deposits in the Company as of December 31, 1998,
were represented by various types of savings programs described below.
Minimum Balance as of Percentage of
Category Term Interest Rate(1) Balance Amount December 31, Total Deposits
- -------- ---- ---------------- -------------- ------------ --------------
1998
----
(In Thousands)
Regular Savings None 2.75% $ 10 $33,016 11.95%
Senior Club Savings None 3.50 500 67,215 24.32
Christmas and Vacation Clubs None 2.00 10 396 .14
NOW Accounts None 1.48 10 17,143 6.20
Money Market Accounts None 3.64 1,000 13,857 5.01
Non-interest Deposits None - 300 999 .36
Certificates of Deposit:
Fixed Term, Fixed Rate 3 Months 3.40 500 599 .22
Fixed Term, Fixed Rate 6 Months 4.13 500 7,997 2.89
Fixed Term, Fixed Rate 9 Months 4.13 500 1,125 .41
Fixed Term, Fixed Rate 12 Months 4.60 500 95,151 34.43
Fixed Term, Fixed Rate 15 Months 4.70 500 1,601 .58
Fixed Term, Fixed Rate 18 Months 4.84 500 7,484 2.71
Fixed Term, Fixed Rate 24 Months 4.84 500 1,837 .66
Fixed Term, Fixed Rate 30 Months 5.08 500 13,472 4.87
Fixed Term, Fixed Rate 60 Months 5.08 1,000 14,498 5.25
------- ------
Total deposits $276,390 100.00%
======
Accrued interest
on deposits 41
--------
Total $276,431
========
- -------------------------
(1) Interest rate offerings as of December 31, 1998.
Time Deposits by Rate. The following table sets forth the time deposits
in the Company classified by interest rate as of the dates indicated.
As of December 31,
-------------------------------
1998 1997 1996
---- ---- ----
(In Thousands)
Weighted average rate:
3.00-3.99%................................ $ 6,850 $ 9,102 $ 14,497
4.00-4.99%................................ 19,590 4,858 19,199
5.00-5.99%................................ 112,253 91,505 65,362
6.00-6.99%................................ 5,071 5,586 19,440
Accrued interest on certificate accounts.. 9 10 16
------ ------ ------
Total................................... $143,773 $111,061 $118,514
======= ======= =======
17
Time Deposits Maturity Schedule. The following table sets forth the
amount and maturities of time deposits at December 31, 1998.
Amount Due
-------------------------------------------------------------------------
After
December 31, December 31, December 31, December 31,
Interest Rate 1999 2000 2001 2001 Total
- ------------- ----------- ----------- ----------- ------------- --------------
(In Thousands)
2.99% or less................. $ $ $ $ $
3.00-3.99%.................... 6,850 - - - 6,850
4.00-4.99%.................... 15,863 3,727 - - 19,590
5.00-5.99%.................... 91,369 9,154 4,652 7,078 112,253
6.00-6.99%.................... 4,014 1,057 5,071
Accrued Interest on
Certificate Accounts.......... 9 - - - 9
-------- ------- ------ ------ --------
Total $118,105 $13,938 $4,652 $7,078 $143,773
======= ====== ===== ===== =======
Jumbo Certificates of Deposit. The following table indicates the amount
of the Company's certificates of deposit of $100,000 or more by time remaining
until maturity as of December 31, 1998.
Certificates
Maturity Period of Deposits
- --------------- -----------
(In Thousands)
Within three months................. $ 4,331
Three through six months............ 1,317
Six through twelve months........... 7,019
Over twelve months.................. 1,965
------
$14,632
=======
18
Savings Deposit Activity. The following table sets forth the savings
activities of the Company for the periods indicated:
Year Ended December 31,
------------------------------------------------------------
1998 1997 1996 1995 1994
--------- --------- --------- --------- ---------
(In Thousands)
Deposits ................. $ 434,531 $ 337,170 $ 336,937 $ 305,790 $ 309,093
Withdrawals .............. 397,028 335,365 340,105 305,593 318,822
Net increase (decrease)
before interest credited 37,503 1,805 (3,168) 197 (9,729)
Deposits sold ............ (37,238) -- -- --
Interest credited ........ 8,329 9,449 9,532 8,750 6,654
--------- --------- --------- --------- ---------
Net increase (decrease) in
savings deposits ....... $ 45,832 $ (25,984) $ 6,364 $ 8,947 $ (3,075)
========= ========= ========= ========= =========
Borrowings
Deposits are the primary source of funds of the Company's lending and
investment activities and for its general business purposes. The Bank may obtain
advances from the FHLB of Pittsburgh to supplement its supply of lendable funds.
