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 March 31, 1999
OR
( ) TRANSITION 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.
---------------------------
(Exact name of registrant as specified in its charter)
Pennsylvania 23-2960768
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(State or other jurisdiction of (IRS 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
N/A
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Former name, former address and former fiscal year,
if changed since last report.
Indicate by check _ 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 May 7 , 1999
Class Outstanding
- --------------------------------------------------------------------------------
$.10 par value common stock 7,954,218 shares
THISTLE GROUP HOLDINGS, CO.
FORM 10-Q
FOR THE QUARTER ENDED MARCH 31, 1999
INDEX
Page
Number
PART 1 - UNAUDITED 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................... 7
Item 3. Quantitative and Qualitative Disclosures About
Market Risk........................................... 12
PART II - OTHER INFORMATION
Item 1. Legal Proceedings..................................... 13
Item 2. Changes in Securities................................. 13
Item 3. Defaults upon Senior Securities....................... 13
Item 4. Submission of Matters to a Vote of Security Holders... 13
Item 5. Other Information..................................... 13
Item 6. Exhibits and Reports on Form 8-K...................... 13
SIGNATURES
THISTLE GROUP HOLDINGS, CO.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(IN THOUSANDS)
March 31, December 31,
1999 1998
(Unaudited)
ASSETS
Cash on hand and in banks.............................................. $ 2,526 $ 2,522
Interest-bearing deposits.............................................. 18,242 23,614
------ -------
Total cash and cash equivalents............................... 20,768 26,136
Investments held to maturity (approximate fair
value of $53,958)............................................. -- 54,129
Investments available for sale at fair value
(amortized cost of $98,117 and $20,133)....................... 97,444 20,274
Mortgage-backed securities available for sale
at fair value (amortized cost of $220,078 and $228,574)....... 220,878 229,883
Loans receivable (net of allowance for loan losses of
$1,061 and $1,036)............................................ 133,062 133,908
Loans held for sale.................................................... 2,744 2,558
Accrued interest receivable............................................ 3,329 3,265
Federal Home Loan Bank stock - at cost ................................ 6,344 5,344
Real estate acquired through foreclosure - net ........................ 104 82
Office properties and equipment - net ................................. 2,424 2,487
Cash surrender value of life insurance................................. 10,933 10,810
Prepaid expenses and other assets ..................................... 1,598 3,163
Deferred income taxes.................................................. 216 --
TOTAL ASSETS.................................................. $499,844 $492,039
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits...................................................... $276,571 $276,390
Accrued interest payable...................................... 558 469
Advances from borrowers for taxes and insurance............... 1,187 2,229
FHLB advances................................................. 126,884 106,884
Account payable and accrued expenses.......................... 3,755 3,465
Dividends payable ............................................ 401 450
Accrued income taxes ......................................... 859 1,476
Deferred income taxes......................................... -- 447
TOTAL LIABILITIES ................................... 410,215 391,810
======== =========
Commitments and Contingencies
Stockholders' Equity
Preferred stock, no par value - 10,000,000 shares authorized,
none issued in 1999 and 1998.................................. -- --
Common stock - $.10 par, 40,000,000 shares authorized,
8,999,989 issued in 1999 and 1998; 8,024,018 outstanding
March 31, 1999 and8,999,989 outstanding December 31, 1998..... 900 900
Additional paid-in capital.................................... 93,718 94,616
Employee Stock Ownership Plan ................................ (5,971) (6,075)
Treasury stock at cost, 975,971 shares at March 31, 1999...... (9,730) --
Accumulated other comprehensive income ....................... 78 957
Retained earnings - partially restricted ..................... 10,634 9,831
-------- --------
Total stockholders' equity .......................... 89,629 100,229
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY ............................$499,844 $492,039
======== ========
See notes to unaudited consolidated financial statements.
1
THISTLE GROUP HOLDINGS, CO.
