SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
|X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 31, 1998
|_| TRANSITIONAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _______________________ to ______________________
Commission File Number: 0-24353
THISTLE GROUP HOLDINGS, CO.
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(Exact name of registrant as specified in its charter)
Pennsylvania 23-2960768
- --------------------------------------------- -------------------
(State or other jurisdiction of incorporation (IRS Employer
or organization) Identification No.)
6060 Ridge Avenue, Philadelphia, Pennsylvania 19128
- -------------------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (215) 483-2800
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Securities registered pursuant to Section 12(b) of the Act: None
----
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $.10 per share
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(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. YES X NO .
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
Based on the closing sales price of $8.938 per share of the
registrant's common stock on March 12, 1999, as reported on the Nasdaq National
Market System the aggregate market value of voting stock held by non-affiliates
of the registrant was approximately $59.6 million. On such date, 7,940,744
shares of the registrant's Common Stock were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
1. Portions of 1998 Annual Report to Stockholders (Parts II and IV)
2. Portions of Proxy Statement for the 1999 Annual Meeting of Stockholders.
(Part III)
<PAGE>
PART I
Forward-Looking Statements
Thistle Group Holdings, Co. (the "Company") may from time to time make
written or oral "forward-looking statements," including statements contained in
the Company's filings with the Securities and Exchange Commission (including
this Annual Report on Form 10-K and the exhibits thereto), in its reports to
stockholders and in other communications by the Company, which are made in good
faith by the Company pursuant to the "safe harbor" provisions of the private
securities litigation reform act of 1995.
These forward-looking statements involve risks and uncertainties, such
as statements of the Company's plans, objectives, expectations, estimates and
intentions, that are subject to change based on various important factors (some
of which are beyond the Company's control). The following factors, among others,
could cause the Company's financial performance to differ materially from the
plans, objectives, expectations, estimates and intentions expressed in such
forward-looking statements: the strength of the United States economy in general
and the strength of the local economies in which the Company conducts
operations; the effects of, and changes in, trade, monetary and fiscal policies
and laws, including interest rate policies of the board of governors of the
federal reserve system, inflation, interest rate, market and monetary
fluctuations; the timely development of and acceptance of new products and
services of the Company and the perceived overall value of these products and
services by users, including the features, pricing and quality compared to
competitors' products and services; the willingness of users to substitute
competitors' products and services for the Company's products and services; the
success of the Company in gaining regulatory approval of its products and
services, when required; the impact of changes in financial services' laws and
regulations (including laws concerning taxes, banking, securities and
insurance); technological changes, acquisitions; changes in consumer spending
and saving habits; and the success of the Company at managing the risks involved
in the foregoing.
The Company cautions that the foregoing list of important factors is
not exclusive. The Company does not undertake to update any forward-looking
statement, whether written or oral, that may be made from time to time by or on
behalf of the Company.
Item 1. Business
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Thistle Group Holdings, Co. (the "Company") is a Pennsylvania
corporation organized in March 1998 at the direction of Roxborough-Manayunk Bank
(the "Bank") to acquire all of the capital stock of the Bank. The Bank is a
federally-chartered stock savings association, which was originally chartered as
a mutual savings association through the combination of 11 building and loan
associations as Roxborough-Manayunk Federal Savings and Loan Association (the
"Association") on May 3, 1939, at which time the Association's accounts were
insured by the Federal Savings and Loan Insurance Corporation ("FSLIC") and
currently the SAIF. In 1939, the Association became a member of the FHLB System.
On December 31, 1992, the Association reorganized from a mutual savings
association into a mutual holding company named FJF Financial, M.H.C. ("FJF
Financial") and chartered a new stock savings bank named Roxborough-Manayunk
Federal Savings Bank. On October 1, 1997, the Bank formed a middle-tier stock
holding company (Thistle Group Holdings, Inc.) whereby the Bank became a
wholly-owned subsidiary of Thistle Group Holdings, Inc.
In July 1998, the Bank, Thistle Group Holdings, Inc., and FJF Financial
completed their conversion and reorganization into the current corporate
structure of the Company and the Bank. Upon completion of the conversion and
reorganization, the Company became a unitary savings and loan holding
1
<PAGE>
company which, under existing laws, is generally not restricted in the types of
business activities in which it may engage provided that the Bank retains a
specified amount of its assets in housing-related investments. The Company is
not an operating company and primarily holds all of the outstanding stock of the
Bank. The Company does not employ any persons other than officers but utilizes
the support staff of the Bank from time to time.
The Company's and the Bank's main office is located at 6060 Ridge
Avenue, Philadelphia, Pennsylvania 19128, and the telephone number at that
office is (215) 483-2800. The Bank serves the Pennsylvania counties of
Philadelphia and Delaware through a network of six offices, providing a full
range of retail banking services, with emphasis on one-to four-family
residential mortgages. Upon completion of the conversion and reorganization the
Bank changed its name to "Roxborough-Manayunk Bank." At December 31, 1998, the
Company had total assets, deposits, and stockholders' equity of approximately
$492.0 million, $276.4 million, and $100.2 million, respectively.
The principal business of the Bank is the acceptance of savings
deposits from the general public and the origination and purchase of mortgage
loans for the purpose of constructing, financing or refinancing one- to
four-family residences and other improved residential and commercial real
estate. The Bank's income is derived largely from interest and fees in
connection with its lending activities. Its principal expenses are interest paid
on savings deposits and borrowings and operating expenses.
Unless the context requires otherwise, any reference to the Company
includes the Bank on a consolidated basis.
Geographic Lending Area
Although authorized to make real estate loans throughout the United
States, the Company's lending area generally includes Philadelphia, Bucks,
Delaware, Chester, and Montgomery Counties, which comprise the Philadelphia
metropolitan area. The Company's primary lending area consists of the far
northwest sections of Philadelphia, South Philadelphia, and Montgomery County,
Pennsylvania. The Pennsylvania real estate market was generally depressed in the
late-1980s. The market has shown improvement in the 1990s, but whether the
recovery will continue is dependent upon general economic conditions, not just
in Pennsylvania, but in the United States as a whole.
Lending Activities
General. Historically, the principal lending activity of the Company
has been the origination of mortgage loans for the purpose of constructing,
financing or refinancing residential properties. In January of 1999 the Company
hired an experienced commercial real estate lender to assist in increasing such
lending.
2
<PAGE>
Analysis of Loan Portfolio. The following table sets forth selected
data relating to the composition of the Company's loan portfolio by type of loan
and type of security on the dates indicated.
<TABLE>
<CAPTION>
At December 31,
---------------
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
$ % $ % $ % $ % $ %
--- --- --- --- --- --- --- --- --- --
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Real Estate Loans:(1)
Construction..................... $ 868 .64% $ 1,693 1.72% $ 964 .96% $ 495 .48% $ 910 .93%
Residential...................... 108,585 79.91 71,397 72.36 73,871 73.30 72,675 71.20 74,124 75.88
Multi-family and commercial...... 17,542 12.91 16,647 16.87 17,615 17.54 20,200 19.79 14,603 14.95
Home equity...................... 8,068 5.94 8,133 8.24 7,011 6.96 5,004 4.91 4,300 4.40
Home equity line of credit....... 202 .15 73 .07 - -
Loans secured by commercial
equipment leases................. - - - - - - 3,341 3.27 3,179 3.25
Commercial loans................... 269 .20 329 .33 770 .76 - - - -
Consumer loans:
Line of credit................... 76 .06 96 .10 92 .09 - - - -
Secured demand note.............. 50 .04 60 .06 - - - - - -
Share loans...................... 218 .15 243 .25 384 .38 347 0.34 537 0.55
Home improvement................. $ 3 4 - 8 .01 15 .01 24 .03
------- --- ------ ----- ------- ------ ------- ------ ------ ------
Total loans........................ $135,881 100% $98,675 100.00% $100,715 100.00% $102,077 100.00% $97,677 100.00%
======= === ====== ====== ======== ====== ======= ====== ====== ======
Less:
Premiums and (discounts)......... $ 344 $ 54 $ 76 $ 26 $ (61)
Deferred fees.................... (1,281) (1,233) (1,299) (1,221) (1,254)
Loans in process................. (433) (289) (156) (422)
Allowance for loan losses........ (1,036) (783) (577) (455) (417)
------- ------ ------- -------- -------
Total loans, net................. $133,908 $96,280 $ 98,626 $100,271 $95,523
======= ====== ======= ======= ======
</TABLE>
- --------------
(1) Does not include $2,558, $1,155, $2,147, $1,613, and $1,198 of mortgage
loans classified as held for sale at December 31, 1998, 1997, 1996, 1995,
and 1994, respectively.
3
<PAGE>
Residential Mortgage Loans. The Company offers first mortgage loans
secured by one- to four-family residences in the Company's primary lending area.
Typically, such residences are single family homes that serve as the primary
residence of the owner. The Company offers fixed-rate mortgage loans with terms
of up to 30 years and adjustable-rate mortgage loans that generally adjust every
year based upon selected published indices. Mortgage loans originated and held
by the Company in its portfolio generally include due-on sale clauses which
provide the Company with the contractual right to deem the loan immediately due
and payable in the event that the borrower transfers ownership of the property
without the Company's consent.
Adjustable-rate mortgage loans buffer the risks associated with changes
in interest rates, but involve other risks because as interest rates increase,
the underlying payments by the borrower increase, thus increasing the potential
for default. At the same time, the marketability of the underlying collateral
may be adversely affected by higher interest rates. The Company's
adjustable-rate loan underwriting policy recognizes these inherent risks and the
Company reviews a credit application accordingly. These risks have not had an
adverse effect on the Company to date. At December 31, 1998, 2.5% of the
Company's mortgage loan portfolio consisted of adjustable-rate loans.
Home Equity Loans and Home Equity Lines of Credit. The Company
originates home equity loans secured by single-family residences. These loans
are originated as fixed-rate loans with terms from 3 to 10 years. These loans
are made on owner-occupied, single-family residences or vacation homes. The
loans are generally subject to an 80% combined loan-to-value limitation,
including any other outstanding mortgages or liens. Home equity loans are
generally originated for retention in the Company's loan portfolio.
Multi-Family and Commercial Real Estate Loans. The Company originates
to a limited extent multi-family mortgage loans secured primarily by apartment
buildings located in its primary lending area. These loans are generally
fixed-rate loans with maturities up to 15 years, or amortized over 25 years with
a balloon payment after 5 to 7 years. The Company also originates
adjustable-rate multi-family loans which adjust with The Wall Street Journal
prime rate annually and have maturities of 5 to 10 years. These loans typically
amortize over 20 to 25 years. These loans are generally made in amounts up to
75% of the appraised value of the mortgaged property. In making such loans, the
Company evaluates the mortgage primarily on the net operating income generated
by the real estate to support the debt service. The Company also considers the
financial resources and income level of the borrower, the borrower's experience
in owning or managing similar property, the marketability of the property and
the Company's lending experience, if any, with the borrower. An origination fee
of 1.50% to 3% is usually charged on such loans. The typical multi-family
property in the Company's multi-family lending portfolio has between 5 and 25
dwelling units with an average loan balance of approximately $340,000. The
largest multi-family loan as of December 31, 1998 had an outstanding balance of
$1.7 million and was secured by 45 dwelling units.
The Company also originates commercial real estate loans secured by
property located within its primary market area. The Company's commercial real
estate loans are permanent loans secured by improved property such as office
buildings, retail stores, industrial facilities and other non-residential
buildings. Essentially all originated commercial real estate loans are within
the Company's market area. As of December 31, 1998, the Company had 102 loans
secured by commercial real estate, totaling $10.8 million or 8.0% of the
Company's total loan portfolio, with an average principal balance of $107,000.
None of the 102 loans had principal balances outstanding of over $1.4 million as
of December 31, 1998. The largest commercial real estate loan was secured by a
shopping center with an outstanding balance of $1.4 million on December 31,
1998. This loan represents approximately 8% of the Company's $17.5 million
multifamily and commercial real estate loans at December 31, 1998. Commercial
real estate loans
4
<PAGE>
are generally originated in amounts ranging from 70% to 75% of the appraised
value of the mortgaged property, although sometimes commercial real estate loans
are made with an 80% loan to value ratio. The Company makes both adjustable and
fixed-rate commercial real estate loans. The adjustable-rate loans have terms of
up to 15 years, or are amortized over 25 years with a balloon payment after 5
and 7 years, if negotiated by management. The rate of interest on the
adjustable-rate loans is often tied to the Wall Street Journal stated prime
rate.
Construction Loans. The Company's construction loan portfolio consists
of substantially residential construction loans with initial terms of generally
12 to 18 months. Land acquisition and development loans are also made on a very
limited basis. The construction loans made by the Company have adjustable rates
tied to the Wall Street Journal stated prime rate, adjusting monthly. Generally,
such loans are repaid or converted to permanent loans when the property is
completed or sold. The permanent loan can be an adjustable or fixed-rate loan at
a rate equal to the prevailing rates offered by the Company 30 days prior to the
date of closing.
Loans Secured by Commercial Equipment Leases. The Company previously
invested in loans secured by commercial equipment leases from a single entity.
During 1996, the borrower declared bankruptcy. On December 27, 1996, the company
entered into an agreement with the trustee for the bankruptcy court whereby the
Company will receive approximately 65% of the cash receipts from the collateral
principal in exchange for all rights to the collateral. In connection with this
agreement, the company charged-off $1.2 million of the outstanding balance due
from the trustee at December 31, 1996. The Company has since discontinued such
lending and currently has no plans to re-enter such market. At December 31, 1998
the Company had an outstanding receivable of $11,000 which it expects to collect
in early 1999.
Consumer Loans. Office of Thrift Supervision regulations permit the
Company to make secured and unsecured consumer loans up to 35% of the Company's
assets. Consumer loans originated by the Company are loans secured by savings
deposits or fully marketable securities pledged as collateral.
Loan Underwriting Risks. While multi-family and commercial real estate,
construction, commercial business, and consumer loans provide benefits to the
Company's asset/liability management program and reduce exposure to interest
rate changes, such loans may entail significant additional credit and interest
rate risks compared to residential mortgage lending. Multi-family and commercial
real estate and construction mortgage loans may involve large loan balances to
single borrowers or groups of related borrowers. In addition, the ability to
make payments on loans secured by income producing properties is typically
dependent on the successful operation of the properties and thus may be subject
to a greater extent to adverse conditions in the real estate market or in the
general economy. Construction loans may involve additional risks attributable to
the fact that loan funds are advanced upon the security of the project under
construction. Moreover, because of the uncertainties inherent in estimating
construction costs, delays arising from labor problems, material shortages, and
other unpredictable contingencies, it is relatively difficult to evaluate
accurately the total loan funds required to complete a project, and related
loan-to-value ratios. Because of these factors, the analysis of prospective
construction loan projects requires an expertise that is different in
significant respects from the expertise required for residential mortgage
lending.
Loan Origination and Other Fees. In addition to interest earned on
loans, the Company recognizes service charges which consist primarily of loan
application fees, processing fees, and late charges. The Company recognized
service charges of $316,000 for the year ended December 31, 1998.
5
<PAGE>
Loan Maturity Schedules. The following table sets forth the maturity of
the Company's loan portfolio at December 31, 1998. The table does not include
prepayments or scheduled principal repayments. Prepayments and scheduled
principal repayments on loans totalled $28,509,000, $22,489,000, and $16,320,000
for the fiscal years ended December 31, 1998, 1997, and 1996, respectively. All
mortgage loans are shown as maturing based on contractual maturities.
<TABLE>
<CAPTION>
Multi-Family
Residential and
and Commercial
Home Equity Real Estate Construction Consumer Commercial Total
----------- ----------- ------------ -------- ---------- -----
(In Thousands)
<S> <C> <C> <C> <C> <C> <C>
Non-performing.................. $ 393 $ - $ - $ - $ - $ 393
Amounts Due:
Within 3 months................. $ 5 $ 186 $ 172 $ 99 $ - $ 462
3 months to 1 Year.............. 1,076 620 696 100 - 2,492
After 1 year:
1 to 3 years.................. 1,367 3,823 - 8 128 5,326
3 to 5 years.................. 3,833 656 - - 4,489
5 to 10 years................. 19,655 5,770 - - 141 25,566
10 to 20 years................ 32,937 5,760 - - - 38,697
Over 20 years................. 57,589 727 - 140 58,456
------- ------ ----- --- ---- -------
Total due after one year........ 115,381 16,736 - 148 269 132,534
------- ------ ----- --- --- -------
Total amount due................ $116,855 $17,542 $ 868 $347 $269 $135,881
======= ====== ==== === === =======
</TABLE>
The following table sets forth the dollar amount of all loans due after
December 31, 1999, which have pre-determined interest rates and which have
floating or adjustable interest rates.
<TABLE>
<CAPTION>
Floating or
Fixed Rates Adjustable Rates Total
----------- ---------------- -----
(In Thousands)
<S> <C> <C> <C>
Residential and home equity................... $113,987 $2,868 $116,855
Multi-family and commercial real estate....... 16,974 568 17,542
Construction.................................. 150 718 868
Consumer...................................... 2 345 347
Commercial.................................... 269 269
----------- ----- --------
Total....................................... $ 131,113 $4,768 $135,881
======== ===== =======
</TABLE>
Loan Purchases. In the past, the Company purchased loans from a number
of financial institutions. Generally, such loans were fixed-rate loans secured
by single family residential loans located in Central and Eastern Pennsylvania,
New Jersey, New York and Delaware. At December 31, 1998, $51.7 million of such
loans were outstanding. In each transaction, the seller retained the loan
servicing. The Company purchased such loans to increase its residential loan
portfolio. Since the reorganization, the Company has purchased $36 million in
fixed rate residential mortgages located in North Jersey and Long Island as part
of its leverage program.
In 1994, the Company agreed to act as a correspondent with a bank in
Souderton, Pennsylvania. The correspondent bank originates fixed-rate
residential loans based on terms, conditions, fees, and rates posted by the
Company. All underwriting conforms to the Company's underwriting guidelines. The
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<PAGE>
Company receives from the correspondent bank a completed application to
underwrite and determine whether to issue a loan commitment. At December 31,
1998, the Company had a balance of $1.9 million of such loans outstanding. The
Company still maintains this relationship but only to a limited extent.
In loan purchase transactions, the Company typically receives a due
diligence package that provides loan level detail on a comparative basis against
the Federal Home Loan Mortgage Corporation ("FHLMC") underwriting guidelines.
All loans must be documented, including an original appraisal that substantiates
the value of the subject property at the time the loan was originated.
The Company obtains from the seller a duplicate copy of each original
loan file which generally includes an executed loan application, financial
statements, credit report, and original title policy and mortgage note. In the
event that a residential loan package has substantial seasoning and low original
loan-to-value ratios, or the market is well beyond the Company's primary lending
area, a fee appraiser may not be employed to underwrite the appraisal reports in
the loan files. The Company arranges with the seller/servicer an on site due
diligence review to physically review and document each loan file in a purchase
transaction.
The Company originates residential first mortgage loans that conform to
the FHLMC and Federal National Mortgage Association ("FNMA") guidelines. It is
the Company's intent to retain servicing for loans originated for sale or to
subsequently package them as participations. Primary markets for loans sold will
be GSEs and other secondary market investors.
Loans Available For Sale. The Company holds as available for sale
certain residential mortgage loans that have an annual yield determined by
Management to be at rates not compatible with its asset management strategy.
These loans conform to FHLMC and FNMA guidelines and are readily salable in the
secondary market.
7
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Origination, Purchase and Sale of Loans. The following table sets forth
total loans originated, purchased, sold, and repaid during the periods
indicated.
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
(In Thousands)
<S> <C> <C> <C> <C> <C>
Total gross loans receivable at
beginning of period ........ $ 98,675 $ 100,775 $ 102,077 $ 97,677 $ 100,990
========= ========= ========= ========= =========
Loans originated:
Construction loans .......... $ 360 $ 1,570 $ 1,055 $ 430 $ 660
Residential and home equity . 26,973 14,795 13,546 7,064 11,378
Multi-family and commercial
real estate ............... 438 2,211 810 1,962 2,015
Consumer .................... 252 372 368 190 327
Commercial .................. 1,927 707 770 -- --
--------- --------- --------- --------- ---------
Total loans originated ........ $ 29,950 $ 19,655 $ 16,549 $ 9,646 $ 14,380
========= ========= ========= ========= =========
Loans purchased:
Residential ................. $ 36,098 $ 1,088 $ 2,360 $ 4,363 $ 1,860
Multi-family and commercial
real estate ............... -- -- -- 2,897 --
Commercial equipment leases . -- -- -- 1,629 1,600
--------- --------- --------- --------- ---------
Total loans purchased ......... 36,098 1,088 2,360 8,889 3,460
--------- --------- --------- --------- ---------
Total loans sold .............. -- 383 -- -- --
--------- --------- --------- --------- ---------
Loan principal repayments ..... 28,509 22,489 16,320 13,984 20,005
--------- --------- --------- --------- ---------
Other (debits less credits) ... (333) (29) (3,891) (151) (1,148)
--------- --------- --------- --------- ---------
Net loan activity ............. $ 37,206 $ (2,100) $ (1,302) $ 4,400 $ (3,313)
========= ========= ========= ========= =========
Total gross loans receivable at
end of period ............... $ 135,881 $ 98,675 $ 100,775 $ 102,077 $ 97,677
========= ========= ========= ========= =========
</TABLE>
Loan Commitments. The Company generally grants commitments to fund
fixed-rate single-family mortgage loans for periods of up to 90 days at a
specified term and interest rate. The Company also makes loan commitments for
non-conforming or commercial real estate loans for up to 90 days, which
generally carry additional requirements for funding. The total amount of the
Company's commitments to originate loans as of December 31, 1998 was $1.2
million.