Advances from the FHLB of Pittsburgh are typically secured by a pledge of the
Bank's stock in the FHLB of Pittsburgh and a portion of the Company's first
mortgage loans and certain other assets. During 1998, the Company utilized FHLB
borrowings to leverage its balance sheet. The Bank, if the need arises, may also
access the Federal Reserve Company discount window to supplement its supply of
lendable funds and to meet deposit withdrawal requirements. At December 31,
1998, the Bank had $106.9 million in advances outstanding from the FHLB of
Pittsburgh at fixed rates of interest, all of which were matched to a specific
investment at a positive interest rate spread. Most of these advances provide
for a prepayment penalty. At December 31, 1998, the Company had no other
borrowings.
The following table sets forth certain information as to FHLB advances
at the dates indicated. Included in the table below is a $1,884,000 Community
Investment Program loan ("CIP") from the FHLB Pittsburgh used to finance the
Bank's low income housing project to a developer/manager of Section 8 housing.
As of and For the
Year Ended December 31,
-----------------------------------------
1998 1997 1996
(Dollars In Thousands)
FHLB advances......................... $106,884 $7,884 $7,884
Weighted average interest rate of
FHLB advances....................... 5.20% 5.53% 5.53%
Maximum amount of advances at
any month end........................ $106,884 $7,884 $7,884
Average amount of advances............ $ 38,884 $7,884 $7,884
Weighted average interest rate
of average amount of advances....... 5.03% 5.53% 5.53%
19
Subsidiaries and Joint Venture Activity
The only wholly-owned subsidiary of the Company is the Bank.
The Bank is permitted to invest up to 2% of its assets in the capital
stock of, or secured or unsecured loans to, subsidiary corporations, with an
additional investment of 1% of assets when such additional investment is
utilized primarily for community development purposes. Under such limitations,
as of December 31, 1998, the Bank was authorized to invest up to approximately
$9.8 million in the stock of, or loans to, service corporations (based upon the
2% limitation). As of December 31, 1998, the net book value of the Bank's
investment in stock, unsecured loans, and conforming loans in its service
corporations was $136,000.
The Bank has two wholly owned subsidiary corporations, Montgomery
Service Corporation ("MSC") and Ridge Service Corporation ("RSC"). MSC engages
in the management of real estate. RSC is presently inactive.
Personnel
As of December 31, 1998, the Company had 63 full-time employees and 17
part-time employees. The employees are not represented by a collective
bargaining unit. The Company believes its relationship with its employees to be
satisfactory.
Competition
The Company faces strong competition in its attraction of savings
deposits, which are its primary source of funds for lending, and in the
origination of real estate loans. The Company's competition for savings deposits
and loans historically has come from other thrift institutions and commercial
banks located in the Company's market area. The Company also competes with
mortgage banking companies for real estate loans, and faces competition for
investor funds from short-term money market securities and corporate and
government securities.
The Company's market area generally includes Philadelphia, Bucks,
Delaware, Chester and Montgomery Counties, which comprise the Philadelphia
metropolitan area. The Company's primary lending area consists of the
Roxborough, Manayunk, Overbrook and Andorra neighborhoods located in the far
northwest sections of Philadelphia and South Philadelphia. The Company has no
significant loan concentrations in any one part of its primary lending area.
The Company competes for loans by charging competitive interest rates
and loan fees, remaining efficient and providing a wide range of services to its
customers. The Company offers all consumer banking services such as checking
accounts, certificates of deposit, retirement accounts, consumer and mortgage
loans and ancillary services such as safe deposit boxes, convenient offices and
drive-up facilities, an automated teller machine and overdraft protection. These
services help the Company compete for deposits, in addition to offering
competitive rates on deposits.
