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, 1999
[ ] 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
--------------
Securities registered pursuant to Section 12(b) of the Act: None
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Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $.10 per share
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(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. YES X NO .
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.[ ]
Based on the closing sales price of $6.625 per share of the registrant's
common stock on March 8, 2000, as reported on the Nasdaq National Market, the
aggregate market value of voting stock held by non-affiliates of the registrant
was approximately $41.6 million. On such date, 7,562,832 shares of the
registrant's Common Stock were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
1. Portions of 1999 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 company
which, under existing laws, is generally not restricted in most of the types of
business activities
1
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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, 1999, the Company had total
assets, deposits, and stockholders' equity of approximately $554.8 million,
$292.6 million, and $74.7 million, respectively.
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, commercial real estate 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").
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 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 lender for the purpose of expanding its lending
in the areas of commercial real estate, construction, and commercial lending.
2
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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,
--------------------------------------------------------------------------------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
$ % $ % $ % $ % $ %
------ ----- ----- ----- ----- ----- ----- ----- ----- -----
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Real Estate Loans:(1)
Construction (net).........................$ 5,365 3.36% $ 868 .64%$ 1,693 1.72% $ 964 .96% $ 495 .48%
Residential................................ 110,032 68.95 108,585 79.91 71,397 72.36 73,871 73.30 72,675 71.20
Multi-family and commercial................ 29,867 18.72 17,542 12.91 16,647 16.87 17,615 17.54 20,200 19.79
Home equity................................ 7,914 4.96 8,068 5.94 8,133 8.24 7,011 6.96 5,004 4.91
Home equity line of credit................. 604 .38 202 .15 73 .07 -- -- --
Loans secured by commercial equipment leases. -- -- -- -- -- -- -- 3,341 3.27
Commercial loans............................. 5,496 3.44 269 .20 329 .33 770 .76 -- --
Consumer loans:
Line of credit............................. 50 .03 76 .06 96 .10 92 .09 -- --
Secured demand note........................ 76 .05 50 .04 60 .06 -- -- -- --
Share loans................................ 170 .11 218 .15 243 .25 384 .38 347 0.34
Home improvement........................... -- -- $ 3 -- 4 -- 8 .01 15 .01
------ ------- ------ ------ ------ ------- ------ ------- ------
Total loans..................................$159,574 100.00% $135,881 100.00%$98,675 100.00%$100,715 100.00% $102,077 100.00%
======= ====== ======= ====== ====== ====== ======== ====== ======= ======
Less:
Premiums and (discounts)................... 345 $ 344 $ 54 $ 76 $ 26
Deferred fees.............................. (1,452) (1,281) (1,233) (1,299) (1,221)
Loans in process........................... -- -- (433) (289) (156)
Allowance for loan losses.................. (1,234) (1,036) (783) (577) (455)
------- ------ ------ ------ -------
Total loans, net...........................$157,233 $133,908 $96,280 $98,626 $100,271
======= ======= ====== ====== =======
</TABLE>
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(1) Does not include $3,925, $2,558, $1,155, $2,147, and $1,613 of mortgage
loans classified as held for sale at December 31, 1999, 1998, 1997, 1996,
and 1995, respectively.
3
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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, 1999, 5.2% 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 1- to 4-family residences. Home equity loans are
originated as fixed-rate loans with terms from 1 to 15 years. Home equity lines
are originated as variable rate loans with terms from 1 to 15 years. These loans
reprice with The Wall Street Journal Prime Rate. These loans are made on
owner-occupied, 1- to 4-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
multi-family mortgage loans secured primarily by apartment buildings located in
its lending area. The Company makes both adjustable and fixed rate multi-family
mortgage loans. The adjustable rate loans generally reprice every five years
based on the daily average yield on U.S. Treasury securities adjusted to a
constant maturity of five years plus a margin. They may be amortized up to 25 to
30 years with a balloon payment after 10 years. The fixed rate loans are
generally 15 year self amortizing loans or 5 to 10 year balloons with up to 25
to 30 year amortizations. These loans are generally made in amounts up to 75% to
80% 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. Generally, the Company obtains
personal guarantees of the principals of the borrower as additional security for
multi-family loans. 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% to 3 % is
usually charged on such loans. The typical multi-family property in the
Company's multi-family lending portfolio has between five and 25 dwelling units
with an average loan balance of approximately $324,000. The largest multi-family
loan as of December 31, 1999 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 lending 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
lending area. As of December 31, 1999, the Company had 108 loans secured by
commercial real estate, totaling $19.4 million or 12.3% of the Company's total
loan portfolio, with an average principal balance of $180,000. None of the 108
loans had principal balances outstanding of over $2.3 million as of December 31,
1999. The largest
4
<PAGE>
commercial real estate loan was secured by a hotel with an outstanding balance
of $2.3 million on December 31, 1999. This loan represents approximately 7.7% of
the Company's $29.9 million multi-family and commercial real estate loans at
December 31, 1999. Commercial real estate loans 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 generally reprice every five years based
on the daily average yield on U.S. Treasury Securities adjusted to a constant
maturity of five years plus a margin. They may be amortized up to 25 to 30 years
with a balloon payment after 10 years. The fixed rate loans are generally 15
year self amortizing loans or 5 to 10 year balloons with up to 25 to 30 year
amortizations. 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. Generally, the Company obtains personal guarantees of the
principals of the borrower as additional security for commercial real estate
loans. 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% to 3% is usually charged on such
loans. The Company generally follows the underwriting standards of the secondary
market for multi-family and commercial real estate loans when analyzing these
loans and requires debt service coverage ratios of 1.15x to 1.40x, depending on
the type of property.
Construction Loans. Most of the Company's construction loans consist of
loans to construct single-family properties extended either to individuals or to
selected developers with whom the Company is familiar to build such properties
on a pre-sold or limited speculative basis. To a lesser extent, the Company
provides financing for construction to permanent commercial loan properties. The
loan converts to a permanent commercial term loan upon completion of
construction. With respect to construction loans to individuals, such loans have
a maximum term of twelve months, have fixed or variable rates of interest based
upon the prime rate published in The Wall Street Journal plus a margin and have
loan to value ratios of 80% or less of the appraised value upon completion and
generally do not require the amortization of principal during the term. Upon
completion of construction, the loans convert to permanent residential mortgage
loans. Commercial construction loans have a maximum term of 12 to 30 months
during the construction period with interest based upon the prime rate published
in The Wall Street Journal ("Prime Rate") plus a margin and have loan to value
ratios of 75% to 80% or less of the appraised value upon completion. The loans
convert to permanent commercial term loans upon completion of construction. The
Company also provides construction loans to developers. The majority of
construction loans consist of loans to selected local developers with whom the
Company is familiar to build single-family dwellings on a pre-sold or, to a
significantly lesser extent, on a speculative basis. The Company limits the
number of unsold units which a developer may have under construction in a
project based on the type of units being constructed. Such loans generally have
terms of 18 to 30 months or less, have maximum loan to value ratios of 75% of
the appraised value upon completion and generally do not require the
amortization of the principal during the term. The loans are made with floating
rates of interest based on the Prime Rate plus a margin adjusted on a monthly
basis. The Company also receives origination fees which generally range from
1.0% to 2.0% of the commitment. The borrower is required to fund a portion of
the project's costs, the exact amount being determined on a case-by-case basis,
loan proceeds are disbursed in stages after inspections of the project indicate
that such disbursements are for costs already incurred and which have added to
the value of the project. Only interest payments are due during the construction
phase and the Company may provide the borrower with an interest reserve from
which it can pay the stated interest due thereon. The Company's construction
loans include loans to developers to acquire the necessary land, develop the
site and construct the residential units ("ADC loans"). At December 31, 1999,
residential construction loans totaled $3.9 million or 2.5% of the total loan
portfolio, which primarily consisted of construction loans to developers. At
December 31, 1999, commercial construction loans totaled $686,000 or .4% of the
total loan portfolio.
5
<PAGE>
The Company also will originate ground or land loans, both to an individual to
purchase a building lot on which he intends to build his primary residence, as
well as to developers to purchase lots to build speculative homes at a later
date. Such loans have terms of 36 months or less with a maximum loan to value
ratio of 70% of the lower of appraised value or sale price. The loans are made
with floating rates based on the Prime Rate plus a margin. The Company also
receives origination fees, which generally range between 1.0% and 2.0% of the
loan amount. At December 31, 1999, land loans (including loans to acquire and
develop land) totaled $752,000 or .5% of the total loan portfolio. Prior to
making a commitment to fund a construction loan, the Company requires an
appraisal of the property by an independent state-licensed and qualified
appraiser approved by the Board of Directors. In addition, during the term of
the construction loan, the project is inspected by an independent inspector.
Construction financing is generally considered to involve a higher degree of
risk of loss than long-term financing on improved, owner-occupied real estate.
Risk of loss on a construction loan is dependent largely upon the accuracy of
the initial estimate of the property's value at completion of construction or
development and the estimated cost (including interest) of construction. During
the construction phase, a number of factors could result in delays and cost
overruns. If the estimate of value proves to be inaccurate, the Company may be
confronted, at or prior to the maturity of the loan, with a project, when
completed, having a value which is insufficient to assure full repayment. Loans
on land may run the risk of adverse zoning changes, environmental or other
restrictions on future use.
Commercial Business Loans. The Company grants commercial business loans
directly to business enterprises that are located in its market area. The
Company actively targets and markets to small and medium sized businesses. The
majority of the loans are for less than $1.0 million. Applications for
commercial business loans are obtained from existing commercial customers,
branch and customer referrals, direct inquiry and those that are obtained by our
commercial lenders. As of December 31, 1999, commercial business loans amounted
to $5.5 million or 3.4% of the Company's total loan portfolio. Of this amount
$4.1 million or 75% are backed by the full faith and credit of the U.S.
Government. The commercial business loans consist of a limited number of
commercial lines of credit secured by real estate, some working capital
financing secured by accounts receivable and inventory and, to a limited extent,
unsecured lines of credit. Commercial business loans originated by the Company
ordinarily have terms of five years or less and fixed rates or adjustable rates
tied to the Prime Rate plus a margin. Such loans are generally secured by real
estate, receivables, equipment or inventory and are generally backed by personal
guarantees of the borrower. Although commercial business loans generally are
considered to involve increased credit risk than certain other types of loans,
management intends to offer commercial business loans to small, medium sized
businesses in an effort to better serve our community's needs, obtain core
noninterest-bearing deposits and increase the Company's interest rate spread.
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, 1999
the Company had no outstanding receivable. For the year ended December 31, 1999,
the Company received an approximately $80,000 recovery on such loans.
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.
6
<PAGE>
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 $326,000 for the year ended December 31, 1999.