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS)
(Unaudited)
For the Three Months
Ended March 31,
1999 1998
INTEREST INCOME:
Interest on loans $2,749 $2,092
Interest on mortgage-backed securities 3,414 1,862
Interest and dividends on investments 1,607 873
------ ------
Total interest income 7,770 4,827
------ ------
INTEREST EXPENSE:
Interest on deposits 2,853 2,511
Interest on borrowed money 1,447 116
------ ------
Total interest expense 4,300 2,627
------ ------
NET INTEREST INCOME 3,470 2,200
PROVISION FOR LOAN LOSSES 30 15
------ ------
NET INTEREST INCOME AFTER PROVISION
FOR LOAN LOSSES 3,440 2,185
------ ------
OTHER INCOME:
Service charges and other fees 99 111
Gain on sale of investments 2 --
Rental income 47 11
-- --
Total other income 148 122
------ ------
OTHER EXPENSES:
Salaries and employee benefits 1,015 915
Occupancy and equipment 265 227
Federal insurance premium 42 36
Professional fees 119 72
Advertising and promotion 29 38
Other 451 356
------ ------
Total other expenses 1,921 1,644
------ ------
INCOME BEFORE INCOME TAXES 1,667 663
------ ------
INCOME TAXES 462 243
------ ------
NET INCOME $1,205 $420
======= ======
BASIC EARNINGS PER SHARE $0.16 N/A
DILUTED EARNINGS PER SHARE $0.15 N/A
WEIGHTED AVERAGE SHARES
OUTSTANDING - BASIC 7,690,169 N/A
WEIGHTED AVERAGE SHARES
OUTSTANDING - DILUTED 7,857,438 N/A
See notes to unaudited consolidated financial statements.
2
THISTLE GROUP HOLDINGS, CO.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(Unaudited)
For the Three Months
Ended March 31
--------------
1999 1998
---- ----
OPERATING ACTIVITIES:
Net income $1,205 $420
Adjustments to reconcile income to net cash provided
by operating activities:
Provision for loan loss 30 15
Depreciation 105 57
Amortization of stock benefit plans 109 --
Amortization of net premiums (discounts) on:
Loans purchased 38 15
Investments (386) (216)
Mortgage-backed securities 399 20
Gain on sale of investments (2) --
Decrease in other assets 1,162 877
Decrease in other liabilities (287) (2,986)
------ -------
Net cash provided by (used in) operating activities 2,373 (1,798)
------ -------
INVESTING ACTIVITIES:
Principal collected on:
Mortgage-backed securities 18,085 6,954
Loans 8,737 5,845
Loans originated (6,527) (6,257)
Loans acquired (1,650) (324)
Purchases of:
Investments (26,979) (1,691)
Mortgage-backed securities (9,990) (3,448)
Office properties and equipment (42) (52)
FHLB Stock (1,000) --
Proceeds from sale of investments 3,011 --
Maturities and calls of investments 500 3,000
-------- --------
Net cash (used in) provided by investing activities (15,855) 4,027
-------- --------
FINANCING ACTIVITIES:
Net increase in deposits 181 7,671
Net decrease in advances from borrowers for
taxes and insurance (1,042) (1,038)
Net increase in FHLB borrowings 20,000 --
Purchase of treasury stock (10,837) --
Net proceeds from exercise of stock options 214 --
Cash dividends (402) (41)
-------- --------
Net cash provided by financing activities 8,114 6,592
-------- --------
Net (decrease) increase in cash and cash equivalents (5,368) 8,821
Cash and cash equivalents, beginning of period 26,136 20,151
-------- --------
Cash and cash equivalents, end of period $20,768 $28,972
======== ========
SUPPLEMENTAL DISCLOSURES
Interest paid on deposits and funds borrowed $4,211 $2,623
Income taxes paid 46 257
Noncash transfers from loans to real estate owned 27 108
Noncash transfer of investments held to maturity to
investments available for sale 54,129 --
See notes to unaudited consolidated financial statements
3
THISTLE GROUP HOLDINGS, CO.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
NOTE 1 - PRINCIPLES OF CONSOLDIATION
The unaudited consolidated financial statements contained herein for the
periods prior to July 14, 1998 are those of Thistle Group Holdings, Inc.,
(the "Mid-Tier Holding Company"), which was organized for the purpose of
holding all of the capital stock of Roxborough-Manayunk Bank (the "Bank").
