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 September 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
- --------------------------------------------------------------------------------
(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 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 November 11, 1999
Class Outstanding
- --------------------------------------------------------------------------------
$.10 par value common stock 7,805,432 shares
<PAGE>
THISTLE GROUP HOLDINGS, CO. AND SUBSIDIARIES
FORM 10-Q
FOR THE QUARTER ENDED September 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
<PAGE>
THISTLE GROUP HOLDINGS, CO. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(IN THOUSANDS)
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
(Unaudited)
<S> <C> <C>
ASSETS
Cash on hand and in banks ......................................... $ 4,678 $ 2,522
Interest-bearing deposits ......................................... 16,691 23,614
--------- ---------
Total cash and cash equivalents .......................... 21,369 26,136
Investments held to maturity (approximate fair
value of $53,958) ........................................ -- 54,129
Investments available for sale at fair value
(amortized cost of $133,955 and $20,133) ................. 124,663 20,274
Mortgage-backed securities available for sale
at fair value (amortized cost of $218,781 and $228,574) .. 214,936 229,883
Loans receivable (net of allowance for loan losses of
$1,193 and $1,036) ....................................... 145,561 133,908
Loans held for sale ............................................... 3,975 2,558
Accrued interest receivable ....................................... 4,123 3,265
Federal Home Loan Bank stock - at cost ............................ 8,844 5,344
Real estate acquired through foreclosure - net .................... 138 82
Office properties and equipment - net ............................. 2,586 2,487
Cash surrender value of life insurance ............................ 11,199 10,810
Prepaid expenses and other assets ................................. 1,037 3,163
Deferred income taxes ............................................. 5,485 --
--------- ---------
TOTAL ASSETS ............................................. $ 543,916 $ 492,039
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits .......................................................... $ 279,061 $ 276,390
Accrued interest payable .......................................... 836 469
Advances from borrowers for taxes and insurance ................... 1,645 2,229
FHLB advances ..................................................... 176,884 106,884
Accounts payable and accrued expenses ............................. 3,827 3,465
Other borrowings .................................................. 3,000 --
Dividends payable ................................................. 468 450
Accrued income taxes .............................................. 144 1,476
Deferred income taxes ............................................. -- 447
--------- ---------
TOTAL LIABILITIES ........................................ 465,865 391,810
--------- ---------
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; 7,805,432 outstanding September 30, 1999
and 8,999,989 outstanding December 31, 1998 ....................... 900 900
Additional paid-in capital ........................................ 93,356 94,616
Employee Stock Ownership Plan ..................................... (5,761) (6,075)
Unearned Compensation ............................................. (2,642) --
Treasury stock at cost, 1,194,557 shares at September 30, 1999 (11,610) --
Accumulated other comprehensive income ............................ (8,669) 957
Retained earnings - partially restricted .......................... 12,477 9,831
--------- ---------
Total stockholders' equity ............................... 78,051 100,229
--------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY ........................ $ 543,916 $ 492,039
========= =========
</TABLE>
See notes to unaudited consolidated financial statements.
1
<PAGE>
Thistle Group Holdings, Co. and subsidiaries
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS)
(Unaudited)
<TABLE>
<CAPTION>
For the Three Months For the Nine Months
Ended September 30, Ended September 30,
------------------- -------------------
1999 1998 1999 1998
<S> <C> <C> <C> <C>
INTEREST INCOME:
Interest on loans ........................................... $ 2,882 $ 2,161 $ 8,413 $ 6,432
Interest on mortgage-backed securities ...................... 3,443 2,576 10,217 6,283
Interest and dividends on investments ....................... 2,599 1,838 6,375 3,671
----------- ----------- ----------- -----------
Total interest income ................................ 8,924 6,575 25,005 16,386
----------- ----------- ----------- -----------
INTEREST EXPENSE:
Interest on deposits ........................................ 2,894 2,804 8,611 7,978
Interest on borrowed money .................................. 2,273 520 5,544 749
----------- ----------- ----------- -----------
Total interest expense ............................... 5,167 3,324 14,155 8,727
----------- ----------- ----------- -----------
NET INTEREST INCOME ............................................ 3,757 3,251 10,850 7,659
PROVISION FOR LOAN LOSSES ...................................... 45 15 195 45
----------- ----------- ----------- -----------
NET INTEREST INCOME AFTER PROVISION
FOR LOAN LOSSES ................................................ 3,712 3,236 10,655 7,614
----------- ----------- ----------- -----------
OTHER INCOME:
Service charges and other fees ............................... 91 86 267 269
(Loss) gain on sale of real estate owned ..................... (5) -- 1 2
Loss on sale of mortgage-backed securities ................... -- (16) --
(Loss) gain on sale of investments ........................... (10) -- 251 --
Rental income ................................................ 35 48 119 130
Miscellaneous other income ................................... 35 -- 72 --
----------- ----------- ----------- -----------
Total other income ................................... 146 134 694 401
----------- ----------- ----------- -----------
OTHER EXPENSES:
Salaries and employee benefits .............................. 1,186 1,019 3,239 2,881