Loan Maturity Schedules. The following table sets forth the maturity of the
Company's loan portfolio at December 31, 1999. The table does not include
prepayments or scheduled principal repayments. Prepayments and scheduled
principal repayments on loans totaled $28,790,000, $28,509,000, and $22,489,000
for the fiscal years ended December 31, 1999, 1998, and 1997, 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............ $ 223 $ -- $ -- $ -- $ -- $ 223
Amounts Due:
Within 3 months........... 3 76 126 150 355
3 months to 1 Year........ 108 2,499 1,680 32 -- 4,319
After 1 year:
1 to 3 years............ 1,889 1,997 3,685 22 840 8,433
3 to 5 years............ 981 2,442 100 3,523
5 to 10 years........... 20,831 14,664 180 35,675
10 to 20 years.......... 33,598 7,294 51 2,226 43,169
Over 20 years........... 60,917 895 65 2,000 63,877
------- ------ --- ----- -------
Total due after one year.. 118,216 27,292 3,685 138 5,346 154,677
------- ------ ----- --- ----- -------
Total amount due.......... $118,550 $29,867 $5,365 $296 $5,496 $159,574
======= ====== ===== === ===== =======
</TABLE>
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The following table sets forth the dollar amount of all loans due after
December 31, 2000, 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.............. $112,018 $ 6,198 $118,216
Multi-family and commercial real estate.. 18,023 9,269
Construction............................. 1,029 2,656 3,685
Consumer................................. 1 137 138
Commercial............................... 4,294 1,052 5,346
------- ------ -------
Total.................................. $135,365 $19,312 $154,677
======= ====== =======
</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, 1999, $48.2 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.
During 1998, the Company purchased $36 million in fixed rate residential
mortgages located in North Jersey and Long Island as part of its leverage
program. During 1999, the Company purchased $1.2 million in residential loans in
its Community Reinvestment Act ("CRA") assessment area.
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
Company receives from the correspondent bank a completed application to
underwrite and determine whether to issue a loan commitment. At December 31,
1999, the Company had a balance of $1.5 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.
8
<PAGE>
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.
Purchase and Sale of Commercial, Commercial Real Estate and Construction
Loans. As a method of controlling its total exposure to individual borrowers,
the Company routinely sells participations in its commercial, commercial real
estate and construction loans to other local financial institutions. The Company
generally receives between 0.125% and 0.25% of the outstanding balance as a fee
for servicing these loans. As of December 31, 1999, the outstanding balance of
these loans serviced for others was $5.5 million.
The Company also purchases participations in these types of loans from
local financial institutions in order to diversify its loan portfolio. During
1999, the Company purchased $2.4 million of commercial mortgages from two
financial institutions and $4.1 million of commercial loans backed by the full
faith and credit of the U.S. government from a broker-dealer.
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,
-------------------------------------------------------------
1999 1998 1997 1996 1995
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Total gross loans receivable at
beginning of period ........ $ 135,881 $ 98,675 $ 100,775 $ 102,077 $ 97,677
========= ========= ========= ========= =========
Loans originated:
Construction loans .......... 7,512 $ 360 $ 1,570 $ 1,055 $ 430
Residential and home equity . 21,959 26,973 14,795 13,546 7,064
Multi-family and commercial
real estate ............... 18,434 438 2,211 810 1,962
Consumer .................... 228 252 372 368 190
Commercial .................. 1,925 1,927 707 770 --
--------- --------- --------- --------- ---------
Total loans originated ........ $ 50,058 $ 29,950 $ 19,655 $ 16,549 $ 9,646
========= ========= ========= ========= =========
Loans purchased:
Residential ................. $ 1,161 $ 36,098 $ 1,088 $ 2,360 $ 4,363
Multi-family and commercial
real estate ............... 2,400 -- -- -- 2,897
Commercial loans ............ 4,160 -- -- -- --
Commercial equipment leases . -- -- -- -- 1,629
--------- --------- --------- --------- ---------
Total loans purchased ......... 7,721 36,098 1,088 2,360 8,889
--------- --------- --------- --------- ---------
Total loans sold .............. 5,237 -- 383 -- --
--------- --------- --------- --------- ---------
Loan principal repayments ..... 28,790 28,509 22,489 16,320 13,984
--------- --------- --------- --------- ---------
Other (debits less credits) ... (59) (333) (29) (3,891) (151)
--------- --------- --------- --------- ---------
Net loan activity ............. $ 23,693 $ 37,206 $ (2,100) $ (1,302) $ 4,400
========= ========= ========= ========= =========
Total gross loans receivable at
end of period ............... $ 159,574 $ 135,881 $ 98,675 $ 100,775 $ 102,077
========= ========= ========= ========= =========
</TABLE>
9
<PAGE>
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, 1999 was $16.3
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, 1999, 1998 and 1997, the Company serviced loans for
others totaling $1.7 million, $2.3 million, and $3.7 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
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 at the
time that it is transferred to REO is charged to the allowance for losses. Any
subsequent write-downs are charged to operations.
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, reversing
amounts previously credited to income. 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, 1999, the Company had approximately $460,000 of loans that
were 60-89 days delinquent, all of which were secured by residential properties.
10
<PAGE>
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,
----------------------------------------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
(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 ............. $ 223 $ 393 $ 716 $1,357 $1,441
Construction loans ...................... -- -- 109 133
Multi-family and commercial real estate . -- -- -- 1,533 565
Consumer ................................ -- -- -- --
Total ..................................... $ 223 $ 393 $ 716 $2,999 $2,139
Real estate owned ......................... $ 104 $ 82 $ 116 $ 186 $ 227
====== ====== ====== ====== ======
Total non-performing assets ............... $ 327 $ 475 $ 832 $3,185 $2,366
====== ====== ====== ====== ======
Total non-accrual and accrual loans to
net loans ............................... .14% .28% .74% 3.04% 2.35%
====== ====== ====== ====== ======
Total non-performing assets to total assets .07% .09% .30% 1.08% .82%
====== ====== ====== ====== ======
</TABLE>
Non-performing assets decreased $148,000 or 31.2% from 1998 to 1999 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 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, 1999, the
Company had $706,000 of classified assets, all of which were classified as
substandard and none of which were classified as loss. Furthermore, at December
31, 1999, $2.1 million 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
11
<PAGE>
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 generally accepted accounting principles ("GAAP")
and the Interagency Policy Statement on the Allowance for Loan and Lease Losses
issued by the OTS, in conjunction with the Office of the Comptroller of the
Currency (the "OCC"), FDIC and the Board of Governors of the Federal Reserve
System (the "Board"), 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.
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,
----------------------------------------------------------------------
1999 1998 1997 1996 1995
----------- ------------ ------------- ------------ ------------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C>
Total loans outstanding, net(1)........... $157,233 $133,908 $ 96,280 $ 98,626 $100,271
======= ======= ======== ======== =======
Average loans outstanding, net(1)......... $144,808 $110,059 $101,472 $101,726 $ 99,194
======= ======= ======= ======= ========
Allowance balances
(at beginning of period)............... $ 1,036 $ 783 $ 577 $ 455 $ 417
Provision:
Residential............................. 25 270 37 - 24
Commercial.............................. 55
Multi-family and commercial real estate. 160 - 83 139 27
Consumer................................ - - - - 84
Net Charge-offs (recoveries):
Residential............................. (42) (17) (86) 17 97
Multi-family and commercial real estate. - - - - -
Consumer................................ - - - - -
-------- ----- --------- ------- -------
Allowance balance (at end of period)...... $ 1,234 $1,036 $ 783 $ 577 $ 455
======== ===== ========= ======= =======
Allowance for loan losses as a percent
of total loans outstanding.............. .78% .77% .81% .59% .45%
Net loans charged off (recovery) as
a percent of average loans outstanding.. .03% .01% (.08)% .02% .09%
</TABLE>
- -----------------------
(1) Does not include loans available for sale.
12
<PAGE>
The following table sets forth certain information regarding the allocation
of the allowance for loan losses by type.
<TABLE>
<CAPTION>
At December 31,
---------------------------------------------------------------------------------------------------
1999 1998 1997 1996 1995
------------------ --------------------- ------------------ ------------------ -----------------
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) . $ 470 77.65% $ 487 86.64% $ 234 82.39% $ 197 81.22% $ 275 79.86%
Multi-family and commercial
real estate .................. 709 18.72 549 12.91 549 16.87 380 17.54 106 19.79
Consumer loans ................. -- 0.19 -- 0.25 -- 0.41 -- 0.48 -- 0.35
Commercial loans(2) ............ 55 3.44 -- 0.20 -- 0.33 -- 0.76 74 --
Total allowance .............. $1,234 100.00% $1,036 100.00% $ 783 100.00% $ 577 100.00% $ 455 100.00%
====== ====== ====== ====== ====== ====== ===== ====== ====== ======
</TABLE>
- ----------------------
(1) Includes residential construction loans.
(2) At December 31, 1995, includes loans secured by commercial equipment
leases.
13
<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, 1999, the Company had a mortgage-backed securities portfolio
with a market value of $204.7 million, all of which were classified available
for sale. At December 31, 1999, the Company had an investment securities
portfolio of approximately $115.5 million consisting of U.S. Government
treasury, agency securities, and municipal and equity securities, all of which
were classified available for sale.
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, 1999, the Company's mortgage-backed
securities amounted to $204.7 million, or 36.9% of total assets, all of which
are currently classified as available for sale.
REMICs held by the Company at December 31, 1999 consisted of floating-rate
tranche, in the amount of $1.3 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, 1999, 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, 1999, the Company's, liquidity
ratio was 13.53%. The balance of short-term security investments in excess of
regulatory requirements reflects management's response to the significantly
increasing percentage of savings deposits
14
<PAGE>
with short maturities. It is the intention of management to maintain shorter
maturities in the Company's investment portfolio in order to better match 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.
The following table sets forth the fair value or amortized cost (as
applicable) of the Company's investment portfolio, short-term investments, and
FHLB stock at the dates indicated. The amounts for securities held to maturity
are listed at amortized cost; amounts for securities available for sale are
listed at approximate market value.
Investment Portfolio. The following table sets forth the carrying value
(market value or amortized cost, as applicable) of the Company's investment
securities portfolio, short-term investments, FHLB stock, and mortgage-backed
securities at the dates indicated.
At December 31,
----------------------------
1999 1998 1997
---- ---- ----
Investment Securities:
U.S. Treasury Securities.............. $ -- $ 5,032 $ 5,403
FHLB and FHLMC bonds (1).............. 13,661 10,154 17,284
Other agencies(1) (2)................. 45,192 8,178 4,168
Municipal bonds(1).................... 37,129 30,765 8,034
Mutual funds(3)....................... 1,345 1,285 1,222
Capital trust securities(3)(4)........ 11,340 11,647 1,060
Subordinated debt(3)(4)............... 750 750 250
------- ------- -------
Total investment securities......... 109,417 67,811 37,061
------- ------- -------
Interest-bearing deposits.............. 17,703 21,614 15,312
Federal funds sold..................... -- 2,000 2,000
FHLB of Pittsburgh stock............... 8,844 5,344 1,701
Mortgage-backed securities(3).......... 204,706 229,883 111,486
Equity investments(3)(4)............... 6,046 6,592 1,166
------- ------- -------
Total Investments................... $346,716 $333,244 $168,726
======= ======= =======
- ------------------------
(1) Classified as available for sale in 1999 due to the adoption of SFAS No.
133 and as held to maturity for all prior years.
(2) Consists of FNMA, FHLMC, SLMA debentures and certificates of deposit.
(3) Classified as available for sale and carried at approximate fair value.
(4) Consists of investments held by the Company and not the Bank.
15
<PAGE>
Investment Portfolio Maturities. The following table sets forth certain
information regarding the carrying values, weighted average yields and
maturities of the Company's investment securities portfolio at December 31,
1999.