The audited and unaudited consolidated statements contained herein for the
periods subsequent to July 14, 1998 are those of Thistle Group Holdings,
Co., (the "Company"), and its subsidiary, the Bank, which was organized in
March of 1998. The Company's business is conducted principally through the
Bank. All significant intercompany accounts and transactions have been
eliminated in consolidation. See also Note 3 - Conversion and
Reorganization.
NOTE 2 - BASIS OF PRESENTATION
The accompanying unaudited 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
period ended March 31, 1999 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 included in the Company's
Annual Report to stockholders for the year ended December 31, 1998.
NOTE 3 - CONVERSION AND REORGANIZATION
On July 14, 1998, the Mid-Tier Holding Company completed its mutual to
stock conversion (the "Conversion and Reorganization"). In connection with
the Conversion and Reorganization, the Company, a unitary thrift holding
company incorporated in Pennsylvania, sold 7,856,370 shares of its common
stock in subscription and community offerings at $10.00 per share.
Furthermore, based on an independent appraisal of the Company, existing
minority stockholders of the Mid-Tier Holding Company converted each share
of the Mid-Tier Holding Company into 5.5516 shares of common stock of the
Company (the "Exchange"). Upon completion of the Conversion and
Reorganization, the Mid-Tier Holding Company and FJF Financial, M.H.C. were
merged with and into the Bank and the Bank changed its name to
Roxborough-Manayunk Bank and became the wholly owned subsidiary of the
Company. A total of 8,999,989 shares of common stock of the Company
(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 Bank 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-current adjusted balance of the savings deposits then
held, before any distributions may be made with respect to capital stock.
The common stock of the Company began trading on the NASDAQ National Market
under the symbol "THTL" on July 14, 1998.
4
NOTE 4 - COMMON STOCK ACQUIRED BY THE EMPLOYEE STOCK OWNERSHIP PLAN
As part of the Conversion and Reorganization, the Employee Stock Ownership
Plan (the "ESOP") borrowed funds from the Company and used the funds to
purchase 628,509 shares of common stock. At March 31, 1999, 31,425 shares
were committed to be released of which 20,950 shares were allocated to
participants. The Company accounts for its ESOP in accordance with AICPA
Statement of Position 93-6, "Employers' Accounting for Employee Stock
Ownership Plans", which requires the Company to recognize compensation
expense equal to the fair value of the ESOP shares during the periods in
which they become committed to be released. To the extent that the fair
value of the ESOP shares differs from the cost of such shares, this
differential will be charged or credited to equity as additional paid-in
capital. Management expects the recorded amount of expense to fluctuate as
continuing adjustments are made to reflect changes in the fair value of the
ESOP shares. Employers with internally leveraged ESOP's, such as the
Company, do not report the loan receivable from the ESOP as an asset and do
not report the ESOP debt from the employers as a liability. The Company
recorded compensation expense related to the ESOP of $95 for the quarter
March 31, 1999.
NOTE 5 - LOANS RECEIVABLE
Loans receivable at March 31, 1999 and December 31, 1998 consisted of the
following:
March 31, December 31,
1999 1998
--------- -----------
Mortgage loans:
1-4 family residential $106,974 $108,585
Other dwelling units 18,472 17,542
Home equity lines of credit
and improvement loans 8,220 8,273
Commercial nonmortgage loans 670 269
Construction loans 355 868
Loans on savings accounts 241 218
Consumer loans 126 126
------- -------
Total Loans 135,058 135,881
------- -------
Plus: unamortized premiums 353 374
Less:
Net discounts on loans purchased (35) (30)
Deferred loan fees (1,253) (1,281)
Allowance for loan losses (1,061) (1,036)
-------- --------
Total $133,062 $133,908
======== ========
NOTE 6 - DEPOSITS
The major types of deposits by amounts and percentages were as follows:
March 31, 1999 December 31, 1998
Amount % of Total Amount % of Total
NOW accounts and
transaction checking $18,708 6.8% $18,142 6.6%
Money Market Demand accounts 15,239 5.5% 13,857 5.0%
Passbook accounts 100,575 36.4% 100,627 36.4%
Certificate accounts 142,049 51.3% 143,764 52.0%
------- ------ ------- -------
Total $276,571 100.0% $276,390 100.0%
======== ====== ======== =======
5
NOTE 7 - EARNINGS PER SHARE
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 Company. EPS for
the periods prior to the Conversion and Reorganization have not been
presented as they are not comparative.