Occupancy and equipment ..................................... 324 262 865 728
Federal insurance premium ................................... 40 36 125 108
Professional fees ........................................... 187 72 461 209
Advertising and promotion ................................... 80 27 165 102
Other ....................................................... 459 537 1,409 1,194
----------- ----------- ----------- -----------
Total other expenses ................................. 2,276 1,953 6,264 5,222
----------- ----------- ----------- -----------
INCOME BEFORE INCOME TAXES ..................................... 1,582 1,417 5,085 2,793
----------- ----------- ----------- -----------
INCOME TAXES ................................................... 292 524 1,181 1,039
----------- ----------- ----------- -----------
NET INCOME ..................................................... $ 1,290 $ 893 $ 3,904 $ 1,754
=========== =========== =========== ===========
BASIC EARNINGS PER SHARE ....................................... $ .18 $ .10 $ .53 N/A
DILUTED EARNINGS PER SHARE ..................................... $ .18 $ .09 $ .52 N/A
WEIGHTED AVERAGE SHARES
OUTSTANDING - BASIC ......................................... 7,164,407 8,371,479 7,374,802 N/A
WEIGHTED AVERAGE SHARES
OUTSTANDING - DILUTED ....................................... 7,211,456 8,547,339 7,473,618 N/A
</TABLE>
See notes to unaudited consolidated financial statements
2
<PAGE>
THISTLE GROUP HOLDINGS, CO. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(Unaudited)
<TABLE>
<CAPTION>
For the Nine Months
Ended September 30
------------------
1999 1998
---- ----
<S> <C> <C>
OPERATING ACTIVITIES:
Net income ........................................................ $ 3,904 $ 1,754
Adjustments to reconcile income to net cash provided
by operating activities:
Provision for loan losses ...................................... 195 45
Depreciation ................................................... 336 209
Amortization of stock benefit plans ............................ 397 --
Amortization of net premiums (discounts) on:
Loans purchased ................................................ 22 (86)
Investments .................................................... (967) (632)
Mortgage-backed securities ..................................... 1,186 650
Gain on sale of investments ....................................... (250) --
Loss on sale of mortgage-backed securities ........................ 16 --
Gain on sale of real estate owned ................................. (1) (1)
Decrease in other assets .......................................... (42) (379)
Decrease in other liabilities ..................................... (585) (1,721)
--------- ---------
Net cash provided by (used in) operating activities .............. 4,211 (161)
--------- ---------
INVESTING ACTIVITIES:
Principal collected on:
Mortgage-backed securities ..................................... 40,141 28,729
Loans .......................................................... 22,308 16,987
Loans originated .................................................. (31,129) (20,166)
Loans acquired .................................................... (4,560) (21,335)
Purchases of:
Investments ................................................... (64,474) (33,730)
Mortgage-backed securities .................................... (59,279) (149,392)
Office properties and equipment ............................... (435) (1,272)
FHLB Stock .................................................... (3,500) (2,692)
Proceeds from sale of investments ................................. 5,164 --
Proceeds from the sale of mortgage-backed securities .............. 27,728 --
Proceeds from sale of real estate owned ........................... 6 79
Maturities and calls of investments ............................... 833 14,384
--------- ---------
Net cash used in investing activities ............................ (67,197) (168,408)
--------- ---------
FINANCING ACTIVITIES:
Net increase in deposits ......................................... 2,671 33,472
Net decrease in advances from borrowers for
taxes and insurance ............................................ (584) (554)
Net increase in FHLB advances ..................................... 70,000 80,000
Increase in other borrowings ...................................... 3,000 --
Purchase of treasury stock ........................................ (13,149) --
Purchase of restricted stock plan shares .......................... (2,761) --
Net proceeds from exercise of stock options ....................... 300 --
Net proceeds from the sale of common stock ........................ -- 70,985
Cash dividends .................................................... (1,258) (532)
--------- ---------
Net cash provided by financing activities ........................ 58,219 183,371
--------- ---------
Net (decrease) increase in cash and cash equivalents .............. (4,767) 14,802
Cash and cash equivalents, beginning of period .................... 26,136 20,151
--------- ---------
Cash and cash equivalents, end of period .......................... 21,369 $ 34,953
========= =========
SUPPLEMENTAL DISCLOSURES
Interest paid on deposits and funds borrowed ...................... $ 13,788 $ 8,434
Income taxes paid ................................................. 767 920
Noncash transfers from loans to real estate owned ................. 89 168
Noncash transfer investments held to maturity to available for sale 54,129 --
</TABLE>
See notes to unaudited consolidated financial statements
3
<PAGE>
THISTLE GROUP HOLDINGS, CO. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
NOTE 1 - PRINCIPLES OF CONSOLIDATION
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. Thistle Group Holdings, Co. has
two wholly owned subsidiaries; TGH Corp. and Roxborough
Manayunk Bank. Roxborough Manayunk Bank has three wholly owned
subsidiaries; Roxdel Corp., Montgomery Service Corp. and Ridge
Service Corp. The Company's business is conducted principally
through the Bank. All significant intercompany accounts and
transactions have been eliminated in consolidation. 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 periods ended
September 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.