<TABLE>
<CAPTION>
As of December 31, 1999
One Year or Less One to Five Years Five to Ten Years More than Ten Years Total Investment Securities
------------------ ----------------- ----------------- ------------------- ---------------------------
Carrying Average Carrying Average Carrying Average Carrying Average Carrying Average Market
Value Yield Value Yield Value Yield Value Yield Value Yield Value
----- ----- ----- ----- ----- ----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
FHLB bonds and notes........$ -- -- $ -- --% $ -- --% $13,661 7.29% $13,661 7.29% $13,661
Other agencies(1)........... 687 5.25% -- -- 5,799 6.82% 38,706 7.03% 45,192 7.00% 45,192
Municipal bonds(2).......... -- -- -- -- -- 37,129 5.02% 37,129 5.02% 37,129
Subordinated debt .......... -- -- -- -- 750 8.25% -- --% 750 8.25% 750
Capital securities.......... -- -- -- -- 2,385 8.29% 8,955 8.90% 11,340 8.76% 11,340
Mutual funds................ 1,345 4.56% -- -- -- -- -- --% 1,345 4.56% 1,345
Mortgage-backed securities:
GNMA pass-through......... -- -- -- -- 329 9.25% 108,634 6.59% 108,963 6.60% 108,963
FNMA pass-through......... -- -- -- -- -- -- 73,806 6.68% 73,806 6.68% 73,806
FHLMC pass-through........ -- -- 314 9.00% 5,160 8.69% 15,142 7.10% 20,616 7.52% 20,616
FHLMC REMICs.............. -- -- -- -- -- -- 1,321 5.97% 1,321 5.97% 1,321
----- ---- ------ ------ ------- -------
Total..................... $2,032 4.79% $314 9.00% $14,423 7.86% $297,354 6.60% $314,123 6.65% $314,123
===== ==== === ==== ====== ==== ======= ==== ======= ==== =======
</TABLE>
- --------------------
(1) Consists of FNMA and FHLMC debentures and certificates of deposit.
(2) Tax exempt securities are presented on a coupon basis.
16
<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 primary 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,
1999.
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, 1999 were represented by various
types of savings programs described below.
17
<PAGE>
Deposit Portfolio. Deposits in the Company as of December 31, 1999, 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, 1999 Total Deposits
- -------- ---- ---------------- -------------- ----------------- --------------
(In Thousands)
<S> <C> <C> <C> <C> <C>
Regular Savings None 2.75% $ 10 $ 32,363 11.06%
Senior Club Savings None 3.50 500 66,276 22.65
Christmas and Vacation Clubs None 2.00 10 379 .13
NOW Accounts None 1.47 10 17,300 5.91
Money Market Accounts None 3.64 1,000 8,963 3.06
Non-interest Deposits None -- 300 2,580 .88
Certificates of Deposit:
Fixed Term, Fixed Rate 3 Months 3.41 500 642 .22
Fixed Term, Fixed Rate 6 Months 4.13 500 7,631 2.61
Fixed Term, Fixed Rate 9 Months 6.17 500 4,154 1.42
Fixed Term, Fixed Rate 12 Months 5.08 500 75,305 25.73
Fixed Term, Fixed Rate 15 Months 5.13 500 14,475 4.95
Fixed Term, Fixed Rate 18 Months 5.13 500 35,110 12.00
Fixed Term, Fixed Rate 24 Months 5.17 500 1,561 .53
Fixed Term, Fixed Rate 30 Months 5.32 500 14,279 4.88
Fixed Term, Fixed Rate 60 Months 5.88 1,000 11,601 3.96
------- -------
100.00%
Total deposits 292,619
Accrued interest
on deposits 29
-------
Total $292,648
=======
</TABLE>
- -------------------------
(1) Interest rate offerings as of December 31, 1999.
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,
-------------------------------------
1999 1998 1997
---------- ---------- ------------
(In Thousands)
Weighted average rate:
3.00-3.99%............................. $ 641 $ 6,850 $ 9,102
4.00-4.99%............................. 50,538 19,590 4,858
5.00-5.99%............................. 83,115 112,253 91,505
6.00-6.99%............................. 30,464 5,071 5,586
Accrued interest on certificate accounts 4 9 10
-------- -------- --------
Total................................ $164,762 $143,773 $111,061
======= ======= =======
18
<PAGE>
Time Deposits Maturity Schedule. The following table sets forth the amount
and maturities of time deposits at December 31, 1999.
<TABLE>
<CAPTION>
Amount Due
-----------------------------------------------------------------
December 31, December 31, December 31, December 31,
Interest Rate 2000 2001 2002 2003 Total
- ------------- -------------- ------------ ------------- ------------- -------
(In Thousands)
<S> <C> <C> <C> <C> <C>
2.99% or less.......... $ -- $ -- $ -- $ -- $ --
3.00-3.99%............. 641 -- -- -- 641
4.00-4.99%............. 41,699 1,984 855 -- 50,538
5.00-5.99%............. 55,875 17,626 2,676 6,938 83,115
6.00-6.99%............. 4,420 25,969 75 -- 30,464
Accrued Interest on
Certificate Accounts... 4 -- -- -- 4
------- ------ ------ ----- -------
Total $108,639 $45,579 $3,606 $6,938 $164,762
======= ====== ====== ===== =======
</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, 1999.
Certificates
Maturity Period of Deposits
- --------------- -----------
(In Thousands)
Within three months................ $ 4,168
Three through six months........... 2,312
Six through twelve months.......... 4,057
Over twelve months................. 7,340
-------
17,877
=======
Savings Deposit Activity. The following table sets forth the savings
activities of the Company for the periods indicated:
Year Ended December 31,
------------------------------------------------
1999 1998 1997 1996 1995
-------- -------- --------- -------- -------
(In Thousands)
Deposits..................... $470,393 $434,531 $337,170 $336,937 $305,790
Withdrawals.................. 462,753 397,028 335,365 340,105 305,593
Net increase (decrease)
before interest credited... 7,640 37,503 1,805 (3,168) 197
Deposits sold................ - - (37,238) - -
Interest credited............ 8,589 8,329 9,449 9,532 8,750
------- ------- -------- -------- --------
Net increase (decrease) in
savings deposits........... $ 16,229 $ 45,832 $(25,984) $ 6,364 $ 8,947
======= ======= ======== ======== ========
19
<PAGE>
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 1999 and 1998, the Company
utilized FHLB borrowings to leverage its balance sheet. The Bank, if the need
arises, may also access the FRB discount window to supplement its supply of
lendable funds and to meet deposit withdrawal requirements. At December 31,
1999, the Bank had $175.0 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, 1999, the Company had other borrowings
of $3.0 million from an unaffiliated lender. The borrowing carries a variable
interest rate which was 7.5% at December 31, 1999.
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 of Pittsburgh used to finance the
Bank's low income housing project to a developer/manager of Section 8 housing.
As of and For the
Year Ended December 31,
--------------------------------
1999 1998 1997
-------- --------- --------
(Dollars In Thousands)
FHLB advances.......................... $176,884 $106,884 $7,884
Weighted average interest rate of
FHLB advances........................ 5.03% 5.20% 5.53%
Maximum amount of advances at any
month end.............................. $176,884 $106,884 $7,884
Average amount of advances............. $154,801 $ 38,884 $7,884
Weighted average interest rate
of average amount of advances........ 5.14% 5.03% 5.53%
Subsidiaries and Joint Venture Activity
The Company has two wholly-owned subsidiaries, Roxborough Manayunk Bank and
TGH Corp. TGH Corp is a Delaware corporation established for the purpose of
managing certain investments.
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, 1999, the Bank was authorized to invest up to approximately
$11.1 million in the stock of, or loans to, service corporations (based upon the
2% limitation). As of December 31, 1999, the net book value of the Bank's
investment in stock, unsecured loans, and conforming loans in its service
corporations was $137,000.
20
<PAGE>
The Bank has three wholly owned subsidiary corporations, Montgomery Service
Corporation ("MSC"), Ridge Service Corporation ("RSC") and Roxdel Corp. MSC
engages in the management of real estate. RSC is presently inactive. Roxdel Corp
is a Delaware Corporation established for the purpose of managing certain
investments of the Bank.
Personnel
As of December 31, 1999, the Company had 74 full-time employees and 19
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, automated teller machines 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 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.
21
<PAGE>
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.
Recent Developments - Financial Modernization. On November 12, 1999,
President Clinton signed into law the Gramm-Leach-Bliley Act (the "Act") which
will, effective March 11, 2000, permit bank holding companies to become
financial holding companies and thereby affiliate with securities firms and
insurance companies and engage in other activities that are financial in nature.
A bank holding company may become a financial holding company ("FHC") if each of
its subsidiary banks is well capitalized, well managed, and has at least a
satisfactory CRA rating. No regulatory approval will be required for a FHC to
acquire a company, other than a bank or savings association, engaged in
activities that are financial in nature or incidental to activities that are
financial in nature, as determined by the Board of Governors of the Federal
Reserve System (the "Board"). The Act defines "financial in nature" to include
securities underwriting, dealing and market making; sponsoring mutual funds and
investment companies; insurance underwriting and agency; merchant banking
activities; and activities that the Board has determined to be closely related
to banking. A national bank also may engage, subject to limitations on
investment, in activities that are financial in nature, other than insurance
underwriting, insurance company portfolio investment, real estate development,
and real estate investment, through a financial subsidiary of the bank, if the
bank is well capitalized, well managed and has at least a satisfactory CRA
rating. Subsidiary banks of a FHC or national banks with financial subsidiaries
must continue to be well capitalized and well managed in order to continue to
engage in activities that are financial in nature without regulatory actions or
restrictions, which could include divestiture of the financial in nature
subsidiary or subsidiaries. In addition, a FHC or a bank may not acquire a
company that is engaged in activities that are financial in nature unless each
of the subsidiary banks of the FHC or the bank has at least a satisfactory CRA
rating.
The Act also prohibits new unitary thrift holding companies from engaging
in nonfinancial activities or from affiliating with an nonfinancial entity. A
grandfathered unitary thrift holding company, such as the Company, retains its
authority to engage in nonfinancial activities.
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.
22
<PAGE>
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, 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
$166,000 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 net income to date during the calendar year plus the
retained net income of the preceding two years. Any additional capital
distributions require prior regulatory approval. As of December 31, 1999, 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
23
<PAGE>
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.
For the years ended December 31, 1999 and 1998, the dividend payout ratio
for the Company was 30.1% and 58.8%, respectively.
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
20% 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, 1999,
the Bank was in compliance with its QTL requirement with 68.14% 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.
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,
1999.
24
<PAGE>
As shown below, the Bank's regulatory capital exceeded all minimum
regulatory capital requirements applicable to it as of December 31, 1999:
Percent of
Adjusted
Amount Assets
------- ----------
(Dollars in Thousands)
Tangible Capital:
Actual capital...................... $57,781 10.6%
Regulatory requirement.............. 8,214 1.5%
------- -----
Excess.............................. $49,567 9.1%
====== =====
Core Capital:
Actual capital...................... $57,781 10.6%
Regulatory requirement.............. 16,429 3.0%
------- -----
Excess.............................. 41,352 7.6%
====== =====
Risk-Based Capital:
Actual capital...................... $59,015 30.9%
Regulatory requirement.............. 15,296 8.0%
------- -----
Excess.............................. $43,719 22.9%
====== =====
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.