Legislative and regulatory measures have significantly expanded the
range of services which savings institutions can offer the public, such as
demand deposits, trust services,and consumer and commercial lending. These
changes, combined with increasingly sophisticated depositors, have dramatically
increased competition for savings dollars among savings institutions and other
types of investment entities, as well as with commercial banks in regard to
loans, checking accounts and other types of financial services. In addition,
large conglomerates and investment banking firms have entered the market for
financial services. The competition between commercial banks and savings
institutions is also increased by allowing banks to acquire healthy savings
institutions, imposing similar capital
20
requirements on banks and savings institutions and placing certain investment
and other regulatory restrictions on savings institutions which are similar to
those imposed on banks. Thus, in the future, the Company, like other savings
institutions, will face increased competition to provide savings and lending
services and, in order to remain competitive, will have to be innovative and
knowledgeable about its market, as well as to continue to exert effective
controls over its costs.
Regulation
Set forth below is a brief description of certain laws which relate to
the Bank and the Company. The description is not complete and is qualified in
its entirety by references to applicable laws and regulation.
Regulation of the Company
General. The Company is required to register and file reports with the
OTS and is subject to regulation and examination by the OTS. In addition, the
OTS has enforcement authority over the Company and any non-savings institution
subsidiaries. This will permit the OTS to restrict or prohibit activities that
it determines to be a serious risk to the Bank. This regulation is intended
primarily for the protection of depositors and not for the benefit of
stockholders.
QTL Test. Since the Company owns only one savings institution, it is
able to diversify its operations into activities not related to banking, but
only so long as the Bank satisfies the QTL test. If the Company controls more
than one savings institution, it would lose the ability to diversify its
operations into nonbanking related activities, unless such other savings
institutions each also qualify as a QTL or were acquired in a supervised
acquisition.
Restrictions on Acquisitions. The Company must obtain approval from the
OTS before acquiring control of any other SAIF-insured savings institution. No
person may acquire control of a federally insured savings institution without
providing at least 60 days written notice to the OTS and giving the OTS an
opportunity to disapprove the proposed acquisition.
Regulation of the Bank
General. As a federally-chartered, SAIF-insured savings bank, the Bank
is subject to extensive regulation by the OTS and the FDIC. Lending activities
and other investments must comply with various federal statutory and regulatory
requirements. The Bank is also subject to certain reserve requirements
promulgated by the Federal Reserve Board.
The OTS, in conjunction with the FDIC, regularly examines the Bank and
prepares reports for the consideration of the Bank's Board of Directors on any
deficiencies that they find in the Bank's operations. The Bank's relationship
with its depositors and borrowers is also regulated to a great extent by federal
law, especially in such matters as the ownership of savings accounts and the
form and content of the Bank's mortgage documents.
The Bank must file reports with the OTS and the FDIC concerning its
activities and financial condition, in addition to obtaining regulatory
approvals prior to entering into certain transactions such as mergers with or
acquisitions of other savings institutions. This regulation and supervision
establishes a comprehensive framework of activities in which an institution can
engage and is intended primarily for the protection of depositors. The
regulatory structure also gives the regulatory authorities extensive discretion
in connection with their supervisory and enforcement activities and examination
policies,
21
including policies with respect to the classification of assets and the
establishment of adequate loan loss reserves for regulatory purposes. Any change
in such regulations, whether by the OTS, the FDIC or the Congress could have a
material adverse impact on the Company, the Bank and their operations.
Insurance of Deposit Accounts. The Bank's deposit accounts are insured by
the SAIF to a maximum of $100,000 for each insured member (as defined by law and
regulation). Insurance of deposits may be terminated by the FDIC upon a finding
that the institution has engaged in unsafe or unsound practices, is in an unsafe
or unsound condition to continue operations or has violated any applicable law,
regulation, rule, order or condition imposed by the FDIC or the institution's
primary regulator. During the year ended December 31, 1999, the Bank Paid
$145,000 in deposit insurance premiums, including assessments used to repay the
Financing Corporation bond obligation (fico bonds).