4
<PAGE>
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 September 30, 1999, 52,375 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 nine months ended September 30,
1999 the Company recorded compensation expense related to the
ESOP of $90 and $276, respectively.
NOTE 5 - INVESTMENTS
Investments at September 30, 1999 and December 31, 1998 consisted of
the following:
<TABLE>
<CAPTION>
Investments Available for Sale
September 30, 1999 December 31, 1998
Amortized Approximate Amortized Approximate
Cost Fair Cost Fair Value
---- ---- ---- ----------
<S> <C> <C> <C> <C>
U.S. Treasury securities and securities
of U.S. government agencies -
1 to 5 years.................................... $ 5,024 $ 5,181
5 to 10 years................................... 3,000 2.886
More than 10 years.............................. 46,500 44,297
FHLB and FHLMC Bonds - more than 10 years....... 17,316 13,990
Municipal Bonds - 5 to 10 years................. 993 1,011
Municipal bonds - more than 10 years............ 39,654 36,341
Mutual Funds.................................... 1,327 1,327 $ 1,285 $ 1,285
Capital Trust Securities........................ 13,412 12,504 11,774 11,647
Equity investments.............................. 5,795 6,192 6,324 6,592
Other........................................... 934 934 750 750
-------- ------------ --------- -----------
Total........................................... $133,955 $124,663 $20,133 $ 20,274
======== ======== ======= =========
</TABLE>
<TABLE>
<CAPTION>
Investments Held To Maturity December 31, 1998
Amortized Approximate
Cost Fair Value
---- ----------
<S> <C> <C>
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
======= =======
</TABLE>
5
<PAGE>
NOTE 6 - MORTGAGE-BACKED SECURITIES AVAILABLE FOR SALE
Mortgage-backed securities at September 30, 1999 and December 31, 1998
consisted of the following:
<TABLE>
<CAPTION>
September 30, 1999 December 31, 1998
Amortized Approximate Amortized Approximate
Cost Fair Value Cost Fair Value
---- ---------- ---- ----------
<S> <C> <C> <C> <C>
GNMA pass-through certificates................... $115,439 $114,040 $134,216 $134,781
FNMA pass-through certificates................... 79,169 76,491 64,852 65,129
FHLMC pass-through certificates.................. 22,811 23,078 26,512 27,068
FHLMC real estate mortgage investment conduits... 1,362 1,327 2,994 2,905
-------- -------- -------- --------
Total............................................ $218,781 $214,936 $228,574 $229,883
======== ======== ======== ========
</TABLE>
NOTE 7 - LOANS RECEIVABLE
Loans receivable at September 30, 1999 and December 31, 1998
consisted of the following:
<TABLE>
<CAPTION>
September 30, 1999 December 31. 1998
------------------ -----------------
<S> <C> <C>
Mortgage loans:
1-4 family residential...................... $102,447 $108,585
Other dwelling units........................ 29,547 17,542
Home equity lines of credit and improvement loans.... 8,549 8,273
Commercial non-mortgage loans........................ 2,987 269
Construction loans................................... 4,051 868
Loans on savings accounts............................ 173 218
Consumer loans....................................... 126 126
------- -------
Total Loans................................. 147,880 135,881
------- -------
Plus: unamortized premiums........................... 332 374
Less:
Net discounts on loans purchased............ (30) (30)
Deferred loan fees......................... (1,428) (1,281)
Allowance for loan losses................... (1,193) (1,036)
------ -------
Total $145,561 $133,908
======= =======
</TABLE>
NOTE 8 - DEPOSITS
The major types of deposits by amounts and percentages were as
follows:
<TABLE>
<CAPTION>
September 30, 1999 December 31, 1998
Amount % of Total Amount % of Total
------ ---------- ------ ----------
<S> <C> <C> <C> <C>
NOW accounts and
transaction checking............ $18,414 6.6% $18,142 6.6%
Money Market Demand accounts....... 8,722 3.1% 13,857 5.0%
Passbook accounts.................. 101,247 36.3% 100,627 36.4%
Certificate accounts............... 150,678 54.0% 143,764 52.0%
------- ----- ------- -----
Total $279,061 100.0% $276,390 100.0%
======= ===== ======= =====
</TABLE>
6
<PAGE>
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 nine months ended September 30, 1999, the
Company reported total comprehensive losses of $1.5 million
and $6.0 million, respectively. For the three and nine month
periods of the prior year the Company reported total
comprehensive income of $1.1 million and $2.3 million
respectively. Other comprehensive income or loss consisted of
unrealized losses or gains, net of taxes, on available for
sale securities for the three and nine month periods ended
September 30, 1999 and 1998 and a reclassification adjustment
for gains and losses included in net income for the three and
nine month periods ended September 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 does 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 September 13, 1999 the Company declared a dividend of $.06
per share payable October 15, 1999 to stockholders of record
on September 30, 1999.