25
<PAGE>
Year
Owned Facility Net Book
or Opened or Value as of
Office Location Leased Acquired December 31, 1999
- --------------------------- ------ -------- -----------------
(In Thousands)
Main Office Owned 1958 $183
6060 Ridge Avenue
Philadelphia, PA 19128
7568 Ridge Avenue Owned 1962 7
Philadelphia, PA 19128
8345 Ridge Avenue Owned 1974 95
Philadelphia, PA 19128
4370 Main Street Leased 1993 35(1)
Philadelphia, PA 19127
Church Lane & Chester Avenue Owned 1982 124
Yeadon, PA 19050
6503-15 Haverford Avenue Owned 1982 249
Philadelphia, PA 19151
- -------------------------
(1) Includes leasehold improvements. The lease expires on December 31,
1999, with an option to renew to 2004. The Company exercised its option
to renew on December 31, 1999.
As of December 31, 1999, the net book value of land, buildings, furniture,
and equipment owned by the Company, less accumulated depreciation totaled $2.9
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, 1999.
26
<PAGE>
Part II
Item 5. Market for the Registrant's Common Equity and Related
Stockholder Matters
- --------------------------------------------------------------------------------
The information contained in "Note 17 - Quarterly Financial Data" and
"Note 2 - Summary of Significant Accounting Policies - Dividends," both in the
Notes to Consolidated Financial Statements in the Corporation's 1999 Annual
Report to Stockholders (the "Annual Report"), is incorporated herein by
reference. The Company had approximately 1,054 holders of record as of March 8,
2000.
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 sections captioned "Asset and Liability
Management" and "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 and related notes are
included in the Annual Report on pages 19-35 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.
27
<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, 1999
and 1998, 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, 1999, together with the related
notes and the independent auditors' report of
Deloitte & Touche LLP independent certified public
accountants.
2. Schedules omitted as they are not applicable.
3. Exhibits
The following Exhibits are filed as part of this
report:
3(i) Articles of Incorporation
3(ii) Bylaws*
4.1 Shareholder Rights Plan**
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 John F. McGill, Jr.
10.6 Employment Agreement with Jerry Naessens*
28
<PAGE>
10.7 1999 Stock Option Plan ***
10.8 1999 Restricted Stock Plan***
13 1999 Annual Report to Stockholders (only those portions
incorporated by reference in this document are deemed
filed)
21 Subsidiaries of the Registrant
23 Consent of Independent Auditors
27 Financial Data Schedule (electronic filing only)
(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 identically numbered exhibit to the
Registrant's Form S-1 Registration Statement No. 333-48749 filed on March
27, 1998.
** Incorporated by reference to Exhibit 1 to the Registrant's Form 8-A filed
on September 30, 1999.
*** Incorporated by reference to the appropriate exhibit of the Registrant's
proxy material filed on June 21, 1999.
<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 29, 2000.
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 29, 2000 by the following persons on
behalf of the registrant and in the capacities indicated.
/s/John F. McGill, Jr. /s/Jerry A. Naessens
- --------------------------------------- --------------------------------------
John F. McGill, Jr. Jerry A. Naessens
President, Chief Executive Officer, Chief Financial Officer and Director
and Chairman (Principal Financial and Accounting
(Principal Executive Officer) Officer)
/s/Francis E. McGill, III
- ------------------------------------ --------------------------------------
Francis E. McGill, III Add B. Anderson, Jr.
Secretary and Director Director
- --------------------------------------- --------------------------------------
James C. Hellauer William A. Lamb
Director Director
/s/Charles A. Murray
Charles A. Murray
Director
EXHIBIT 3(i)
<PAGE>
ARTICLES OF INCORPORATION
OF
THISTLE GROUP HOLDINGS, CO.
Article 1. Name. The name of the corporation is Thistle Group Holdings,
Co. (hereinafter, the "Company").
Article 2. Registered Office. The address of the initial registered
office of the Company in the Commonwealth of Pennsylvania is 6060 Ridge Avenue,
Philadelphia, Pennsylvania 19128.
Article 3. Nature of Business. The Company is organized under the
Business Corporation Law of 1988, as amended, of the Commonwealth of
Pennsylvania (the "BCL") for the purpose of engaging in any lawful act or
activity for which a corporation may be organized under the laws of the
Commonwealth of Pennsylvania.
Article 4. Duration. The term of the existence of the Company shall be
perpetual.
Article 5. Capital Stock.
A. Authorized Amount. The total number of shares of capital stock that
------------------
the Company has authority to issue is 50,000,000 of which 10,000,000 shall be
serial preferred stock, no par value (hereinafter, the "Preferred Stock") and
40,000,000 shall be common stock, par value $0.10 per share (hereinafter, the
"Common Stock"). Except to the extent required by governing law, rule, or
regulation, the shares of capital stock may be issued from time to time by the
board of directors of the Company (hereinafter, the "Board of Directors")
without further approval of stockholders. The Company shall have the authority
to purchase its capital stock out of funds lawfully available therefor.
B. Common Stock. Except as provided in this Article 5 (or in any
-------------
resolution or resolutions adopted by the Board of Directors pursuant hereto),
the exclusive voting power shall be vested in the Common Stock, with each holder
thereof being entitled to one vote for each share of such Common Stock standing
in the holder's name on the books of the Company. Subject to any rights and
preferences of any class of stock having preference over the Common Stock,
holders of Common Stock shall be entitled to such dividends as may be declared
by the Board of Directors out of funds lawfully available therefor. Upon any
liquidation, dissolution, or winding up of the affairs of the Company, whether
voluntary or involuntary, holders of Common Stock shall be entitled to receive
pro rata the remaining assets of the Company after the holders of any class of
stock having preference over the Common Stock have been paid in full any sums to
which they may be entitled.
<PAGE>
C. Authority of Board to Fix Terms of Preferred Stock. A description of
--------------------------------------------------
each class of shares and a statement of the voting rights, designations,
preferences, qualifications, privileges, limitations, options, conversion
rights, and other special rights granted to or imposed upon the shares of each
class and of the authority vested in the Board of Directors to establish series
of Preferred Stock or to determine that Preferred Stock will be issued as a
class without series and to fix and determine the voting rights, designations,
preferences, and other special rights of the Preferred Stock as a class or of
the series thereof are as follows:
Preferred Stock may be issued from time to time as a class without
series or in one or more series. Each series shall be designated in
supplementary sections or amendments to these Articles of Incorporation by the
Board of Directors so as to distinguish the shares thereof from the shares of
all other series and classes. The Board of Directors may by resolution and
amendment to these Articles of Incorporation from time to time divide shares of
Preferred Stock into series, or determine that the Preferred Stock shall be
issued as a class without series, fix and determine the number of shares in a
series and the terms and conditions of the issuance of the class or the series,
and, subject to the provisions of this Article 5, fix and determine the rights,
preferences, qualifications, privileges, limitations, and other special rights,
if any, of the class (if none of such shares of the class have been issued) or
of any series so established, including but not limited to, voting rights (which
may be limited, multiple, fractional, or non-voting rights), the rate of
dividend, if any, and whether or to what extent, if any, such dividends shall be
cumulative (including the date from which dividends shall be cumulative, if
any), the price at and the terms and conditions on which shares may be redeemed,
if any, the preference and the amounts payable on shares in the event of
voluntary or involuntary liquidation, sinking fund provisions for the redemption
or purchase of shares in the event shares of the class or of any series are
issued with sinking fund provisions, and the terms and conditions on which the
shares of the class or of any series may be converted in the event the shares of
the class or of any series are issued with the privilege of conversion.
The Board of Directors may, in its discretion, at any time or from time
to time, issue or cause to be issued all or any part of the authorized and
unissued shares of Preferred Stock for consideration of such character and value
as the Board of Directors shall from time to time fix or determine.
D. Repurchase of Shares. The Company may, from time to time, pursuant
--------------------
to authorization by the Board of Directors and without action by the
stockholders, purchase or otherwise acquire shares of any class, bonds,
debentures, notes, scrip, warrants, obligations, evidences of indebtedness, or
other securities of the Company in such manner, upon such terms, and in such
amounts as the Board of Directors shall determine; subject, however, to such
limitations or restrictions, if any, as are contained in the express terms of
any class of shares of the Company outstanding at the time of the purchase or
acquisition in question or as are imposed by law or regulation.
-2-
<PAGE>
Article 6. Incorporator. The name and business address of the sole
incorporator is as follows:
Name Address
John F. McGill, Jr. 6060 Ridge Avenue
Philadelphia, Pennsylvania 19128
Article 7. Directors. The business and affairs of the Company shall be
managed by or under the direction of the Board of Directors.
A. Number. The number of directors of the Company shall be such number,
------
not less than 5 nor more than 12 (exclusive of directors, if any, to be elected
by holders of Preferred Stock, voting separately as a class), as shall be
provided from time to time in accordance with the bylaws, provided that no
decrease in the number of directors shall have the effect of shortening the term
of any incumbent director, and provided further that no action shall be taken to
decrease or increase the number of directors from time to time unless at least
eighty percent (80%) of the directors then in office shall concur in said
action.
B. Classified Board. The Board of Directors shall be divided into three
----------------
classes of directors that shall be designated Class I, Class II, and Class III.
The members of each class shall be elected for a term of three years and until
their successors are elected and qualified. Such classes shall be as nearly
equal in number as the then total number of directors constituting the entire
Board of Directors shall permit, with the term of office of Class I to expire at
the first annual meeting of stockholders, the term of office of Class II to
expire at the annual meeting of stockholders one year thereafter, and the term
of office of Class III to expire at the annual meeting of stockholders two years
thereafter. At each annual meeting of stockholders following such initial
classification and election, directors elected to succeed those directors whose
terms expire shall be elected for a term of office to expire at the third
succeeding annual meeting of stockholders after their election.
Should the number of directors of the Company be reduced, the
directorship(s) eliminated shall be allocated among the classes so that the
number of directors in each class is as specified in the immediately preceding
paragraph. The Board of Directors shall designate, by the name of the
incumbent(s), the position(s) to be abolished. Should the number of directors of
the Company be increased, the additional directorships shall be allocated among
such classes so that the number of directors in each class is as specified in
the immediately preceding paragraph.
Whenever the holders of any one or more series of Preferred Stock of
the Company shall have the right, voting separately as a class, to elect one or
more directors of the Company, the Board of Directors shall consist of said
directors so elected in addition to the number of directors fixed as provided
above in this Article 7. Notwithstanding the foregoing, and except as otherwise
may be required by law, whenever the holders of any one or more series of
Preferred Stock of the
-3-
<PAGE>
Company shall have the right, voting separately as a class, to elect one or more
directors of the Company, the terms of the director or directors elected by such
holders shall expire at the next succeeding annual meeting of stockholders.
C. No Cumulative Voting. Stockholders of the Company shall not be
----------------------
permitted to cumulate their votes for the election of directors.
D. Vacancies. Subject to the rights of the holders of any series of
---------
Preferred Stock then outstanding, any vacancy occurring on the Board of
Directors, including any vacancy created by reason of an increase in the number
of directors, shall be filled by a majority vote of the directors then in
office, whether or not a quorum is present, or by a sole remaining director, and
any director so chosen shall serve until the term of the class to which such
director was appointed shall expire and until a successor is elected and
qualified. When the number of directors is changed, the Board of Directors shall
determine the class or classes to which the increased or decreased number of
directors shall be appointed.
