SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended June 30, 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
- --------------------------------------------------------------------------------
(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
- --------------------------------------------------------------------------------
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 No
------- -------
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date August 5 , 1999
Class Outstanding
- --------------------------------------------------------------------------------
$.10 par value common stock 7,761,020 shares
THISTLE GROUP HOLDINGS, CO. AND SUBSIDIARIES
FORM 10-Q
FOR THE QUARTER ENDED June 30, 1999
INDEX
Page
Number
PART 1 - UNAUDITED CONSOLIDATED FINANCIAL INFORMATION OF
THISTLE GROUP HOLDINGS, CO. AND SUBSIDIARIES
Item 1. Financial Statements and Notes Thereto .......................... 1
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.............................. 8
Item 3. Quantitative and Qualitative Disclosures About Market Risk....... 14
PART II - OTHER INFORMATION
Item 1. Legal Proceedings................................................ 15
Item 2. Changes in Securities............................................ 15
Item 3. Defaults upon Senior Securities.................................. 15
Item 4. Submission of Matters to a Vote of Security Holders.............. 15
Item 5. Other Information................................................ 15
Item 6. Exhibits and Reports on Form 8-K................................. 16
SIGNATURES
THISTLE GROUP HOLDINGS, CO. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(IN THOUSANDS)
June 30, December 31,
1999 1998
(Unaudited)
ASSETS
Cash on hand and in banks ................................................. $ 4,592 $ 2,522
Interest-bearing deposits ................................................. 15,297 23,614
--------- ---------
Total cash and cash equivalents .................................. 19,889 26,136
Investments held to maturity (approximate fair
value of $53,958) ................................................ -- 54,129
Investments available for sale at fair value
(amortized cost of $132,070 and $20,133) ......................... 126,537 20,274
Mortgage-backed securities available for sale
at fair value (amortized cost of $207,658 and $228,574) .......... 204,193 229,883
Loans receivable (net of allowance for loan losses of
$1,164 and $1,036) ............................................... 139,921 133,908
Loans held for sale ....................................................... 3,668 2,558
Accrued interest receivable ............................................... 3,613 3,265
Federal Home Loan Bank stock - at cost .................................... 7,844 5,344
Real estate acquired through foreclosure - net ............................ 133 82
Office properties and equipment - net ..................................... 2,450 2,487
Cash surrender value of life insurance .................................... 11,071 10,810
Prepaid expenses and other assets ......................................... 1,218 3,163
Deferred income taxes ..................................................... 3,681 --
--------- ---------
TOTAL ASSETS ..................................................... $ 524,218 $ 492,039
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits ......................................................... $ 278,544 $ 276,390
Accrued interest payable ......................................... 689 469
Advances from borrowers for taxes and insurance .................. 1,642 2,229
FHLB advances .................................................... 156,884 106,884
Accounts payable and accrued expenses ............................ 3,508 3,465
Dividends payable ................................................ 388 450
Accrued income taxes ............................................. 149 1,476
Deferred income taxes ............................................ -- 447
--------- ---------
TOTAL LIABILITIES ....................................... 441,804 391,810
========= =========
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; 7,761,020 outstanding June 30, 1999 and
8,999,989 outstanding December 31, 1998 .......................... 900 900
Additional paid-in capital ....................................... 93,711 94,616
Employee Stock Ownership Plan .................................... (5,866) (6,075)
Treasury stock at cost, 1,238,969 shares at June 30, 1999 ........ (12,042) --
Accumulated other comprehensive income ........................... (5,944) 957
Retained earnings - partially restricted ......................... 11,655 9,831
--------- ---------
Total stockholders' equity .............................. 82,414 100,229
--------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY ................................ $ 524,218 $ 492,039
========= =========
See notes to unaudited consolidated financial statements.