NOTE 8 - COMPREHENSIVE INCOME
Effective January 1, 1998, the Company adopted Statement of Financial
Accounting Standards (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. For the
three months ended March 31, 1999 and March 31, 1998, the Company reported
other comprehensive income of $328 and $873, respectively. Such increased
income consisted of unrealized gains, net of taxes, on available for sale
securities and a reclassification adjustment for gains included in net
income for the quarter ended March 31, 1999.
NOTE 9 - RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities". The Company
adopted this statement on January 1, 1999. This statement requires that the
Company recognize all derivatives as either assets or liabilities in the
statement of financial position and measure those instruments at fair
value. Upon adoption of this statement, the Company as permitted by the
statement, transferred certain securities with an amortized cost of $54,129
from held to maturity to available for sale. This transfer will not call
into question the intent of the Company to hold other securities to
maturity in the future. The adoption of this statement did not have a
material impact on the Company's financial position or results of
operations.
NOTE 10 - DIVIDENDS
On March 18, 1999 the Company declared a dividend of $.05 per share payable
April 15, 1999 to stockholders of record March 31, 1999.
6
THISTLE GROUP HOLDINGS, CO.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The Private Securities Litigation Reform Act of 1995 contains safe harbor
provisions regarding forward-looking statements. When used in this
discussion, the words "believes", anticipates", "contemplates", "expects",
and similar expressions are intended to identify forward-looking
statements. Such statements are subject to certain risks and uncertainties
which could cause actual results to differ materially from those projected.
Those risks and uncertainties include changes in interest rates, risks
associated with the effect of opening a new branch, the ability to control
costs and expenses, and general market conditions. Thistle Group Holdings,
Co. undertakes no obligation to publicly release the results of any
revisions to those forward-looking statements which may be made to reflect
events or circumstances after the date hereof or to reflect the occurrence
of unanticipated events.
General
Thistle Group Holdings, Co. (the "Company") is a Pennsylvania Corporation
which was organized in March 1998 to acquire all of the Capital Stock of
Roxborough-Manayunk Bank (the "Bank") in the Conversion and Reorganization.
The Company is a unitary thrift holding company which, under existing laws,
generally is not restricted in the types of business activities in which it
may engage provided that the Bank retains a specified amount of its assets
in housing-related investments.
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 and purchase loans secured by one to four-family
residences. In addition, the Bank originates consumer loans, such as home
equity loans and home equity lines of credit. Such loans generally provided
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 were not completed until July 14,
1998, the information provided herein is that of Company for the three
months ended March 31, 1999 and the year ended December 31, 1998 and of
Thistle Group Holdings, Inc. (the "Mid-Tier Holding Company") for all other
periods presented.
Comparison of Financial Condition
The Company had total assets of $499.8 million as of March 31, 1999,
representing an increase of $7.8 million from the balance of $492.0 million
as of December 31, 1998. The increase was due to purchases of investments
and mortgage-backed securities funded with FHLB advances offset by a
decrease in cash which was used for the stock repurchase program which was
announced by the Company on January 15, 1999. The Company received approval
from the Office of Thrift Supervision to repurchase up to 15 percent of the
outstanding common stock of the Company, equating to approximately
1,349,998 shares.
Cash and cash equivalents decreased $5.3 million or 21% from $26.1 million
at December 31, 1998 to $20.8 million at March 31, 1999 primarily due to
the repurchase of stock.
Investments increased $23.0 million from $74.4 million at December 31, 1998
to $97.4 million at March 31, 1999 primarily due to the purchases of $27.0
million offset by sales of $3.0 million and maturities of $500,000.