E. Removal. Unless otherwise required by law, a director (including
-------
persons elected by directors to fill vacancies in the Board of Directors) may be
removed from office only for cause by an affirmative vote of not less than a
majority of the total votes eligible to be cast by stockholders. Cause for
removal by stockholders shall exist only if the director whose removal is
proposed has been either declared of unsound mind by an order of a court of
competent jurisdiction, convicted of a felony or of an offense punishable by
imprisonment for a term of more than one year by a court of competent
jurisdiction, or deemed liable by a court of competent jurisdiction for gross
negligence or misconduct in the performance of such director's duties to the
Company. At least 30 days prior to such meeting of stockholders, written notice
shall be sent to the director whose removal will be considered at the meeting.
Directors may also be removed from office in the manner provided in Sections
1726(b) and 1726(c) of the BCL, or any successors to such sections.
F. Nominations of Directors. Nominations of candidates for election as
------------------------
directors at any annual meeting of stockholders may be made (a) by, or at the
direction of, a majority of the Board of Directors or (b) by any stockholder
entitled to vote at such annual meeting. Only persons nominated in accordance
with the procedures set forth in this Article 7.F shall be eligible for election
as directors at an annual meeting. Ballots bearing the names of all the persons
who have been nominated for election as directors at an annual meeting in
accordance with the procedures set forth in this Article 7.F shall be provided
for use at the annual meeting.
Nominations, other than those made by or at the direction of the Board
of Directors, shall be made pursuant to timely notice in writing to the
Secretary of the Company as set forth in this Article 7.F. To be timely, a
stockholder's notice shall be delivered to, or mailed and received at, the
principal executive offices of the Company not less than 60 days prior to the
anniversary date of the immediately preceding annual meeting of stockholders of
the Company; provided, however, that with respect to the first scheduled annual
meeting, notice by the stockholder must be so
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<PAGE>
delivered or received no later than the close of business on the tenth day
following the day on which notice of the date of the scheduled meeting was
mailed and must be delivered or received no later than the close of business on
the fifth day preceding the date of the meeting. Such stockholder's notice shall
set forth (a) as to each person whom the stockholder proposes to nominate for
election or re-election as a director and as to the stockholder giving the
notice (i) the name, age, business address, and residence address of such
person, (ii) the principal occupation or employment of such person, (iii) the
class and number of shares of Company stock that are Beneficially Owned (as
determined by Rule 13d-3 promulgated under the Securities Exchange Act of 1934,
as amended) by such person on the date of such stockholder notice, and (iv) any
other information relating to such person that is required to be disclosed in
solicitations of proxies with respect to nominees for election as directors,
pursuant to the Securities Exchange Act of 1934, as amended (the "Exchange Act")
or any successor thereto; and (b) as to the stockholder giving the notice (i)
the name and address, as they appear on the Company's books, of such stockholder
and any other stockholders known by such stockholder to be supporting such
nominees and (ii) the class and number of shares of Company stock that are
Beneficially Owned by such stockholder on the date of such stockholder notice
and, to the extent known, by any other stockholders known by such stockholder to
be supporting such nominees on the date of such stockholder notice. At the
request of the Board of Directors, any person nominated by, or at the direction
of, the Board of Directors for election as a director at an annual meeting shall
furnish to the Secretary of the Company the same information required to be set
forth in a stockholder's notice of nomination which pertains to the nominee.
The Board of Directors may reject any nomination by a stockholder not
timely made in accordance with the requirements of this Article 7.F. If the
Board of Directors, or a designated committee thereof, determines that the
information provided in a stockholder's notice does not satisfy the
informational requirements of this Article 7.F in any material respect, the
Secretary of the Company shall notify such stockholder of the deficiency in the
notice. The stockholder shall have an opportunity to cure the deficiency by
providing additional information to the Secretary within such period of time,
not to exceed five days from the date such deficiency notice is given to the
stockholder, as the Board of Directors or such committee shall reasonably
determine. If the deficiency is not cured within such period, or if the Board of
Directors or such committee reasonably determines that the additional
information provided by the stockholder, together with information previously
provided, does not satisfy the requirements of this Article 7.F in any material
respect, then the Board of Directors may reject such stockholder's nomination.
The Secretary of the Company shall notify a stockholder in writing whether such
person's nomination has been made in accordance with the time and informational
requirements of this Article 7.F. Notwithstanding the procedures set forth in
this paragraph, if neither the Board of Directors nor such committee makes a
determination as to the validity of any nominations by a stockholder, the
presiding officer of the annual meeting shall determine and declare at the
annual meeting whether the nomination was made in accordance with the terms of
this Article 7.F. If the presiding officer determines that a nomination was made
in accordance with the terms of this Article 7.F, such person shall so declare
at the annual meeting and ballots shall be provided for use at the meeting with
respect to such nominee. If the presiding officer determines that a nomination
was not made
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in accordance with the terms of this Article 7.F, such person shall so declare
at the annual meeting and the defective nomination shall be disregarded.
Notwithstanding the foregoing, and except as otherwise required by law,
whenever the holders of any one or more series of Preferred Stock shall have the
right, voting separately as a class, to elect one or more directors of the
Company, the provisions of this Article 7.F shall not apply with respect to the
director or directors elected by such holders of Preferred Stock.
Article 8. Preemptive Rights. No holder of any of the shares of any
class or series of stock or of options, warrants, or other rights to purchase
shares of any class or series or of other securities of the Company shall have
any preemptive right to purchase or subscribe for any unissued stock of any
class or series, any unissued bonds, certificates of indebtedness, debentures,
or other securities convertible into or exchangeable for stock of any class or
series or carrying any right to purchase stock of any class or series, or any
shares of any class, bonds, debentures, notes, scrip, warrants, obligations,
evidences of indebtedness, or other securities of the Company purchased by the
Company pursuant to Article 5.D; but any such unissued, or issued but not
outstanding, stock, bonds, certificates of indebtedness, debentures, or other
securities convertible into or exchangeable for stock or carrying any right to
purchase stock may be issued pursuant to resolution of the Board of Directors to
such persons, firms, corporations, or associations, whether or not holders
thereof, and upon such terms as may be deemed advisable by the Board of
Directors in the exercise of its sole discretion.
Article 9. Elimination of Directors' Liability. A director of the
Company shall not be personally liable, as such, for monetary damages for any
action taken unless: (i) the director has breached or failed to perform such
director's fiduciary duties, or other duties under Chapter 17, Subchapter B of
the BCL, of such director's office, and (ii) the breach or failure to perform
constitutes self-dealing, willful misconduct, or recklessness; provided,
however, that the foregoing shall not apply to (i) the responsibility or
liability of a director pursuant to any criminal statute; or (ii) the liability
of a director for the payment of taxes pursuant to federal, state, or local law.
If the laws of the Commonwealth of Pennsylvania are amended after the effective
date of these Articles of Incorporation to eliminate further or limit the
personal liability of directors, then the liability of a director of the Company
shall be eliminated or limited to the fullest extent permitted by law.
Any repeal or modification of the foregoing paragraph by the
stockholders of the Company shall not adversely affect any right or protection
of a director of the Company existing at the time of such repeal or
modification.
Article 10. Indemnification, etc. of Officers, Directors, Employees,
and Agents.
A. Persons. The Company shall indemnify any person who was or is a
-------
party or is threatened to be made a party to any threatened, pending, or
completed action, suit, or proceeding, including actions by or in the right of
the Company, whether civil, criminal, administrative, or
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<PAGE>
investigative, by reason of the fact that such person is or was a director,
officer, employee, fiduciary, trustee, or agent of the Company, or is or was
serving at the request of the Company as a director, officer, employee,
fiduciary, trustee, or agent of another corporation, partnership, joint venture,
trust, or other enterprise.
B. Extent -- Derivative Actions. In the case of a threatened, pending,
----------------------------
or completed action or suit by or in the right of the Company against a person
named in paragraph A by reason of such person holding a position named in
paragraph A, the Company shall indemnify such person if such person satisfies
the standard in paragraph C, for expenses (including attorneys' fees) actually
and reasonably incurred by such person in connection with the defense or
settlement of the action or suit.
C. Standard -- Derivative Suits. In the case of a threatened, pending,
----------------------------
or completed action or suit by or in the right of the Company, a person named in
paragraph A shall be indemnified only if:
1. such person is successful on the merits or otherwise; or
2. such person acted in good faith in the transaction that is
the subject of the suit or action, and in a manner reasonably believed
to be in, or not opposed to, the best interests of the Company,
including, but not limited to, the taking of any and all actions in
connection with the Company's response to any tender offer or any offer
or proposal of another party to engage in a Business Combination (as
defined in Article 13 of these Articles) not approved by the Board of
Directors. However, such person shall not be indemnified in respect of
any claim, issue, or matter as to which such person has been adjudged
liable to the Company unless (and only to the extent that) the court of
common pleas or the court in which the suit was brought shall
determine, upon application, that despite the adjudication of liability
but in view of all the circumstances, such person is fairly and
reasonably entitled to indemnity for such expenses as the court shall
deem proper.
D. Extent -- Nonderivative Suits. In case of a threatened, pending, or
-----------------------------
completed suit, action, or proceeding (whether civil, criminal, administrative,
or investigative), other than a suit by or in the right of the Company, together
hereafter referred to as a nonderivative suit, against a person named in
paragraph A by reason of such person holding a position named in paragraph A,
the Company shall indemnify such person if such person satisfies the standard in
paragraph E, for amounts actually and reasonably incurred by such person in
connection with the defense or settlement of the nonderivative suit, including,
but not limited to (i) expenses (including attorneys' fees), (ii) amounts paid
in settlement, (iii) judgments, and (iv) fines.
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<PAGE>
E. Standard -- Nonderivative Suits. In case of a nonderivative suit, a
--------------------------------
person named in paragraph A shall be indemnified only if:
1. such person is successful on the merits or otherwise; or
2. such person acted in good faith in the transaction that is
the subject of the nonderivative suit and in a manner such person
reasonably believed to be in, or not opposed to, the best interests of
the Company, including, but not limited to, the taking of any and all
actions in connection with the Company's response to any tender offer
or any offer or proposal of another party to engage in a Business
Combination (as defined in Article 13 of these Articles) not approved
by the Board of Directors and, with respect to any criminal action or
proceeding, such person had no reasonable cause to believe such
person's conduct was unlawful. The termination of a nonderivative suit
by judgment, order, settlement, conviction, or upon a plea of nolo
contendere or its equivalent shall not, in itself, create a presumption
that the person failed to satisfy the standard of this paragraph E.2.
F. Determination That Standard Has Been Met. A determination that the
-----------------------------------------
standard of paragraph C or E has been satisfied may be made by a court, or,
except as stated in paragraph C.2 (second sentence), the determination may be
made by:
1. the Board of Directors by a majority vote of a quorum
consisting of directors of the Company who were not parties to the
action, suit, or proceeding;
2. if such a quorum is not obtainable or if obtainable and a
majority of a quorum of disinterested directors so directs, by
independent legal counsel in a written opinion; or
3. the stockholders of the Company.
G. Proration. Anyone making a determination under paragraph F may
---------
determine that a person has met the standard as to some matters but not as to
others, and may reasonably prorate amounts to be indemnified.
H. Advancement of Expenses. Reasonable expenses incurred by a director,
-----------------------
officer, employee, or agent of the Company in defending a civil or criminal
action, suit, or proceeding described in Article 10.A may be paid by the Company
in advance of the final disposition of such action, suit, or proceeding upon
receipt of an undertaking by or on behalf of such person to repay such amount if
it shall ultimately be determined that the person is not entitled to be
indemnified by the Company.