NOTE 13 - SHAREHOLDER RIGHTS PLAN
On September 13, 1999, the Company's Board of Directors
adopted a Shareholder Rights Plan. Under the Plan, each
shareholder of record at the close of business on September
30, 1999 received a dividend distribution of one Right for
each outstanding share of common stock. The Rights expire on
September 13, 2009 and thereafter have no further value. They
are redeemable by the Board of Directors at a price of $.01
per Right at anytime within the ten year period until a person
or group has acquired 15% or more of our then outstanding
common stock. The rights will be exercisable only if a person
or group acquires 15% or more of the Company's common stock or
announces a tender offer, the consummation of which would
result in ownership by a person or group of 15% of the common
stock.
NOTE 14 - RESTRICTED STOCK PLAN AND STOCK OPTION PLAN
At a Special Meeting of the stockholders held on July 21,
1999, the Roxborough Manayunk Bank Restricted Stock Plan
("RSP") was approved by the Company's stockholders. There are
314,254 shares authorized under the RSP. As of September 30,
1999, the Company had outstanding awards aggregating to
237,460 shares to the Company's Board of Directors, executive
officers and other key employees subject to vesting and other
provisions of the RSP. At September 30, 1999, the deferred
cost of the unearned RSP shares totaled $2,642 and is recorded
as a charge against stockholders' equity. Compensation expense
will be recognized ratably over a five year vesting period for
executive officers and other key employees and over a four
year vesting period for non-employee directors. For the three
months ended September 30, 1999, the Company recorded
compensation and employee benefit expense of $119 related to
the RSP.
At a Special Meeting of stockholders on July 21, 1999, the
Thistle Group Holdings, Co. 1999 Stock Option Plan (the
"Plan") was approved by the Company's stockholders. Common
stock totaling 785,637 shares has been reserved for issuance
for the Plan. An aggregate of 487,985 stock options have been
granted at an exercise price of $8.9375 to the Company's
executive officers, non-employee directors and other key
employees subject to vesting and other provisions of the Plan.
Such options were not dilutive during the period ended
September 30, 1999.
7
<PAGE>
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, new
legislation and regulations, 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 nine month periods ended September 30, 1999, the nine month
period ended September 30, 1998, 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 $543.9 million as of September 30,
1999, representing an increase of $51.9 million from the balance of
$492.0 million as of December 31, 1998. The increase was due to $70
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
at an average per share price of $9.74.
Cash and cash equivalents decreased $4.7 million or 18.2% from $26.1
million at December 31, 1998 to $21.4 million at September 30, 1999
September 30, 1999 primarily due to the repurchase of stock.
Investments increased $50.3 million or 67.6% from $74.4 million at
December 31, 1998 to $124.7 million at September 30, 1999 primarily due
to purchases of $64.5 million offset by sales of $5.2 million and
maturities of $833,000 and an increase in the unrealized loss of $9.3
million.
Mortgage-backed securities decreased $14.9 million or 6.5% from $229.9
at December 31, 1998 to $215.0 at September 30, 1999. This decrease was
the result of $40.1 million in repayments, sales of $27.7 million, and
an increase in the unrealized loss of $5.2 million offset by purchases
of $59.3 million.
Loans increased $13.0 million or 9.5% from $136.5 million at December
31, 1998 to $149.5 million at September 30, 1999. This increase was the
result of $31.1 million of originations including $10.2 million of
non-residential loans, and $4.6 million in non-residential loan
purchases, offset by principal repayments of $22.3 million.
Deposits increased $2.7 million or 1.0% from $276.4 million at December
31, 1998 to $279.1 million at September 30, 1999. Certificates of
deposit increased $6.9 million, passbook accounts increased $620,000
and NOW accounts, transactions checking and money market accounts
decreased $4.8 million.
8
<PAGE>
FHLB advances increased $70 million or 65.5% from $106.9 million at
December 31, 1998 to $176.9 million at September 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, a
$10.0 million 4.62% convertible advance with scheduled maturity of
2009, a $10.0 million 5.80% convertible advance with a scheduled
maturity of 2002, a $10 million 5.85% convertible advance with a
scheduled maturity of 2002 and $30.0 million in open REPO's with
average rates of approximately 5.11%. The advances were used to fund
the purchase of $40 million in investments and $30 million in
mortgage-backed securities.