Mortgage-backed securities decreased $9.0 million from $229.9 to $220.9 at
March 31, 1999. This decrease was the result of $18.0 million in repayments
offset by a $10.0 million mortgage-backed security purchase in connection
with a leverage transaction funded with a $10.0 million FHLB advance.
Loans decreased $846,000 or less than $1% from $133.9 million at December
31, 1998 to $133.0 million at March 31, 1999. This decrease was the result
of $6.5 million of originations and $1.6 in loan purchases, offset by
principal repayments of $8.7 million.
7
Deposits increased $181,000 or less than 1% from $276.4 million at December
31, 1998 to $276.6 million at March 31, 1999. NOW accounts, transaction
checking and money market accounts increased $1.9 million while
certificates of deposit decreased $1.7 million.
FHLB advances increased $20 million from $106.9 million at December 31,
1998 to $126.9 million at March 31, 1999 as part of a continuing leverage
strategy. The additional borrowings include a $10.0 million 4.62%
convertible advance with scheduled maturity of 2009 and a $10.0 million
open REPO with initial rate of 5.01%.
Total stockholders' equity decreased $10.6 million from $100.2 million at
December 31, 1998 to $89.6 million at March 31, 1999 primarily due to the
stock repurchase. $1.1 million shares were repurchased at an average cost
of $9.97 a share.
Non-performing Assets
The following table sets forth information regarding non-performing loans
and real estate owned.
At At
March 31, 1999 December 31, 1998
--------------------- ----------------------
(in Thousands)
Total non-performing loans......... $483 $393
Real estate owned.................. 104 82
--- ------
Total non-performing assets........ $587 $475
==== ====
Total non-performing loans to
total loans........................ .36% .28%
Total non-performing assets to
total assets....................... .12% .09%
Allowance for loan loss............ $1,061 $1,036
Allowance for loan losses as a percentage
of total non-performing assets..... 181% 218%
Allowance for loan losses as a percentage
of total non-performing loans...... 220% 264%
Allowance for loan losses as a percentage
of total average loans............. .79% .94%
Comparison of Earnings for the Three Months Ended March 31, 1999 and 1998
-------------------------------------------------------------------------
Net Income. Net income for the three months ended March 31, 1999 increased
$785,000 or 187% over the same period in 1998. The increase is due to an
increase in net interest income of $1.3 million offset somewhat by an
increase of 277,000 in non-interest expense.
Total Interest Income. Interest income increased $2.9 million or 61%, for
the three months ended March 31, 1999, compared to the same period in 1998.
The increase was due to an increase of $202.0 million in the average
balance of interest-earning assets offset by a decrease in the average
yield of 60 basis points. The increase in average balances was due to
deployment of proceeds from the stock offering and the purchase of interest
earning assets in connection with leverage transactions.
Total Interest Expense. Interest expense increased $1.7 million or 64% for
the three months ended March 31, 1999, compared to the same period in 1998.
The increase was primarily due to an increase of $151.0 million in the
average balance of interest-bearing liabilities offset slightly by a
decrease of 4 basis points in the average cost of funds. The increase in
the average balance was due to an increase of $109.0 million in the average
balance of borrowings in connection with leverage transactions and an
increase of $42.0 million in the average balance of deposits primarily
certificate accounts.
8
Net Interest Income. Net interest income increased $1.3 million or 58% for
the three months ended March 31, 1999, due to the reasons discussed above.
The net interest spread, the difference between the average rate earned and
the average rate paid, decreased by 74 basis points to 2.24% for the
quarter ended March 31, 1999 from 2.98% for the same period in 1998.
Provision for Losses on Loans. The provision for losses on loans for the
three months ended March 31, 1999 totaled $30,000, compared to $15,000 for
the same period in 1998. 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 future operating or sales
conditions, thereby causing these estimates to be particularly susceptible
to changes that could result in a material adjustment to results of
operations in the near term. Recovery of the carrying value of such loans
and its collateral is dependent to a great extent on economic, operating
and other conditions that may be beyond the Company'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 for the three months ended March 31, 1999
increased $27,000 as compared to the quarter ended March 31, 1998 due to an
increase in rental income on properties owned.