I. Other Rights. The indemnification and advancement of expenses
-------------
provided by or pursuant to this Article 10 shall not be deemed exclusive of any
other rights to which those seeking
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<PAGE>
indemnification or advancement of expenses may be entitled under any insurance
or other agreement, vote of stockholders or directors, or otherwise, both as to
actions in their official capacity and as to actions in another capacity while
holding an office, and shall continue as to a person who has ceased to be a
director, officer, employee, or agent and shall inure to the benefit of the
heirs, executors, and administrators of such person.
J. Insurance. The Company shall have the power to purchase and maintain
---------
insurance on behalf of any person who is or was a director, officer, employee,
or agent of the Company, or is or was serving at the request of the Company as a
director, officer, employee, or agent of another corporation, partnership, joint
venture, trust, or other enterprise, against any liability asserted against such
person and incurred by such person in any such capacity, or arising out of such
person's status as such, whether or not the Company would have the power to
indemnify such person against such liability under the provisions of this
Article 10.
K. Security Fund; Indemnity Agreements. By action of the Board of
--------------------------------------
Directors (notwithstanding their interest in the transaction), the Company may
create and fund a trust fund or fund of any nature, and may enter into
agreements with its officers, directors, employees, and agents for the purpose
of securing or insuring in any manner its obligation to indemnify or advance
expenses provided for in this Article 10.
L. Modification. The duties of the Company to indemnify and to advance
------------
expenses to any person as provided in this Article 10 shall be in the nature of
a contract between the Company and each such person, and no amendment or repeal
of any provision of this Article 10, and no amendment or termination of any
trust or other fund created pursuant to Article 10.K hereof, shall alter to the
detriment of such person the right of such person to the advancement of expenses
or indemnification related to a claim based on an act or failure to act which
took place prior to such amendment, repeal, or termination.
M. Proceedings Initiated by Indemnified Persons. Notwithstanding any
----------------------------------------------
other provision in this Article 10, the Company shall not indemnify a director,
officer, employee, or agent for any liability incurred in an action, suit, or
proceeding initiated by (which shall not be deemed to include counter-claims or
affirmative defenses) or participated in as an intervenor or amicus curiae by
the person seeking indemnification unless such initiation of or participation in
the action, suit, or proceeding is authorized, either before or after its
commencement, by the affirmative vote of a majority of the directors then in
office.
N. Savings Clause. If this Article 10 or any portion hereof shall be
---------------
invalidated on any ground by any court of competent jurisdiction, then the
Company shall nevertheless indemnify each director, officer, employee, and agent
of the Company as to costs, charges, and expenses (including attorneys' fees),
judgments, fines, and amounts paid in settlement with respect to any action,
suit, or proceeding, whether civil, criminal, administrative, or investigative,
including an action by or in the right of the Company to the fullest extent
permitted by any applicable portion
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<PAGE>
of this Article 10 that shall not have been invalidated and to the fullest
extent permitted by applicable law.
If the laws of the Commonwealth of Pennsylvania are amended to permit
further indemnification of the directors, officers, employees, and agents of the
Company, then the Company shall indemnify such persons to the fullest extent
permitted by law. Any repeal or modification of this Article by the stockholders
of the Company shall not adversely affect any right or protection of a director,
officer, employee, or agent existing at the time of such repeal or modification.
Article 11. Meetings of Stockholders and Stockholder Proposals.
A. Special Meetings of Stockholders. Special meetings of the
-------------------------------------
stockholders of the Company may be called only by the Board of Directors
pursuant to a resolution approved by the affirmative vote of a majority of the
directors then in office.
B. Action Without a Meeting. Notwithstanding any other provision of
-------------------------
these Articles or the Bylaws of the Company, no action required to be taken or
which may be taken at any annual or special meeting of the stockholders of the
Company may be taken without a meeting, and the power of stockholders to consent
in writing, without a meeting, to the taking of any action is specifically
denied.
C. Stockholder Proposals. At an annual meeting of stockholders, only
----------------------
such new business shall be conducted, and only such proposals shall be acted
upon, as shall have been brought before the annual meeting by, or at the
direction of, (1) the Board of Directors or (2) any stockholder of the Company
who complies with all the requirements set forth in this Article 11.C.
Proposals, other than those made by or at the direction of the Board of
Directors, shall be made pursuant to timely notice in writing to the Secretary
of the Company as set forth in this Article 11.C. For stockholder proposals to
be considered at the annual meeting of stockholders, the stockholder's notice
shall be delivered to, or mailed and received at, the principal executive
offices of the Company not less than 60 days prior to the anniversary date of
the immediately preceding annual meeting of stockholders of the Company. Such
stockholder's notice shall set forth as to each matter the stockholder proposes
to bring before the annual meeting (a) a brief description of the proposal
desired to be brought before the annual meeting and the reasons for conducting
such business at the annual meeting, (b) the name and address, as they appear on
the Company's books, of the stockholder proposing such business and, to the
extent known, any other stockholders known by such stockholder to be supporting
such proposal, (c) the class and number of shares of the Company stock that are
Beneficially Owned by the stockholder on the date of such stockholder notice
and, to the extent known, by any other stockholders known by such stockholder to
be supporting such proposal on the date of such stockholder notice, and (d) any
financial interest of the stockholder in such proposal (other than interests
which all stockholders would have).
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<PAGE>
The Board of Directors may reject any stockholder proposal not timely
made in accordance with the terms of this Article 11.C. If the Board of
Directors, or a designated committee thereof, determines that the information
provided in a stockholder's notice does not satisfy the informational
requirements of this Article 11.C in any material respect, the Secretary of the
Company shall promptly notify such stockholder of the deficiency in the notice.
The stockholder shall have an opportunity to cure the deficiency by providing
additional information to the Secretary within such period of time, not to
exceed five days from the date such deficiency notice is given to the
stockholder, as the Board of Directors or such committee shall reasonably
determine. If the deficiency is not cured within such period, or if the Board of
Directors or such committee determines that the additional information provided
by the stockholder, together with information previously provided, does not
satisfy the requirements of this Article 11.C in any material respect, then the
Board of Directors may reject such stockholder's proposal. The Secretary of the
Company shall notify a stockholder in writing whether such stockholder's
proposal has been made in accordance with the time and informational
requirements of this Article 11.C. Notwithstanding the procedures set forth in
this paragraph, if neither the Board of Directors nor such committee makes a
determination as to the validity of any stockholder proposal, the presiding
officer of the annual meeting shall determine and declare at the annual meeting
whether the stockholder proposal was made in accordance with the terms of this
Article 11.C. If the presiding officer determines that a stockholder proposal
was made in accordance with the terms of this Article 11.C, such person shall so
declare at the annual meeting and ballots shall be provided for use at the
meeting with respect to any such proposal. If the presiding officer determines
that a stockholder proposal was not made in accordance with the terms of this
Article 11.C, such person shall so declare at the annual meeting and any such
proposal shall not be acted upon at the annual meeting.
This provision shall not prevent the consideration and approval or
disapproval at the annual meeting of report of officers, directors, and
committees of the Board of Directors, but in connection with such reports, no
new business shall be acted upon at such annual meeting unless stated, filed,
and received as herein provided.
Article 12. Certain Limitations on Voting Rights
A. Limitations. Notwithstanding any other provision of these Articles,
-----------
in no event shall any record owner of any outstanding Common Stock which is
beneficially owned, directly or indirectly, by a person who, as of any record
date for the determination of stockholders entitled to vote on any matter,
beneficially owns in excess of 10% of the then-outstanding shares of Common
Stock (the "Limit"), be entitled, or permitted to any vote in respect of the
shares held in excess of the Limit. The number of votes which may be cast by any
record owner by virtue of the provisions hereof in respect of Common Stock
beneficially owned by such person owning shares in excess of the Limit shall be
a number equal to the total number of votes which a single record owner of all
Common Stock owned by such person would be entitled to cast, multiplied by a
fraction, the numerator of which is the number of shares of such class or series
which are both beneficially owned by such person and owned of record by such
record owner and the denominator
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<PAGE>
of which is the total number of shares of Common Stock beneficially owned by
such Person owning shares in excess of the Limit.
Further, for a period of five years from the completion of the
conversion of FJF Financial, M.H.C. from mutual to stock form, no Person shall
directly or indirectly Offer to acquire or acquire the beneficial ownership of
more than 10% of any class of any equity security of the Company.
B. Definitions. The following definitions shall apply to this Article
-----------
12.
1. "Affiliate" shall have the meaning ascribed to it in Rule
12b-2 of the General Rules and Regulations under the Securities
Exchange Act of 1934, as in effect on the date of filing of this
Certificate.
2. "Beneficial Ownership" (including "Beneficially Owned")
shall be determined pursuant to Rule 13d-3 of the General Rules and
Regulations under the Securities Exchange Act of 1934 (or any successor
rule or statutory provision), or, if said Rule 13d-3 shall be rescinded
and there shall be no successor rule or provision thereto, pursuant to
said Rule 13d-3 as in effect on the date of filing of this Certificate;
provided, however, that a Person shall, in any event, also be deemed
the "beneficial owner" of any Common Stock:
(a) which such Person or any of its Affiliates owns,
directly or indirectly; or
(b) which such Person or any of its Affiliates has
(i) the right to acquire (whether such right is exercisable
immediately or only after the passage of time), pursuant to
any agreement, arrangement or understanding (but shall not be
deemed to be the Beneficial Owner of any Voting Shares (as
defined in Article 13) solely by reason of an agreement,
contract, or other arrangement with this Company to effect any
transaction which is described in Section A of Article 13) or
upon the exercise of conversion rights, exchange rights,
warrants, or options or otherwise, or (ii) sole or shared
voting or investment power with respect thereto pursuant to
any agreement, arrangement, understanding, relationship or
otherwise (but shall not be deemed to be the Beneficial Owner
of any Voting Shares solely by reason of a revocable proxy
granted for a particular meeting of stockholders, pursuant to
a public solicitation of proxies for such meeting, with
respect to shares of which neither such Person nor any such
Affiliate is otherwise deemed the Beneficial Owner); or
(c) which are owned directly or indirectly, by any
other Person with which such first mentioned Person or any of
its Affiliates acts as a partnership, limited partnership,
syndicate or other group pursuant to any agreement,
arrangement or
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<PAGE>
understanding for the purpose of acquiring, holding, voting
or disposing of any shares of capital stock of this Company;
and provided further, however, that (1) no director or officer of this Company
(or any Affiliate of any such director or officer) shall, solely by reason of
any or all of such directors or officers acting in their capacities as such, be
deemed, for any purposes hereof, to Beneficially Own any Common Stock
Beneficially Owned by any other such director or officer (or any Affiliate
thereof), and (2) neither any employee stock ownership or similar plan of this
Company or any subsidiary of this Company, nor any trustee with respect thereto
or any Affiliate of such trustee (solely by reason of such capacity of such
trustee), shall be deemed, for any purposes hereof, to Beneficially Own any
Common Stock held under any such plan. For purposes of computing the percentage
Beneficial Ownership of Common Stock of a Person, the outstanding Common Stock
shall include shares deemed owned by such Person through application of this
subsection but shall not include any other Common Stock which may be issuable by
this Company pursuant to any agreement, or upon exercise of conversion rights,
warrants or options, or otherwise. For all other purposes, the outstanding
Common Stock shall include only Common Stock then outstanding and shall not
include any Common Stock which may be issuable by this Company pursuant to any
agreement, or upon the exercise of conversion rights, warrants or options, or
otherwise.