Loan Servicing and Servicing Fees. The Company has retained servicing
on loans it has sold to FHLMC and FNMA. The Company also services all of its own
loans. As of December 31, 1998, 1997 and 1996, the Company serviced loans for
others totaling $2.3 million, $3.7 million, and $3.5 million respectively. Loan
servicing fees have not constituted a material source of income.
Asset Quality
Non-Performing Assets and Asset Classification. The Company's
collection procedures provide that when a loan is 30 days or more delinquent,
the borrower is contacted by mail and telephone and payment is requested. If the
delinquency continues, subsequent efforts will be made to contact the delinquent
borrower. In certain instances, the Company may modify the loan or grant a
limited
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moratorium on loan payments to enable the borrower to reorganize his financial
affairs. If the loan continues in a delinquent status for 60 days, the Company
will initiate foreclosure proceedings. Any property acquired as the result of
foreclosure or by deed in lieu of foreclosure is classified as REO until such
time as it is sold or otherwise disposed of by the Company. When REO is
acquired, it is recorded at the lower of the unpaid principal balance of the
related loan or its fair market value. Any write-down of the property is charged
to the allowance for losses.
Loans are reviewed on a regular basis and are placed on a non-accrual
status when, in the opinion of management, the collection of additional interest
is doubtful. The Company continues to accrue for residential mortgage loans 90
days or more past due, however a reserve is set up for such loans. Consumer
loans generally are charged off when the loan becomes 90 days or more
delinquent. Commercial business and real estate loans are placed on non-accrual
status when the loan is 90 days or more past due. Interest accrued and unpaid at
the time a loan is placed on non-accrual status is charged against interest
income. Subsequent payments are either applied to the outstanding principal
balance or recorded as interest income, depending on the assessment of the
ultimate collectibility of the loan.
At December 31, 1998, the Company had approximately $263,000 of loans
that were 60-89 days delinquent, all of which were secured by residential
properties.
The following table sets forth information with respect to the
Company's non-performing assets for the periods indicated. At the dates
indicated, the Company had no accruing loans past due 90 days or more and no
restructured loans within the meaning of SFAS No. 15.
<TABLE>
<CAPTION>
At December 31,
---------------
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
(In Thousands)
<S> <C> <C> <C> <C> <C>
Loans accounted for on a non-accrual basis .. $ -- $ -- $ -- $ -- $ --
Accruing loans which are contractually past
due 90 days or more:
Residential and home equity ............... $393 $ 716 $1,357 $1,441 $1,244
Construction loans ........................ -- -- 109 133 --
Multi-family and commercial real estate ... -- -- 1,533 565 --
Consumer .................................. -- -- -- -- 7
---- ------- ------ ------ ------
Total ....................................... $393 $ 716 $2,999 $2,139 $1,251
==== ======= ====== ====== ======
Real estate owned ........................... $ 82 $ 116 $ 186 $ 227 $ 88
==== ======= ====== ====== ======
Total non-performing assets ................. $475 $ 832 $3,185 $2,366 $1,339
==== ======= ====== ====== ======
Total non-accrual and accrual loans to
net loans ................................. .28% .74% 3.04% 2.35% 1.40%
==== ======= ====== ====== ======
Total non-performing assets to total assets . .09% .30% 1.08% .82% .49%
==== ======= ====== ====== ======
</TABLE>
Non-performing assets decreased $357,000 or 42.9% due to foreclosure
and subsequent liquidation of non-performing assets in addition to normal
collections.
Management of the Company regularly reviews the loan portfolio in order
to identify potential problem loans and classifies any potential problem loan as
a special mention, substandard, doubtful or loss asset according to the OTS
classification of asset regulations.
OTS regulations provide for savings institutions to classify their
loans and other assets as substandard, doubtful, or loss assets. Assets
classified as substandard are those inadequately protected by the current net
worth and paying capacity of the obligor or the pledged collateral. They are
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<PAGE>
characterized by the distinct possibility that the institution will sustain some
loss if the deficiencies are not corrected. Assets classified as doubtful have
all the weaknesses of those classified as substandard with the additional
characteristic that the weaknesses make collection or liquidation in full highly
questionable and improbable. Assets classified as "loss" are considered
uncollectible and of such little value that their continuance as assets without
the establishment of a specific reserve is not warranted. Assets that do not
currently expose a savings institution to a sufficient degree of risk to warrant
classification but do possess credit deficiencies or potential weaknesses
deserving management's close attention are designated "special mention." Special
mention assets have a potential weakness or pose an unwarranted financial risk
that, if not corrected, could weaken the asset and increase risk in the future.
Assets designated as substandard or doubtful are recorded at fair value. At
December 31, 1998, the Company had $2.2 million of classified assets, all of
which were classified as substandard and none of which were classified as loss.
Furthermore, at December 31, 1998, $704,000 of assets were designated special
mention.
Allowance for Losses on Loans and REO. The Company's management
evaluates the need to establish reserves against losses on loans and other
assets each year based on estimated losses on specific loans and on any real
estate held for sale or investment when a finding is made that a loss is
estimable and probable. Such evaluation includes a review of all loans for which
full collectibility may not be reasonably assured and considers, among other
matters, the estimated market value of the underlying collateral of problem
loans, prior loss experience, economic conditions and overall portfolio quality.
These provisions for losses are charged against earnings in the year they are
established.
While the Company believes it has established its existing allowance
for loan losses in accordance with GAAP and the Interagency Policy Statement on
the Allowance for Loan and Lease Losses issued by the OTS, in conjunction with
the OCC, FDIC and FRB, there can be no assurance that the applicable regulators,
in reviewing the Company's loan portfolio, will not request the Company to
significantly increase its allowance for loan losses, or that changes in the
real estate market or local or national economy will not cause the Company to
significantly increase its allowance for loan losses, thereby negatively
affecting the Company's financial condition and earnings.
In making loans, the Company recognizes that credit losses will be
experienced and that the risk of loss will vary with, among other things, the
type of loan being made, the creditworthiness of the borrower over the term of
the loan and, in the case of a secured loan, the quality of the security for the
loan. It is the Company's policy to review its loan portfolio, in accordance
with regulatory classification procedures, on a quarterly basis. Additionally,
the Company maintains a program of reviewing loan applications prior to making
the loan and immediately after loans are made in an effort to maintain loan
quality.
10
<PAGE>
The following table sets forth information with respect to the
Company's allowance for loan losses at the dates indicated:
<TABLE>
<CAPTION>
At December 31,
---------------------------------------------------------------
1998 1997 1996 1995 1994
--------- --------- --------- --------- ---------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C>
Total loans outstanding, net(1) ........ $ 133,908 $ 96,280 $ 98,626 $ 100,271 $ 95,524
========= ========= ========= ========= =========
Average loans outstanding, net(1) ...... $ 110,059 $ 101,472 $ 101,726 $ 99,194 $ 97,302
========= ========= ========= ========= =========
Allowance balances (at beginning of
period) .............................. $ 783 $ 577 $ 455 $ 417 $ 450
Provision:
Residential .......................... 270 37 -- 24 49
Multi-family and commercial
real estate ........................ -- 83 139 27 9
Consumer ............................. -- -- -- 84 2
Net Charge-offs (recoveries):
Residential .......................... (17) (86) 17 97 83
Multi-family and commercial
real estate ........................ -- -- -- -- --
Consumer ............................. -- -- -- -- 10
--------- --------- --------- --------- ---------
Allowance balance (at end of period) ... $ 1,036 $ 783 $ 577 $ 455 $ 417
========= ========= ========= ========= =========
Allowance for loan losses as a percent
of total loans outstanding ........... .77% .85% .59% .45% .44%
Net loans charged off (recovery) as
a percent of average loans outstanding .01% (.08)% .02% .09% .10%
</TABLE>
- ---------------
(1) Does not include loans available for sale.
11
<PAGE>
The following table sets forth certain information regarding
the allocation of the allowance for loan losses by type.
<TABLE>
<CAPTION>
At December 31,
--------------------------------------------------------------------------------------------------
1998 1997 1996 1995 1994
------------------- ------------------ ------------------ ----------------- ------------------
Percent of Percent of Percent of Percent of Percent of
Loans to Loans to Loans to Loans to Loans to
Total Total Total Total Total
Amount Loans Amount Loans Amount Loans Amount Loans Amount Loans
------ ------- ------ ------- ------ ------- ------ ------- ------ ------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Residential and home equity(1).. $ 487 86.64% $234 82.39% $197 81.22% $275 79.86% $262 84.47%
Multi-family and commercial
real estate................... 549 12.91 549 16.87 380 17.54 106 19.79 55 14.95
Consumer loans.................. - .25 - 0.41 - 0.48 - 0.35 - 0.58
Commercial loans(2)............. - .20 - 0.33 - 0.76 74 - 100 -
------ ------- ---- ------ ---- ------ --- ------- --- -------
Total allowance............... $1,036 100.00% $783 100.00% $577 100.00% $455 100.00% $417 100.00%
===== ====== === ====== === ====== === ====== === ======
</TABLE>
- --------------------
(1) Includes residential construction loans.
(2) Includes loans secured by commercial equipment leases at December 31, 1995
and 1994.
12
<PAGE>
Investment Activities
General. The investment policy of the Company, which is established by
senior management and approved by the Board of Directors, is based upon its
asset and liability management goals and is designed primarily to provide a
portfolio of high quality, diversified investments while seeking to optimize net
interest income within acceptable limits of safety and liquidity. The current
investment goal is to invest available funds in instruments that meet specific
requirements of the Company's asset and liability management goals. The
investment activities of the Company consist primarily of investments in fixed
and adjustable-rate mortgage-backed securities and U.S. Government agency bonds.
At December 31, 1998, the Company had a mortgage-backed securities portfolio
with a market value of $229.9 million, all of which was held for sale. At
December 31, 1998, the Company had an investment securities portfolio of
approximately $74.4 million consisting of U.S. Government treasury, agency
securities, and municipal and equity securities. The market value of such
securities at December 31, 1998 was $74.2 million.
Mortgage-Backed Securities. The Company also purchases mortgage-backed
securities guaranteed by Government National Mortgage Association ("GNMA") and
FNMA and issued by the FHLMC which are secured by fixed-rate and adjustable-rate
mortgages. GNMA mortgage-backed securities are pass-through certificates issued
and backed by the GNMA and are secured by interests in pools of mortgages which
are fully insured by the Federal Housing Administration ("FHA") or partially
guaranteed by the Department of Veterans' Affairs ("VA"). The FNMA
mortgage-backed securities consist of pass-through certificates and real estate
mortgage investment conduits ("REMICs"). FHLMC mortgage-backed securities
consist of both REMICs and pass-through certificates issued and guaranteed by
the FHLMC and secured by interests in pools of conventional mortgages originated
by savings institutions. As of December 31, 1998, the Company's mortgage-backed
securities amounted to $229.9 million, or 46.7% of total assets, all of which
are currently classified as available for sale.
REMICs held by the Company at December 31, 1998 consisted of
floating-rate tranche, in the amount of $3.0 million. The interest rate of all
of the Company's floating-rate securities adjusts monthly and provides the
institution with net interest margin protection in an increasing market interest
rate environment. The securities are backed by mortgages on one- to four-family
residential real estate and have contractual maturities up to 30 years. At
December 31, 1998, none of these securities are deemed to be "High Risk"
according to Federal Financial Institutions Examination Council ("FFIEC")
guidelines which have been adopted by the OTS. The securities are primarily
companion tranche to "PACs" and "TACs". PACs and TACs (Planned and Targeted
Amortization Classes) are designed to provide a specific principal and interest
cash-flow. Principal payments that are received in excess of the amount needed
for the PACs and TACs is allocated to the companion tranche. When the PACs and
TACs are repaid in full, all principal is then used to pay the companion
tranche.
Investment Securities. Income from investment securities provides a
significant source of income for the Company. The Company maintains a portfolio
of investment securities such as U.S. government and agency securities,
non-governmental securities, municipal bonds, debt and equity investments in
financial services firms, FHLB stock and interest-bearing deposits, in addition
to the Company's mortgage-backed securities portfolio. The Company is required
by federal regulation to maintain a minimum percentage of its liquidity base in
the form of qualifying long and short-term liquid assets. Currently, the
liquidity requirement is 4.0%. In addition, longer-term corporate, agency and
government debt securities may be held subject to similar creditworthiness,
ratings and maturity criteria. As of December 31, 1998, the Company's, liquidity
ratio was 19.02%. The balance of short-term security investments in excess of
regulatory requirements reflects management's response to the significantly
increasing percentage of savings deposits with short maturities. It is the
intention of management to maintain shorter maturities in the Company's
investment portfolio in order to better match
13
<PAGE>
the interest rate sensitivities of its assets and liabilities. However, during
periods of rapidly declining interest rates, the yield on such investments also
declines at a faster rate than does the yield on long-term investments.
Investment decisions are made within policy guidelines established by
the Board of Directors and the Asset/Liability Committee. As of December 31,
1998, the Company's investment portfolio (including investment securities
classified as available for sale) (the "investment portfolio") totalled $74.4
million.
The following table sets forth the fair value or amortized cost (as
applicable) of the Company's investment portfolio, short-term investments, and
FHLB stock at the dates indicated. The amounts for securities held to maturity
are listed at amortized cost; amounts for securities available for sale are
listed at approximate market value.
Investment Portfolio. The following table sets forth the carrying value
(market value or amortized cost, as applicable) of the Company's investment
securities portfolio, short-term investments, FHLB stock, and mortgage-backed
securities at the dates indicated.
<TABLE>
<CAPTION>
At December 31,
-----------------------------------
1998 1997 1996
-------- -------- --------
(In Thousands)
<S> <C> <C> <C>
Investment Securities:
U.S. Treasury Securities ....... $ 5,032 $ 5,403 $ 5,055
FHLB bonds ..................... 10,154 17,284 22,000
Other agencies(1) .............. 8,178 4,168 19,160
Municipal bonds ................ 30,765 8,034 --
Mutual funds(2) ................ 1,285 1,222 1,147
FHLMC preferred stock(2) ....... -- -- 985
Capital trust securities(2)(3) . 11,647 1,060 --
Subordinated debt(3) ........... 750 250 250
-------- -------- --------
Total investment securities .. 67,811 37,061 48,597
-------- -------- --------
Interest-bearing deposits ....... 21,614 15,312 36,067
Federal funds sold .............. 2,000 2,000 2,000
FHLB of Pittsburgh stock ........ 5,344 1,701 1,691
Mortgage-backed securities(2) ... 229,883 111,486 93,410
Equity investments(2)(3) ........ 6,592 1,166 499
-------- -------- --------
Total Investments ............ $333,244 $168,726 $182,264
======== ======== ========
</TABLE>
- ----------------
(1) Consists of FNMA, FHLMC, SLMA debentures and certificates of deposit.
(2) Classified as available for sale and carried at approximate fair value. All
other investment securities are classified as held to maturity.
(3) Investments held by the Company in 1998 and Thistle Group Holdings, Inc. in
prior years.
14
<PAGE>
Investment Portfolio Maturities. The following table sets forth certain
information regarding the carrying values, weighted average yields and
maturities of the Company's investment securities portfolio at December 31,
1998.
<TABLE>
<CAPTION>
As of December 31, 1998
One Year or Less One to Five Years Five to Ten Years More than Ten Years Total Investment Securities
------------------ ------------------- ----------------- ------------------- ---------------------------
Carrying Average Carrying Average Carrying Average Carrying Average Carrying Average Market
Value Yield Value Yield Value Yield Value Yield Value Yield Value
------- ------- ------- ------- ------- ------- -------- ------- ------- ------- -------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Treasury Securities... $ - -% $5,032 7.24% $ - -% $ - -% $ 5,032 7.24% $ 5,356
FHLB bonds and notes....... - - - - - - 10,154 7.40 10,154 7.40 9,768
Other agencies(1).......... 178 5.25 - - 3,000 6.02 5,000 6.83 8,178 6.50 8,163
Municipal bonds............ - - - - - - 30,765 4.89 30,765 4.89 30,671
Subordinated debt ......... - - - - 750 8.25 - - 750 8.25 750
Capital securities......... - - - - 2,750 8.05 9,024 8.57 11,774 8.44 11,647
Mutual funds............... 1,285 5.01 - - - - - - 1,285 5.01 1,285
Mortgage-backed securities:
GNMA pass-through........ - - - - 3,628 7.14 130,588 5.68 134,216 5.72 134,781
FNMA pass-through........ - - - - - - 64,852 6.45 64,852 6.45 65,129
FHLMC pass-through....... - - 1,339 6.50 3,245 8.97 21,928 6.55 26,512 6.84 27,068
FHLMC REMICs............. - - - - 602 5.91 2,392 6.06 2,994 6.03 2,905
------ ------ ------ ------ ------- ---- ------- ---- ------- ---- -------
Total.................... $1,463 5.04% $6,371 7.08% $13,975 7.51% $274,703 6.03% $296,512 6.11% $297,523
====== ====== ====== ====== ======= ==== ======= ==== ======= ==== =======
</TABLE>
- ---------------
(1) Consists of FNMA, FHLMC, and SLMA debentures and certificates of deposit.
15
<PAGE>
Unrealized holding gains and losses for trading securities are included
in earnings. Unrealized gains and losses for available-for-sale securities are
excluded from earnings and reported net of income tax effect as a separate
component of stockholders' equity until realized. Investments classified as held
to maturity are accounted for at amortized cost.
Sources of Funds
General. Deposits are the major source of the Company's funds for
lending and other investment purposes. In addition to deposits, the Company
derives funds from loan and mortgage-backed securities principal repayments, and
proceeds from the sale of loans, mortgage-backed securities and investment
securities. Loan and mortgage-backed securities principal repayments are a
relatively stable source of funds, while deposit inflows are significantly
influenced by general interest rates and money market conditions. Borrowings may
be used on a short-term basis to compensate for reductions in the availability
of funds from other sources. They also may be used on a longer-term basis for
general business purposes.
Deposits. The Company offers a wide variety of deposit accounts,
although a majority of such deposits are in fixed-term, market-rate certificate
accounts. Deposit account terms vary, primarily as to the required minimum
balance amount, the amount of time that the funds must remain on deposit and the
applicable interest rate.
The Company also offers standardized individual retirement accounts
("IRAs"), as well as qualified defined master plans for self- employed
individuals. IRAs are marketed in the form of all of the available savings
deposits and certificates.
The Company had no brokered certificates of deposit as of December 31,
1998.
The Company pays interest rates on its certificate accounts which are
competitive in its market. Interest rates on deposits are reviewed weekly by
management based on a combination of factors, including the need for funds and
local competition.
Deposits in the Company as of December 31, 1998 were represented by
various types of savings programs described below.
16
<PAGE>
Deposit Portfolio. Deposits in the Company as of December 31, 1998,
were represented by various types of savings programs described below.
<TABLE>
<CAPTION>
Minimum Balance as of Percentage of
Category Term Interest Rate(1) Balance Amount December 31, Total Deposits
- -------- ---- ---------------- -------------- ------------ --------------
1998
----
(In Thousands)
<S> <C> <C> <C> <C> <C>
Regular Savings None 2.75% $ 10 $33,016 11.95%
Senior Club Savings None 3.50 500 67,215 24.32
Christmas and Vacation Clubs None 2.00 10 396 .14
NOW Accounts None 1.48 10 17,143 6.20
Money Market Accounts None 3.64 1,000 13,857 5.01
Non-interest Deposits None - 300 999 .36
Certificates of Deposit:
Fixed Term, Fixed Rate 3 Months 3.40 500 599 .22
Fixed Term, Fixed Rate 6 Months 4.13 500 7,997 2.89
Fixed Term, Fixed Rate 9 Months 4.13 500 1,125 .41
Fixed Term, Fixed Rate 12 Months 4.60 500 95,151 34.43
Fixed Term, Fixed Rate 15 Months 4.70 500 1,601 .58
Fixed Term, Fixed Rate 18 Months 4.84 500 7,484 2.71
Fixed Term, Fixed Rate 24 Months 4.84 500 1,837 .66
Fixed Term, Fixed Rate 30 Months 5.08 500 13,472 4.87
Fixed Term, Fixed Rate 60 Months 5.08 1,000 14,498 5.25
------- ------
Total deposits $276,390 100.00%
======
Accrued interest
on deposits 41
--------
Total $276,431
========
</TABLE>
- -------------------------
(1) Interest rate offerings as of December 31, 1998.
Time Deposits by Rate. The following table sets forth the time deposits
in the Company classified by interest rate as of the dates indicated.
As of December 31,
-------------------------------
1998 1997 1996
---- ---- ----
(In Thousands)
Weighted average rate:
3.00-3.99%................................ $ 6,850 $ 9,102 $ 14,497
4.00-4.99%................................ 19,590 4,858 19,199
5.00-5.99%................................ 112,253 91,505 65,362
6.00-6.99%................................ 5,071 5,586 19,440
Accrued interest on certificate accounts.. 9 10 16
------ ------ ------
Total................................... $143,773 $111,061 $118,514
======= ======= =======
17
<PAGE>
Time Deposits Maturity Schedule. The following table sets forth the
amount and maturities of time deposits at December 31, 1998.