Other Expenses. Other expenses increased $277,000 for the three months
ended March 31, 1999 as compared to the same period in 1998. Salaries and
employee benefits increased $100,000 due to normal salary increases, the
addition of personnel and the expense related to the employee stock
ownership plan in the Conversion, somewhat offset by the decrease in profit
sharing expenses which was suspended in July 1998. Occupancy and equipment
increased $39,000 due to additional depreciation for the new computer
system purchased in August 1998. Professional fees increased $47,000 due to
increased legal and accounting fees associated with being a listed company.
Other increased $95,000 due mainly to expenses related to annual report and
proxy production, exchange fees, and other miscellaneous costs associated
with being a listed company.
Income Tax Expense. Income tax expense for the three months ended March 31,
1999 increased due to the increase in earnings.
Liquidity and Capital Resources
On March 31, 1999, the Bank was in compliance with its three regulatory
capital requirements as follows:
Amount Percent
------ -------
(in Thousands)
Tangible capital..................... $61,281 12.85%
Tangible capital requirement......... 7,155 1.50%
----- -----
Excess over requirement.............. $54,126 11.35%
====== =====
Core capital......................... $61,281 12.85%
Core capital requirement............. 14,310 3.00%
------ -----
Excess over requirement.............. $46,971 9.85%
====== =====
Risk based capital................... $62,342 45.75%
Risk based capital requirement....... 10,901 8.00%
------ -----
Excess over requirement.............. $51,441 37.75%
====== =====
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.
9
The primary investment activity of the Company is the origination and
purchase of mortgage loans, mortgage-backed securities and other
investments. During the three months ended March 31, 1999, the Company
originated $ 6.5 million of mortgage loans. The Company 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 $11.6 million during the three-month
period ended March 31, 1999. Other investment activities include investment
in U.S. government and federal agency obligations, municipal bonds, debt
and equity investments in financial services firms, FHLB of Pittsburgh
stock and consumer loans.
The Company has other sources of liquidity if a need for additional funds
arises. Until 1998, the Company had historically not utilized borrowings as
a source of funds. In 1998, the Company utilized FHLB advances to leverage
its balance sheet. In addition, other sources of liquidity can be found in
the Company's balance sheet, such as investment securities maturing within
one year and unencumbered mortgage-backed securities that are readily
marketable.
The 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 9.9% at
March 31, 1999.
The Company's most liquid assets are cash and cash equivalents, which
include investments in highly liquid short-term investments. The level of
these assets is dependent on the Company's operating, financing and
investing activities during any given period. At March 31, 1999, cash and
cash equivalents totaled $20.8 million.
The Bank anticipates that it will have sufficient funds available to meet
its current commitments. As of March 31, 1999, the Bank had $ 16.8 million
in commitments to fund loans. Certificates of deposit which were scheduled
to mature in one year or less as of March 31, 1999 totaled $111.2 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.
Additional Key Operating Ratios.
--------------------------------
For the
Three Months Ended
March 31,
--------------------
1999(1) 1998(1)
------- -------
Return on average assets.................... .98% .60%
Return on average equity.................... 5.33% 6.04%
Yield on average interest -earning assets... 6.61% 7.21%
Cost of average interest-bearing liabilities 4.37% 4.41%
Interest rate spread (2).................... 2.24% 2.98%
Net interest margin......................... 2.95% 3.33%
At March 31,
1999
------------
Tangible book value per share............... $11.17
- ---------------------
(1) The ratios for the three month periods are annualized.
(2) Interest rate spread represents the difference between the average yield on
interest-earning assets and the average cost of interest-bearing
liabilities.
10
Year 2000
The following discussion of the implications of the year 2000 problem for
the Company contains numerous forward-looking statements based on
inherently uncertain information. The cost of the project and the date on
which the Company plans to complete the internal Year 2000 modifications
are based on management's best estimates, which are derived utilizing a
number of assumptions of future events including the continued availability
of internal and external resources, third party modifications and other
factors. However, there can be no guarantee that these statements will be
achieved and actual results could differ. Moreover, although management
believes it will be able to make the necessary modifications in advance,
there can be no guarantee that failure to modify the systems would not have
a material adverse effect on the Bank or the Company.