1
Thistle Group Holdings, Co. and subsidiaries
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS)
(Unaudited)
For the Three Months For the Six Months
Ended June 30, Ended June 30,
-------------- --------------
1999 1998 1999 1998
INTEREST INCOME:
Interest on loans ........................................ $ 2,782 $ 1,915 $ 5,531 $ 4,271
Interest on mortgage-backed securities ................... 3,360 1,862 6,774 3,707
Interest and dividends on investments .................... 2,169 1,207 3,776 1,833
----------- ----------- ----------- -----------
Total interest income ............................. 8,311 4,984 16,081 9,811
----------- ----------- ----------- -----------
INTEREST EXPENSE:
Interest on deposits ..................................... 2,864 2,663 5,717 5,175
Interest on borrowed money ............................... 1,824 114 3,271 228
----------- ----------- ----------- -----------
Total interest expense ............................ 4,688 2,777 8,988 5,403
----------- ----------- ----------- -----------
NET INTEREST INCOME ......................................... 3,623 2,207 7,093 4,408
PROVISION FOR LOAN LOSSES ................................... 120 15 150 30
----------- ----------- ----------- -----------
NET INTEREST INCOME AFTER PROVISION
FOR LOAN LOSSES ............................................. 3,503 2,192 6,943 4,378
----------- ----------- ----------- -----------
OTHER INCOME:
Service charges and other fees ........................... 114 102 213 187
Gain on sale of real estate owned ......................... 6 -- 6 2
Loss on sale of mortgage-backed securities ................ (16) -- (16) --
Gain of sale of investments ............................... 259 -- 261 --
Rental income ............................................. 37 41 84 78
----------- ----------- ----------- -----------
Total other income ................................ 400 143 548 267
----------- ----------- ----------- -----------
OTHER EXPENSES:
Salaries and employee benefits ........................... 1,038 928 2,053 1,862
Occupancy and equipment .................................. 276 237 541 464
Federal insurance premium ................................ 43 36 85 72
Professional fees ........................................ 155 63 274 136
Advertising and promotion ................................ 56 37 85 75
Other .................................................... 499 338 950 674
----------- ----------- ----------- -----------
Total other expenses .............................. 2,067 1,639 3,988 3,283
----------- ----------- ----------- -----------
INCOME BEFORE INCOME TAXES .................................. 1,836 696 3,503 1,362
----------- ----------- ----------- -----------
INCOME TAXES ................................................ 427 272 889 515
----------- ----------- ----------- -----------
NET INCOME .................................................. $ 1,409 $ 424 $ 2,614 $ 847
=========== =========== =========== ===========
BASIC EARNINGS PER SHARE .................................... $ $0.19 N/A $ 0.35 N/A
=========== =========== =========== ===========
DILUTED EARNINGS PER SHARE .................................. $ 0.19 N/A $ 0.35 N/A
=========== =========== =========== ===========
WEIGHTED AVERAGE SHARES
OUTSTANDING - BASIC ...................................... 7,314,902 N/A 7,483,232 N/A
WEIGHTED AVERAGE SHARES
OUTSTANDING - DILUTED .................................... 7,410,652 N/A 7,610,123 N/A
See notes to unaudited consolidated financial statements.
2
THISTLE GROUP HOLDINGS, CO. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(Unaudited)
For the Six Months
Ended June 30
--------------------
1999 1998
-------- ---------
OPERATING ACTIVITIES:
Net income ..................................................................... $ 2,614 $ 847
Adjustments to reconcile income to net cash provided
by operating activities:
Provision for loan losses ................................................... 150 30
Depreciation ................................................................ 211 114
Amortization of stock benefit plans ......................................... 188 -
Amortization of net premiums (discounts) on:
Loans purchased ............................................................. 38 29
Investments ................................................................. (645) (449)
Mortgage-backed securities .................................................. 817 335
Gain on sale of investments .................................................... (261) -
Loss on sale of mortgage-backed securities ..................................... 16 -
Gain on sale of real estate owned .............................................. (6) (2)
Decrease (increase) in other assets ............................................ 765 (703)
(Decrease) increase in other liabilities ....................................... (1,126) 47,709
-------- --------
Net cash provided by operating activities ..................................... 2,761 47,910
-------- --------
INVESTING ACTIVITIES:
Principal collected on:
Mortgage-backed securities .................................................. 31,639 17,613