Total stockholders' equity decreased $22.2 million or 22.1% from $100.2
million at December 31, 1998 to $78.0 million at September 30, 1999
primarily due to the repurchase of 1.3 million shares at an average
cost of $9.74 per share and to the mark to market adjustment on
securities available for sale, as required by Financial Accounting
Standards Board Statement No. 115. Any movement in general market
conditions, including interest rates, competition and credit quality
could result in a material fluctuation on the Company's available for
sale portfolio, and thus its shareholders' equity.
Non-performing Assets
---------------------
The following table sets forth information regarding
non-performing loans and real estate owned.
<TABLE>
<CAPTION>
At At
September 30, 1999 December 31, 1998
------------------- -----------------
(Dollars in Thousands)
<S> <C> <C>
Total non-performing loans .............. $ 299 $ 393
Real estate owned ....................... 138 82
------ ------
Total non-performing assets ............. $ 437 $ 475
====== ======
Total non-performing loans to
total loans ............................. .21% .28%
Total non-performing assets to
total assets ............................ .08% .09%
Allowance for loan loss ................. $1,193 $1,036
Allowance for loan losses as a percentage
of total non-performing assets .......... 273% 218%
Allowance for loan losses as a percentage
of total non-performing loans ........... 399% 264%
Allowance for loan losses as a percentage
of total average loans .................. .85% .94%
</TABLE>
Comparison of Earnings for the Three and Nine Month Periods Ended
September 30, 1999 and 1998
-----------------------------------------------------------------------
Net Income. Net income for the three and nine months ended September
30, 1999 increased $397,000 or 44.5% and $2.2 million or 122.6%,
respectively, over the same periods in 1998. The increase for the three
month period is due to an increase in net interest income of $506,000
offset by an increase of $323,000 in non-interest expense. The increase
for the nine month period is due to an increase of $3.2 million in net
interest income and an increase of $293,000 in other income offset by
an increase of $1.0 million in other non-interest expense.
Total Interest Income. Interest income for the three and nine months
ended September 30, 1999 increased $2.3 million or 35.7% and $8.6
million or 52.6%, respectively, as compared to the same periods in
1998. The increase for the three month period was due primarily to an
increase of $126.2 million in the average balance of interest-earning
assets and an increase in the average yield of 16 basis points. The
increase for the nine-month period was due primarily to an increase of
$173.4 million in the average balance of interest-earning assets offset
by a decrease in the average yield of 14 basis points.
Total Interest Expense. Interest expense for the three and nine months
ended September 30, 1999 increased $1.8 million or 55.4% and $5.4
million or 62.2%, respectively, as compared to the same periods in
1998. The increase for the three-month period was due primarily to an
increase of $162.9 million in the average balance of interest-bearing
liabilities. The increase for the nine-month period was due primarily
to an increase of $162.1 million in the average balance of
interest-bearing liabilities and to a lesser extent by an increase of 2
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.
9
<PAGE>
Net Interest Income. Net interest income for the three and nine months
ended September 30, 1999 increased $506,000 or 15.6% and $3.2 million
or 41.7%, 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, increased by
16 basis points to 2.42% for the three months ended September 30, 1999
from 2.26% for the same period in 1998. The net interest spread
decreased by 16 basis points to 2.45% for the nine months ended
September 30, 1999 from 2.61% for the same period in 1998.
Provision for Losses on Loans. The provision for losses on loans for
the three and nine months ended September 30, 1999 totaled $ 45,000 and
$195,000, respectively, compared to $15,000 and $45,000 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. There was no significant change in other income for the
quarter ended September 30, 1999 over the quarter ended September 30,
1998. Other income for the nine months ended September 30, 1999
increased $293,000 or 73.1% over the same period of the prior year due
to a nonrecurring gain on the sale of equity securities of $251,000 and
a $70,000 recovery on loans secured by commercial equipment leases that
had been written off in prior years.
Other Expenses. Other expenses increased $323,000 or 16.5% for the
quarter ended September 30, 1999 over the quarter ended September 30,
1998. Salaries and employee benefits increased $167,000 due to
compensation expense related to the restricted stock plan that was
approved by stockholders in July 1999, normal salary increases and
addition of personnel. Occupancy and equipment costs increased $62,000
due to increased depreciation related to the purchase of a new computer
system in August 1998 and to increased costs for maintenance contracts
related to the addition of new hardware. Professional fees increased
$115,000 due to legal costs incurred related to the adoption of the
Company's stock plans and various corporate and regulatory actions, and
to the outsourcing of the Company's internal audit department.
Advertising and promotion increased $53,000 as the Company has begun a
focused strategic marketing effort which included among other things,
additional media costs for new product campaigns. Other expense
decreased $78,000 due primarily to non-recurring charges related to the
termination of the mid-tier holding company in the quarter ended
September 30, 1998. Non-interest expense increased $1.0 million or
20.0% for the nine months ended September 30, 1999 over the same period
of the prior year. Salaries and employee benefits increased $358,000
and occupancy and equipment costs increased $137,000 due mainly to the
reasons discussed above. Other expense increased $215,000 due to costs
associated with the production of the Company's initial annual report
and proxy statements, transfer agent and NASDAQ listing fees, an
increase in payroll taxes, and other expenses related to the in-house
computer system.