<TABLE>
<CAPTION>
Amount Due
-------------------------------------------------------------------------
After
December 31, December 31, December 31, December 31,
Interest Rate 1999 2000 2001 2001 Total
- ------------- ----------- ----------- ----------- ------------- --------------
(In Thousands)
<S> <C> <C> <C> <C> <C>
2.99% or less................. $ $ $ $ $
3.00-3.99%.................... 6,850 - - - 6,850
4.00-4.99%.................... 15,863 3,727 - - 19,590
5.00-5.99%.................... 91,369 9,154 4,652 7,078 112,253
6.00-6.99%.................... 4,014 1,057 5,071
Accrued Interest on
Certificate Accounts.......... 9 - - - 9
-------- ------- ------ ------ --------
Total $118,105 $13,938 $4,652 $7,078 $143,773
======= ====== ===== ===== =======
</TABLE>
Jumbo Certificates of Deposit. The following table indicates the amount
of the Company's certificates of deposit of $100,000 or more by time remaining
until maturity as of December 31, 1998.
Certificates
Maturity Period of Deposits
- --------------- -----------
(In Thousands)
Within three months................. $ 4,331
Three through six months............ 1,317
Six through twelve months........... 7,019
Over twelve months.................. 1,965
------
$14,632
=======
18
<PAGE>
Savings Deposit Activity. The following table sets forth the savings
activities of the Company for the periods indicated:
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------------------------------
1998 1997 1996 1995 1994
--------- --------- --------- --------- ---------
(In Thousands)
<S> <C> <C> <C> <C> <C>
Deposits ................. $ 434,531 $ 337,170 $ 336,937 $ 305,790 $ 309,093
Withdrawals .............. 397,028 335,365 340,105 305,593 318,822
Net increase (decrease)
before interest credited 37,503 1,805 (3,168) 197 (9,729)
Deposits sold ............ (37,238) -- -- --
Interest credited ........ 8,329 9,449 9,532 8,750 6,654
--------- --------- --------- --------- ---------
Net increase (decrease) in
savings deposits ....... $ 45,832 $ (25,984) $ 6,364 $ 8,947 $ (3,075)
========= ========= ========= ========= =========
</TABLE>
Borrowings
Deposits are the primary source of funds of the Company's lending and
investment activities and for its general business purposes. The Bank may obtain
advances from the FHLB of Pittsburgh to supplement its supply of lendable funds.
Advances from the FHLB of Pittsburgh are typically secured by a pledge of the
Bank's stock in the FHLB of Pittsburgh and a portion of the Company's first
mortgage loans and certain other assets. During 1998, the Company utilized FHLB
borrowings to leverage its balance sheet. The Bank, if the need arises, may also
access the Federal Reserve Company discount window to supplement its supply of
lendable funds and to meet deposit withdrawal requirements. At December 31,
1998, the Bank had $106.9 million in advances outstanding from the FHLB of
Pittsburgh at fixed rates of interest, all of which were matched to a specific
investment at a positive interest rate spread. Most of these advances provide
for a prepayment penalty. At December 31, 1998, the Company had no other
borrowings.
The following table sets forth certain information as to FHLB advances
at the dates indicated. Included in the table below is a $1,884,000 Community
Investment Program loan ("CIP") from the FHLB Pittsburgh used to finance the
Bank's low income housing project to a developer/manager of Section 8 housing.
<TABLE>
<CAPTION>
As of and For the
Year Ended December 31,
-----------------------------------------
1998 1997 1996
(Dollars In Thousands)
<S> <C> <C> <C>
FHLB advances......................... $106,884 $7,884 $7,884
Weighted average interest rate of
FHLB advances....................... 5.20% 5.53% 5.53%
Maximum amount of advances at
any month end........................ $106,884 $7,884 $7,884
Average amount of advances............ $ 38,884 $7,884 $7,884
Weighted average interest rate
of average amount of advances....... 5.03% 5.53% 5.53%
</TABLE>
19
<PAGE>
Subsidiaries and Joint Venture Activity
The only wholly-owned subsidiary of the Company is the Bank.
The Bank is permitted to invest up to 2% of its assets in the capital
stock of, or secured or unsecured loans to, subsidiary corporations, with an
additional investment of 1% of assets when such additional investment is
utilized primarily for community development purposes. Under such limitations,
as of December 31, 1998, the Bank was authorized to invest up to approximately
$9.8 million in the stock of, or loans to, service corporations (based upon the
2% limitation). As of December 31, 1998, the net book value of the Bank's
investment in stock, unsecured loans, and conforming loans in its service
corporations was $136,000.
The Bank has two wholly owned subsidiary corporations, Montgomery
Service Corporation ("MSC") and Ridge Service Corporation ("RSC"). MSC engages
in the management of real estate. RSC is presently inactive.
Personnel
As of December 31, 1998, the Company had 63 full-time employees and 17
part-time employees. The employees are not represented by a collective
bargaining unit. The Company believes its relationship with its employees to be
satisfactory.
Competition
The Company faces strong competition in its attraction of savings
deposits, which are its primary source of funds for lending, and in the
origination of real estate loans. The Company's competition for savings deposits
and loans historically has come from other thrift institutions and commercial
banks located in the Company's market area. The Company also competes with
mortgage banking companies for real estate loans, and faces competition for
investor funds from short-term money market securities and corporate and
government securities.
The Company's market area generally includes Philadelphia, Bucks,
Delaware, Chester and Montgomery Counties, which comprise the Philadelphia
metropolitan area. The Company's primary lending area consists of the
Roxborough, Manayunk, Overbrook and Andorra neighborhoods located in the far
northwest sections of Philadelphia and South Philadelphia. The Company has no
significant loan concentrations in any one part of its primary lending area.
The Company competes for loans by charging competitive interest rates
and loan fees, remaining efficient and providing a wide range of services to its
customers. The Company offers all consumer banking services such as checking
accounts, certificates of deposit, retirement accounts, consumer and mortgage
loans and ancillary services such as safe deposit boxes, convenient offices and
drive-up facilities, an automated teller machine and overdraft protection. These
services help the Company compete for deposits, in addition to offering
competitive rates on deposits.
Legislative and regulatory measures have significantly expanded the
range of services which savings institutions can offer the public, such as
demand deposits, trust services,and consumer and commercial lending. These
changes, combined with increasingly sophisticated depositors, have dramatically
increased competition for savings dollars among savings institutions and other
types of investment entities, as well as with commercial banks in regard to
loans, checking accounts and other types of financial services. In addition,
large conglomerates and investment banking firms have entered the market for
financial services. The competition between commercial banks and savings
institutions is also increased by allowing banks to acquire healthy savings
institutions, imposing similar capital
20
<PAGE>
requirements on banks and savings institutions and placing certain investment
and other regulatory restrictions on savings institutions which are similar to
those imposed on banks. Thus, in the future, the Company, like other savings
institutions, will face increased competition to provide savings and lending
services and, in order to remain competitive, will have to be innovative and
knowledgeable about its market, as well as to continue to exert effective
controls over its costs.
Regulation
Set forth below is a brief description of certain laws which relate to
the Bank and the Company. The description is not complete and is qualified in
its entirety by references to applicable laws and regulation.
Regulation of the Company
General. The Company is required to register and file reports with the
OTS and is subject to regulation and examination by the OTS. In addition, the
OTS has enforcement authority over the Company and any non-savings institution
subsidiaries. This will permit the OTS to restrict or prohibit activities that
it determines to be a serious risk to the Bank. This regulation is intended
primarily for the protection of depositors and not for the benefit of
stockholders.
QTL Test. Since the Company owns only one savings institution, it is
able to diversify its operations into activities not related to banking, but
only so long as the Bank satisfies the QTL test. If the Company controls more
than one savings institution, it would lose the ability to diversify its
operations into nonbanking related activities, unless such other savings
institutions each also qualify as a QTL or were acquired in a supervised
acquisition.
Restrictions on Acquisitions. The Company must obtain approval from the
OTS before acquiring control of any other SAIF-insured savings institution. No
person may acquire control of a federally insured savings institution without
providing at least 60 days written notice to the OTS and giving the OTS an
opportunity to disapprove the proposed acquisition.
Regulation of the Bank
General. As a federally-chartered, SAIF-insured savings bank, the Bank
is subject to extensive regulation by the OTS and the FDIC. Lending activities
and other investments must comply with various federal statutory and regulatory
requirements. The Bank is also subject to certain reserve requirements
promulgated by the Federal Reserve Board.
The OTS, in conjunction with the FDIC, regularly examines the Bank and
prepares reports for the consideration of the Bank's Board of Directors on any
deficiencies that they find in the Bank's operations. The Bank's relationship
with its depositors and borrowers is also regulated to a great extent by federal
law, especially in such matters as the ownership of savings accounts and the
form and content of the Bank's mortgage documents.
The Bank must file reports with the OTS and the FDIC concerning its
activities and financial condition, in addition to obtaining regulatory
approvals prior to entering into certain transactions such as mergers with or
acquisitions of other savings institutions. This regulation and supervision
establishes a comprehensive framework of activities in which an institution can
engage and is intended primarily for the protection of depositors. The
regulatory structure also gives the regulatory authorities extensive discretion
in connection with their supervisory and enforcement activities and examination
policies,
21
<PAGE>
including policies with respect to the classification of assets and the
establishment of adequate loan loss reserves for regulatory purposes. Any change
in such regulations, whether by the OTS, the FDIC or the Congress could have a
material adverse impact on the Company, the Bank and their operations.
Insurance of Deposit Accounts. The Bank's deposit accounts are insured by
the SAIF to a maximum of $100,000 for each insured member (as defined by law and
regulation). Insurance of deposits may be terminated by the FDIC upon a finding
that the institution has engaged in unsafe or unsound practices, is in an unsafe
or unsound condition to continue operations or has violated any applicable law,
regulation, rule, order or condition imposed by the FDIC or the institution's
primary regulator. During the year ended December 31, 1999, the Bank Paid
$145,000 in deposit insurance premiums, including assessments used to repay the
Financing Corporation bond obligation (fico bonds).
Dividend and Other Capital Distribution Limitations. Current OTS
regulations require the Bank to give the OTS 30 days advance notice of any
proposed declaration of dividends to the Company and the OTS has the authority
under its supervisory powers to prohibit the payment of dividends to the
Company.
Current OTS regulations impose limitations upon all capital
distributions by savings institutions, such as cash dividends, payments to
repurchase or otherwise acquire its shares, payments to shareholders of another
institution in a cash-out merger and other distributions charged against
capital. The rule establishes three tiers of institutions, based primarily on an
institution's capital level. An institution that exceeds all requirements before
and after a proposed capital distribution ("Tier 1 institution") and has not
been advised by the OTS that it is in need of more than the normal supervision
can, after prior notice, but without the approval of the OTS, make capital
distributions during a calendar year equal to the greater of (i) 100% of its net
income to date during the calendar year plus the amount that would reduce by
one-half its "surplus capital ratio" (the excess over its capital requirements)
at the beginning of the calendar year, or (ii) 75% of its net income over the
most recent four quarter period. Any additional capital distributions require
prior regulatory approval. As of December 31, 1998, the Bank was a Tier 1
institution. In the event the Bank's capital fell below its requirement or the
OTS notified it that it was in need of more than normal supervision, the Bank's
ability to make capital distributions could be restricted. In addition, the OTS
could prohibit a proposed capital distribution by any institution, which would
otherwise be permitted by the regulation, if the OTS determines that such
distribution would constitute an unsafe or unsound practice.
Qualified Thrift Lender Test. Savings institutions are required to meet
a qualified thrift lender ("QTL") test. If the Bank maintains an appropriate
level of Qualified Thrift Investments (primarily residential mortgages and
related investments, including certain mortgage-backed securities) ("QTIs") and
otherwise qualifies as a QTL, it will continue to enjoy full borrowing
privileges from the FHLB of Pittsburgh. The required percentage of QTIs is 65%
of portfolio assets (defined as all assets minus intangible assets, property
used by the institution in conducting its business and liquid assets equal to
10% of total assets). Certain assets are subject to a percentage limitation of
20% of portfolio assets. In addition, savings associations may include shares of
stock of the FHLBs, FNMA and FHLMC as qualifying QTIs. As of December 31, 1998,
the Bank was in compliance with its QTL requirement with 81.58% of its assets
invested in QTIs.
Loans-to-One Borrower. Under the HOLA, as amended, savings institutions
are subject to the national bank limits on loans-to-one borrower. Generally, a
savings association may not make a loan or extend credit to a single or related
group of borrowers in excess of 15% of the association's unimpaired capital and
surplus. An additional amount may be lent, equal to 10% of unimpaired capital
and surplus, if such loan is secured by readily-marketable collateral, which is
defined to include certain securities and bullion, but generally does not
include real estate. The Bank does not have any loans-to-one borrower which
exceed these limits.
22
<PAGE>
Federal Home Loan Bank System. The Bank is a member of the FHLB of
Pittsburgh, which is one of 12 regional FHLBs that administers the home
financing credit function of savings associations. Each FHLB serves as a reserve
or central bank for its members within its assigned region. It is funded
primarily from proceeds derived from the sale of consolidated obligations of the
FHLB System. It makes loans to members (i.e., advances) in accordance with
policies and procedures established by the Board of Directors of the FHLB.
As a member, the Bank is required to purchase and maintain stock in the
FHLB of Pittsburgh in an amount equal to at least 1% of its aggregate unpaid
residential mortgage loans, home purchase contracts or similar obligations at
the beginning of each year.
Federal Reserve System. The Federal Reserve Board requires all
depository institutions to maintain non-interest bearing reserves at specified
levels against their transaction accounts (primarily non-interest checking and
interest-bearing checking accounts) and non-personal time deposits. The balances
maintained to meet the reserve requirements imposed by the Federal Reserve Board
may be used to satisfy the liquidity requirements that are imposed by the OTS.
Regulatory Capital Requirements. OTS capital regulations require
savings institutions to meet three capital standards: (1) tangible capital equal
to 1.5% of total adjusted assets, (2) a leverage ratio (core capital) equal to
4% of total adjusted assets and (3) a risk-based capital requirement equal to
8.0% of total risk-weighted assets. The Bank met these capital standards at
December 31, 1998.
As shown below, the Bank's regulatory capital exceeded all minimum
regulatory capital requirements applicable to it as of December 31, 1998:
<TABLE>
<CAPTION>
Percent of
Adjusted
Amount Assets
------ ------
(Dollars in Thousands)
<S> <C> <C>
Tangible Capital:
Actual capital......................... $60,672 12.9%
Regulatory requirement................. 7,065 1.5
------ ----
Excess................................. $53,607 11.4%
====== ====
Core Capital:
Actual capital......................... $60,672 12.9%
Regulatory requirement................. 14,129 3.0
------ ----
Excess................................. $46,543 9.9%
====== ====
Risk-Based Capital:
Actual capital......................... $61,708 46.6%
Regulatory requirement................. 10,605 8.0
------ ----
Excess................................. $51,103 38.6%
====== ====
</TABLE>
Item 2. Properties
- ------------------
The Company's and Bank's executive offices are located at 6060 Ridge
Avenue in Philadelphia, Pennsylvania. The Bank conducts its business through six
offices, all of which are located in the Philadelphia, Pennsylvania area. The
following table sets forth the location of each of the Bank's offices, the year
the office was first acquired and the net book value of each office. The Bank
owns five of its six office locations.
23
<PAGE>
Year
Owned Facility Net Book
or Opened or Value as of
Office Location Leased Acquired December 31, 1998
- ---------------------------------- ----------- --------- -------------------
(In Thousands)
Main Office Owned 1958 $212
6060 Ridge Avenue
Philadelphia, PA 19128
7568 Ridge Avenue Owned 1962 8
Philadelphia, PA 19128
8345 Ridge Avenue Owned 1974 90
Philadelphia, PA 19128
4370 Main Street Leased 1993 44(1)
Philadelphia, PA 19127
Church Lane & Chester Avenue Owned 1982 126
Yeadon, PA 19050
6503-15 Haverford Avenue Owned 1982 258
----
Philadelphia, PA 19151
$738
====
- -------------------------
(1) Includes leasehold improvements. The lease expires on December 31,
1999, with an option to renew to 2004.
As of December 31, 1998, the net book value of land, buildings,
furniture, and equipment owned by the Company, less accumulated depreciation
totalled $2.5 million.
Item 3. Legal Proceedings
- --------------------------
The Company is periodically involved as a plaintiff or defendant in
various legal actions, such as actions to enforce liens, condemnation
proceedings on properties in which the Company holds mortgage interests, matters
involving the making and servicing of mortgage loans and other matters incident
to the Company's business. In the opinion of management, none of these actions
individually or in the aggregate is believed to be material to the financial
condition or results of operations of the Company.
Item 4. Submission of Matters to a Vote of Security Holders
- ------------------------------------------------------------
No matters were submitted to a vote of security holders during the fourth
quarter of the fiscal year ended December 31, 1998.
24
<PAGE>
Part II
Item 5. Market for the Registrant's Common Equity and Related Stockholder
Matters
- --------------------------------------------------------------------------------
The information contained in "Note 18 - Quarterly Financial Data" in the
Notes to Consolidated Financial Statements in the Corporation's 1998 Annual
Report to Stockholders (the "Annual Report") is incorporated herein by
reference.
Item 6. Selected Financial Data
- --------------------------------
The information contained in the table captioned "Selected Consolidated
Financial Data" in the Annual Report is incorporated herein by reference.
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
- --------------------------------------------------------------------------------
The information contained in the section captioned "Management's
Discussion and Analysis of Financial Condition and Results of Operations" in the
Annual Report is incorporated herein by reference.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
- --------------------------------------------------------------------
The information contained in the section captioned "Market Risk Analysis"
in the Annual Report is incorporated herein by reference.
Item 8. Financial Statements and Supplementary Data
- ----------------------------------------------------
The Company's consolidated financial statements are included in the Annual
Report on pages 22-37 and are incorporated herein by reference.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
- --------------------------------------------------------------------------------
None.
Part III
Item 10. Directors and Executive Officers of the Registrant
- ------------------------------------------------------------
The information contained under the sections captioned "Section 16(a)
Beneficial Ownership Reporting Compliance" and "Information with Respect to
Nominees for Director, Directors Continuing in Office, and Executive Officers -
Election of Directors" and "- Biographical Information" in the 1999 Proxy
Statement are incorporated herein by reference.
Item 11. Executive Compensation
- --------------------------------
The information contained under the section captioned "Proposal I --
Election of Directors - Executive Compensation" in the Proxy Statement is
incorporated herein by reference.
24
<PAGE>
Item 12. Security Ownership of Certain Beneficial Owners and Management
- ------------------------------------------------------------------------
(a) Security Ownership of Certain Beneficial Owners
-----------------------------------------------
Information required by this item is incorporated herein by
reference to the Section captioned "Voting Securities and
Principal Holders Thereof" of the Proxy Statement.
(b) Security Ownership of Management
--------------------------------
Information required by this item is incorporated herein by
reference to the section captioned "Proposal I -- Election of
Directors" of the Proxy Statement.
(c) Management of the Corporation knows of no arrangements,
including any pledge by any person of securities of the
Corporation, the operation of which may at a subsequent date
result in a change in control of the registrant.
Item 13. Certain Relationships and Related Transactions
- --------------------------------------------------------
The information required by this item is incorporated herein by
reference to the section captioned "Proposal I -- Election of Directors" and
"Voting Securities and Principal Holders Thereof" of the Proxy Statement.
Part IV
Item 14. Exhibits, Financial Statements, and Reports on Form 8-K
- -----------------------------------------------------------------
(a) Listed below are all financial statements and exhibits filed
as part of this report, and are incorporated by reference.
1. The consolidated statements of financial conditions
of the Company and subsidiary as of December 31, 1998
and 1997, and the related consolidated statements of
income, changes in stockholders' equity and cash
flows for each of the years in the three year period
ended December 31, 1998, together with the related
notes and the independent auditors' report of
Deloitte & Touche LLP independent certified public
accountants.
2. Schedules omitted as they are not applicable.
3. Exhibits
The following Exhibits are filed as part of this
report:
<TABLE>
<CAPTION>
<S> <C>
3.1 Articles of Incorporation*
3.2 Bylaws*
10.1 1992 Stock Option Plan of Roxborough-Manayunk Federal Savings Bank*
10.2 1992 Management Stock Bonus Plan of Roxborough-Manayunk Bank*
10.3 1994 Stock Option Plan of Roxborough-Manayunk Bank*
10.4 1994 Management Stock Bonus Plan of Roxborough-Manayunk Bank*
10.5 Employment Agreement with Jerry Naessens*
13 1998 Annual Report to Stockholders
21 Subsidiaries of the Registrant (See "Business of the Company -
Subsidiaries and Joint Venture Activity" at "Item 1. Business")
23 Consent of Independent Auditors
27 Financial Data Schedule (electronic filing only)
</TABLE>
26
<PAGE>
(b) No Reports on Form 8-K were filed during the last quarter of
the fiscal year covered by this Report.
- ----------------
* Incorporated by reference to the Registrant's Form S-1 Registration
Statement No. 333-48749.
27
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized as of March 31, 1999.
THISTLE GROUP HOLDINGS, CO.
By: /s/ John F. McGill, Jr.
----------------------------------
John F. McGill, Jr., President and
Chief Executive Officer
(Duly Authorized Representative)
Pursuant to the requirement of the Securities Exchange Act of 1934, this
report has been signed below on March 31, 1999 by the following persons on
behalf of the registrant and in the capacities indicated.
<TABLE>
<CAPTION>
<S> <C>
/s/ John F. McGill, Jr. /s/ Jerry A. Naessens
- ------------------------------------------------ --------------------------------------------
John F. McGill, Jr. Jerry A. Naessens
President, Chief Executive Officer, and Chairman Chief Financial Officer and Director
(Principal Executive Officer) (Principal Financial and Accounting Officer)
/s/ Francis E. McGill, III /s/ Add B. Anderson, Jr.