Loans ....................................................................... 16,539 11,946
Loans originated ............................................................... (20,090) (13,057)
Loans acquired ................................................................. (3,810) (324)
Purchases of:
Investments ................................................................ (62,320) (5,570)
Mortgage-backed securities ................................................. (39,285) (21,529)
Office properties and equipment ............................................ (174) (100)
FHLB Stock ................................................................. (2,500) (185)
Proceeds from sale of investments .............................................. 4,653 -
Proceeds from the sale of mortgage-backed securities ........................... 27,728 -
Proceeds from sale of real estate owned ........................................ 6 33
Maturities and calls of investments ............................................ 764 6,000
-------- --------
Net cash used in investing activities ......................................... (46,850) (5,173)
-------- --------
FINANCING ACTIVITIES:
Net increase in deposits ...................................................... 2,154 18,941
Net decrease in advances from borrowers for
taxes and insurance ......................................................... (587) (537)
Net increase in FHLB borrowings ................................................ 50,000 -
Purchase of treasury stock ..................................................... (13,149) -
Net proceeds from exercise of stock options .................................... 214 -
Cash dividends ................................................................. (790) (82)
-------- --------
Net cash provided by financing activities ..................................... 37,842 18,322
-------- --------
Net (decrease) increase in cash and cash equivalents ........................... (6,247) 61,059
Cash and cash equivalents, beginning of period ................................. 26,136 20,151
-------- --------
Cash and cash equivalents, end of period ....................................... $ 19,889 $ 81,210
======== ========
SUPPLEMENTAL DISCLOSURES
Interest paid on deposits and funds borrowed ................................... $ 8,768 $ 5,175
Income taxes paid .............................................................. 467 514
Noncash transfers from loans to real estate owned .............................. 45 108
Noncash transfer investments held to maturity to available for sale ............ 54,129 -
See notes to unaudited consolidated financial statements
3
THISTLE GROUP HOLDINGS, CO. AND SUBSIDIARIES
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"), which was organized in
March of 1998, and its wholly owned subsidiaries, TGH Corp., Roxborough
Manayunk Bank , and Roxdel Corp., Montgomery Service Corp. and Ridge
Service Corp., which are wholly owned subsidiaries of the Bank. 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 June 30, 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.
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 June 30, 1999,
41,900
4
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. For the three and
six-months ended June 30, 1999 the Company recorded compensation
expense related to the ESOP of $93 and $188, respectively.
NOTE 5 - INVESTMENTS
Investments at June 30, 1999 and December 31, 1998 consisted of the
following:
Investments Available for Sale
June 30, 1999 December 31, 1998
Amortized Approximate Amortized Approximate
Cost Fair Value Cost Fair Value
---- ---------- ---- ----------
U.S. Treasury securities and securities
of U.S. government agencies -
1 to 5 years.................................... $ 5,026 $ 5,208
5 to 10 years................................... 3,000 2,912
More than 10 years.............................. 45,000 43,506
FHLB and FHLMC Bonds............................ 17,013 15,186
Municipal bonds - more than 10 years............ 40,039 37,942
Mutual Funds.................................... 1,315 1,315 $ 1,285 $ 1,285
Capital Trust Securities........................ 13,943 13,232 11,774 11,647
Equity investments.............................. 5,802 6,304 6,324 6,592
Other........................................... 932 932 750 750
--------- ------------- --------- -----------
Total........................................... $132,070 $126,537 $20,133 $ 20,274
======== ======== ======= =========
Investments Held To Maturity
December 31, 1998
Amortized Approximate
Cost Fair Value
---- ----------
U.S. Treasury securities and securities
of U.S. Government agencies -
1 to 5 years........................................................................ $ 5,032 $ 5,356
5 to 10 years....................................................................... 3,000 2,985
More than 10 years.................................................................. 5,000 5,000
FHLB and FHLMC Bonds............................................................... 10,154 9,768