Income Tax Expense. Income tax expense for the quarter ended September
30, 1999 was $292,000 or 18.5% of pre-tax income as compared to
$524,000 or 37.0% for the quarter ended September 30, 1998. Income tax
expense for the nine months ended September 30, 1999 was $1.2 million
or 23.2% of pre-tax income as compared to expense of $1.0 million or
37.2% for the same period of the prior year. The primary reason for the
decrease in the effective tax rate was the reduction in state taxes
resulting from purchases of tax-exempt securities. The Company has
employed various strategies to reduce both federal and state income
taxes.
10
<PAGE>
Liquidity and Capital Resources
On September 30, 1999, the Bank was in compliance with its three
regulatory capital requirements as follows:
Amount Percent
------ -------
(in Thousands)
Tangible capital ............. $59,878 11.24%
Tangible capital requirement . 7,987 1.50%
------- -----
Excess over requirement ...... $51,891 9.74%
======= =====
Core capital ................. $59,878 11.24%
Core capital requirement ..... 15,975 3.00%
------- -----
Excess over requirement ...... $43,903 8.24%
======= =====
Risk based capital ........... $61,071 34.85%
Risk based capital requirement 14,018 8.00%
------- -----
Excess over requirement ...... $47,053 26.85%
======= =====
The Company's primary sources of funds are deposits, borrowings, 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 nine months ended September 30, 1999, the
Company originated $31.1 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 $ 63.8 million during the
nine-month period ended September 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 9.9% at September 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 September 30, 1999,
cash and cash equivalents totaled $21.4 million.
The Company anticipates that it will have sufficient funds available to
meet its current commitments. As of September 30, 1999, the Company had
$14.1 million in commitments to fund loans. Certificates of deposit
which were scheduled to mature in one year or less as of September 30,
1999 totaled $112.3 million. Management believes that a significant
portion of such deposits will remain with the Company.
11
<PAGE>
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
-------------------------------
<TABLE>
<CAPTION>
For the For the
Three Months Ended Nine Months Ended
September 30, September 30,
------------- -------------
1999(1) 1998(1) 1999(1) 1998(1)
<S> <C> <C> <C> <C>
Return on average assets ................... .95% .88% 1.01% .72%
Return on average equity ................... 6.58% 5.30% 6.12% 5.61%
Yield on average interest-earning assets ... 6.95% 6.79% 6.89% 7.03%
Cost of average interest-bearing liabilities 4.53% 4.53% 4.44% 4.42%
Interest rate spread (2) ................... 2.42% 2.26% 2.45% 2.61%
Net interest margin ........................ 2.93% 3.36% 2.99% 3.29%
</TABLE>
<TABLE>
<CAPTION>
At September 30, 1999 At September 30, 1998
--------------------- ---------------------
<S> <C> <C>
Tangible book value per share $10.00 $11.22
</TABLE>
(1) The ratios for the three and nine 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. Those factors include, but are
not limited to, uncertainties in the cost of hardware and software, the
availability and cost of programmers and other systems personnel,
inaccurate or incomplete execution of the phases, ineffective
remediation of computer code, the unpredictability of consumer
behavior, and whether our customers, vendors, competitors and other
third parties effectively address the Year 2000 issues. 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.
Year 2000 issues expose the Company to a number of risks, any one of
which, if realized could have a material adverse effect on its
business, results of operations or financial condition. These risks
include the possibility that, to the extent certain vendors fail to
adequately address Year 2000 issues, the Company may suffer disruptions
in important services on which we depend, such as telecommunications,
electrical power and data processing. Year 2000 issues could affect the
Company's liquidity if customer withdrawals in anticipation of the Year
2000 are greater than expected or if the Company's lenders are unable
to provide funds when and as needed by the Company. Year 2000 issues
also create additional credit risk to the Company insofar as the
failure of the Company's customers and counterparties to adequately
address Year 2000 issues could increase the likelihood that these
customers and counterparties become delinquent or default on their
obligations to the Company. In addition to increasing our risk exposure
to problem loans, credit losses, and liquidity problems, Year 2000
issues expose the Company to increased risk of litigation losses and
expenses relating to the foregoing.
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.
12
<PAGE>
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 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.
The Company has contacted material customers and non-information
technology suppliers (i.e. utility systems, telephone systems and
security systems regarding their Year 2000 state of readiness. The
Company is unable to test the Year 2000 readiness of its significant
suppliers or utilities and is relying on the utility companies'
internal testing and representations to provide the required services
that drive the Company's data systems. Any prolonged disruption in
utility service could disrupt the ability of the Company to service its
customers on a timely basis.
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 quarter.