- ------------------------------------------------ --------------------------------------------
Francis E. McGill, III Add B. Anderson, Jr.
Secretary and Director Director
- ------------------------------------------------ --------------------------------------------
Patrick T. Ryan Michael G. Crofton
Director Director
- ------------------------------------------------
William A. Lamb, Sr.
Director
</TABLE>
EXHIBIT 13
<PAGE>
about our
company
(GRAPHIC OMITTED)
TGH
Thistle Group Holdings, Co. is a unitary thrift holding company headquartered in
Philadelphia, PA. Its principal subsidiary, Roxborough-Manayunk Bank, is a
federally chartered stock savings bank serving customers through six offices in
Philadelphia and Delaware Counties. The Bank provides a full range of retail
banking services, with emphasis on one- to four-family residential mortgages.
Its primary lending area consists of the far northwest sections of Philadelphia,
South Philadelphia and Montgomery County, PA. Thistle Group Holdings, Co.'s
stock is traded on The Nasdaq Stock MarketT under the symbol "THTL."
(PICTURE OMITTED)
John F. McGill
1937-1998
Leader, Mentor, Father
& Friend
<PAGE>
FINANCIAL
HIGHLIGHTS
(Dollars in thousands) 1998 1997 1996
- --------------------------------------------------------------------------------
Net income (loss) $ 2,350 $ 3,354 $ (363)
Total assets 492,039 276,650 294,332
Loans (net) 136,466 97,435 100,773
Mortgage-backed securities available for sale 229,883 111,486 93,410
Investment securities held to maturity 54,129 34,529 46,464
Investment securities available for sale 20,274 3,698 2,631
Deposits 276,390 230,558 256,546
FHLB advances 106,884 7,884 7,884
Stockholders' equity 100,229 28,470 24,581
(GRAPHIC OMITTED)
<PAGE>
president's
letter
(PICTURE OMITTED)
Thistle Group Holdings, Co. is a new name in financial services, but it has been
an important presence in the communityfor nearly sixty years. As Roxborough-
Manayunk Bank, we have earned our customers' faith and allegiance. As Thistle
Group Holdings, Co., we are also determined to earn our shareholders' confidence
and loyalty.
Thistle Group Holdings, Co. has taken decisive action and maintained a clear
strategic direction since it was officially established on July 14, 1998, with
Roxborough- Manayunk Bank as its core business.The Company has already made
significant progress toward achieving the key goals outlined in its prospectus.
At year-end, Thistle Group Holdings, Co. reported total assets of $492 million,
an increase of $215.4 million from 1997. Net income for the year was $2.3
million and diluted earnings per share (from the date of conversion through
December 31, 1998) was $.16. At Roxborough-Manayunk Bank, core growth remained
the focus for 1998, as demonstrated by an increase of 40 percent in loans and 20
percent in deposit growth.
Selecting a Structure
As a unitary thrift holding company, Thistle Group Holdings, Co. is ideally
positioned for future growth, operating within a structure that will enable us
to develop a network of non-bank affiliates, while growing its core banking
business. This ability to diversify and generate non- interest sensitive forms
of revenue will provide distinct advantages that can increase earnings, act as a
buffer against interest rate fluctuations, and position us as a focused
competitor in the financial services industry.
Utilizing Capital
Market Techniques
Late last year, the Company requested to repurchase up to 15 percent of its
outstanding stock and received approval in January of 1999. The continued market
volatility has giventhe Company the extraordinary opportunity to repurchase much
of its outstanding stock at levels that are accretive to earningsand book value.
Going forward, we will continue to carefully track policy issues impacting the
market and take full advantageof appropriate capital market opportunities as
they arise.
Expanding the Delivery
Network
Consolidation among the largest financial services providers has created a
wealth of opportunities for smaller, more flexible organizations. The Company's
strategy
<PAGE>
is to identify growth markets and step in as an attractive alternative for
customers who wish to establish new banking relationships.
Implementing a Wholesale
Leverage Strategy
Our near-term strategy for utilizing excess capital and enhancing earnings per
share involves employing a wholesale leverage strategy. We have targeted minimum
spread requirementsfor these transactions in order that each transaction
contributes to earnings. To date all leverage transactions, when funded,have
exceeded our minimum spread targets.
Attracting Top Personnel
We recognize that our future success is keenly linked to the effectiveness of
its management and their ability to execute the business plan. We have
successfully attracted experienced professionals in their fields who are
interested in joining an exciting young organization and contributing to its
growth. To date, the Company has added people in the areas of financial
reporting and operations, asset/liability management, and commercial lending.
Investing in Technology
The Company and the Bank have effectively achieved Year 2000 compliance with the
completion, last August, of an 18-month systems conversion project.The project
team went througha comprehensive process that included determining currentand
future needs, selecting vendors whose products are Y2K compliant, finding the
best software solutions and purchasing the most compatible hardware. We will
continue to monitorthird party relationships to ensure a smooth transition into
thenew millennium.
Supporting Shareholder Value
Thistle Group Holdings, Co. declared an initial dividend of $.05 per share in
September 1998 and later established a dividend reinvestment plan in December.
We recognize that the collective use of capital management tools, including
dividends, assist in supporting shareholder value. Maximizing shareholder
value,the Company's primary focus, is evidenced by the exceptional amount of
stock owned by our board, management and entire staff.
In its first half-year of operation, the Company demonstrated its ability to
establish a plan and execute. Clearly the unitary thrift holding company
structure provides the superb platform from which to deliver financial services
effectively. Management believes that the Company is ideally positioned to meet
its future challenge of effectively competing in a changing industry charged
with the profitable delivery of financial services. By accelerating the pace set
last year, Thistle Group Holdings, Co. plans to make 1999 another year of
significant accomplishment.
Sincerely,
/s/John F. McGill, Jr.
John F. McGill, Jr.
Chairman and Chief Executive Officer
page 3
<PAGE>
(GRAPHICS OMITTED)
page 4
strong roots in
the community
Roxborough- Manayunk Bank is, in every sense of the word, a community bank. With
nearly sixty years of steady profitability and growth, it has a strong
foundation from which to buildin the future. In an era where many of its peers
are trying desperately to forge new ties in the community, RMB continues to
service relationships that go back two and three generations. The good will it
has created over the years by its responsiveness to the needs of the customers
provides a competitive advantage that money simply cannot buy.
RMB is the core business unit from which the holding company, Thistle Group
Holdings, Co., will grow and expand in 1999 and beyond. The Bank, with six
offices in Philadelphia and Delaware counties, provides a full range of retail
banking services, with emphasis onone-to four-family residential mortgages.
RMB has a proud legacy of continuously providing its customers with essential
financial services. During the late 1930's, when the country was beginning to
come out of the Great Depression, there were signs in Philadelphia that the
worst would soon be over. After yearsof stagnation, the housing market was
beginning to revive. People were ready to buy houses, but home financing was
difficult to achieve for many. The large Philadelphia banks that dominated the
business within the city did not realize the opportunity of providing banking
services to more remote neighborhoods. Recognizing an opportunity to meet the
needs of the local community, in 1939, Francis E. McGill merged several local
thrifts and non-insured building and loan associations. He established what is
now Roxborough-Manayunk Bank asa locally managed, federally insured depository
institution. Grateful neighborhood residents flocked to the new bank, ready to
do business.
Since then, RMB has been continuously operated by members of the McGill family,
who have managed the Bank through many different markets for three generations.
Francis McGill's grandson, John F. McGill, Jr., now serves as the President/CEO
of the Bank. RMB has prospered through many business cycles, always making the
needs of its customers its first priority.
<PAGE>
serving the
neighborhoods
Philadelphia has long been known as a city of neighborhoods. Each has its own
name, its own distinctive character, and a history dating back at least a
century. Roxborough-Manayunk Bank's primary customer base covers two of these
neighborhoods: Roxborough and Manayunk.
Located several miles upstream from the center of Philadelphia, this
extraordinarily diverse area provides the Bank unique access to a broad spectrum
of customers. Add the communities of Overbrook, West Philadelphia and Yeadon,
where the Bank also has branches, and its market area spans neighborhoods as
diverse as the city itself.
RMB's main office is on Ridge Avenue, the commercial thoroughfare of the
Roxborough neighborhood. The office is that rare kind of place where customers
and tellers greet each other by name. That easy give and take is typical of this
solid, close-knit community. It is an established community known as a good
place to buy a house and raise a family. Real estate is affordable and Fairmount
Park, the largest urban park in the country, is close by. Somehow, the
Roxborough neighborhood has managed to retain a small-town feeling within the
city limits.
In the Manayunk neighborhood, where a network of narrow streets winds downhill
toward the Schuylkill River, the community becomes even more diverse. It
includes a mixture of long-time residents and newcomers attracted by the
historic, almost European ambiance of the neighborhood and its convenient
location close to major highways and public transportation.
Manayunk has transformed itself over the last two decades. Once a declining
light industrial retail strip, Main Street is now lined with clothing boutiques,
antique stores, art galleries and dozens of restaurants. Weekend visitors flock
to this well recognized urban "destination." Several times each year, thousands
of residents and visitors are drawn to Manayunk to enjoy the town, its amenities
and even a world professional bicycle race.
RMB has always welcomed changes in its community because they present new
opportunities. During Main Street's evolution, the Bank provided local financial
support to entrepreneurs helping them grow their businesses. Roxborough-
Manayunk Bank values its enduring relationships with customers and welcomes the
chance to establish ties with new neighbors.
<PAGE>
(GRAPHICS OMITTED)
page 7
<PAGE>
(GRAPHICS OMITTED)
page 8
<PAGE>
growing and
expanding
Changes in the financial services industry are presenting exciting opportunities
for Roxborough- Manayunk Bank. As merger and acquisition activity continues,
dissatisfied customers of large financial institutions are increasingly choosing
to move their banking relationships elsewhere. Many are shifting to smaller,
community-based banks like RMB where their individual needs will be identified
and met. RMB is anxious to attract these new customers.
Focus. Roxborough-Manayunk Bank's customer base has traditionally been
individuals, households and small businesses-this will remain our focus. In
1999, RMB will concentrate more than ever on solidifying its relationships with
the local business community by continuing to support businesses with products
like merchant-account processing, commercial checking and enhanced lending
capabilities.
Branch Expansion. In an effort to increase franchise value, the Bank recognizes
that deposit growth is essential. The Bank regularly searches for locations
outside of its traditional service area for new branching opportunities
throughout the region.
Enhanced Delivery. RMB's investment in technology enables customers to choose
how they want to access banking services. In 1999, new bank services including
Internet banking, voice response and additional ATM's will help meet the needs
of the Bank's increasingly diverse and sophisticated customer base.
Increased Advertising. RMB has traditionally attracted new customers through
referraland reputation throughout the community. In 1999 using a variety of
media, the Bank willfocus on increasing its market share through effectively
targeting and communicating products and services.
<PAGE>
harnessing
technology
Roxborough-Manayunk Bank allocates its resources efficiently, placing a high
priority on technology. As the millennium approaches, RMB is pleased to report
the completion of an 18-month technology project having converted the data
processing system, including a conversion of software and hardware to a Y2K
compliant PC- based system. The data base systems now in place gives RMB greater
operating abilities at teller and customer service stations, while at the same
time offers powerful asset/liability modeling capabilities.
The Bank has consistently been willing to devoteits resources to acquiring the
vital tools needed to manage its business and deliver services to customers.
Through intelligent planning, strategic management and timely implementation of
its business plan, the Bank is prepared for the future.
page 10
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Management's Discussion and Analysis of Financial Condition Thistle Group Holdings, Co. and Subsidiary
and Results of Operations
</TABLE>
This discussion and analysis should be read in conjunction with the
Consolidated Financial Statements and related notes.
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.
Thistle Group Holdings, Co. 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.
Roxborough-Manayunk 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.
Asset and Liability Management
The principal objective of the Company's asset and liability management
function is to evaluate the interest rate risk existing in certain assets and
liabilities, determine the level of risk appropriate given the Company's
business focus, operating environment, capital and liquidity requirements and
performance objectives, establish prudent asset concentration guidelines and
manage the risk consistent with Board approved guidelines. Through asset and
liability management, the Company seeks to reduce both the vulnerability and
volatility of its operations to changes in interest rates and to manage the
ratio of interest rate sensitive assets to interest rate sensitive liabilities
within specified maturities or repricing periods. The Company's actions in this
regard are taken under the guidance of the Asset/Liability Committee ("ALCO"),
which is chaired by the Company's CEO and comprised of members of the Company's
senior management. The ALCO meets at least monthly to review, among other
things, liquidity and cash flow needs, current market conditions and interest
rate environment, the sensitivity to interest rate changes of the Company's
assets and liabilities, the book and market values of assets and liabilities,
unrealized gains and losses, and the purchase and sale activity and maturities
of investments, deposits and borrowings. In addition, the Chief Financial
Officer reviews the pricing of the Company's residential loans and deposits at
least weekly. The ALCO reports to the Board of Directors on at least a quarterly
basis.
The Company's primary asset/liability monitoring tool consists of various
asset/liability simulation models which are prepared on a quarterly basis and
are designed to capture the dynamics of the balance sheet as well as rate and
spread movements and to quantify variations in net interest income under
different interest rate environments.
A more conventional but limited asset/liability monitoring tool involves an
analysis of the extent to which assets and liabilities are interest rate
sensitive and measures an institution's interest rate sensitivity gap. An asset
or liability is said to be interest rate sensitive within a specific time period
if it will mature or reprice within that time period. The interest rate
sensitivity gap is defined as the difference between interest-earning assets and
interest-bearing liabilities maturing or repricing within a given time period. A
gap is considered positive when the amount of interest rate sensitive assets
exceeds the amount of interest rate sensitive liabilities. A gap is considered
negative when the amount of interest rate sensitive liabilities exceeds interest
rate sensitive assets. During a period of rising interest rates, a negative gap
would tend to adversely affect net interest income, while a positive gap would
tend to result in an increase in net interest income. During a period of falling
interest rates, a negative gap would tend to result in an increase in net
interest income, while a positive gap would tend to affect net interest income
adversely. While a conventional gap measure may be useful, it is limited in its
ability to predict trends in future earnings. It makes no
11
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Management's Discussion and Analysis of Financial Condition Thistle Group Holdings, Co. and Subsidiary
and Results of Operations (continued)
</TABLE>
presumptions about changes in prepayment tendencies, deposit or loan maturity
preferences or repricing time lags that may occur in response to a change in the
interest rate environment. For the purposes of the table below, loans and
mortgage-backed securities are presented in the period in which they amortize,
reprice, or mature and do not contain prepayment assumptions. Passbook and
statement savings accounts are assumed to decay at a rate of 30.0%, 30.0%, and
40.0% in each of the first three years, respectively. Money Market ("MMDA") and
negotiable order of withdrawal ("NOW") accounts are assumed to decay at a rate
of 75% and 25%, in one year or less and over one year, respectively.
Roxborough-Manayunk Bank's passbook, statement savings, MMDA and NOW accounts
are generally subject to immediate withdrawal. However, management considers a
portion of these deposits to be core deposits having significantly longer
effective maturities based upon the Company's retention of such deposits in
changing interest rate environments.
Management believes that the assumptions used by it toevaluate the
vulnerability of the Company's operations to changes in interest rates are
conservative and consider them reasonable. However, the interest rate
sensitivity of the Company's assets and liabilities as portrayed in the table
below could vary substantially if different assumptions were used or actual
experience differs from the assumptions used in the table.
The following table summarizes the anticipated maturities or repricing of
the Company's interest-earning assets and interest-bearing liabilities as of
December 31, 1998, based on the information and assumptions set forth above.
<TABLE>
<CAPTION>
Within Six to More than More than
Six Twelve One Year to Three Years Over Five
Months Months Three Years to Five Years Years Total
------ ------ ----------- ------------- ----- -----
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans receivable $ 5,635 $ 6,527 $ 14,103 $ 15,634 $ 94,567 $ 136,466
Mortgage-backed securities 3,639 3,761 15,619 17,055 189,809 229,883
Investment securities 178 5,032 74,537 79,747
Interest-earning deposits 23,615 23,615
--------- -------- -------- -------- -------- --------
Total interest-earning assets $ 33,067 $ 10,288 $ 34,754 $ 32,689 $ 358,913 $ 469,711
--------- -------- -------- -------- -------- --------
Interest-bearing liabilities:
Deposits $ 90,128 $ 82,167 $ 97,020 $ 7,075 $ 276,390
Advances from borrowers
for taxes and insurance 2,229 2,229
--------- --------
FHLB Advances $ 106,884 106,884
--------- -------- -------- -------- -------- --------
Total interest-bearing liabilities $ 92,357 $ 82,167 $ 97,020 $ 7,075 $ 106,884 $ 385,503
--------- -------- -------- -------- -------- --------
Excess (deficiency) of interest-earning
assets over interest-bearing liabilities $ (59,290) $ (71,879) $ (62,266) $ 25,614 $ 252,029 $ 84,208
--------- -------- -------- -------- -------- --------
Cumulative excess (deficiency) of
interest-earning assets over
interest-bearing liabilities $ (59,290) $(131,169) $(193,435) $(167,821) $ 84,208
--------- -------- -------- -------- --------
Cumulative excess (deficiency) of
interest-earning assets over
interest-bearing liabilities as a
percentage of total assets (12.05%) (26.66%) (39.31%) (34.11%) 17.11%
--------- -------- -------- -------- --------
</TABLE>
Market Risk Analysis
Qualitative Analysis
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 has sought to manage its interest rate risk by maintaining a
high degree of liquid assets and short-term securities, coupled with the
purchase of mortgage-backed securities with shorter average lives.
12
<PAGE>
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 December 31, 1998, the Company's
savings accounts, checking accounts and money market deposit accounts totaled
$132.6 million, or 47.9% of its total deposits. The Company believes, based on
historical experience, that a substantial portion of such accounts represents
core deposits.
Quantitative Interest Rate Sensitivity Analysis
The value of the Company's loan, mortgage-backed securities and investments
portfolio will change as interest rates change. Rising interest rates will
decrease the Company's net portfolio value, while falling interest rates
increase the value of that portfolio.
The following table sets forth, quantitatively, for the Bank only, as of
December 31, 1998, the Office of Thrift Supervision ("OTS") estimate of the
projected changes in net portfolio value ("NPV") in the event of 100, 200, 300,
and 400 basis points ("bp") instantaneous and permanent increase and decrease in
market interest rates. Dollar amounts are expressed in thousands.
<TABLE>
<CAPTION>
Net Portfolio Value Net Portfolio Value as a % of Assets
--------------------------------------------------------------------------------
Changes in Rates Percentage Net Portfolio Basis Point
in Basis Points Dollar Amount Dollar Change Change Value Ratio Change
------------- ------------- ------ ----------- ------
<S> <C> <C> <C> <C> <C>
400 38,475 (33,377) -46% 9.26% (567)
300 47,465 (24,387) -34% 10.99% (393)
200 56,820 (15,032) -21% 12.66% (227)
100 65,434 (6,428) - 9% 14.05% (88)
71,852 14.93%
(100) 76,880 5,028 7% 15.49% 456
(200) 82,821 9,969 14% 15.97% 105
(300) 88,585 16,733 23% 16.69% 176
(400) 96,478 24,626 34% 17.49% 256
</TABLE>
The OTS model is based on only the Bank level balance sheet. When various
asset categories are adjusted to reflect assets held at the holding company, NPV
increases to $104.09 million. In the event of an instantaneous and permanent
increase of 200 basis points, NPV would decrease $17.3 million to $86.72
million, or 17%.
Computations of prospective effects of hypothetical interest rate changes
are calculated by the OTS from data provided by the Bank and are based on
numerous assumptions, including relative levels of market interest rates, loan
repayments and deposit runoffs, and should not be relied upon as indicative of
actual results. Further, the computations do not contemplate any actions the
Company may undertake in response to changes in interest rates.
Management cannot predict future interest rates or their effect on the
Company's NPV in the future. Certain shortcomings are inherent in the method of
analysis presented in the computation of NPV. For example, although certain
assets and liabilities may have similar maturities or periods to repricing, they
may react in differing degrees to changes in market interest rates.
Additionally, certain assets, such as adjustable rate loans, have features which
restrict changes in interest rates during the initial term and over the
remaining life of the asset. In addition, the proportion of adjustable rate
loans in the Company's portfolio could decrease in future periods due to
refinancing activity if market interest rates remain or decrease in future
periods. Further, in the event of a change in interest rates, prepayment and
early withdrawal levels could deviate significantly from those assumed in the
table. Finally, the ability of many borrowers to service their adjustable-rate
debt may decrease in the event of an interest rate increase.
The Company's Board of Directors is responsible for reviewing and approving
the asset and liability policies. The Board meets quarterly to review interest
rate risk and trends, as well as liquidity and capital ratios and requirements.
The Company's management is responsible for administering the policies and
determinations of the Board of Directors with respect to the Company's asset and
liability goals and strategies. Management expects that the Company's asset and
liability policies and strategies will continue as described above so long as
competitive and regulatory conditions in the financial institution industry and
market interest rates continue as they have in recent years.
13
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Management's Discussion and Analysis of Financial Condition Thistle Group Holdings, Co. and Subsidiary
and Results of Operations (continued)
</TABLE>
Changes in Financial Condition
General
Total assets of the Company increased by $215.4 million, or 78%, from
$276.6 million at December 31, 1997 to $492.0 million at December 31, 1998. The
increase is primarily attributable to growth in mortgage-backed securities
available for sale, loans receivable and, to a lesser extent, to investments
available for sale and held to maturity. Growth in assets was funded by advances
from the Federal Home Loan Bank of Pittsburgh, customer deposits, and proceeds
from the issuance of common stock.