Dividend and Other Capital Distribution Limitations. Current OTS
regulations require the Bank to give the OTS 30 days advance notice of any
proposed declaration of dividends to the Company and the OTS has the authority
under its supervisory powers to prohibit the payment of dividends to the
Company.
Current OTS regulations impose limitations upon all capital
distributions by savings institutions, such as cash dividends, payments to
repurchase or otherwise acquire its shares, payments to shareholders of another
institution in a cash-out merger and other distributions charged against
capital. The rule establishes three tiers of institutions, based primarily on an
institution's capital level. An institution that exceeds all requirements before
and after a proposed capital distribution ("Tier 1 institution") and has not
been advised by the OTS that it is in need of more than the normal supervision
can, after prior notice, but without the approval of the OTS, make capital
distributions during a calendar year equal to the greater of (i) 100% of its net
income to date during the calendar year plus the amount that would reduce by
one-half its "surplus capital ratio" (the excess over its capital requirements)
at the beginning of the calendar year, or (ii) 75% of its net income over the
most recent four quarter period. Any additional capital distributions require
prior regulatory approval. As of December 31, 1998, the Bank was a Tier 1
institution. In the event the Bank's capital fell below its requirement or the
OTS notified it that it was in need of more than normal supervision, the Bank's
ability to make capital distributions could be restricted. In addition, the OTS
could prohibit a proposed capital distribution by any institution, which would
otherwise be permitted by the regulation, if the OTS determines that such
distribution would constitute an unsafe or unsound practice.
Qualified Thrift Lender Test. Savings institutions are required to meet
a qualified thrift lender ("QTL") test. If the Bank maintains an appropriate
level of Qualified Thrift Investments (primarily residential mortgages and
related investments, including certain mortgage-backed securities) ("QTIs") and
otherwise qualifies as a QTL, it will continue to enjoy full borrowing
privileges from the FHLB of Pittsburgh. The required percentage of QTIs is 65%
of portfolio assets (defined as all assets minus intangible assets, property
used by the institution in conducting its business and liquid assets equal to
10% of total assets). Certain assets are subject to a percentage limitation of
20% of portfolio assets. In addition, savings associations may include shares of
stock of the FHLBs, FNMA and FHLMC as qualifying QTIs. As of December 31, 1998,
the Bank was in compliance with its QTL requirement with 81.58% of its assets
invested in QTIs.
Loans-to-One Borrower. Under the HOLA, as amended, savings institutions
are subject to the national bank limits on loans-to-one borrower. Generally, a
savings association may not make a loan or extend credit to a single or related
group of borrowers in excess of 15% of the association's unimpaired capital and
surplus. An additional amount may be lent, equal to 10% of unimpaired capital
and surplus, if such loan is secured by readily-marketable collateral, which is
defined to include certain securities and bullion, but generally does not
include real estate. The Bank does not have any loans-to-one borrower which
exceed these limits.
22
Federal Home Loan Bank System. The Bank is a member of the FHLB of
Pittsburgh, which is one of 12 regional FHLBs that administers the home
financing credit function of savings associations. Each FHLB serves as a reserve
or central bank for its members within its assigned region. It is funded
primarily from proceeds derived from the sale of consolidated obligations of the
FHLB System. It makes loans to members (i.e., advances) in accordance with
policies and procedures established by the Board of Directors of the FHLB.
As a member, the Bank is required to purchase and maintain stock in the
FHLB of Pittsburgh in an amount equal to at least 1% of its aggregate unpaid
residential mortgage loans, home purchase contracts or similar obligations at
the beginning of each year.
Federal Reserve System. The Federal Reserve Board requires all
depository institutions to maintain non-interest bearing reserves at specified
levels against their transaction accounts (primarily non-interest checking and
interest-bearing checking accounts) and non-personal time deposits. The balances
maintained to meet the reserve requirements imposed by the Federal Reserve Board
may be used to satisfy the liquidity requirements that are imposed by the OTS.
Regulatory Capital Requirements. OTS capital regulations require
savings institutions to meet three capital standards: (1) tangible capital equal
to 1.5% of total adjusted assets, (2) a leverage ratio (core capital) equal to
4% of total adjusted assets and (3) a risk-based capital requirement equal to
8.0% of total risk-weighted assets. The Bank met these capital standards at
December 31, 1998.