13
<PAGE>
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. The Company
has been proactive in keeping customers informed about our Year 2000
efforts through a customer awareness program. Brochures and letters
explaining the Y2K challenge have been mailed to customers and office
staff has been trained to answer customer questions about Y2K. With the
help of independent consultants and the Company's regulators, the
Company has worked hard to ensure that every possible Year 2000 issue
has been addressed. Backup plans have been developed and systems have
been tested. The Company is also monitoring the Y2K activities of its
vendors, such as the ATM network, Direct Deposit Processors and Funds
Management System. 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.
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
September 30, 1999, the Company's savings accounts, checking accounts
and money market deposit accounts totaled $128.4 million or 46.0% 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
<PAGE>
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 September 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 September 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 July 21, 1999 a special meeting of stockholders of the
Company was held to consider and act upon the approval of the
Thistle Group Holdings, Co. 1999 Stock Option Plan and the
approval of the Roxborough Manayunk Bank 1999 Restricted Stock
Plan. With respect to these matters the results were as
follows:
Approval of the Thistle Group Holdings, Co. 1999 Stock Option Plan
3,692,375 (For) 849,638 (Against) 41,748 (Abstain) 169,667 (Non-Vote)
--------------- ------- ------ -------
Approval of the Roxborough Manayunk Bank 1999 Restricted Stock Plan
4,069,753 (For) 642,900 (Against) 40,775 (Abstain)
--------------- ------- ------
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.
On September 13, 1999, the Board of Directors of the Company
declared a dividend distribution of one Preferred Share
Purchase Right on each outstanding share of common stock, par
value $.01 per share. The Rights will be exercisable only if a
person or group acquires 15% or more of the Company's common
stock or announces a tender offer the consummation of which
would result in ownership by a person or group of 15% or more
of the common stock. The Rights are intended to enable the
Company's stockholders to realize the long-term value of their
investment in the Company and are designed to assure that all
of Thistle Group Holdings, Co.'s stockholders receive fair and
equal treatment in the event of any proposed takeover of the
Company. They will not prevent a takeover, but should
encourage anyone seeking to acquire the Company to negotiate
with the Board prior to attempting a takeover.
On October 13, 1999 the Company applied to the Office of
Thrift Supervision for permission to purchase up to 5% of its
outstanding stock.
15
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
<TABLE>
<CAPTION>
(a) The following Exhibits are filed as part of this report:
<S> <C>
3.1 Articles of Incorporation *
3.2 Bylaws *
4.1 Shareholder Rights Plan **
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 ***
19.1 Letter to Shareholders describing Shareholder Rights Plan **
20 Dividend Reinvestment Plan ****
27 Financial Data Schedule (electronic filing only)
* 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
Form 8-A filed September 30, 1999.
*** 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.
(b) Reports on Form 8-K
On September 13, 1999 the Company filed a current report on
Form 8-K with the commission announcing that it had adopted a
Shareholder Rights Plan.
</TABLE>
16
<PAGE>
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: November 11, 1999 By: /s/ John F. McGill, Jr
----------------------
John F. McGill, Jr.
President and Chief Executive Officer
(Principal Executive Officer)
Date: November 11 , 1999 By: /s/Jerry Naessens
-----------------
Jerry Naessens
Chief Financial Officer
(Principal Financial Officer)
17
EXHIBIT 19.1
<PAGE>
[Company Letterhead]
September 30, 1999
To Our Shareholders:
On September 13, 1999 the Board of Directors of Thistle Group Holdings,
Co. adopted a Shareholder Rights Plan. The adoption of the Plan is designed to
assure Thistle Group's stockholders receive full consideration in the event of
any proposed takeover of the Company and guard against partial tender offers,
squeeze-outs, open market accumulations and other such activity. Our balance
sheet and earnings have demonstrated solid growth during these 14 months. The
Company does, however, recognize the weakness in the market for small bank's and
thrifts and has adopted a plan that will allow the Company to focus on the
continued implementation of its strategic initiatives, namely core growth and
the reduction of excess capital which will result in increased shareholder
value. The Plan allows the board to maintain its fiduciary flexibility to review
and analyze transactions that accrete to earnings and long term value.
Under the Plan, each shareholder of record of Thistle Group's common
stock at the close of business on September 30, 1999 will receive a dividend
distribution of one Right for each outstanding share of common stock. The Rights
expire on September 13, 2009 and thereafter have no further value. They are
redeemable by the Board of Directors at a price of $.01 per Right at any time
within the ten year period until a person or group has acquired 15% or more of
our then outstanding common stock.
The Rights will not (i) be taxable to shareholders or to the Company
upon declaration or receipt; (ii) prevent shareholders from exercising their
rights to vote as shareholders of Thistle Group; (iii) be dilutive; (iv) have
any effect on reported earnings per share; and (v) affect the manner in which
shareholders may presently buy or sell the Company's common stock.