Municipal bonds - more than 10 years................................................ 30,765 30,671
Other............................................................................... 178 178
------- -------
Total............................................................................... $54,129 $53,958
======= ======
5
NOTE 6 - MORTGAGE-BACKED SECURITIES AVAILABLE FOR SALE
Mortgage-backed securities at June 30, 1999 and December 31, 1998
consisted of the following:
June 30, 1999 December 31, 1998
Amortized Approximate Amortized Approximate
Cost Fair Value Cost Fair Value
---- ---------- ---- ----------
GNMA pass-through certificates................... $105,410 $103,874 $134,216 $134,781
FNMA pass-through certificates................... 80,875 78,573 64,852 65,129
FHLMC pass-through certificates.................. 19,775 20,172 26,512 27,068
FHLMC real estate mortgage investment conduits... 1,598 1,574 2,994 2,905
---------- ----------- ---------- ----------
Total............................................ $207,658 $204,193 $228,574 $229,883
======== ======== ======== ========
NOTE 7 - LOANS RECEIVABLE
Loans receivable at June 30, 1999 and December 31, 1998 consisted of
the following:
June 30, 1999 December 31. 1998
------------- -----------------
Mortgage loans:
1-4 family residential ......... $ 105,877 $ 108,585
Other dwelling units ........... 22,436 17,542
Home equity lines of credit
and improvement loans .......... 8,235 8,273
Commercial non-mortgage loans ........... 3,075 269
Construction loans ...................... 2,164 868
Loans on savings accounts ............... 213 218
Consumer loans .......................... 126 126
--------- ---------
Total Loans .................... 142,126 135,881
--------- ---------
Plus: unamortized premiums .............. 350 374
Less:
Net discounts on loans purchased (32) (30)
Deferred loan fees ............ (1,359) (1,281)
Allowance for loan losses ...... (1,164) (1,036)
--------- ---------
Total ................................... $ 139,921 $ 133,908
========= =========
NOTE 8 - DEPOSITS
The major types of deposits by amounts and percentages were as follows:
June 30, 1999 December 31, 1998
Amount % of Total Amount % of Total
------ ---------- ------ ----------
NOW accounts and
transaction checking............ $ 19,902 7.2% $ 18,142 6.6%
Money Market Demand accounts....... 9,749 3.5% 13,857 5.0%
Passbook accounts.................. 101,775 36.5% 100,627 36.4%
Certificate accounts............... 147,118 52.8% 143,764 52.0%
------- ----- ------- -----
Total $278,544 100% $276,390 100.0%
======== ===== ========= =======
6
NOTE 9 - 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 10 - COMPREHENSIVE INCOME (LOSS)
For the three and six months ended June 30, 1999, the Company reported
total comprehensive losses of $4,800 and $4,400, respectively. For the
three and six month periods of the prior year the Company reported
total comprehensive income of $262 and $1,100 respectively. Such income
or loss consisted of unrealized losses or gains, net of taxes, on
available for sale securities for the three and six month periods ended
June 30, 1999 and 1998 and a reclassification adjustment for gains
included in net income for the three and six month periods ended June
30, 1999.
NOTE 11 - RECENT ACCOUNTING PRONOUNCEMENTS
The Company adopted Statement of Financial Accounting Standards (SFAS)
No. 133, "Accounting for Derivative Instruments and Hedging Activities"
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 12 - DIVIDENDS
On June 17, 1999 the Company declared a dividend of $.05 per share
payable July 15, 1999 to stockholders of record June 30, 1999.
7
THISTLE GROUP HOLDINGS, CO. AND SUBSIDIARIES
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 provide for higher interest rates
and shorter terms than single-family residential real estate loans. To a lesser
extent, the Bank originates loans secured by existing multi-family residential
and nonresidential real estate.
Because the Conversion and Reorganization were not completed until July 14,
1998, the information provided herein is that of Company for the three and six
month periods ended June 30, 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 $524.2 million as of June 30, 1999, representing
an increase of $32.2 million from the balance of $492.0 million as of December
31, 1998. The increase was due to $50 million in 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. 1.3 million shares were
repurchased during the six-month period at an average per share price of $9.74.
Cash and cash equivalents decreased $6.2 million or 24% from $26.1 million at
December 31, 1998 to $19.9 million at June 30, 1999 primarily due to the
repurchase of stock.
Investments increased $52.1 million or 70% from $74.4 million at December 31,
1998 to $126.5 million at June 30, 1999 primarily due to purchases of $62.3
million offset by sales of $4.6 million and maturities of $764,000.
Mortgage-backed securities decreased $25.7 million or 11% from $229.9 to $204.2
at June 30, 1999. This decrease was the result of $31.6 million in repayments
and sales of $27.7 million offset by purchases of $39.3 million.