Cash and Investments
Cash and investments (including investments available for sale) increased
by $42.1 million, or 72.2%, to $100.5 million at December 31, 1998 compared to
$58.4 million at December 31, 1997. The increase is primarily attributable to
increases in investments held to maturity and available for sale of
approximately $19.6 million and $16.5 million respectively. The increase in
investments held to maturity resulted from the Company's increases in the
portfolio of tax exempt municipal securities. The increase in investments
available for sale resulted from the Company building a portfolio of debt and
equity investments in certain financial institutions.
Loans Held for Sale and Loans Receivable, Net
Aggregate loans receivable (loans receivable, net and loans held for sale)
increased $39.1 million, or 40.1%, to $136.5 million at December 31, 1998
compared to $97.4 million at December 31, 1997 despite increasing levels of loan
prepayments due to the declining interest rate environment. The increase is
almost entirely attributable to an increase in one- to four-family residential
loans of $37.1 million. The Company purchased $36.1 million of one- to
four-family residential loans located primarily in northern New Jersey.
Mortgage-Backed Securities Available for Sale
Mortgage-backed securities available for sale increased $118.3 million, or
106%, to $229.8 million at December 31, 1998 compared to $111.4 million at
December 31, 1997. The increase was the direct result of the implementation of
the Company's leveraging strategy to increase interest income.
Non-Performing Assets
The Company's non-performing loans amounted to $390,000 at December 31,
1998, a decrease of $320,000 from $720,000 at December 31, 1997, or .07% of
total assets at year-end.
Real estate acquired through foreclosure also decreased to $82,000 at
December 31, 1998 compared to $116,000 at December 31, 1997.
Deposits
Deposits increased by $45.8 million, or 19.9%, to $276.4 million at
December 31, 1998 from $230.5 million at December 31, 1997. This increase was
attributable to a $32.7 million increase in certificates of deposit, a $2.5
million increase in checking accounts, a $6.2 million increase in money market
accounts, and a $4.4 million increase in passbook accounts.
Borrowings
Since the Conversion and Reorganization, the Company entered into a series
of borrowings to fund purchases of mortgage-backed securities and one- to
four-family residential mortgage loans. The Company's total borrowings increased
$99 million to $106.9 million at December 31, 1998 from $7.9 million at December
31, 1997. These transactions were structured to achieve targeted spreads in
order to enhance return on equity. The Company anticipates continuing to utilize
a leveraging strategy during 1999. The Federal Home Loan Bank advances mature in
2008 and have a weighted average interest rate of 5.20% at December 31, 1998.
Equity
At December 31, 1998 total stockholders' equity was $100.2 million, or
20.4% of total assets, compared to $28.5 million, or 10.3% of total assets at
December 31, 1997. The $71.7 million increase was due to net proceeds from the
issuance of common stock and net income for the year, net of dividends paid.
14
<PAGE>
Average Balances, Net Interest Income, Yields Earned, and Rates Paid
The following table sets forth, for the periods indicated, information
regarding (i) the total dollar amount of interest income of the Company from
interest-earning assets and resultant average yields; (ii) the total dollar
amount of interest expense on interest-bearing liabilities and the resultant
average rate; (iii) net interest income; (iv) interest rate spread; and (v) net
interest margin. Average balances are derived from month-end balances.
Management does not believe that the use of month-end balances instead of
average daily balances has caused any material differences in the information
presented.
<TABLE>
<CAPTION>
At Year ended December 31,
12/31/98 1998 1997 1996
------------------------------------------------------------------------------------------
Average Average Average Average Average Average
Yield/Cost Balance Interest Yield/Cost Balance Interest Yield/Cost Balance Interest Yield/Cost
---------- ------- -------- ---------- ------- -------- --------------------------------------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest-earning
assets:
Loans receivable 7.80% $110,059 $ 8,933 8.12% $101,472 $ 8,763 8.64% $101,726 $ 8,603 8.46%
Mortgage-backed
securities 6.06% 158,400 9,632 6.08% 93,427 6,491 6.95% 93,925 6,554 6.98%
Cash and investment
securities 5.70% 64,905 4,407 6.79% 75,802 5,164 6.81% 84,033 5,107 6.08%
Tax exempt
securities (1) 4.89% 14,721 710 4.82% 3,328 164 4.94%
------- ------ ------- ------ ------- ------
Total interest-earning
assets 6.44% $348,085 $23,682 6.80% $274,029 $20,582 7.51% $279,684 $20,264 7.25%
------- ------ ------- ------ ------- ------
Non-interest-earning
assets: 12,037 10,013 9,529
------- ------- -------
Total assets $360,122 $284,042 $289,213
------- ------- -------
Interest-bearing
liabilities:
Regular savings
accounts 2.74% $ 34,396 $ 1,129 3.28% $ 35,448 $ 1,133 3.20% $ 39,487 $ 1,233 3.12%
Senior club savings 3.50% 63,238 2,462 3.89% 65,868 2,673 4.06% 71,117 2,886 4.06%
Certificate accounts 5.32% 127,478 6,825 5.35% 116,523 6,223 5.34% 112,756 5,886 5.22%
Other deposit
accounts 1.67% 22,749 535 2.35% 24,550 509 2.07% 26,792 595 2.22%
------- ------ ------- ------ ------- ------
Total deposits 4.14% $247,861 $10,951 4.42% $242,389 $10,538 4.35% $250,152 $10,600 4.24%
------- ------ ------- ------ ------- ------
FHLB borrowings 5.20% 38,884 1,956 5.03% 7,884 436 5.53% 7,884 436 5.53%
Other liabilities
(escrow) 2.00% 1,620 26 1.60% 1,730 28 1.62% 1,772 33 1.86%
------- ------ ------- ------ ------- ------
Total interest-
bearing liabilities 4.42% $288,365 $12,933 4.48% $252,003 $11,002 4.37% $259,808 $11,069 4.26%
------- ------ ------- ------ ------- ------
Non-interest-bearing
liabilities: 7,119 5,020 4,412
------- ------- -------
Total liabilities 295,484 257,023 264,220
------- ------- -------
Stockholders' Equity 64,638 27,019 24,993
------- ------- -------
Total liabilities and
stockholders' equity $360,122 $284,042 $289,213
======= ======= =======
Net interest income $10,749 $ 9,580 $ 9,195
======= ======= =======
Interest rate spread 2.02% 2.32% 3.14% 2.99%
Net yield on interest-
earning assets 3.09% 3.50% 3.29%
Ratio of average
interest-earning assets
to average interest-
bearing liabilities 120.71% 108.74% 107.65%
</TABLE>
(1) Tax exempt securities are presented on a coupon basis.
15
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Management's Discussion and Analysis of Financial Condition Thistle Group Holdings, Co. and Subsidiary
and Results of Operations (continued)
</TABLE>
Rate/Volume Analysis
The following table describes the extent to which changes in interest rates
and changes in volume of interest-related assets and liabilities have affected
the Company's interest income and expense during the periods indicated. For each
category of interest-earning assets and interest-bearing liabilities,
information is provided on changes attributable to (i) changes in volume (change
in volume multiplied by prior year rate); (ii) changes in rate (change in rate
multiplied by prior year volume); and (iii) total change in rate and volume. The
combined effect of changes in both rate and volume has been allocated
proportionately to the change due to rate and the change due to volume.
<TABLE>
<CAPTION>
Year ended December 31,
------------------------------------------------------------------------------
1998 vs. 1997 1997 vs. 1996
------------------------------------------------------------------------------
Increase (Decrease) Increase (Decrease)
Due to Due to
------------------------------------------------------------------------------
Rate/ Rate/
Volume Rate Volume Net Volume Rate Volume Net
------------------------------------------------------------------------------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Interest Income:
Loans receivable $ 742 $ (527) $ (45) $ 170 $ (22) $182 $160
Mortgage-backed securities 4,515 (810) (563) 3,142 (35) (28) (63)
Cash and investment securities (742) (17) 2 (757) (500) 617 (60) 57
Tax exempt securities 562 (4) (13) 545 164 164
-----------------------------------------------------------------------------
Total interest-earning assets $5,077 $(1,358) $(619) $3,100 $(557) $771 $104 $318
-----------------------------------------------------------------------------
Interest expense:
Savings accounts 238 171 4 $ 413 $(329) $276 $ (9) $(62)
FHLB Advances 1,714 (39) (155) 1,520
Other liabilities (2) (2) (1) (4) (5)
-----------------------------------------------------------------------------
Total interest-bearing liabilities $1,950 $ 132 $(151) $1,931 $(330) $272 $ (9) $ (67)
-----------------------------------------------------------------------------
Net change in interest income $3,127 $(1,490) $(468) $1,169 $(227) $499 $113 $385
-----------------------------------------------------------------------------
</TABLE>
Results of Operations
General
The Company reported net income of $2.4 million and $3.4 million for the
years ended December 31, 1998 and 1997, respectively, and a net operating loss
of $363,000 for the year ended December 31, 1996. The $1.0 million decrease in
net income for the year ended December 31, 1998 compared to the year ended
December 31, 1997 was primarily due to a non-recurring gain of $2.2 million from
the sale of two branch offices in 1997, offset by an increase of $1.0 million in
net interest income during 1998.
The $3.8 million increase in net income for the year ended December 31,
1997 compared to the year ended December 31, 1996 was primarily due to the
absence of charges in 1997 present in 1996 relating to a one-time SAIF special
assessment of $1.5 million and the $1.2 million write-down of trustee
receivables caused by the bankruptcy of Bennett Funding, in addition to the $2.2
million income from the 1997 branch sale. The income tax effect of these items
accounts for the remaining difference.
Net Interest Income
Net interest income is determined by interest rate spread (i.e., the
difference between the yields earned on interest-earning assets and the rates
paid on interest-bearing liabilities) and the relative amounts of
interest-earning assets and interest-bearing liabilities. The Company's average
interest rate spread was 2.32%, 3.14%, and 2.99% during the years ended December
31, 1998, 1997, and 1996, respectively. The Company's interest rate spread was
2.02% at December 31, 1998. The Company's net interest margin (i.e., net
interest income as a percentage of average interest-earning assets) was 3.09%,
3.50%, and 3.29% during the years ended December 31, 1998, 1997, and 1996,
respectively.
Net interest income increased $1.2 million, or 12.5%, in the year ended
December 31, 1998 to $10.8 million compared to $9.6 million in 1997. Increases
in interest income of $3.1 million were offset by increases in interest expense
of $1.9 million. Net interest income increased $385,000, or 4.2%, to $9.6
million in the year ended December 31, 1997 from 9.2 million in 1996. The
increase came as a result of increases in interest income and decreases in
interest expense.
Interest Income
Total interest income amounted to $23.7 million for the year ended December
31, 1998 compared to $20.6 million for the year ended December 31, 1997. The
increase in 1998 of $3.1 million, or 15%, over 1997 was primarily due to an
increase in income from mortgage-backed securities and loans, resulting from an
increase of $73.5 million, or 27%, in the average balance outstanding of those
assets. This increase was partially offset by a 91 basis point decrease in the
related yield (with 100 basis
16
<PAGE>
points being equal to 1%). The increase in average balances was due to the
investing of proceeds from the stock sale in July 1998 and the leveraging of the
Company's capital base, while the decrease in yield reflects the effects of the
declining interest rate environment existing during 1998. The increase in
average balances in the loan port-folio during 1998 resulted from origination
and purchase of one-to four-family residential loans.
The $318,000, or 1.6%, increase in total interest income during the year
ended December 31, 1997 compared to 1996 was primarily due to an increase in
income from loans and interest and dividends on investments. Interest on loans
increased $160,000 due to increased yields as the Company emphasized equity
loans. The interest on cash and investments securities increased $221,000 during
1997 due to a 72 basis point increase in the yield. The average balance and
yield on mortgage-backed securities remained relatively stable.
Interest Expense
Total interest expense increased by $1.9 million, or 17.5%, for the year
ended December 31, 1998 compared to 1997. The primary reason for this increase
was a $1.5 million increase in interest expense on Federal Home Loan Bank
("FHLB") borrowings, and a $439,000 increase in interest on deposits. The
increase in interest expense on FHLB borrowings was due to a $31 million
increase in the average balance of such borrowings, offset by a 50 basis point
decline in the average rate paid. The increase in interest expense on deposits
was due to a $5.5 million increase in the average balance of deposits combined
with a 7 basis point increase in the average rate paid. The increase in average
borrowings and deposits was used to fund loan originations as well as purchases
of loans and mortgage-backed securities.
Total interest expense amounted to $11.0 million for the year ended
December 31, 1997 as compared to $11.1 million for 1996. The $67,000, or .06%,
decrease was due to a decrease in the average balance of deposits due to the
sale of $37.2 million of deposits in May 1997, which was partially offset by an
increase of the cost of funds from certificates of deposit due to management's
decision to seek funds for the branch sale.
Provision for Loan Losses
Provisions for loan losses are charged to earnings to bring the total
allowance for loan losses to a level considered appropriate by management based
on historical experience, the volume and type of lending conducted by the
Company, the amount of the Company's classified assets, the status of past due
principal and interest payments, general economic conditions, particularly as
they relate to the Company's primary market area, and other factors related to
the collectibility of the Company's loan portfolio. Management of the Company
assesses the allowance for loan losses on a monthly basis and makes provisions
for loan losses as deemed appropriate in order to maintain the adequacy of the
allowance for loan losses. For the year ended December 31, 1998 the provision
for loan losses amounted to $270,000 as compared to $120,000 in 1997. For the
year ended December 31, 1996 the provision for loan losses was $139,000. At
December 31, 1998 the Company's allowance for loan losses amounted to 264% of
total non-performing loans and .75% of net loans receivable.
Although management of the Company believes that the Company's allowance
for loan losses was adequate at December 31, 1998, based on facts and
circumstances available to it, there can be no assurances that additions to such
allowance will not be necessary in future periods, which would adversely affect
the Company's results of operations for such periods. In addition, various
regulatory agencies, as an integral part of their examination process,
periodically review the Company's provision for loan losses and the carrying
value of its other non-performing assets based on their judgements about
information available to them at the time of their examination.
Other Income
For the year ended December 31, 1998, the Company reported other income of
$415,000 compared to $2.8 million for 1997. The primary reason for the $2.4
million decrease in other income in 1998 was the absence of a $2.2 million gain
on sale of deposits recorded in 1997 and, to a much lesser extent, a net loss on
sales of certain mortgage-backed securities in 1998 totaling $74,000. These
mortgage-backed securities were sold to improve yield, liquidity and duration of
the portfolio.
The $2.2 million increase in other income for the year ended December 31,
1997 as compared to 1996 was the result of the $2.2 million gain on sale of
deposits during 1997.
Other Expenses
Other expenses include salaries and employee benefits, occupancy and
equipment, Federal Deposit Insurance Corporation ("FDIC") insurance premiums,
fees, advertising and other items. Other expenses increased $251,000, or 3.6%,
for the year ended December 31, 1998 compared to 1997, and amounted to $7.1
million in 1998 compared to $6.8 million in 1997.
Salaries and employee benefits contributed to this increase, up a net of
$93,000, or 2.4%, for the year ended December 31, 1998 compared to 1997. The
increase was attributable to a non-recurring charge of $150,000 triggered by the
death of Chairman John F. McGill, Sr.,
17
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Management's Discussion and Analysis of Financial Condition Thistle Group Holdings, Co. and Subsidiary
and Results of Operations (continued)
</TABLE>
normal salary increases and addition of personnel, partially offset by the
absence of salaries of branch personnel at the branches sold in May 1997. Costs
associated with the Employee Stock Ownership Plan that was established at
conversion were offset by the decrease in profit sharing which was suspended in
July 1998.
Increases in other expenses includes $50,000 of non-recurring charges
relating to training on the new computer system and an additional $50,000
relating to the termination of the mid-tier holding company.
Other expenses decreased by $3.1 million, or 31%, to $6.8 million for the
year ended December 31, 1997 compared to 1996. This decrease was primarily
caused by the absence in 1997 of a one-time special SAIF assessment and a write
down of $1.2 million of a trustee receivable. The Company previously invested in
loans secured by commercial equipment leases from a single entity. During 1996,
the borrower declared bankruptcy. On December 27, 1996, the Company entered into
an agreement with the trustee for the bankruptcy court whereby the Company will
receive approximately 65% of the cash receipts from the collateral principal in
exchange for all rights to the collateral. In connection with this agreement,
the Company charged-off $1.2 million of the outstanding balance due from the
trustee at December 31, 1996. Other decreases in 1997 included a $414,000, or
72.4%, decrease in federal insurance premiums due to the resolution of the SAIF,
an $82,000, or 71.6%, decrease in the amortization of goodwill as goodwill
obtained in the acquisition of Aetna Federal in 1982 was completely amortized in
1997, and a $137,000, or 16.9%, decrease in other operating expenses due to the
write off of expenses of $350,000 related to the inability to consummate a
conversion and merger with Progress Financial Corp. Offsetting these decreases
were increases of $371,000, or 69.5%, in pension and profit sharing expense due
to increased profit sharing on increased earnings compared to 1996, and $98,000,
or 3.7%, in salaries due to normal salary increases offset by a decrease in the
number of employees (eight) due to the sale of the two branch offices from the
branch sale in May 1997.
Income Taxes
The Company recognized income tax expenses of $1.5 million, or 38.4%, of
pre-tax income for the year ended December 31, 1998, compared to $2.1 million,
or 40.0%, of pre-tax income in 1997. Pre-tax income was higher in 1997 resulting
in a higher total amount of tax expense in 1997. Income tax expense increased
significantly from $112,000 in 1996 to $2.1 million in 1997 due to the Company's
return to profitability.
Liquidity and Capital Resources
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 years ended December 31, 1998, 1997, and 1996 the Company originated
mortgage loans in the amounts of $28.0 million, $19.8 million, and $15.9
million, respectively. The Company also purchases loans and mortgage-backed
securities to reduce liquidity not otherwise required for local loan demand and,
in 1998, as part of its leveraging strategy. Purchases of mortgage loans and
mortgage-backed securities totaled $220.3 million, $33.0 million, and $18.3
million, respectively, in those same periods. Other investment activities
include investment in U.S. government and federal agency obligations, municipal
bonds, debt and equity investments in financial services firms, FHLB of
Pittsburgh stock and consumer loans.
The Company has other sources of liquidity if a need for additional funds
arises. Until 1998, the Company had historically not utilized borrowings as a
source of funds, however, the Company had outstanding advances from the FHLB of
Pittsburgh in 1996 and 1997. In 1998, the Company utilized FHLB advances to
leverage its balance sheet as discussed earlier. 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 Company 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 Company's liquidity ratio was 19.02% at
December 31, 1998.
The Company's most liquid assets are cash and cash equivalents, which
include investment 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 December 31, 1998, cash and cash
equivalents totaled $26.1 million.
18
<PAGE>
The Company anticipates that it will have sufficient funds available to
meet its current commitments. As of December 31, 1998, the Company had $1.2
million in commitments to fund loans. Certificates of deposit which were
scheduled to mature in one year or less as of December 31, 1998 totaled $118.1
million. Management believes that a significant portion of such deposits will
remain with the Company.
The Bank had core, tangible and total risk-based capital ratios of 12.9%,
12.9% and 46.6%, respectively, at December 31, 1998, which significantly
exceeded the OTS's respective minimum requirements of 3.00%, 1.50%, and 8.00%.
The Bank was classified as a "well-capitalized" institution on December 31,
1998. See Note 10 to the Consolidated Financial Statements
Recent Accounting Pronouncements
In June 1998, SFAS No. 133, "Accounting for Derivative Instruments and
Hedging Activities" was issued. This statement requires that an entity recognize
all derivatives as either assets or liabilities in the statement of financial
condition and measure those instruments at fair value. The accounting for
changes in the fair value of a derivative depends on the intended use of the
derivative and the resulting designation. This statement is effective for fiscal
years beginning after June 15, 1999, and will not be applied retroactively to
financial statements of prior periods. The Company will adopt this statement
January 1, 1999 and expects that it will not have a significant financial
statement impact upon adoption.
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
requires 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.
Year 2000
The following discussion of the implications of the year 2000 problem for
the Company contains numerous forward-looking statements based on inherently
uncertain information. The cost of the project and the date on which the Company
plans to complete the internal Year 2000 modifications are based on management's
best estimates, which are derived utilizing a number of assumptions of future
events including the continued availability of internal and external resources,
third party modifications and other factors. However, there can be no guarantee
that these statements will be achieved and actual results could differ.
Moreover, although management believes it will be able to make the necessary
modifications in advance, there can be no guarantee that failure to modify the
systems would not have a material adverse effect on the Bank or the Company.
The Company currently has a Year 2000 Project Plan and Review Team in
place. As recommended by the Federal Financial Institutions Examination's
Council, the Plan encompasses the following phases: Awareness, Assessment,
Renovation, Validation, and Implementation. These phases will enable the Company
to identify risks, develop an action plan, perform adequate testing and complete
certification that its processing systems will be Year 2000 ready. Execution of
the Plan is currently on target.