As shown below, the Bank's regulatory capital exceeded all minimum
regulatory capital requirements applicable to it as of December 31, 1998:
Percent of
Adjusted
Amount Assets
------ ------
(Dollars in Thousands)
Tangible Capital:
Actual capital......................... $60,672 12.9%
Regulatory requirement................. 7,065 1.5
------ ----
Excess................................. $53,607 11.4%
====== ====
Core Capital:
Actual capital......................... $60,672 12.9%
Regulatory requirement................. 14,129 3.0
------ ----
Excess................................. $46,543 9.9%
====== ====
Risk-Based Capital:
Actual capital......................... $61,708 46.6%
Regulatory requirement................. 10,605 8.0
------ ----
Excess................................. $51,103 38.6%
====== ====
Item 2. Properties
- ------------------
The Company's and Bank's executive offices are located at 6060 Ridge
Avenue in Philadelphia, Pennsylvania. The Bank conducts its business through six
offices, all of which are located in the Philadelphia, Pennsylvania area. The
following table sets forth the location of each of the Bank's offices, the year
the office was first acquired and the net book value of each office. The Bank
owns five of its six office locations.
23
Year
Owned Facility Net Book
or Opened or Value as of
Office Location Leased Acquired December 31, 1998
- ---------------------------------- ----------- --------- -------------------
(In Thousands)
Main Office Owned 1958 $212
6060 Ridge Avenue
Philadelphia, PA 19128
7568 Ridge Avenue Owned 1962 8
Philadelphia, PA 19128
8345 Ridge Avenue Owned 1974 90
Philadelphia, PA 19128
4370 Main Street Leased 1993 44(1)
Philadelphia, PA 19127
Church Lane & Chester Avenue Owned 1982 126
Yeadon, PA 19050
6503-15 Haverford Avenue Owned 1982 258
----
Philadelphia, PA 19151
$738
====
- -------------------------
(1) Includes leasehold improvements. The lease expires on December 31,
1999, with an option to renew to 2004.
As of December 31, 1998, the net book value of land, buildings,
furniture, and equipment owned by the Company, less accumulated depreciation
totalled $2.5 million.
Item 3. Legal Proceedings
- --------------------------
The Company is periodically involved as a plaintiff or defendant in
various legal actions, such as actions to enforce liens, condemnation
proceedings on properties in which the Company holds mortgage interests, matters
involving the making and servicing of mortgage loans and other matters incident
to the Company's business. In the opinion of management, none of these actions
individually or in the aggregate is believed to be material to the financial
condition or results of operations of the Company.
Item 4. Submission of Matters to a Vote of Security Holders
- ------------------------------------------------------------
No matters were submitted to a vote of security holders during the fourth
quarter of the fiscal year ended December 31, 1998.
24
Part II
Item 5. Market for the Registrant's Common Equity and Related Stockholder
Matters
- --------------------------------------------------------------------------------
The information contained in "Note 18 - Quarterly Financial Data" in the
Notes to Consolidated Financial Statements in the Corporation's 1998 Annual
Report to Stockholders (the "Annual Report") is incorporated herein by
reference.
Item 6. Selected Financial Data
- --------------------------------
The information contained in the table captioned "Selected Consolidated
Financial Data" in the Annual Report is incorporated herein by reference.
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
- --------------------------------------------------------------------------------
The information contained in the section captioned "Management's
Discussion and Analysis of Financial Condition and Results of Operations" in the
Annual Report is incorporated herein by reference.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
- --------------------------------------------------------------------
The information contained in the section captioned "Market Risk Analysis"
in the Annual Report is incorporated herein by reference.
Item 8. Financial Statements and Supplementary Data
- ----------------------------------------------------
The Company's consolidated financial statements are included in the Annual
Report on pages 22-37 and are incorporated herein by reference.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
- --------------------------------------------------------------------------------
None.