The Company currently has a Year 2000 Project Plan and Review Team in
place. As recommended by the Federal Financial Institutions Examination's
Council, the Plan encompasses the following phases: Awareness, Assessment,
Renovation, Validation, and Implementation. These phases will enable the
Company to identify risks, develop an action plan, perform adequate testing
and complete certification that its processing systems will be Year 2000
ready. Execution of the Plan is currently on target.
The Company has completed the Renovation Phase, which included among other
things, changing the information processing system, the most essential
system to the Bank. The information processing system was purchased from
Open Solutions Incorporated, Glastonbury, Connecticut. The system has been
certified by its vendor as Year 2000 compliant and is supported by a
contracted agreement that states the system, including the software, will
be Year 2000 compliant prior to January 1, 2000. The total cost of the
system was approximately $1.2 million with additional annual cost of
approximately $344,000 for depreciation, software cost, and maintenance.
During the Renovation Phase, the Company contacted all other material
vendors, and suppliers regarding their Year 2000 state of readiness. The
Company is currently in the process of reviewing those responses. No
contracts, written assurance, or oral assurances with the Company's
material vendors, systems providers, and suppliers include any type of
remedy or penalty for breach of contract in the event that any of these
parties are not Year 2000 compliant.
The Year 2000 issues also may affect certain bank customers, particularly
commercial credit customers. As of December 31, 1998, the Company had
contacted the majority of its commercial mortgage customers regarding their
awareness of the Year 2000 issue. While no assurance can be given that the
customers will by Year 2000 compliant, management believes, based on
representation of such customers and their response to a Year 2000 ("Y2K")
questionnaire provided by the Company, that the customers are either
addressing the Y2K issues to insure compliance, or that they are not faced
with material Y2K issues. In substantially all cases, the credit extended
to such borrowers is collateralized by real estate, which inherently
minimizes the Company's exposure in the event that such borrowers do
experience problems becoming Year 2000 compliant.
As a practical matter, individual mortgage loan, consumer loan and smaller
commercial loan customers were not contacted regarding their Year 20000
readiness. It was deemed to be beyond the scope of our testing parameters
to contact these borrowers. Further, most of these are individuals with
adequate collateral for their loans.
If the Plan fails to significantly address the Year 2000 issues of the
Company, the following, among other things, could negatively affect the
Company:
(a) Utility service companies may be unable to provide the necessary
service to drive our data systems or provide sufficient sanitary
conditions for our offices;
(b) Our primary software provider could have a major malfunction in its
system or their service could be disrupted due to its utility
providers, or some combination of the two; or
(c) The Company may have to transact its business manually.
The Company will attempt to monitor these uncertainties by continuing to
request an update on all critical and important vendors throughout the
remainder of 1999. If the Company identifies any concern related to any
critical or important vendor, the contingency plans will be implemented
immediately to assure continued service to the Company's customers.
The Company has substantially completed Phase 4, Validation, which involves
testing of all internal systems as well as testing with vendors. The
Validation Phase is targeted for completion in June 1999. The
Implementation Phase is to certify that systems are Year 2000 ready, along
with assurances that any new systems are compliant on a going-forward
basis. The Implementation Phase is targeted for completion by September
1999. No assurance can be given that the year 2000 Project Plan will be
completed successfully by the year 2000, in which event the Company could
incur significant costs.
11
If the provider of the information processing system is unable to resolve a
potential problem in time, the Company would likely experience significant
data processing delays, mistakes, or failures. These delays, mistakes, or
failures could have a significant adverse impact on the financial statement
of the Company.
Monitoring and managing the Year 2000 project will result in additional
direct and indirect costs to the Company. Direct costs include potential
charges by third party software vendors for product enhancements, costs
involved in testing software products for Year 2000 compliance, and any
resulting costs for developing and implementing contingency plans for
critical software products which are not enhanced. Indirect costs will
principally consist of the time devoted by existing employees in managing
software vendor progress, testing enhanced software products, and
implementing any necessary contingency plans. The Company does not expect
direct costs to be material over the next three quarters.