The Company has completed the Renovation Phase, which included among other
things, changing the information processing system, the most essential system to
the Bank. The information processing system was purchased from Open Solutions
Incorporated, Glastonbury, Connecticut. The system has been certified by its
vendor as Year 2000 compliant and is supported by a contracted agreement that
states the system, including the software, will be Year 2000 compliant prior to
January 1, 2000. The system was installed at the Bank in late July 1998. It is a
PC-based client server system, which, management believes, will serve the Bank
well beyond the Year 2000. The total cost of the system was approximately $1.2
million with additional annual cost of approximately $344,000 for depreciation,
software cost, and maintenance. During the Renovation Phase, the Company
contacted all other material vendors, and suppliers regarding their Year 2000
state of readiness. The Company is currently in the process of reviewing those
responses. No contracts, written assurances, or oral assurances with the
Company's material vendors, systems providers, and suppliers include any type of
remedy or penalty for breach of contract in the event that any of these parties
are not Year 2000 compliant.
The Year 2000 issues also may affect certain bank customers, particularly
commercial credit customers. As of December 31, 1998, the Company had contacted
the majority of its commercial mortgage customers regarding their awareness of
the Year 2000 issue. While no assurance can be given that the customers will 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.
19
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Management's Discussion and Analysis of Financial Condition Thistle Group Holdings, Co. and Subsidiary
and Results of Operations (continued)
</TABLE>
As a practical matter, individual mortgage loan, consumer loan and smaller
commercial loan customers were not contacted regarding their Year 2000
readiness. It was deemed to be beyond the scope of our testing parameters to
contact these borrowers. Further, most of these are individuals with adequate
collateral for their loans. If the Plan fails to significantly address the Year
2000 issues of the Company, the following, among other things, could negatively
affect the Company:
a) Utility service companies may be unable to provide the necessary service to
drive our data systems or provide sufficient sanitary conditions for our
offices;
b) our primary software provider could have a major malfunction in its system
or their service could be disrupted due to its utility providers, or some
combination of the two; or
c) the Company may have to transact its business manually.
The Company will attempt to monitor these uncertainties by continuing to
request an update on all critical and important vendors throughout the remainder
of 1999. If the Company identifies any concern related to any critical or
important vendor, the contingency plans will be implemented immediately to
assure continued service to the Company's customers.
The Company is beginning Phase 4, Validation, which involves testing of all
internal systems as well as testing with vendors. The Validation Phase is
targeted for completion in June 1999. The Implementation Phase is to certify
that systems are Year 2000 ready, along with assurances that any new systems are
compliant on a going-forward basis. The Implementation Phase is targeted for
completion by September 1999. No assurance can be given that the Year 2000
Project Plan will be completed successfully by the Year 2000, in which event the
Company could incur significant costs. 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 statements of the Company.
The Company is developing its own Year 2000 contingency plans concerning
specific software and hardware issues and a business resumption plan addressing
operational plans for continuing operation for a substantial majority of its
mission critical hardware and software functions and programs. These plans are
expected to be completed by March of 1999. The Year 2000 Project Plan and Review
Team will review substantially all mission critical test plans and contingency
and business resumption plans to ensure the reasonableness of the plans.
Despite the best efforts of management to address this issue, the vast
number of external entities that have direct and indirect business relationships
with the Company, such as customers, vendors, payment system providers and other
financial institutions, makes it impossible to assure that a failure to achieve
compliance by one or more of these entities would not have material adverse
impact on the operations of the Company.
20
<PAGE>
Selected Consolidated Financial Data
Thistle Group Holdings, Co. and Subsidiary
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Income Statement Data:
Interest income $ 23,682 $ 20,582 $ 20,264 $ 19,790 $ 18,096
Interest expense 12,933 11,002 11,069 10,646 8,791
Net interest income 10,749 9,580 9,195 9,144 9,305
Provision for loan losses 270 120 139 135 60
Noninterest income 415 2,808 583 544 475
Noninterest expense 7,075 6,824 9,890 (1) 7,234 6,625
Income (loss) before income taxes 3,819 5,444 (251) 2,319 3,095
Net income (loss) 2,350 3,354 (363) 1,432 1,905
Balance Sheet Data:
Total assets 492,039 276,650 294,332 288,199 273,571
Loans (net) 136,466 97,435 100,773 101,884 96,723
Mortgage-backed securities available for sale 229,883 111,486 93,410 98,315 98,476
Investment securities held to maturity 54,129 34,529 46,464 44,024 49,325
Investment securities available for sale 20,274 3,698 2,631 1,566 755
Deposits 276,390 230,558 256,546 250,179 241,230
FHLB Advances 106,884 7,884 7,884 7,884 7,884
Stockholders' equity 100,229 28,470 24,581 25,148 20,477
Per Share Data:
Basic earnings per share 0.17 NM NM NM NM
Diluted earnings per share 0.16 NM NM NM NM
Cash dividends per share 0.05 NM NM NM NM
Book value per share (2) 11.14 NM NM NM NM
Selected Ratios:
Performance
Return on average assets .65% 1.18% (.13)%(1) .51% .69%
Return on average equity 3.63 12.41 (1.45) (1) 5.98 9.02
Stockholders' equity to assets 20.37 10.27 8.35 8.72 7.48
Net interest margin (4) 3.09 3.50 3.29 3.37 3.84
Interest rate spread (4) 2.32 3.14 2.99 3.06 3.65
Asset Quality
Non-performing loans to total loans (5) 0.28 0.74 3.04 2.13 1.31
Non-performing assets to total assets (5) 0.09 0.30 1.08 .82 0.49
Allowance for loan losses as percent of
non-performing loans 264.00 109.36 21.24 17.43 33.36
Allowance for loan losses as a percent of
total average loans at end of period 0.94 0.77 0.63 .46 0.43
Net charge-offs (recoveries) as a percent
of average loans 0.01 (.08) 0.02 0.09 0.10
</TABLE>
(1) Includes a special assessment of $1,533 to recapitalize the Savings
Association Insurance Fund ("SAIF") and a $1,181 write-down of lease
receivables.
(2) Book value per share represents stockholders' equity divided by the number
of shares issued and outstanding.
(3) With the exception of end of period ratios, all ratios are based on average
monthly balances during indicated periods.
(4) Interest rate spread represents the difference between the average yield on
interest-earning assets and the average cost of interest-bearing
liabilities, and net interest margin represents net interest income as a
percent of average interest-earning assets.
(5) Non-performing loans consist of non-accrual loans and accruing loans 90
days or more overdue; and non-performing assets consist of non-performing
loans and real estate owned, in each case net of related reserves.
NM - Not meaningful as a result of the conversion and reorganization completed
in July 1998.
21
<PAGE>
Consolidated Statements of Financial Condition
Thistle Group Holdings, Co. and Subsidiary
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
December 31,
Assets 1998 1997
----------------------
<S> <C> <C>
Cash on hand and in banks $ 2,522 $ 2,839
Interest-bearing deposits 23,614 17,312
----------------------
Total cash and cash equivalents 26,136 20,151
Investments held to maturity (approximate fair
value 1998, $53,958; 1997, $35,154) 54,129 34,529
Investments available for sale at fair value
(amortized cost--1998, $20,133; 1997, $3,231) 20,274 3,698
Mortgage-backed securities available for sale at
fair value (amortized cost--1998, $228,574; 1997, $109,847) 229,883 111,486
Loans receivable (net of allowance for loan losses--1998,
$1,036; 1997, $783) 133,908 96,280
Loans held for sale 2,558 1,155
Accrued interest receivable 3,265 1,795
Federal Home Loan Bank stock--at cost 5,344 1,702
Real estate acquired through foreclosure--net 82 116
Office properties and equipment--net 2,487 1,504
Prepaid expenses and other assets 3,163 3,569
Cash surrender value of life insurance 10,810 665
---------------------
Total Assets $492,039 $276,650
=====================
Liabilities and stockholders' Equity
Liabilities:
Deposits $276,390 $230,558
Accrued interest payable 469 67
Advances from borrowers for taxes and insurance 2,229 2,186
FHLB advances 106,884 7,884
Accounts payable and accrued expenses 3,465 4,206
Dividends payable 450 366
Accrued income taxes 1,476 2,096
Deferred income taxes 447 817
---------------------
Total liabilities 391,810 248,180
=====================
Commitments and Contingencies
Stockholders' Equity:
Preferred stock, no par value--$10,000,000 shares
authorized, none issued in 1998; 2,000,000 shares
authorized, none issued in 1997
Common stock, $.10 par 40,000,000 shares authorized
8,999,989 issued and outstanding in 1998; $.10 par,
8,000,000 shares authorized; 1,621,000 shares issued
and outstanding in 1997 900 162
Additional paid-in capital 94,616 18,455
Employee stock ownership plan (6,075)
Unrealized gain on securities available for sale, net of tax 957 1,390
Retained earnings--partially restricted 9,831 8,463
----------------------
Total stockholders' equity 100,229 28,470
----------------------
Total Liabilities and Stockholders' Equity $492,039 $276,650
=====================
</TABLE>
See notes to consolidated financial statements.
22
<PAGE>
Consolidated Statements of Operations
Thistle Group Holdings, Co. and Subsidiary
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
Year Ended December 31,
1998 1997 1996
--------------------------------------
<S> <C> <C> <C>
Interest Income:
Interest on loans $ 8,933 $ 8,763 $ 8,603
Interest on mortgage-backed securities 9,632 6,491 6,554
Interest and dividends on investments 5,117 5,328 5,107
--------------------------------------
Total interest income 23,682 20,582 20,264
--------------------------------------
Interest Expense:
Interest on deposits 10,977 10,538 10,600
Other 1,956 464 469
--------------------------------------
Total interest expense 12,933 11,002 11,069
--------------------------------------
Net Interest Income 10,749 9,580 9,195
Provision for Loan Losses 270 120 139
--------------------------------------
Net Interest Income After Provision for Loan Losses 10,479 9,460 9,056
--------------------------------------
Other Income (Loss):
Service charges and other fees 367 391 419
(Loss) gain on sale of real estate owned (49) 9
(Loss) on sale of mortgage-backed securities (74)
Gain on sales of investments 8
Gain on sale of deposit liabilities 2,234
Rental income 163 174 164
--------------------------------------
Total other income 415 2,808 583
--------------------------------------
Other Expenses:
Salaries and employee benefits 3,920 3,827 3,383
Occupancy and equipment 991 933 981
Federal insurance premium 145 158 572
Professional fees 281 322 351
Advertising 132 118 186
SAIF special assessment 1,533
Writedown of trust receivable 1,181
Other 1,606 1,466 1,703
--------------------------------------
Total other expenses 7,075 6,824 9,890
--------------------------------------
Income (Loss) Before Income Taxes 3,819 5,444 (251)
--------------------------------------
Income Taxes:
Current 1,322 2,083 36
Deferred 147 7 76
--------------------------------------
Total income taxes 1,469 2,090 112
--------------------------------------
Net Income (Loss) $ 2,350 $ 3,354 $ (363)
======================================
Basic Earnings Per Share $ 0.17
======================================
Diluted Earnings Per Share $ 0.16
======================================
</TABLE>
See notes to consolidated financial statements.
23
<PAGE>
Consolidated Statements of Comprehensive Income (Loss)
Thistle Group Holdings, Co. and Subsidiary
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
(Dollars in thousands, except per share data) Year Ended December 31,
1998 1997 1996
-----------------------
<S> <C> <C> <C>
Net Income (Loss) $2,350 $3,354 $(363)
Other Comprehensive Income
Unrealized (losses) gains on securities (net of tax (benefit)
or expense--1998, ($223); 1997, $337; 1996, ($42)) (433) 655 (81)
Plus: reclassification adjustment for losses (net) included
in net income 66
-----------------------
Comprehensive Income (Loss) $1,983 $4,009 $(444)
</TABLE>
See notes to consolidated financial statements.
24
<PAGE>
Consolidated Statements of Changes in Stockholders' Equity
Thistle Group Holdings, Co. and Subsidiary
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
Unrealized
Employee Gain (Loss)
Additional Stock Management on Securities Total
Common Paid-in Ownership Recognition Available Retained Stockholders'
Stock Capital Plan Plan for Sale Earnings Equity
----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1996 $ 1,621 $16,997 $ (63) $ (24) $ 816 $5,801 $ 25,148
Net loss (363) (363)
Cash dividends declared (165) (165)
Unrealized loss on investment
and mortgage-backed securities
available for sale, net of tax (81) (81)
ESOP stock committed to
be released 30 30
Release of Management
Recognition Plan shares 12 12
----------------------------------------------------------------------------------------
Balance, December 31, 1996 1,621 16,997 (33) (12) 735 5,273 24,581
----------------------------------------------------------------------------------------
Net income 3,354 3,354
Cash dividends declared (165) (165)
Unrealized gain on investment
and mortgage-backed securities
available for sale, net of tax 655 655
ESOP stock committed to be
released 33 33
Release of Management
Recognition Plan shares 12 12
Thistle Group Holdings, Inc.
formation (Note 1) (1,459) 1,458 1
----------------------------------------------------------------------------------------
Balance, December 31, 1997 162 18,455 1,390 8,463 28,470
----------------------------------------------------------------------------------------
Dividends paid-pre reorganization (82) (82)
Stock Conversion 738 76,171 (6,285) 70,624
Net income 2,350 2,350
ESOP stock committed to be released 210 210
Excess of cost of ESOP shares
committed to be released above
fair value (10) (10)
Dividends paid (900) (900)
Net unrealized loss on investment
and mortgage-backed securities
available for sale, net of tax (433) (433)
----------------------------------------------------------------------------------------
Balance, December 31, 1998 $ 900 $ 94,616 $(6,075) $ 957 $9,831 $100,229
========================================================================================
</TABLE>
See notes to consolidated financial statements.
25
<PAGE>
<TABLE>
<CAPTION>
Consolidated Statements of Cash Flows
Thistle Group Holdings, Co. and Subsidiary
(Dollars in thousands, except per share data)
Year Ended December 31,
1998 1997 1996
------------------------------------
<S> <C> <C> <C>
Operating Activities:
Net income (loss) $ 2,350 $ 3,354 $ (363)
Adjustments to reconcile net (loss) income to net cash
(used in) provided by operating activities:
Provision for loan losses 270 120 139
Depreciation 319 240 265
Management Recognition Plan expense 12 12
Amortization of stock benefit plans (10)
Loans held for sale originated (76) (1,888)
Amortization of:
Goodwill 32 114
Net premiums (discounts) on:
Loans purchased (286) 22 (36)
Investments (1,011) (290) 38
Mortgage-backed securities 1,304 (506) (656)
Gain on sale of investments (8) (4)
Gain on sale of loans held for sale (9)
Loss on sale of mortgage-backed securities 74
Gain on sale of deposit liabilities (2,234)
Loss on sale of real estate owned 50 50 121
Proceeds from sale of loans held for sale 1,055 688
(Increase) decrease in other assets (11,182) 356 39
Increase (decrease) in other liabilities (797) 4,206 (773)
------------------------------------
Net cash (used in) provided by operating activities (8,927) 6,328 (2,300)
------------------------------------
Investing Activities:
Principal collected on:
Mortgage-backed securities 47,504 15,171 20,235
Loans 24,818 22,496 18,648
Loans originated (28,026) (19,778) (15,911)
Loans acquired (36,098) (821) (2,910)
Purchases of:
Investments (57,750) (43,354) (39,320)
Mortgage-backed securities (184,234) (32,216) (15,441)
Property and equipment (1,304) (119) (127)
FHLB stock (3,642) (10) (5)
Proceeds from the sale of:
Real estate owned 180 269 319
Maturities of investments 20,902 54,000 36,594
Mortgage-backed securities 15,898
Investments 2,147 984
Property and equipment 204
------------------------------------
Net cash (used in) provided by investing activities (199,605) (3,174) 2,082
------------------------------------
Financing Activities:
Net (decrease) increase in deposits 45,832 (23,754) 6,368
Net increase (decrease) in advances from borrowers
for taxes and insurance 43 (14) (131)
Net increase in FHLB borrowings 99,000
Proceeds from the stock offering, net of offering costs 70,624
Cash dividends (982) (164) (165)
------------------------------------
Net cash provided by (used in) financing activities 214,517 (23,932) 6,072
------------------------------------
Net Increase (Decrease) in Cash and Cash Equivalents 5,985 (20,778) 5,854
Cash and Cash Equivalents, Beginning of Year 20,151 40,929 35,075
------------------------------------
Cash and Cash Equivalents, End of Year $ 26,136 $ 20,151 $ 40,929
------------------------------------
Supplemental Disclosures:
Interest paid on deposits and funds borrowed $ 11,325 $ 11,071 $ 11,085
Income taxes paid 1,570 81 919
Noncash transfers from loans to real estate owned 168 250 447
Noncash transfer from loans to other assets 1,771
</TABLE>
See notes to consolidated financial statements.
26
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Notes to Consolidated Financial Statements Thistle Group Holdings, Co. and Subsidiary
Years Ended December 31, 1998, 1997 and 1996
(Dollars in thousands, except per share data)
</TABLE>
1. NATURE OF OPERATIONS
On July 14, 1998, Thistle Group Holdings, Inc. (the "Mid-Tier Holding
Company") completed its mutual to stock conversion (the "Conversion and
Reorganization"). In connection with the Conversion and Reorganization, Thistle
Group Holdings, Co. ("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 Thistle Group Holdings, Co. (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 Thistle Group Holdings, Co. A total of 8,999,989 shares of
common stock of Thistle Group Holdings, Co. (excluding fractional shares issued
in the Exchange) were issued in connection with the Conversion and
Reorganization. After the effect of establishing the Employee Stock Ownership
Plan (see Note 12) and reorganization and stock offering costs of approximately
$1.7 million, the Company realized net proceeds of approximately $70.6 million.
The primary business of the Company is to act as a holding company for
Roxborough-Manayunk Bank (the "Bank"), a federally chartered capital stock
savings bank. The Bank has two subsidiaries, Ridge Service Corporation, which is
inactive, and Montgomery Service Corporation, which manages a small commercial
real estate property. The primary business of the Bank is attracting customer
deposits from the general public through its six branches and investing these
deposits, together with funds from borrowings and operations, primarily in
single-family residential loans and mortgage-backed securities and to a lesser
extent in secured consumer, home improvement and commercial loans and investment
securities. The Bank's primary regulator is the Office of Thrift Supervision
("OTS").
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation--The 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 consolidated statements contained herein for the periods subsequent to July
14, 1998 are those of Thistle Group Holdings, Co., and its subsidiary, the Bank,
which was organized in March of 1998. The Company's business is conducted
principally through the Bank. All significant intercompany accounts and
transactions have been eliminated in consolidation.
Use of Estimates in the Preparation of Financial Statements--The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of income and expenses during the reporting period. Actual
results could differ from those estimates.
Cash and Cash Equivalents--The Company considers all highly liquid
investments with an original maturity of three months or less to be cash
equivalents.
Investment and Mortgage-Backed Securities--Debt and equity securities are
classified and accounted for as follows:
Held to Maturity--Debt securities that management has the positive intent and
ability to hold until maturity are classified as held to maturity and are
carried at their remaining unpaid principal balance, net of unamortized premiums
or unaccreted discounts. Premiums are amortiz-ed and discounts are accreted
using the interest method over the estimated remaining term of the underlying
security.
Available for Sale--Debt and equity securities that will be held for
indefinite periods of time, including securities that may be sold in response to
changes to market interest or prepayment rates, needs for liquidity and changes
in the availability of and the yield of alternative investments are classified
as available for sale. These assets are carried at fair value. Fair value is
determined using published quotes as of the close of business. Unrealized gains
and losses are excluded from earnings and are reported net of tax as a separate
component of stockholders' equity until realized. Realized gains and losses on
the sale of investment or mortgage-backed securities are reported in the
consolidated statement of operations and are determined using the specific
identification method.
Interest Income--Interest income on loans and investment and mortgage-backed
securities is recognized as earned. Income recognition is generally discontinued
when loans become 90 days contractually past due. An allowance for any
uncollected interest is established at that time by a charge to operations.
Loans Held for Sale--The Company originates loans for portfolio investment or
for sale in the secondary market. During the period of origination, loans are
designated as held for sale or held for investment. Loans held for sale are
carried at the lower of cost or fair value, determined on an aggregate basis.
Loans receivable designated as held for portfolio have been so designated due to
management's intent and ability to hold such loans until maturity or pay-off.
Provisions for Losses--Provisions for losses include charges to reduce the
recorded balances of mortgage loans receivable to their estimated net realizable
value or fair value, as applicable. Such provisions are based on management's
estimate of
27
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Notes to Consolidated Financial Statements Thistle Group Holdings, Co. and Subsidiary
Years Ended December 31, 1998, 1997 and 1996
(Dollars in thousands, except per share data)
</TABLE>
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 real estate is dependent to a
great extent on economic, operating and other conditions that may be beyond the
Company's control.
The Company accounts for impaired loans in accordance with Statement of
Financial Accounting Standards ("SFAS") No. 114, Accounting by Creditors for
Impairment of a Loan and SFAS No. 118, Accounting by Creditors for Impairment of
a Loan--Income Recognition and Disclosure. The Company values impaired loans
using the fair value of the collateral. Any reserves determined under SFAS No.
114 would be included in the allowance for loan losses.
Real Estate Acquired Through Foreclosure--Real estate acquired through
foreclosure is carried at the lower of fair value or balance of the loan on the
property at date of acquisition less estimated selling costs. Costs relating to
the development and improvement of property are capitalized, and those relating
to holding the property are charged to expense.
Office Properties and Equipment--Office properties and equipment are recorded at
cost. Depreciation is computed using the straight-line method over the expected
useful lives of the related assets which range from three to 20 years. The costs
of maintenance and repairs are expensed as incurred, and renewals and
betterments are capitalized.