The Rights are not exercisable until after the distribution date. Until
the distribution date, the Rights are attached to the common stock and are not
traded separately from the common stock. No separate certificates evidencing the
Rights will be issued to shareholders of record on September 30, 1999. The
Rights, together with the common stock, will be represented by the certificates
for the common stock. After the distribution date, the Rights will detach from
the common stock and separate Rights certificates will be issued.
<PAGE>
A distribution date will occur 10 days after the date of public
announcement that a person or group has acquired 15% or more of the then
outstanding common stock or 10 business days after a person announces an offer
to acquire 15% or more of the common stock. When the Rights first become
exercisable, unless a person or group has acquired 15% or more of the Company's
shares, a holder will be entitled to buy from the Company one one-hundredth of a
share of a new series of junior participating preferred stock for $30. If
Thistle Group is involved in a merger or other business combination, the Rights
will entitle a holder to buy a number of shares of common stock of the acquiring
company having a market value of twice the exercise price of each Right. For
example, if at the time of the business combination the acquiring company's
stock has a per share value of $8.00, the holder of each Right would be entitled
to receive 8 shares of the acquiring company's common stock for $32, i.e., at a
50% discount.
If any person or group acquires 15% or more of the Company's
outstanding common stock, holders (other than such person or any member of such
group) will be entitled to buy a number of additional shares of our common stock
having a market value of twice the exercise price of each Right. For example, if
at the time of the 15% acquisition Thistle Group's stock were to have a market
value per share equal to $16.00, the holder of each Right (other than such
person or member of such group) would be entitled to receive 4 shares of our
common stock for $32.
Following the acquisition by any person or group of 15% or more of our
common stock, but only prior to the acquisition by a person or group of a 50%
stake, the Board of Directors can exchange the Rights (other than Rights held by
such person or group), in whole or in part, for one share of common stock (or
one one-hundredth of a share of the new series of junior participating preferred
stock) per Right. This has an economically dilutive effect on the acquiror, and
provide a corresponding benefit to the remaining rights holders that provides
comparable value without requiring you to go through the process and expense of
exercising your Rights.
As noted above, the distribution of the Rights will not be taxable,
however, stockholders may recognize taxable income upon the occurrence of
certain subsequent events.
In addition to the purchase rights, we also authorized the new series
of nonredeemable, junior participating preferred stock purchasable upon exercise
of the Rights. Each preferred share will be entitled to an aggregate dividend
equal to the greater of $1 per share or 100 times the dividend declared on the
common shares. In the event of liquidation, the holders of the preferred shares
will be entitled to receive an aggregate liquidation payment equal to the
greater of $100 or 100 times the payment made per share of common stock. Each
preferred share will have 100 votes, voting together with the common shares.
Finally, in the event of any merger, consolidation or other transaction in which
common shares are exchanged, each preferred share will be entitled to receive
100 times the amount received per common share. These rights are protected by
customary anti-dilution provisions. In the event of issuance of preferred shares
upon exercise of the Rights, depositary receipts may be issued for to facilitate
trading. The dividend, liquidation and voting rights, and the non-redemption
feature, of the preferred shares are designed so that the value of the one
one-hundredth interest in a preferred share purchasable with each Right will
approximate the value of one share of common stock.
Upon written request, we will provide you a copy of a "Summary of
Rights to Purchase Shares" which explains the Plan in further detail.
On behalf of the Board of Directors.
John F. McGill, Jr.
President and Chief Executive Officer
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
QUARTERLY REPORT ON FORM 10-Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL INFORMATION.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> SEP-30-1999
<CASH> 4,678
<INT-BEARING-DEPOSITS> 16,691
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 339,599
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 145,561
<ALLOWANCE> 1,193
<TOTAL-ASSETS> 543,916
<DEPOSITS> 279,061
<SHORT-TERM> 0
<LIABILITIES-OTHER> 186,804
<LONG-TERM> 0
0
0
<COMMON> 900
<OTHER-SE> 77,151
<TOTAL-LIABILITIES-AND-EQUITY> 543,916
<INTEREST-LOAN> 8,413
<INTEREST-INVEST> 16,592
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 25,005
<INTEREST-DEPOSIT> 8,611
<INTEREST-EXPENSE> 14,155
<INTEREST-INCOME-NET> 10,850
<LOAN-LOSSES> 195
<SECURITIES-GAINS> 235
<EXPENSE-OTHER> 6,264
<INCOME-PRETAX> 5,085
<INCOME-PRE-EXTRAORDINARY> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,904
<EPS-BASIC> .53
<EPS-DILUTED> .52
<YIELD-ACTUAL> 6.89
<LOANS-NON> 299
<LOANS-PAST> 299
<LOANS-TROUBLED> 138
<LOANS-PROBLEM> 2,035
<ALLOWANCE-OPEN> 1,036
<CHARGE-OFFS> (27)
<RECOVERIES> 0
<ALLOWANCE-CLOSE> 1,193
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