Loans increased $7.1 million or 5% from $136.5 million at December 31, 1998 to
$143.6 million at June 30, 1999. This increase was the result of $20.1 million
of originations including $5.8 million of non-residential loans, and $3.8
million in non-residential loan purchases, offset by principal repayments of
$16.5 million.
8
Deposits increased $2.1 million or 1% from $276.4 million at December 31, 1998
to $278.5 million at June 30, 1999. Certificates of deposit increased $3.3
million, passbook accounts increased $1.1 million and NOW accounts, transactions
checking and money market accounts decreased $2.3 million.
FHLB advances increased $50 million or 47% from $106.9 million at December 31,
1998 to $156.9 million at June 30, 1999 as part of a continuing leverage
strategy. The additional borrowings include a $10.0 million 5.05% convertible
advance with a scheduled maturity of 2002, $10.0 million 4.62% convertible
advance with scheduled maturity of 2009, and $30.0 million in open REPO's with
average rates of approximately 4.95%. The advances were used to fund the
purchase of $40 million in investments and $10 million in mortgage-backed
securities.
Total stockholders' equity decreased $17.8 million or 18% from $100.2 million at
December 31, 1998 to $82.4 million at June 30, 1999 primarily due to the stock
repurchase and additional unrealized losses on securities available for sale.
1.3 million shares were repurchased at an average cost of $9.74 a share.
Non-performing Assets
- ---------------------
The following table sets forth information regarding non-performing loans
and real estate owned.
At At
June 30, 1999 December 31, 1998
-------------- -----------------
(Dollars in Thousands)
Total non-performing loans .............. $ 432 $ 393
Real estate owned ....................... 133 82
------ ------
Total non-performing assets ............. $ 565 $ 475
====== ======
Total non-performing loans to
total loans ............................. .30% .28%
Total non-performing assets to
total assets ............................ .11% .09%
Allowance for loan loss ................. $1,164 $1,036
Allowance for loan losses as a percentage
of total non-performing assets .......... 206% 218%
Allowance for loan losses as a percentage
of total non-performing loans ........... 269% 264%
Allowance for loan losses as a percentage
of total average loans .................. .85% .94%
Comparison of Earnings for the Three and Six Month Periods Ended June
30, 1999 and 1998
- --------------------------------------------------------------------------------
Net Income. Net income for the three and six months ended June 30, 1999
increased $985,000 or 232% and $1.8 million or 209%, respectively, over the same
periods in 1998. The increase for the three month period is due to an increase
in net interest income of $1.4 million and an increase in other income of
$257,000 offset somewhat by an increase of $428,000 in non-interest expense. The
increase for the six month period is due to an increase of $2.7 million in net
interest income and an increase of $281,000 in other income offset somewhat by
an increase of $705,000 in other non-interest expense.
Total Interest Income. Interest income for the three and six months ended June
30, 1999 increased $3.3 million or 67% and $6.3 million or 64%, respectively, as
compared to the same periods in 1998. The increase for the three-month period
was due primarily to an increase of $218 million in the average balance of
interest-earning assets offset by a decrease in the average yield of 48 basis
points. The increase for the six-month period was due primarily to an increase
of $210 million in the average balance of interest-earning assets offset by a
decrease in the average yield of 54 basis points.
9
Total Interest Expense. Interest expense for the three and six months ended June
30, 1999 increased $1.9 million or 69% and $3.6 million or 66%, respectively, as
compared to the same periods in 1998. The increase for the three-month period
was due primarily to an increase of $172 million in the average balance of
interest-bearing liabilities and to a lesser extent by an increase of 3 basis
points in the average cost of funds. The increase for the six-month period was
due primarily to an increase of $162 million in the average balance of
interest-bearing liabilities and to a lesser extent by an increase of 4 basis
points in the average cost of funds. The Company utilized FHLB advances to
leverage its balance sheet. Such funds typically have higher rates of interest
than traditional deposits.
Net Interest Income. Net interest income for the three and six months ended June
30, 1999 increased $1.4 million or 64% and $2.7 million or 61%, respectively, as
compared to the same periods in 1998 due to the reasons discussed above. The net
interest spread, the difference between the average rate earned and the average
rate paid, decreased by 50 basis points to 2.32% for the three months ended June
30, 1999 from 2.46% for the same period in 1998. The net interest spread
decreased by 57 basis points to 2.29% for the six months ended June 30, 1999
from 2.86% for the same period in 1998.