Cash Surrender Value of Life Insurance--The Company is beneficiary of insurance
policies on the lives of officers and employees of the Bank.
Interest Rate Risk--At December 31, 1998, the Company's assets consist primarily
of assets that earned interest at fixed interest rates. Those assets were funded
primarily with short-term liabilities that have interest rates that vary with
market rates over time.
The shorter duration of the interest-sensitive liabilities indicates that the
Company is exposed to interest rate risk because, in a rising rate environment,
liabilities will be repricing faster at higher interest rates, thereby reducing
the market value of long-term assets and net interest income.
Loan Fees--The Company defers all loan fees, net of certain direct loan
origination costs, and recognizes income as a yield adjustment over the
contractual life of the loan considering prepayments using the interest method.
Unearned Discounts and Premiums--Unearned discounts and premiums are accreted
over the expected average lives of the loans purchased using the interest
method.
Income Taxes--Deferred income taxes are recognized for the tax consequences of
"temporary differences" by applying enacted statutory tax rates applicable to
future years to differences between the financial statement carrying amounts and
the tax bases of existing assets and liabilities. The effect on deferred taxes
of a change in tax rates is recognized in income in the period that includes the
enactment date.
Accounting for Stock-Based Compensation--The Company accounts for stock-based
compensation in accordance with SFAS No. 123, Accounting for Stock-Based
Compensation which permits the use of the intrinsic value method for determining
compensation expense associated with grants of stock options. The Company has
not recognized any compensation expense under this method. As no options were
granted during 1998, 1997 or 1996, the disclosure requirements of SFAS No. 123
relating to pro forma net income, pro forma earnings per share and the fair
value of options granted and the assumptions used to determine fair value have
been omitted.
Earnings Per Share--In February 1997, the Financial Accounting Standards Board
("FASB") issued SFAS No. 128, Earnings Per Share, which is effective for periods
ending after December 15, 1997. Basic earnings per share for 1998 is computed by
dividing income available to common stockholders (net income from July 14, 1998
through December 31, 1998 or $1,400) by the weighted-average number of common
shares outstanding for the period. Diluted earnings per share for 1998 is
computed using the weighted average number of common shares outstanding and
common share equivalents that would arise from the exercise of stock options.
Prior period information is not comparative and therefore not presented. The
weight-ed average shares used in the basic and diluted earnings per share
computations for the period July 14, 1998 through December 31, 1998 are as
follows:
Average common shares outstanding--basic 8,372,155
Increase in shares due to dilutive options 174,732
---------
Adjusted shares outstanding--diluted 8,546,887
=========
Dividends--Prior to the reorganization discussed in Note 1, during 1998, the
Mid-Tier Holding Company had declared two dividends each at $.20 per share. No
dividends were paid to FJF Financial, M.H.C. as a result of a waiver received
from the Office of Thrift Supervision ("OTS"). The Bank is subject to certain
restrictions on the amount of dividends that it may declare without prior
regulatory approval. The Company declared and paid a $.05 per share dividend for
the quarter ended September 30, 1998 and declared a dividend of $.05 per share
payable January 15, 1999 to shareholders of record on December 31, 1998.
Comprehensive Income--During 1998, the Company adopted SFAS No. 130, Reporting
Comprehensive Income, which requires an entity to present, as a component of
comprehensive income, the amounts from transactions and other events which
currently are excluded from the statement of income and are recorded directly to
stockholders' equity.
Accounting Principles Issued and Not Adopted--In
June 1998, the FASB issued SFAS No. 133, Accounting
28
<PAGE>
for Derivative Instruments and Hedging Activities. This statement requires that
an entity recognize all derivatives as either assets or liabilities in the
statement of financial condition and measure those instruments at fair value.
The accounting for changes in fair value of a derivative depends on the intended
use of the derivative and the resulting designation. This statement is effective
for fiscal years beginning after June 15, 1999, and will not be applied
retroactively to financial statements of prior periods. The Company will adopt
this statement on January 1, 1999 and expects that it will not have a
significant financial statement impact upon adoption. Reclassifications--Certain
items in the 1997 and 1996 consolidated financial statements have been
reclassified to conform with the presentation in the 1998 consolidated financial
statements.
3. INVESTMENTS
A comparison of cost and approximate fair value of investments, by
maturity, is as follows:
<TABLE>
<CAPTION>
Held to Maturity
December 31, 1998
------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Approximate
Cost Gains Losses Fair Value
------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Treasury securities and securities
of U.S. Government agencies--
1 to 5 years $ 5,032 $324 $ 5,356
5 to 10 years 3,000 $ 15 2,985
More than 10 years 5,000 5,000
FHLB and FHLMC Bonds--More than 10 years 10,154 85 471 9,768
Municipal bonds--More than 10 years 30,765 276 370 30,671
Other 178 178
-----------------------------------------------------------
Total $54,129 $685 $856 $53,958
===========================================================
</TABLE>
<TABLE>
<CAPTION>
Available for Sale
December 31, 1998
-----------------------
Amortized Approximate
Cost Fair Value
-----------------------
<S> <C> <C>
Mutual Funds $ 1,285 $ 1,285
Capital Trust securities 11,774 11,647
Equity investments 6,324 6,592
Other 750 750
-----------------------
Total $20,133 $20,274
=======================
</TABLE>
<TABLE>
<CAPTION>
Held to Maturity
December 31, 1997
Gross Gross
Amortized Unrealized Unrealized Approximate
Cost Gains Losses Fair Value
----------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Treasury securities--3 to 5 years $ 5,043 $376 $ 5,419
FHLB Bonds:
1 year 6,000 $66 5,934
More than 10 years 15,284 137 3 15,418
Municipal bonds--More than 10 years 8,034 181 8,215
Other 168 168
----------------------------------------------------
Total $34,529 $694 $69 $35,154
====================================================
</TABLE>
<TABLE>
<CAPTION>
Available for Sale
December 31, 1997
---------------------------
Amortized Approximate
Cost Fair Value
---------------------------
<S> <C> <C>
Mutual Funds $1,222 $1,222
Capital Trust securities 1,025 1,060
Equity investments 734 1,166
Other 250 250
---------------------------
Total $3,231 $3,698
===========================
</TABLE>
Proceeds from the sale of investments available for sale during the year
ended December 31, 1998 were $2,147 resulting in a gain of $8. There were no
sales of debt securities during the years ended December 31, 1997 and 1996.
29
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Notes to Consolidated Financial Statements Thistle Group Holdings, Co. and Subsidiary
Years Ended December 31, 1998, 1997 and 1996
(Dollars in thousands, except per share data)
</TABLE>
4. MORTGAGE-BACKED SECURITIES AVAILABLE FOR SALE
Mortgage-backed securities available for sale are summarized as follows:
<TABLE>
<CAPTION>
December 31, 1998
------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Approximate
Cost Gains Losses Fair Value
------------------------------------------------------
<S> <C> <C> <C> <C>
GNMA pass-through certificates $134,216 $ 635 $ 70 $134,781
FNMA pass-through certificates 64,852 326 49 65,129
FHLMC pass-through certificates 26,512 580 24 27,068
FHLMC real estate mortgage investment conduits 2,994 89 2,905
------------------------------------------------------
Total $228,574 $1,541 $232 $229,883
======================================================
December 31, 1997
------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Approximate
Cost Gains Losses Fair Value
------------------------------------------------------
GNMA pass-through certificates $ 31,837 $ 658 $ 18 $ 32,477
FNMA pass-through certificates 24,474 351 92 24,733
FNMA real estate mortgage investment conduits 2,531 53 2,478
FHLMC pass-through certificates 43,756 916 24 44,648
FHLMC real estate mortgage investment conduits 7,249 99 7,150
------------------------------------------------------
Total $109,847 $1,925 $286 $111,486
======================================================
</TABLE>
Proceeds from the sale of mortgage-backed securities during the year ended
December 31, 1998 were $15,898 resulting in a loss of $74. There were no sales
of mortgage-backed securities during the years ended December 31, 1997 and 1996.
5. LOANS RECEIVABLE
Loans receivable consist of the following:
December 31,
1998 1997
----------------------
Mortgage loans:
1 to 4 Family residential $108,585 $71,397
Other dwelling units 17,542 16,647
Home equity lines of credit
and improvement loans 8,273 8,210
Commercial nonmortgage loans 269 329
Construction loans 868 1,693
Loans on savings accounts 218 243
Consumer loans 126 156
-----------------------
Total loans 135,881 98,675
=======================
Plus unamortized premiums 374 101
Less:
Net discounts on loans purchased
and loans acquired through merger (30) (47)
Loans in process (433)
Deferred loan fees (1,281) (1,233)
Allowance for loan losses (1,036) (783)
-----------------------
Total $133,908 $96,280
=======================
The Company originates loans to customers in its local market area,
principally Philadelphia, Pennsylvania and the four adjoining counties. The
Company occasionally purchases loans in Pennsylvania, New Jersey and Delaware.
The ultimate repayment of these loans is dependent to a certain degree on the
local economy and real estate market.
Originated or purchased commercial real estate loans totaled $17,542 and
$16,647 at December 31, 1998 and 1997, respectively. Of the commercial real
estate loans, as of December 31, 1998 and 1997, $6,680 and $6,338 are
collateralized by multi-family residential property; $10,862 and $10,309 by
business property, respectively.
At December 31, 1998, 1997 and 1996, the Company was servicing loans for
others amounting to $2,558, $3,695 and $3,522, respectively. Servicing loans for
others generally consists of collecting mortgage payments, maintaining escrow
accounts, disbursing payments to investors and foreclosure processing. Loan
servicing income is recorded on the accrual basis and includes servicing fees
from investors and certain charges collected from borrowers, such as late
payment fees. In connection with these loans serviced for others, the Company
held borrower's escrow balances of approximately $167, $234 and $276 at December
31, 1998, 1997 and 1996, respectively.
The Company previously invested in loans secured by commercial equipment
leases. During 1996, the borrower declared bankruptcy. At December 27, 1996, the
Company entered into an agreement with the trustee for the bankruptcy court
whereby the Bank will receive approximately 65% of the cash receipts from the
collateral principal in exchange for all rights to the collateral. In connection
with this agreement, the Company charged-off $1,181 of the outstanding balance
due from the trustee at December 31, 1996. The receivable balance of
approximately $11 and $361, resulting from the agreement with the trustees, is a
component of prepaid expenses and other assets in the consolidated statement of
financial condition at December 31, 1998 and 1997, respectively. The receivable
is to be repaid by the trustee from subsequent cash collections.
30
<PAGE>
Following is a summary of changes in the allowance for loan losses:
Year Ended December 31,
1998 1997 1996
-------------------------------------
Balance, beginning $ 783 $577 $ 455
Provision 270 120 139
Charge-offs (85) (83) (168)
Recoveries 68 169 151
------------------------------------
Balance, ending $1,036 $783 $ 577
====================================
The provision for loan losses charged to expense is based upon past loan
and loss experience and an evaluation of probable losses in the current loan
portfolio, including the evaluation of impaired loans under SFAS Nos. 114 and
118. A loan is considered to be impaired when, based upon current information
and events, it is probable that the Company will be unable to collect all
amounts due according to the contractual terms of the loan. An insignificant
delay or shortfall in amount of payments does not necessarily result in the loan
being identified as impaired. For this purpose, delays less than 90 days are
considered to be insignificant. As of December 31, 1998, 100% of the impaired
loan balance was measured for impairment based on the fair value of the loans'
collateral. Impairment losses are included in the provision for loan losses.
SFAS Nos. 114 and 118 do not apply to large groups of smaller balance
homogeneous loans that are collectively evaluated for impairment, except for
those loans restructured under a troubled debt restructuring. Loans collectively
evaluated for impairment include consumer loans and residential real estate
loans and are not included in the data that follows:
December 31,
1998 1997
----------------------
Impaired loans with no related
reserve for loan losses
calculated under SFAS No. 114 $1,734 $1,274
Year Ended December 31,
1998 1997
------------------------
Average impaired loans $1,265 $1,283
Interest income recognized
on impaired loans 101 109
No cash basis interest income was recognized in 1998, 1997 or 1996 for the
impaired loans included above. Nonaccrual loans for which interest has been
fully reserved totaled approximately $393 and $716 at December 31, 1998 and
1997, respectively. The Company originates and purchases fixed and adjust-able
interest rate loans and mortgage-backed securities.
At December 31, 1998 fixed rate loans and mortgage-backed securities were
approximately $335,000, and adjustable interest rate loans and mortgage-backed
securities were approximately $29,000.
As of December 31, 1998, the Company had approx- imately $1,214 in
outstanding loan commitments with interest rates ranging from 7.00% to 9.75%.
These commitments are subject to normal credit risk and have commitment terms of
ninety days or less.
Certain directors and officers of the Company have loans with the Company.
Such loans were made in the ordinary course of business and do not represent
more than a normal risk of collection. Total loans to these persons amounted to
$1,872, $1,226 and $1,164 at December 31, 1998, 1997 and 1996, respectively.
Current year originations to these persons were $470, $159 and $320 for the
years ended December 31, 1998, 1997 and 1996, respectively. Loan repayments for
the years ended December 31, 1998, 1997 and 1996 were $176, $98 and $182,
respectively.
6. OFFICE PROPERTIES AND EQUIPMENT
Office properties and equipment are summarized by major classification as
follows:
December 31,
1998 1997
--------------------------
Land $ 528 $ 528
Buildings 2,768 2,736
Furniture and equipment 2,586 2,325
Leasehold improvements 87 87
--------------------------
Total 5,969 5,676
Accumulated depreciation
and amortization (3,482) (4,172)
--------------------------
Net $ 2,487 $ 1,504
==========================
7. DEPOSITS
Deposits consist of the following major classifications:
December 31,
1998 1997
--------------------------------------
Weighted Weighted
Interest Interest
Amount Rate Amount Rate
--------------------------------------
NOW accounts
and transaction
checking $ 18,142 1.40% $ 15,662 1.48%
Money Market
Demand accounts 13,857 3.49 7,687 3.16
Passbook accounts 100,627 3.25 96,158 3.78
Certificate accounts 143,764 5.32 111,051 5.39
--------------------------------------
Total $276,390 4.22% $230,558 4.39%
======================================
At December 31, 1998 and 1997, the Company had deposits of $100,000 or
greater totaling approximately $34,978 and $23,621, respectively. Deposits in
excess of $100,000 are not federally insured.
In May 1997, the Bank sold approximately $37,000 in deposits and two branch
buildings to a local financial institution. A gain of approximately $2,200 was
realized on the sale.
31
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Notes to Consolidated Financial Statements Thistle Group Holdings, Co. and Subsidiary
Years Ended December 31, 1998, 1997 and 1996
(Dollars in thousands, except per share data)
</TABLE>
While frequently renewed at maturity rather than paid out, certificate
accounts were scheduled to mature contractually within the following periods:
December 31, 1998 1997
-------------------------
1 year or less $118,170 $ 89,887
1 year to 3 years 18,516 17,716
3 years to 5 years 7,078 3,448
-------------------------
Total $143,764 $111,051
=========================
Interest expense on deposits is as follows:
Year Ended December 31,
1998 1997 1996
-------------------------
NOW $ 534 $ 508 $ 595
Passbook 3,603 3,807 4,119
Certificates and MMDA 6,851 6,235 5,906
Early withdrawal penalties (11) (12) (20)
-------------------------
Total $10,977 $10,538 $10,600
=========================
8. FHLB ADVANCES
Federal Home Loan Bank advances at December 31, 1998 and 1997 were $106,884
and $7,884, with weighted average interest rates of 5.20% and 5.53%,
respectively. Advances are collateralized under a blanket collateral lien
agreement. Included in the $106,884 are $105,000 in convertible advances whereby
the FHLB has the option at a predetermined time to convert the fixed interest
rate to an adjustable rate tied to LIBOR. The Company then has the option to
prepay these advances if the FHLB converts the interest rate. Advances at
December 31, 1998 are scheduled to mature in 2008.
9. INCOME TAXES
In August 1997, the Small Business Job Protection Act (the "Act") was
signed into law. The Act repealed the percentage of taxable income method of
accounting for bad debts for thrift institutions effective for years beginning
after December 31, 1995. The Act required the Bank, as of January 1, 1997 to
change its method of computing reserves for bad debts to the experience method.
The bad debt deduction allowable under this method is available to small banks
with assets less than $500 million. Generally, this method allows the Bank to
deduct an annual addition to the reserve for bad debts equal to the increase in
the balance of the Bank's reserve for bad debts at the end of the year to an
amount equal to the percentage of total loans at the end of the year, computed
using the ratio of the previous six years' net charge-offs divided by the sum of
the previous six years' total outstanding loans at year end.
A thrift institution required to change its method of computing reserves
for bad debts treats such change as a change in a method of accounting
determined solely with respect to the "applicable excess reserves" of the
institution. The amount of the applicable excess reserves is taken into account
ratably over a six-taxable year period, beginning with the first taxable year
beginning after December 31, 1995. For financial reporting purposes, the Company
has not incurred any additional tax expense. At December 31, 1998, under SFAS
No. 109, deferred taxes were provided on the difference between the book reserve
at December 31, 1998 and the applicable excess reserve in the amount equal to
the Company's increase in the tax reserve from December 31, 1987 to December 31,
1998. Retained earnings at December 31, 1998 and 1997 includes approximately
$5.4 million of income for which no deferred income taxes will need to be
provided.
Income tax expense consists of the following components:
Year Ended December 31: Federal State Total
-------------------------------
1998 $1,258 $211 $1,469
1997 1,870 220 2,090
1996 112 112
The Company's provision for income taxes (benefit) differs from the amounts
determined by applying the statutory federal income tax rate to income before
income taxes for the following reasons:
<TABLE>
<CAPTION>
Year Ended December 31,
1998 1997 1996
---------------------------------------------------
Amount Percent Amount Percent Amount Percent
---------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Tax at federal tax rate $1,298 34.0% $1,776 34.0% $ (85) (34.0)%
Tax-exempt income (202) (5.3) (45) (0.9)
Decrease resulting from amortization of
goodwill premiums and discounts
related to an acquisition--net (4) (0.1) (10) (3.8)
State income tax expense,
net of federal income tax 139 3.6 145 2.8
Other 234 6.1 218 4.2 207 82.4
--------------------------------------------------
Total $1,469 38.4% $2,090 40.0% $112 44.6%
==================================================
</TABLE>
32
<PAGE>
Items that give rise to significant portions of the deferred tax accounts
are as follows:
December 31,
1998 1997
---------------------
Deferred tax assets:
Deferred loan fees $ 436 $ 419
Allowance for loan losses 159 2
Reserve for uncollected interest 19 30
Supplemental pension 468 194
Property 58 14
---------------------
1,140 659
=====================
Deferred tax liabilities:
State taxes (614) (568)
Unrealized gain on investments
and mortgage-backed securities (493) (716)
Other (480) (192)
---------------------
(1,587) (1,476)
=====================
Total $ (447) $ (817)
=====================
10. REGULATORY CAPITAL REQUIREMENTS
The Bank is subject to various regulatory capital requirements administered
by the federal and state banking agencies. Failure to meet minimum capital
requirements can initiate certain mandatory--and possibly additional
discretionary actions by regulators that, if undertaken, could have a direct
material effect on the Bank's financial statements. Under capital adequacy
guidelines and the regulatory framework for prompt corrective action, the Bank
must meet specific capital guidelines that involve quantitative measures of the
Bank's assets, liabilities and certain off-balance sheet items as calculated
under regulatory accounting practices. The Bank's capital amounts and
classification are also subject to qualitative judgments by the regulators about
components, risk weightings, and other factors.
Quantitative measures established by regulation to ensure capital adequacy
require the Bank to maintain minimum amounts and ratios (set forth in the table
below) of tangible and core capital (as defined in the regulations) to total
adjusted assets (as defined), and of risk-based capital (as defined) to
risk-weighted assets (as defined). Management believes, as of December 31, 1998,
that the Bank meets all capital adequacy requirements to which it is subject.
As of December 31, 1998, the most recent notification from the Office of
Thrift Supervision categorized the Bank as well-capitalized under the regulatory
framework for prompt corrective action. To be categorized as well-capitalized,
the Bank must maintain minimum tangible, core and risk-based ratios as set forth
in the table. There are no conditions or events since that notification that
management believes have changed the Bank's category.
<TABLE>
<CAPTION>
Well-Capitalized
Required for Under Prompt
Capital Adequacy Corrective Action
Actual Purposes Provisions
-----------------------------------------------------
Amount Ratio Amount Ratio Amount Ratio
-----------------------------------------------------
At December 31, 1998:
<S> <C> <C> <C> <C> <C> <C>
Tangible $60,672 12.9% $ 7,065 1.5% N/A N/A
Core (Leverage 60,672 12.9 14,129 3.0 $23,549 5.0%
Tier 1 risk-based 60,672 45.8 N/A N/A 28,259 6.0
Total risk-based 61,708 46.6 10,605 8.0 13,256 10.0
Well-Capitalized
Required for Under Prompt
Capital Adequacy Corrective Action
Actual Purposes Provisions
-----------------------------------------------------
Amount Ratio Amount Ratio Amount Ratio
-----------------------------------------------------
At December 31, 1997:
Tangible $25,828 9.5% $ 4,074 1.5% N/A N/A
Core (Leverage) 25,828 9.5 8,148 3.0 $13,580 5.0%
Tier 1 risk-based 25,828 27.7 N/A N/A 16,296 6.0
Total risk-based 26,611 28.6 7,438 8.0 9,298 10.0
</TABLE>
Capital at December 31, 1998 for financial statement purposes differs from
tangible, core (leverage), and Tier 1 risk-based capital amounts by $864
representing the exclusion of unrealized gain on securities available for sale
and $38,693 of capital maintained at the holding company. Total risk-based
capital differs from tangible, core (leverage), and Tier 1 risk-based by the
allowance for loan losses.