3. The term "Offer" shall mean every written offer to buy or
acquire, solicitation of an offer to sell, tender offer or request or invitation
for tender of, a security or interest in a security for value; provided that the
term "Offer" shall not include (i) inquiries directed solely to the management
of the Company and not intended to be communicated to stockholders which are
designed to elicit an indication of management's receptivity to the basic
structure of a potential acquisition with respect to the amount of cash and or
securities, manner of acquisition and formula for determining price, or (ii)
non-binding expressions of understanding or letters of intent with the
management of the Company regarding the basic structure of a potential
acquisition with respect to the amount of cash and/or securities, manner of
acquisition and formula for determining price.
4. A "Person" shall mean any individual, firm, corporation,
or other entity.
C. The board of directors shall have the power to construe and apply
the provisions of this Article 12 and to make all determinations necessary or
desirable to implement such provisions, including but not limited to matters
with respect to (i) the number of shares of Common Stock Beneficially Owned by
any Person, (ii) whether a Person is an Affiliate of another, (iii) whether a
Person has an agreement, arrangement, or understanding with another as to the
matters referred to in the definition of Beneficial Ownership, (iv) the
application of any other definition or operative provision of the section to the
given facts, or (v) any other matter relating to the applicability or effect of
this Article 12.
D. The board of directors shall have the right to demand that any
Person who is reasonably believed to Beneficially Own Common Stock in excess of
the Limit (or holders of
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<PAGE>
record of Common Stock Beneficially Owned by any Person in excess of the Limit)
supply the Company with complete information as to (i) the record owner(s) of
all shares Beneficially Owned by such Person who is reasonably believed to own
shares in excess of the Limit and (ii) any other factual matter relating to the
applicability or effect of this Article 12 as may reasonably be requested of
such Person.
E. Except as otherwise provided by law or expressly provided in this
Article 12, the presence in person or by proxy of the holders of record of
shares of capital stock of the Company entitling the holders thereof to cast a
majority of the votes (after giving effect, if required, to the provisions of
this Article 12) entitled to be cast by the holders of shares of capital stock
of the Company entitled to vote shall constitute a quorum at all meetings of the
stockholders, and every reference in these Articles to a majority or other
proportion of capital stock (or the holders thereof) for purposes of determining
any quorum requirement or any requirement for stockholder consent or approval
shall be deemed to refer to such majority or other proportion of the votes (or
the holders thereof) then entitled to be cast in respect of such capital stock.
F. The provisions of this Article 12 shall not be applicable to any
tax-qualified defined benefit plan or defined contribution plan of the Company
or its subsidiaries or to the acquisition of more than 10% of any class of
equity security of the Company if such acquisition has been approved by
two-thirds of the entire Board of Directors, as described in Article 13 of this
Article; provided, however, that such approval shall only be effective if such
Directors shall have the power to construe and apply the provisions of this
Article 12 and to make all determinations necessary or desirable to implement
such provisions, including but not limited to matters with respect to (a) the
number of shares Beneficially Owned by any Person, (b) whether a Person has an
agreement, arrangement, or understanding with another as to the matters referred
to in the definition of Beneficial Ownership, (c) the application of any other
material fact relating to the applicability or effect of this Article 12. Any
constructions, applications, or determinations made by the Directors pursuant to
this Article 12 in good faith and on the basis of such information and
assistance as was then reasonably available for such purpose shall be conclusive
and binding upon the Company and its stockholders.
G. In the event any provision (or portion thereof) of this Article 12
shall be found to be invalid, prohibited or unenforceable for any reason, the
remaining provisions (or portions thereof) of this Article 12 shall remain in
full force and effect, and shall be construed as if such invalid, prohibited or
unenforceable provision had been stricken herefrom or otherwise rendered
inapplicable, it being the intent of this Company and its stockholders that each
such remaining provision (or portion thereof) of this Article 12 remain, to the
fullest extent permitted by law, applicable and enforceable as to all
stockholders, including stockholders owning an amount of stock over the Limit,
notwithstanding any such finding.
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<PAGE>
Article 13. Stockholder Approval of Business Combinations
A. General Requirement. The definitions and other provisions set forth
-------------------
in Article 12 are also applicable to this Article 13. The affirmative vote of
the holders of not less than eighty percent (80%) of the outstanding shares of
Voting Shares (as hereinafter defined) shall be required for the approval or
authorization of any "Business Combination" as defined and set forth below:
1. Any merger, consolidation, share exchange or division of
the Company or any Subsidiary of the Company with or into (i) any Interested
Shareholder (as hereinafter defined), or (ii) with, involving or resulting in
any other corporation (whether or not itself an Interested Shareholder of the
Company) which is, or after the merger, consolidation, share exchange or
division would be, an Affiliate or Associate of the Interested Shareholder;
2. A sale, lease, exchange, mortgage, pledge, transfer or
other disposition (in one transaction or series of transactions) to or with the
Interested Shareholders or any Affiliate or Associate or such Interested
Shareholder of assets of the Company or any Subsidiary of the Company (i) Having
an aggregate Market Value (as hereinafter defined) equal to 10% or more of the
aggregate Market Value of all the assets, determined on a consolidated bases, of
such Company; (ii) having an aggregate Market Value equal to 10% or more of the
aggregate Market Value of all outstanding shares of such Company; or (iii)
representing 10% or more of the earning power or net income, determined on a
consolidated basis, of such Company.
3. The issuance or transfer by the Company or any Subsidiary
of the Company (in one or a series of transactions) of any shares of such
Company or any Subsidiary of such Company which has an aggregate Market Value
equal to 5% or more of the aggregate Market Value of all the outstanding shares
of the Company to the Interested Shareholder or any Affiliate or Associate of
such Interested Shareholder except pursuant to the exercise of option rights to
purchase shares, or pursuant to the conversion of securities having conversion
rights, offered, or a dividend or distribution paid or made, pro rata to all
shareholders of the Company.
4. The adoption at any time of any plan or proposal for the
liquidation or dissolution of the Company proposed by, or pursuant to any
agreement, arrangement or understanding with the Interested Shareholder or any
Affiliate or Associate of such Interested Shareholder.
5. A reclassification of securities (including, without
limitation, any split of shares, dividend of shares, or other distribution of
shares in respect of shares, or any reverse split of shares), or
recapitalization of the Company, or any merger or consolidation of the Company
with any Subsidiary of the Company, or any other transaction (whether or not
with or into or otherwise involving the Interested Shareholder), proposed by, or
pursuant to any agreement, arrangement or understanding (whether or not in
writing) with, the Interested Shareholder or any Affiliate or Associate of the
Interested Shareholder, which has the effect, directly or indirectly, of
increasing the proportionate share of the outstanding shares of any class or
series of Voting
-15-
<PAGE>
Shares or securities convertible into Voting Shares of the Company or any
Subsidiary of the Company which is, directly or indirectly, owned by the
Interested Shareholder or any Affiliate or Associate of the Interested
Shareholder, except as a result of immaterial changes due to fractional share
adjustments.
6. The receipt by the Interested Shareholder or any Affiliate
or Associate of the Interested Shareholder of the benefit, directly or
indirectly (except proportionately as a shareholder of the Company), of any
loans, advances, guarantees, pledges or other financial assistance or tax
credits or other tax advantages provided by or through the Company.
The affirmative vote required by this Article 13 shall be in addition
to the vote of the holders of any class or series of stock of the Company
otherwise required by law, by any other Article of these Articles of
Incorporation, as the same may be amended from time to time, by any resolution
of the Board of Directors providing for the issuance of a class or series of
stock, or by any agreement between the Company and any national securities
exchange.
B. Certain Definitions.
-------------------
1. "Share Acquisition Date" means with respect to any Person
and the Company, the date that such person first became an Interested
Shareholder of the Company.
2. The "Market Value" of the common stock of the Company shall
be the highest closing sale price during the 30-day period immediately preceding
the date in question of the share of the composite tape for New York Stock
Exchange-listed shares, or, if the shares are not quoted on the composite tape
or if the shares are not listed on the exchange, on the principal United States
securities exchange registered under the exchange act, on which such shares are
listed, or, if the shares are not listed on any such exchange, the highest
closing bid quotation with respect to the share during the 30-day period
preceding the date in question on the National Association of Securities
Dealers, Inc. Automated Quotations System or any system then in use, or if no
quotations are available, the fair market value on the date in question of the
share as determined by the Board of Directors of the Company in good faith. In
the case of property other than cash or shares, the fair market value of the
property on the date in question as determined by the Board of Directors of the
Company in good faith.
3. The term "Interested Shareholder," means any Person
(other than the Company or any Subsidiary of the Company) that:
(i) Is the Beneficial Owner, directly or indirectly, of shares
entitling that Person to cast at least 20% of the votes that all shareholders
would be entitled to cast in an election of directors of the Company; or
(ii) Is an Affiliate or Associate of such Company and at any
time within the five-year period immediately prior to the date in question was
the Beneficial Owner, directly or
-16-
<PAGE>
indirectly, of shares entitling that Person to cast at least 20% of the votes
that all shareholders would be entitled to cast in an election of directors of
the Company.
Exception - For the purpose of determining whether a Person is an
Interested Shareholder:
(1) The number of votes that would be entitled to be cast in
an election of directors of the Company shall be calculated by including shares
deemed to be beneficially owned by the Person through application of the
definition of "Beneficial Owner" in section 12.B, but excluding any other
unissued shares of such Company which may be issuable pursuant to any agreement,
arrangement or understanding, or upon exercise of conversion or option rights or
otherwise; and
(2) There shall be excluded from the Beneficial Ownership
of the Interested Shareholder any:
Shares which were acquired pursuant to a stock split, stock dividend,
reclassification or similar recapitalization with respect to shares described
under this paragraph that have been held continuously since their issuance by
the Company by the natural Person or entity that acquired them from the Company.
For the purpose only of determining the percentage of the outstanding
shares of Voting Shares which any corporation, partnership, person, or other
entity beneficially owns, directly or indirectly, the outstanding shares of
Voting Shares will be deemed to include any shares of Voting Shares which such
corporation, partnership, person or other entity beneficially owns pursuant to
the foregoing provisions of this subsection (whether or not such shares of
Voting Shares are in fact issued or outstanding), but shall not include any
other shares of Voting Shares which may be issuable either immediately or at
some future date pursuant to any agreement, arrangement, or understanding or
upon exercise of conversion rights, exchange rights, warrants, options, or
otherwise.
4. The term "Voting Shares" shall mean any shares of the
authorized stock of the Company entitled to vote generally in the election of
directors.
C. Exceptions. The provisions of this Article 13 shall not apply to a
----------
Business Combination which is approved by two-thirds of those members of the
Board of Directors who were directors prior to the time when the Interested
Shareholder became an Interested Shareholder (the "Continuing Directors"). The
provisions of this Article 13 also shall not apply to a Business Combination:
(1) Approved by the affirmative vote of the holders of shares
entitling such holders to cast a majority of the votes that all shareholders
would be entitled to cast in an election of directors of the Company, not
including any Voting Shares beneficially owned by the Interested Shareholder or
any Affiliate or Associate of such Interested Shareholder, at a meeting called
for such purpose no earlier than three months after the Interested Shareholder
became, and if at the
-17-
<PAGE>
time of the meeting the Interested Shareholder is, the Beneficial Owner,
directly or indirectly, of shares entitling the Interested Shareholder to cast
at least 80% of the votes that all shareholders would be entitled to cast in an
election of directors of the Company; or
(2) Approved by the affirmative vote of all of the holders of
all of the outstanding common shares.