Provision for Losses on Loans. The provision for losses on loans for the three
and six months ended June 30, 1999 totaled $120,000 and $150,000, respectively,
compared to $15,000 and $30,000 for the same periods 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 and six months ended June 30, 1999
increased $257,000 or 180% and $281,000 or 105%, respectively, as compared to
the same periods in 1998 due mainly to a non-recurring gain on the sale of a
small portion of equity securities.
Other Expenses. Other expenses for the three and six months ended June 30, 1999
increased $428,000 or 26% and $705,000 or 21%, respectively, as compared to the
same periods in 1998. For the three month period, salaries and employee benefits
increased $110,000 due to normal salary increases, the addition of personnel and
the expense related to the employee stock ownership plan, somewhat offset by the
decrease in profit sharing expense 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 $92,000
due to accounting and legal fees associated with being a listed company and
consulting fees related to Y2K contingency planning and activities at the
holding company. Other expense increased $161,000 due to $40,000 for annual
report and proxy production costs, $20,000 related to sponsorship of community
events, an increase in payroll taxes of $20,000 and other miscellaneous
increases. For the six-month period salaries and employee benefits increased
$191,000, occupancy and equipment costs increased $77,000, professional fees
increased $138,000 and other increased $276,000 due mainly to the reasons
discussed above.
Income Tax Expense. The Company recognized income tax expenses of $427,000 or
23.3% of pre-tax income, and $889,000 or 25.4% of pre-tax income for the three-
and six month periods ended June 30, 1999 respectively, as compared to $272,000
or 39.1% of pre-tax income and $515,000 or 37.8% of pre-tax income for the same
periods of the prior year. The primary reason for the decrease in the percentage
of tax expense was the reduction in state taxes and the increase in tax-free
income resulting from purchases of tax-exempt securities, as the Company
employed various strategies to reduce both federal and state income taxes.
10
Liquidity and Capital Resources
- -------------------------------
On June 30, 1999, the Bank was in compliance with its three regulatory capital
requirements as follows:
Amount Percent
------ -------
(in Thousands)
Tangible capital......................... $61,897 12.15%
Tangible capital requirement............. 7,643 1.50%
----- -----
Excess over requirement.................. $54,254 10.65%
====== ======
Core capital............................. $61,897 12.15%
Core capital requirement................. 15,286 3.00%
------ -----
Excess over requirement.................. $46,611 9.15%
====== =====
Risk based capital....................... $63,061 39.51%
Risk based capital requirement........... 12,768 8.00%
------ -----
Excess over requirement.................. $50,293 31.51%
====== ======
The Company's primary sources, of funds are deposits and proceeds from principal
and interest payments on loans, mortgage-backed securities and other
investments. While maturities and scheduled amortization of loans and
mortgage-backed securities are a predictable source of funds, deposit flows and
mortgage prepayments are greatly influenced by general interest rates, economic
conditions, competition and the consolidation of the financial institution
industry.
The primary investment activity of the Company is the origination and purchase
of mortgage loans, mortgage-backed securities and other investments. During the
six months ended June 30, 1999, the Company originated $20.1 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 $43.1 million during the six-month
period ended June 30, 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, commercial
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 1999 and 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 10.0 % at June 30, 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 June 30, 1999, cash and cash equivalents totaled
$19.9 million.
The Company anticipates that it will have sufficient funds available to meet its
current commitments. As of June 30, 1999, the Company had $16.8 million in
commitments to fund loans and $672,000 in commitments to purchase securities.
Certificates of deposit which were scheduled to mature in one year or less as of
June 30, 1999 totaled $119.6 million. Management believes that a significant
portion of such deposits will remain with the Company.
11
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 For the
Three Months Ended Six Months Ended
June 30, June 30,
-------- --------
1999(1) 1998(1) 1999(1) 1998(1)
Return on average assets.................... 1.09% .56% 1.03% .55%
Return on average equity.................... 6.52% 6.07% 5.91% 5.93%
Yield on average interest-earning assets.... 6.73% 7.21% 6.67% 7.21%
Cost of average interest-bearing liabilities 4.41% 4.38% 4.39% 4.35%
Interest rate spread (2).................... 2.32% 2.82% 2.29% 2.86%
Net interest margin......................... 2.93% 3.02% 2.94% 3.02%
At June 30, 1999
----------------
Tangible book value per share............... $10.62
(1) The ratios for the three and six 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.