The Company is developing its own Year 2000 contingency plans concerning
specific software and hardware issues and a business resumption plan
addressing operational plans for continuing operation for a substantial
majority of its mission critical hardware and software functions and
programs. These plans were completed in March of 1999. The Year 2000
Project Plan and Review Team will review substantially all mission critical
test plans and contingency and business resumption plans to ensure the
reasonableness of the plans.
Despite the best efforts of management to address this issue, the vast
number of external entities that have direct and indirect business
relationships with the Company, such as customers, vendors, payment system
providers and other financial institutions, makes it impossible to assure
that a failure to achieve compliance by one or more of these entities would
not have material adverse impact on the operations of the Company.
Quantitative and Qualitative Disclosures About Market Risk
----------------------------------------------------------
The goal of the Company'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 Company's net interest spreads
(the difference between yields received on assets and rates paid on
liabilities) and, although constrained by market conditions, economic
conditions, and prudent underwriting standards, it offers deposit rates and
loan rates in an attempt to maximize net interest income. Management also
attempts to fund the Company's assets with liabilities of a comparable
duration to minimize the impact of changing interest rates on the Company's
net interest income. Since the relative spread between financial assets and
liabilities is constantly changing, the Company's current net interest
income may not be an indication of future net interest income.
The Company constantly monitors its deposits in an effort to decrease their
interest rate sensitivity. Rates of interest paid on deposits at the
Company are priced competitively in order to meet the Company's
asset/liability management objectives and spread requirements. As of March
31, 1999, the Company's savings accounts, checking accounts and money
market deposit accounts totaled $134.5 million or 49% of its total
deposits. The Company believes, based on historical experience, that a
substantial portion of such accounts represent non-interest rate sensitive
core deposits.
The Company's Board of Directors is responsible for reviewing and approving
the asset and liability policies. The Board meets quarterly to review
interest rate risk and trends, as well as liquidity and capital ratios and
requirements. The Company's management is responsible for administering the
policies and determinations of the Board of Directors with respect to the
Company's asset and liability goals and strategies. Management expects that
the Company's asset and liability policies and strategies will continue as
described above so long as competitive and regulatory conditions in the
financial institution industry and market interest rates continue as they
have in recent years.
12
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 March 31, 1999. 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 proceeding on properties in which
the Company holds security interest, 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 March 31, 1999 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 April 21, 1999, the Annual Meeting of stockholders of the Company was
held to elect management's nominees for director and to ratify the
appointment of the Company's independent auditors. With respect to the
election of directors, the results were as follows:
Nominee For Withheld
------------------- ------------------ -----------------
John F. McGill, Jr. 6,057,418 97.1% 182,589 2.9%
Patrick T. Ryan 6,058,438 97.1% 181,569 2.9%
With respect to the ratification of Deloitte & Touche LLP as the Company's
independent certified accountants, the results were as follows:
6,086,332 Votes for 132,833 Votes against and 20,841 Votes abstaining
--------- ------- ------
76.6% 1.7% 0.3%
ITEM 5. OTHER INFORMATION
None
ITEM 6.EXHIBITS AND REPORTS ON FORM 8-K
(a) 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 *
10.6 Employment Agreement with John F. McGill, Jr. *
20 Dividend Reinvestment Plan
27 Financial Data Schedule (electronic filing only)
(b) On January 15, 1999, the Registrant filed a Form 8-K with the
Commission announcing the adoption of a 15% stock repurchase program.
* Incorporated by reference to the Registrant's Form S-1 Registration
Statement No. 333-48749
13
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: May 11, 1999 By: /s/John F. McGill, Jr.
------------------------------
John F. McGill, Jr.
President and Chief Executive Officer
(Principal Executive Officer)
Date: May 11, 1999 By: /s/Jerry Naessens
------------------------------
Jerry Naessens
Chief Financial Officer
(Principal Officer)