Part III
Item 10. Directors and Executive Officers of the Registrant
- ------------------------------------------------------------
The information contained under the sections captioned "Section 16(a)
Beneficial Ownership Reporting Compliance" and "Information with Respect to
Nominees for Director, Directors Continuing in Office, and Executive Officers -
Election of Directors" and "- Biographical Information" in the 1999 Proxy
Statement are incorporated herein by reference.
Item 11. Executive Compensation
- --------------------------------
The information contained under the section captioned "Proposal I --
Election of Directors - Executive Compensation" in the Proxy Statement is
incorporated herein by reference.
24
Item 12. Security Ownership of Certain Beneficial Owners and Management
- ------------------------------------------------------------------------
(a) Security Ownership of Certain Beneficial Owners
-----------------------------------------------
Information required by this item is incorporated herein by
reference to the Section captioned "Voting Securities and
Principal Holders Thereof" of the Proxy Statement.
(b) Security Ownership of Management
--------------------------------
Information required by this item is incorporated herein by
reference to the section captioned "Proposal I -- Election of
Directors" of the Proxy Statement.
(c) Management of the Corporation knows of no arrangements,
including any pledge by any person of securities of the
Corporation, the operation of which may at a subsequent date
result in a change in control of the registrant.
Item 13. Certain Relationships and Related Transactions
- --------------------------------------------------------
The information required by this item is incorporated herein by
reference to the section captioned "Proposal I -- Election of Directors" and
"Voting Securities and Principal Holders Thereof" of the Proxy Statement.
Part IV
Item 14. Exhibits, Financial Statements, and Reports on Form 8-K
- -----------------------------------------------------------------
(a) Listed below are all financial statements and exhibits filed
as part of this report, and are incorporated by reference.
1. The consolidated statements of financial conditions
of the Company and subsidiary as of December 31, 1998
and 1997, and the related consolidated statements of
income, changes in stockholders' equity and cash
flows for each of the years in the three year period
ended December 31, 1998, together with the related
notes and the independent auditors' report of
Deloitte & Touche LLP independent certified public
accountants.
2. Schedules omitted as they are not applicable.
3. Exhibits
The following Exhibits are filed as part of this
report:
3.1 Articles of Incorporation*
3.2 Bylaws*
10.1 1992 Stock Option Plan of Roxborough-Manayunk Federal Savings Bank*
10.2 1992 Management Stock Bonus Plan of Roxborough-Manayunk Bank*
10.3 1994 Stock Option Plan of Roxborough-Manayunk Bank*
10.4 1994 Management Stock Bonus Plan of Roxborough-Manayunk Bank*
10.5 Employment Agreement with Jerry Naessens*
13 1998 Annual Report to Stockholders
21 Subsidiaries of the Registrant (See "Business of the Company -
Subsidiaries and Joint Venture Activity" at "Item 1. Business")
23 Consent of Independent Auditors
27 Financial Data Schedule (electronic filing only)
26
(b) No Reports on Form 8-K were filed during the last quarter of
the fiscal year covered by this Report.
- ----------------
* Incorporated by reference to the Registrant's Form S-1 Registration
Statement No. 333-48749.
27
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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 as of March 31, 1999.
THISTLE GROUP HOLDINGS, CO.
By: /s/ John F. McGill, Jr.
----------------------------------
John F. McGill, Jr., President and
Chief Executive Officer
(Duly Authorized Representative)
Pursuant to the requirement of the Securities Exchange Act of 1934, this
report has been signed below on March 31, 1999 by the following persons on
behalf of the registrant and in the capacities indicated.
/s/ John F. McGill, Jr. /s/ Jerry A. Naessens
- ------------------------------------------------ --------------------------------------------
John F. McGill, Jr. Jerry A. Naessens
President, Chief Executive Officer, and Chairman Chief Financial Officer and Director
(Principal Executive Officer) (Principal Financial and Accounting Officer)
/s/ Francis E. McGill, III /s/ Add B. Anderson, Jr.
- ------------------------------------------------ --------------------------------------------
Francis E. McGill, III Add B. Anderson, Jr.
Secretary and Director Director
- ------------------------------------------------ --------------------------------------------
Patrick T. Ryan Michael G. Crofton
Director Director
- ------------------------------------------------
William A. Lamb, Sr.
Director