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 Y2K Action Plan and Y2K Committee 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. 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. At December 31, 1998, the Company had contacted the
majority of its commercial loan customers regarding their awareness of the Year
2000 issue. Subsequent to December 31, 1998 the Company implemented as part of
its underwriting guidelines, a process of obtaining documentation from the
borrower addressing customer Y2K compliance. While no assurance can be given
that the
12
customers will be 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 Y2K 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; and
(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 completed Phase 4, Validation, which involved testing of all
mission critical systems. The Company has also completed Phase 5, the
Implementation Phase, which was to certify that systems are Y2K ready, and
assure that any new systems are compliant on a going-forward basis. No assurance
can be given that the Y2K Project Plan will be completed successfully by the
year 2000, in which event the Company could incur significant costs.
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 Y2K 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 Y2K 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 two quarters.
The Company has developed its own Y2K business resumption and contingency plan
concerning specific software and hardware failures addressing operational plans
for continuing operation for all mission critical systems and core business
processes. The Y2K Action Plan and the Business Resumption and Contingency Plan
will be reviewed weekly to ensure the reasonableness of the plans.
The Y2K committee submits monthly status reports regarding the Company's year
2000 events to the board of directors. The Company has also developed a customer
awareness program. This program focuses on educating customers about Y2K to
increase their level of confidence within the banking industry and to reduce the
likelihood of dramatic changes in customer behavior during the rollover period.
In addition, information about the Company's Y2K efforts has been and will
continue to be communicated to customers.
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 utilities, 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.
13
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 June 30, 1999, the Company's savings
accounts, checking accounts and money market deposit accounts totaled $131.4
million or 47% 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 policy. The Board meets quarterly to review interest rate
risk and trends, as well as liquidity and capital ratio requirements. The
Company's management is responsible for administering the policy 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 policy and risk strategies will continue as described above so long as
competitive and regulatory conditions in the financial institution industry and
market interest rates continue as they have in recent years.
14
THISTLE GROUP HOLDINGS, CO. AND SUBSIDIARIES
PART II
ITEM 1. LEGAL PROCEEDINGS
Neither the Company nor the Bank was engaged in any legal proceeding
of a material nature at June 30, 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 June 30,
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 AND USE OF PROCEEDS
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. 6,057,418 182,589
Patrick T. Ryan 6,058,438 181,569
The following director's terms continued after the Annual
Meeting: Francis E. McGill, III, Add B. Anderson, Jr.,
Jerry Naessens, and William A. Lamb, Sr.
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
--------- ------- ------
ITEM 5. OTHER INFORMATION
On July 27, 1999, the Board of directors of the Company, pursuant to
the Company's Articles of Incorporation, nominated and elected James
C. Hellauer to fill the vacancy on the Board caused by the death of
Patrick T. Ryan. Mr. Hellauer will serve Mr. Ryan's remaining term.
15
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 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. *
10.7 1999 Stock Option Plan **
10.8 1999 Restricted Stock Plan **
20 Dividend Reinvestment Plan ***
27 Financial Data Schedule (electronic filing only)
(b) No reports on Form 8-K were filed during the quarter ended
June 30, 1999.
* Incorporated by reference to the Registrant's
Form S-1 Registration Statement No. 333-48749 first
filed with the commission on March 26, 1998.
** Incorporated by reference to the Registrant's
Schedule 14A filed June 21, 1999.
*** Incorporated by reference to the Registrant's
Form 10Q/A filed on May 12, 1999.
16
THISTLE GROUP HOLDINGS, CO. AND SUBSIDIARIES
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: August 6, 1999 By: /s/John F. McGill, Jr.
-------------------------------------
John F. McGill, Jr.
President and Chief Executive Officer
(Principal Executive Officer)
Date: August 6, 1999 By: /s/Jerry Naessens
-------------------------------------
Jerry Naessens
Chief Financial Officer
(Principal Officer)