Capital at December 31, 1997 for financial statement purposes differs from
tangible, core (leverage), and Tier 1 risk-based capital amounts by $1,082
representing the exclusion of unrealized gain on securities available for sale
and $1,560 representing capital maintained at the mid-tier holding company at
December 31, 1997. Total risk-based capital differs from tangible, core
(leverage), and Tier 1 risk-based by the allowance for loan losses.
At the date of the conversion and reorganization, the Bank established a
liquidation account in the amount equal to its retained earnings at December 31,
1997, the date of the latest balance sheet contained in the final prospectus
utilized in the Company's public offering. The liquidation account will be
maintained for the benefit of eligible account holders who continue to maintain
their accounts at the Bank after conversion. The liquidation account will
33
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Notes to Consolidated Financial Statements Thistle Group Holdings, Co. and Subsidiary
Years Ended December 31, 1998, 1997 and 1996
(Dollars in thousands, except per share data) (continued)
- ----------------------------------------------------------------------------------------
</TABLE>
be maintained for the benefit of eligible account holders who continue to
maintain their accounts at the Bank after conversion. The liquidation account
will be reduced annually to the extent that eligible account holders have
reduced their qualifying deposits as of each anniversary date. Subsequent
increases will not restore the eligible account holder's interest in the
liquidation account. In the event of a complete liquidation of the Bank each
eligible account holder will be entitled to receive a distribution from the
liquidation account in an amount proportionate to the current adjusted
qualifying balances for accounts then held.
11. PENSION AND PROFIT-SHARING PLANS
The Company has a defined benefit pension plan which covers all eligible
employees. The plan may be terminated at any time at the discretion of the Board
of Directors. Benefits under the above are based upon years of service and the
employees' average compensation during the term of employment. The Company's
policy is to fund amounts as are necessary to at least meet the minimum funding
standards of ERISA.
The following table sets forth the plan's net periodic pension cost at
December 31, 1998, 1997 and 1996:
1998 1997 1996
----------------------
Service cost--benefits
earned during the period $106 $ 95 $ 88
Interest cost on projected
benefit obligation 119 103 89
Actual return on plan assets (97) (81) (67)
Net amortization and deferral (17) (19) (23)
----------------------
Net periodic pension cost $111 $ 98 $ 87
======================
The following table sets forth the plan's prepaid pension asset at December
31, 1998 and 1997:
1998 1997
---------------
Actuarial present value of benefit obligations:
Vested benefits $1,602 $1,272
Nonvested benefits 4 6
Accumulated benefit obligation 1,606 1,278
Effect of future salary increases 588 574
Projected benefit obligation 2,194 1,852
Plan assets at fair value 1,852 1,631
Plan assets less than projected
benefit obligation (342) (221)
Unrecognized:
Prior service cost 24 186
Net loss from past experience 518 186
Net asset at date of transition (59) (67)
----------------
Prepaid pension asset $ 141 $ 84
================
The following table sets forth a reconciliation of beginning and ending
balances of the benefit obligation:
Year Ended
December 31,
1998 1997
-------------------
Balance, beginning $1,852 $1,589
Service cost 106 95
Interest cost 115 103
Actuarial gains and losses 50 82
Benefits paid (42) (17)
Plan amendments 113
-------------------
Balance, ending $2,194 $1,852
===================
The following table sets forth a reconciliation of beginning and ending
balances of the fair value of plan assets:
Year Ended
December 31,
1998 1997
-------------------
Balance, beginning $1,631 $1,423
Actual return on plan assets 97 81
Contributions by employer 166 144
Benefits paid (42) (17)
-------------------
Balance, ending $1,852 $1,631
===================
The weighted-average discount rate and rate of increase in future
compensation levels used in determining the actuarial present value of the
projected benefit obligation was 6.0% and 6.5% for the years ended December 31,
1998 and 1997, respectively. The expected long-term rate of return on assets was
6.0% and 6.5% for 1998 and 1997, respectively. Plan assets consist primarily of
certificates of deposit at the Bank.
The Company also maintains a profit-sharing plan for eligible employees.
Profit-sharing contributions are at the discretion of the Board of Directors.
The contribution was $114 in 1998, $463 in 1997 and $124 in 1996. As of July
1998 contributions to the profit-sharing plan have been suspended. Plan assets
consist primarily of a diversified stock portfolio.
12. EMPLOYEE STOCK OWNERSHIP PLAN
As part of the conversion and reorganization, in July 1998 the ESOP
borrowed $6,285 from the Company in order to purchase 628,509 shares of the
common stock of the Company. Since the Company's ESOP is internally leveraged,
the Company does not report the loan receivable from the ESOP as an asset and
does not report the ESOP as a liability. The Company accounts for its ESOP in
accord- ance 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
34
<PAGE>
fair value of the ESOP shares. As of December 31, 1998, 20,950 shares were
committed to be released. The Company recorded compensation and employee benefit
expense related to the ESOP of $200 for the year ended December 31, 1998.
In prior years the Company had established an employee stock ownership plan
(the "ESOP") for the exclusive benefit of participating employees which
purchased 14,000 shares of common stock of the Bank on December 31, 1992. In
order to make the purchase, the ESOP borrowed $140 on December 31, 1992 from a
financial institution. All shares were released and the debt was repaid in 1997.
13. OTHER EMPLOYEE BENEFITS
Stock Option Plans--The 1994 and 1992 Stock Option Plans were adopted by the
Board of Directors to provide additional incentive to retain officers, directors
and key employees. Options were granted at the estimated fair value at the date
of grant. Options for the 1992 plan vested over a five year period. Options for
the 1994 plan vested immediately. In connection with the conversion and
re-organization, the options were adjusted to reflect the exchange ratio (see
Note 1). At December 31, 1998, the total number of option shares outstanding and
exercisable is 222,064 with an exercise price ranging from $1.80 to $2.07.
Management Recognition Plan--In prior years the Company's Board of Directors had
adopted Management Recognition Plans. All shares under these plans were granted
prior to December 31, 1997. The Company recognized compensation and employee
benefit expense of $12 for both the years ended December 31, 1997 and 1996,
respectively. All shares are fully vested.
Supplemental Retirement Benefits--In November 1995, the Company entered into a
Nonqualified Retirement and Death Benefit Agreement (the "Agreement") with
certain officers of the Company. The purpose of the Agreement is to provide the
officers with supplemental retirement benefits equal to a specified percentage
of final compensation and a preretirement death benefit if the officer does not
attain age 65. Total expense relating to this benefit was approximately $328,
$184 and $92 for the years ended December 31, 1998, 1997 and 1996, respectively.
14. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following disclosure of the carrying amounts and the estimated fair
value of financial instruments is made in accordance with the requirements of
SFAS No. 107, Disclosures about Fair Value of Financial Instruments. The
estimated fair value amounts have been determined by the Company using available
market information and appropriate valuation methodologies. However,
considerable judgment is necessarily required to interpret market data to
develop the estimates of fair value. Accordingly, the estimates presented herein
are not necessarily indicative of amounts the Bank could realize in a current
market exchange. The use of different market assumptions and/or estimation
methodologies may have a material effect on the estimated fair value amounts.
<TABLE>
<CAPTION>
December 31, 1998 December 31, 1997
--------------------------------------------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
--------------------------------------------------------
<S> <C> <C> <C> <C>
Assets:
Cash and cash equivalents $ 26,136 $ 26,136 $ 20,151 $ 20,151
Investments held to maturity 54,129 53,958 34,529 35,144
Investments available for sale 20,274 20,274 3,698 3,698
Mortgage-backed securities available for sale 229,883 229,883 111,486 111,486
Loans receivable 133,908 135,906 96,280 98,206
Loans held for sale 2,558 2,558 1,155 1,155
Federal Home Loan Bank stock 5,344 5,344 1,702 1,702
Liabilities:
NOW, MMDA and Passbook accounts 132,636 132,636 119,507 119,507
Certificate accounts 143,764 144,389 111,051 119,065
FHLB Advances 106,884 121,250 7,884 6,430
</TABLE>
Cash and Cash Equivalents--For cash and cash equivalents, the carrying amount is
a reasonable estimate of fair value.
Investment and Mortgage-backed Securities--Fair values are based on quoted
market prices or dealer quotes.
Loans Receivable--Fair values are based on broker quotes.
Federal Home Loan Bank Stock--Although FHLB Stock is an equity interest in an
FHLB, it is carried at cost because it does not have a readily determinable fair
value.
NOW, MMDA, Passbook, Certificate Accounts and FHLB Advances--The fair value of
NOW, MMDA and Passbook accounts is the amount payable on demand at the reporting
date. The fair value of certificate accounts and FHLB Advances is estimated
using rates currently offered for deposits and advances of similar remaining
maturities.
Commitments to Extend Credit and Letters of Credit-- Fair values for off-balance
sheet commitments are based on fees currently charged to enter into similar
agreements, taking into account the remaining terms of the agreements and the
counterparties' credit standings. The fair value of commitments is deemed
immaterial for disclosures in the table above.
35
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Notes to Consolidated Financial Statements Thistle Group Holdings, Co. and Subsidiary
Years Ended December 31, 1998, 1997 and 1996
(Dollars in thousands, except per share data)
</TABLE>
The fair value estimates presented herein are based on pertinent
information available to management as of December 31, 1998 and 1997. Although
management is not aware of any factors that would significantly affect the fair
value amounts, such amounts have not been comprehensively revalued for purposes
of these consolidated financial statements since that date and, therefore,
current estimates of fair value may differ significantly from the amounts
presented herein.
15. SAVINGS ASSOCIATION INSURANCE FUND
On September 30, 1996, an omnibus appropriations bill was enacted, which
included the recapitalization of the Savings Association Insurance Fund (SAIF).
Accordingly, all SAIF insured depository institutions were charged a one-time
special assessment on their SAIF-assessable deposits as of March 31, 1995 at the
rate of 65.7 basis points. Accordingly, the Bank incurred a pre-tax expense of
$1,533 in 1996.
16. SUBSEQUENT EVENT
On January 15, 1999, the Company announced that it had received approval
from the Office of Thrift Supervision to proceed with its planned repurchase of
up to 15 percent of the outstanding common stock of the Company, equating to
approximately 1,349,998 shares. The stock repurchase must be completed by July
14, 1999. Such repurchases are authorized to be made by the Company from time to
time in open market transactions, as in the opinion of management market
conditions warrant. The repurchased shares will be held in treasury stock and
will be available for general corporate purposes.
17. PARENT COMPANY FINANCIAL INFORMATION
Condensed financial statements of Thistle Group Holdings, Co. are as
follows:
Condensed Statements of Financial Condition
December 31,
1998 1997
------------------------
Assets
Cash and cash equivalents $ 13,390 $ 216
Investments available-for-sale 18,989 2,837
Investment in subsidiaries 61,537 26,911
Loan receivable 6,075
Accrued interest receivable 356
Prepaid expenses and other assets 556
------------------------
Total assets $100,903 $29,964
------------------------
Liabilities and Stockholders' Equity
Borrowed money $ 1,272
Dividends payable $ 450 41
Other liabilities 224 181
------------------------
Total liabilities 674 1,494
------------------------
Stockholders' equity 100,229 28,470
------------------------
Total liabilities and
stockholders' equity $100,903 $29,964
------------------------
Condensed Statements of Operations
Year Ended
December 31,
1998 1997
----------------------
Income:
Interest on loan to employee stock
ownership plan $ 215 $
Interest and dividends on
investments 374 27
Gain on sale of investments 8
----------------------
Total income 597 27
----------------------
Operating expenses 23 59
----------------------
Income (loss) before income taxes and
equity in undistributed income of
subsidiaries 574 (32)
----------------------
Income taxes 176 --
----------------------
Income (loss) before equity in
undistributed income of subsidiaries 398 (32)
----------------------
Equity in undistributed income of
subsidiaries 1,952 3,386
----------------------
Net income $2,350 $3,354
----------------------
Condensed Statements of Cash Flows
Year Ended
December 31,
1998 1997
----------------------
Cash flows from operating activities:
Net income: $ 2,350 $3,354
Adjustments to reconcile net income
to net cash provided by operating
activities:
Return of undistributed earnings
of subsidiary (1,952) (3,386)
Gain on sale of investments (8)
Increase in other assets (912)
Increase in other liabilities 452 222
----------------------
Net cash (used in) provided
by operating activities (70) 190
----------------------
Cash flows from investing activities:
Purchase of investments (14,820) (2,837)
Increase in loans receivable--net (6,075)
Proceeds from the sale of investments 2,147
Dividends received from subsidiaries 900
----------------------
Net cash used in investing
activities (17,848) (2,837)
----------------------
Cash flows from financing activities:
Net proceeds from stock offering 70,624
Proceeds from borrowed money 1,272
Capital distribution from
(contribution to) subsidiary (38,632) 1,591
Dividends paid (900)
----------------------
Net cash provided by
financing activities 31,092 2,863
Increase in cash 13,174 216
Cash, beginning of year 216
----------------------
Cash, end of year $ 13,390 $216
======================
36
<PAGE>
18. QUARTERLY FINANCIAL DATA (Unaudited)
Unaudited quarterly financial data for the years ended December 31, 1998
and 1997 is as follows:
<TABLE>
<CAPTION>
1998 1997
---------------------------------------------------------------------
First Second Third Fourth First Second Third Fourth
Quarter Quarter Quarter Quarter Quarter Quarter Quarter Quarter
---------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Interest income $4,827 $4,984 $6,575 $7,296 $5,438 $5,172 $5,022 $4,950
Interest expense 2,626 2,777 3,324 4,206 2,898 2,785 2,661 2,658
---------------------------------------------------------------------
Net interest income 2,201 2,207 3,251 3,090 2,540 2,387 2,361 2,292
Provision for loan losses 15 15 15 225 30 30 30 30
---------------------------------------------------------------------
Net interest income after
provision for loan losses 2,186 2,192 3,236 2,865 2,510 2,357 2,331 2,262
---------------------------------------------------------------------
Non-interest income 124 143 134 14 132 2,421 117 140
Non-interest expense 1,644 1,639 1,953 1,839 1,716 1,796 1,560 1,753
---------------------------------------------------------------------
Income before taxes 666 696 1,417 1,040 926 2,982 888 649
Provision for income taxes 243 272 524 430 321 1,121 346 302
---------------------------------------------------------------------
Net income $ 423 $ 424 $ 893 $ 610 $ 605 $1,861 $ 542 $ 347
=====================================================================
Per share:
Earnings per share--basic $ 0.10 $ 0.07
Earnings per share--diluted 0.09 0.07
Common stock price range
of the Company:
High 10.06 9.81
Low 7.50 7.75
=====================================================================
</TABLE>
Independent Auditor's Report
- --------------------------------------------------------------------------------
To the Board of Directors of
Thistle Group Holdings, Co. and Subsidiary:
We have audited the accompanying consolidated statements of financial
condition of Thistle Group Holdings, Co. and subsidiary (the "Company") as of
December 31, 1998 and 1997, and the related consolidated statements of
operations, comprehensive income (loss), changes in stockholders' equity and
cash flows for each of the three years in the period ended December 31, 1998.
These consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the consolidated financial position of Thistle Group
Holdings, Co. and subsidiary at December 31, 1998 and 1997, and the results of
their operations and their cash flows for each of the three years in the period
ended December 31, 1998 in conformity with generally accepted accounting
principles.
/s/ Deloitte & Touche LLP
Philadelphia, Pennsylvania
February 5, 1999>
37
<PAGE>
Headquarters
Thistle Group Holdings, Co.
6060 Ridge Avenue
Philadelphia, Pennsylvania 19128
Annual Shareholders' Meeting
Thistle Group Holdings, Co.'s
Annual shareholders' meeting will
be held on April 21, 1999 at 9:30 a.m.
at Williamson's Restaurant atop the
GSB Building, One Belmont Avenue
Bala Cynwyd, Pennsylvania
Dividend Reinvestment Plan
Thistle Group Holdings, Co. offers its shareholders a convenient method of
increasing their investment in the Company. Through the Automatic Dividend
Reinvestment Plan holders of common stock may have their dividends and optional
cash contributions of between $100 and $1000 per quarter reinvested in
additional common shares without incurring brokerage commissions or service
charges. Shareholders not enrolled in this plan, as well as brokers and
custodians who hold stock for clients, may receive a copy of the plan and
enrollment card by contacting Registrar and Transfer Investor Relations
Department at (800) 368-5948 or Pam Cyr, Director of Investor Relations at (215)
483-2800.
Market Makers
Sandler O'Neill & Partners
F.J. Morrissey & Co., Inc.
Herzog, Heine, Geduld, Inc.
Tucker Anthony Inc.
Keefe, Bruyette & Woods, Inc.
Friedman Billings Ramsey & Co., Inc.
Ryan Beck & Co., Inc.
Trident Securities, Inc.
Annual Report and Form 10-K
Copies of Thistle Group Holdings, Co.'s Annual Report on Form 10-K without
exhibits are available without charge by writing:
Thistle Group Holdings, Co.
Shareholder Relations
6060 Ridge Avenue
Philadelphia, Pennsylvania 19128
Stock Listing
Shares of Thistle Group Holdings, Co.'s common stock are traded on The Nasdaq
Stock Markett under the symbol THTL.
Transfer Agent and Registrar
Registrar and Transfer Company
10 Commerce Street
Cranford, New Jersey 07016
Independent Auditors
Deloitte & Touche LLP
24th Floor
1700 Market Street
Philadelphia, PA 19103-3984
Special Counsel
Malizia, Spidi, Sloane & Fisch, P.C.
One Franklin Square
1301 K Street, N.W., Suite 700 East
Washington, D.C. 20005
Branch Offices
6060 Ridge Avenue Philadelphia, Pennsylvania 19128 (215) 483-2800
7568 Ridge Avenue
Philadelphia, Pennsylvania 19128
(215) 483-1434
8345 Ridge Avenue
Philadelphia, Pennsylvania 19128
(215) 483-1200
4370 Main Street
Philadelphia, Pennsylvania 19127
(215) 483-1500
1024 Church Lane
Yeadon, Pennsylvania 19151
(610) 622-4567
6503-15 Haverford Avenue
Philadelphia, Pennsylvania 19151
(215) 748-6312
38
<PAGE>
[GRAPHIC OMITTED]
Board of Directors
From left to right back row: Francis E. McGill, III,
Jerry A. Naessens, Robert E. Domanski*, M.D.,
Pietro M. Jacovini, Jr.*, John F. McGill, Jr.
From left to right front row: Add Anderson, Jr.,
William A. Lamb, Sr., Patrick T. Ryan,
Michael G. Crofton** (not pictured)
*Member of Roxborough-Manayunk Bank Board only
**Member of Thistle Group Holdings, Co. Board only
Executive Officers of Roxborough-Manayunk Bank
John F. McGill Jr.*
President and Chief Executive Officer
Jerry Naessens*
Chief Financial Officer
Douglas R. Moore
Treasurer
Francis E. McGill III*
Secretary
Jerry L. Cotlov
Senior Vice President, Commercial Lending
Christopher P. McGill
Senior Vice President, Residential Lending
Ronald D. Masciantinio
Vice President, Compliance
Elizabeth Milavsky
Vice President, Operations
*Officers of Thistle Group Holdings, Co.
EXHIBIT 23
<PAGE>
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in the Registration Statements of
Thistle Group Holdings, Co. on Form S-8 (Registration No. 333-48749) of our
report dated February 5, 1999, incorporated by reference in this Annual Report
on Form 10-K of Thistle Group Holdings, Co. for the year ended December 31,
1998.
/s/ Deloitte & Touche LLP
- ------------------------------------
DELOITTE & TOUCHE LLP
Philadelphia, Pennsylvania
March 30, 1999
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
ANNUAL REPORT ON FORM 10-K405 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL INFORMATION.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> Dec-31-1998
<PERIOD-END> Dec-31-1998
<CASH> 2,522
<INT-BEARING-DEPOSITS> 23,614
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 250,157
<INVESTMENTS-CARRYING> 54,129
<INVESTMENTS-MARKET> 53,958
<LOANS> 136,466
<ALLOWANCE> 1,036
<TOTAL-ASSETS> 492,039
<DEPOSITS> 276,390
<SHORT-TERM> 0
<LIABILITIES-OTHER> 115,420
<LONG-TERM> 0
0
0
<COMMON> 900
<OTHER-SE> 99,329
<TOTAL-LIABILITIES-AND-EQUITY> 492,039
<INTEREST-LOAN> 8,933
<INTEREST-INVEST> 14,749
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 23,682
<INTEREST-DEPOSIT> 10,977
<INTEREST-EXPENSE> 12,933
<INTEREST-INCOME-NET> 10,749
<LOAN-LOSSES> 270
<SECURITIES-GAINS> (66)
<EXPENSE-OTHER> 7,075
<INCOME-PRETAX> 3,819
<INCOME-PRE-EXTRAORDINARY> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,350
<EPS-PRIMARY> .17
<EPS-DILUTED> .16
<YIELD-ACTUAL> 6.80
<LOANS-NON> 393
<LOANS-PAST> 393
<LOANS-TROUBLED> 82
<LOANS-PROBLEM> 2,200
<ALLOWANCE-OPEN> 783
<CHARGE-OFFS> (85)
<RECOVERIES> 68
<ALLOWANCE-CLOSE> 1,036
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