(3) Approved by the affirmative vote of the holders of shares
entitling such holders to cast a majority of the votes that all shareholders
would be entitled to cast in an election of directors of the Company, not
including any Voting Shares beneficially owned by the Interested Shareholder or
any Affiliate or Associate of the Interested Shareholder, at a meeting called
for such purpose no earlier than five years after the Interested Shareholder's
Share Acquisition Date.
(4) Approved at a shareholders' meeting called for such
purpose no earlier than five years after the Interested Shareholder's Share
Acquisition Date.
D. Additional Provisions. Nothing contained in this Article 13, shall
----------------------
be construed to relieve an Interested Shareholder from any fiduciary obligation
imposed by law. In addition, nothing contained in this Article 13 shall prevent
any shareholder of the Company from objecting to any Business Combination and
from demanding any appraisal rights which may be available to such shareholder.
E. Amendments. Notwithstanding any provisions of these Articles of
----------
Incorporation or the Bylaws of the Company (and notwithstanding the fact that a
lesser percentage may be specified by laws, these Articles of Incorporation or
the Bylaws of the Company), the affirmative vote of the holders of at least 80
percent of the outstanding shares entitled to vote thereon (and, if any class or
series is entitled to vote thereon separately, the affirmative vote of the
holders of at least 80 percent of the outstanding shares of each such class or
series) shall be required to amend or repeal this Article 13 or adopt any
provisions inconsistent with this Article.
Article 14. Evaluation of Offers. The Board of Directors of the
Company, when evaluating any offer to (A) make a tender or exchange offer for
any equity security of the Company, (B) merge or consolidate the Company with
another corporation or entity or (C) purchase or otherwise acquire all or
substantially all of the properties and assets of the Company, may, in
connection with the exercise of its judgment in determining what is in the best
interest of the Company and its stockholders, give due consideration to all
relevant factors, including, without limitation, the social and economic effect
of acceptance of such offer: on the Company's present and future customers and
employees and those of its subsidiaries; on the communities in which the Company
and its subsidiaries operate or are located; on the ability of the Company to
fulfill its corporate objectives as a financial institution holding company and
on the ability of its subsidiary financial institution to fulfill the objectives
of a federally insured financial institution under applicable statutes and
regulations.
-18-
<PAGE>
Article 15. Stockholder Approval of Certain Transactions
A. Stockholder Vote. Any merger, consolidation, liquidation, or
-----------------
dissolution of the Company or any action that would result in the sale or other
disposition of all or substantially all of the assets of the Company
("Transaction") shall require the affirmative vote of the holders of at least
eighty percent (80%) of the outstanding shares of capital stock of the Company
eligible to vote at a legal meeting.
B. Board Approval. The provisions of Article 15.A shall not apply to a
--------------
particular Transaction, and such Transaction shall require only such stockholder
vote, if any, as would be required by Pennsylvania law, if such Transaction is
approved by two-thirds of the entire Board of Directors of the Company.
Article 16. Amendment of Articles and Bylaws.
A. Articles. The Company reserves the right to amend, alter, change, or
--------
repeal any provision contained in these Articles of Incorporation, in the manner
now or hereafter prescribed by law, and all rights conferred upon stockholders
herein are granted subject to this reservation. No amendment, addition,
alteration, change, or repeal of these Articles of Incorporation shall be made
unless such amendment addition, alteration, change, or repeal is first proposed
and approved by the Board of Directors pursuant to a resolution proposed and
adopted by the affirmative vote of a majority of the directors then in office,
and thereafter is approved by the holders of a majority (except as provided
below) of the shares of the Company entitled to vote generally in an election of
directors, voting together as a single class, as well as such additional vote of
the Preferred Stock as may be required by the provisions of any series thereof.
Notwithstanding anything contained in these Articles of Incorporation to the
contrary, the affirmative vote of the holders of at least eighty percent (80%)
of the shares of the Company entitled to vote generally in an election of
directors, voting together as a single class, as well as such additional vote of
the Preferred Stock as may be required by the provisions of any series thereof,
shall be required to amend, adopt, alter, change, or repeal any provision
inconsistent with Articles 7, 8, 9, 10, 11, 12, 13, 14, 15 and 16.
B. Bylaws. The Board of Directors or stockholders may adopt, alter,
------
amend, or repeal the Bylaws of the Company. Such action by the Board of
Directors shall require the affirmative vote of a majority of the directors then
in office at any regular or special meeting of the Board of Directors. Such
action by the stockholders shall require the affirmative vote of the holders of
at least eighty percent (80%) of the shares of the Company entitled to vote
generally in an election of directors, voting together as a single class, as
well as such additional vote of the Preferred Stock as may be required by the
provisions of any series thereof.
-19-
<PAGE>
Exhibit A
---------
FORM OF
CERTIFICATE OF DESIGNATION
of
JUNIOR PARTICIPATING PREFERRED STOCK, SERIES A
of
THISTLE GROUP HOLDINGS, CO.
(Pursuant to Section 1522 of the Business Corporation Law of the
Commonwealth of Pennsylvania)
THISTLE GROUP HOLDINGS, CO., a corporation organized and existing under
the Business Corporation Law of the Commonwealth of Pennsylvania (herein
referred to as the "Company"), in accordance with the provisions thereof and
ARTICLE 5 of the Company's Articles of Incorporation, does hereby CERTIFY:
I. The Articles of Incorporation of the Company fixes the total number
of shares of all classes of capital stock which the Company shall have the
authority to issue as Fifty Million (50,000,000) shares, of which Ten Million
(10,000,000) shares shall be shares of preferred stock of no par value per share
("Preferred Stock"), and Forty Million (40,000,000) shares shall be shares of
common stock of the par value of $.10 per share ("Common Stock").
II. The Articles of Incorporation of the Company expressly grants to
the Board of Directors of the Company authority to cause such shares of
preferred stock to be issued from time to time, by resolution adopted prior to
such issue, providing the voting powers, designations, preferences, rights and
qualifications, limitations or restrictions applicable to such shares.
III. Pursuant to authority conferred upon the Board of Directors by the
Articles of Incorporation of the Company, the Board of Directors, by actions
duly taken on September 13, 1999, authorized and adopted the following
resolution providing for an issue of a series of its preferred stock to be
designated "Junior Participating Preferred Stock, Series A":
RESOLVED, that pursuant to the authority granted to and vested in the
Board of Directors of the Company in accordance with the provisions of its
Articles of Incorporation, the Board of Directors hereby creates a series of
Preferred Stock, no par value per share, of the Company and hereby states the
designation and number of shares, and fixes the relative rights, preferences and
limitations thereof as follows:
<PAGE>
Section 1. Designation and Amount. The shares of such series shall be
----------------------
designated as "Junior Participating Preferred Stock, Series A" (the "Series A
Preferred Stock"), and the number of shares constituting the Series A Preferred
Stock shall be 100,000. Such number of shares may be increased or decreased by
resolution of the Board of Directors; provided, that no decrease shall reduce
the number of shares of Series A Preferred stock to a number less than the
number of shares then outstanding plus the number of shares reserved for
issuance upon the exercise of outstanding options, rights or warrants or upon
the conversion of any outstanding securities issued by the Company convertible
into Series A Preferred Stock.
Section 2. Dividends and Distributions.
---------------------------
(A) Subject to the rights of the holders of any shares of any series of
Preferred Stock (or any similar stock) ranking prior and superior to the Series
A Preferred Stock with respect to dividends, the holders of shares of Series A
Preferred Stock, in preference to the holders of Common Stock of the Company,
and of any other junior stock, shall be entitled to receive, when, as and if
declared by the Board of Directors out of funds legally available for the
purpose, quarterly dividends payable in cash on the first day of March, June,
September and December in each year (each such date being referred to herein as
a "Quarterly Dividend Payment Date"), commencing on the first Quarterly Dividend
Payment Date after the first issuance of a share or fraction of a share of
Series A Preferred Stock, in an amount per share (rounded to the nearest cent)
equal to the greater of (a) $1 or (b) subject to the provision for adjustment
hereinafter set forth, 100 times the aggregate per share amount of all cash
dividends, and 100 times the aggregate per share amount (payable in kind) of all
non-cash dividends or other distributions, other than a dividend payable in
shares of Common Stock or a subdivision of the outstanding shares of Common
Stock (by reclassification or otherwise), declared on the Common Stock since the
immediately preceding Quarterly Dividend Payment Date or, with respect to the
first Quarterly Dividend Payment Date, since the first issuance of any share or
fraction of a share of Series A Preferred Stock. In the event the Company shall
at any time declare or pay any dividend on the Common Stock payable in shares of
Common Stock, or effect a subdivision or combination or consolidation of the
outstanding shares of Common Stock (by reclassification or otherwise than by
payment of a dividend in shares of Common Stock) into a greater or lesser number
of shares of Common Stock, then in each such case the amount to which holders of
shares of Series A Preferred Stock were entitled immediately prior to such event
under clause (b) of the preceding sentence shall be adjusted by multiplying such
amount by a fraction, the numerator of which is the number of shares of Common
Stock outstanding immediately after such event and the denominator of which is
the number of shares of Common Stock that were outstanding immediately prior to
such event.
(B) The Company shall declare a dividend or distribution on the Series
A Preferred Stock as provided in paragraph (A) of this Section immediately after
it declares a dividend or distribution on the Common Stock (other than a
dividend payable in shares of Common Stock); provided that, in the event no
dividend or distribution shall have been declared on the Common Stock during the
period between any Quarterly Dividend Payment Date and the next subsequent
-2-
<PAGE>
Quarterly Dividend Payment Date, a dividend of $1 per share on the Series A
Preferred Stock shall nevertheless be payable on such subsequent Quarterly
Dividend Payment Date.
(C) Dividends shall begin to accrue and be cumulative on outstanding
shares of Series A Preferred Stock from the Quarterly Dividend Payment Date next
preceding the date of issue of such shares, unless the date of issue of such
shares is prior to the record date for the first Quarterly Dividend Payment
Date,in which case dividends on such shares shall begin to accrue from the date
of issue of such shares, or unless the date of issue is a Quarterly Dividend
Payment Date or is a date after the record date for the determination of holders
of shares of Series A Preferred Stock entitled to receive a quarterly dividend
and before such Quarterly Dividend Payment Date, in either of which events such
dividends shall begin to accrue and be cumulative from such Quarterly Dividend
Payment Date. Accrued but unpaid dividends shall not bear interest. Dividends
paid on the shares of Series A Preferred Stock in an amount less than the total
amount of such dividends at the time accrued and payable on such shares shall be
allocated pro rata on a share-by-share basis among all such shares at the time
outstanding. The Board of Directors may fix a record date for the determination
of holders of shares of Series A Preferred Stock entitled to receive payment of
a dividend or distribution declared thereon, which record date shall be not more
than 60 days prior to the date fixed for the payment thereof.
Section 3. Voting Rights. The holders of Series A Preferred Stock shall
-------------
have the following voting rights:
(A) Subject to the provision for adjustment hereinafter set
forth, each share of Series A Preferred Stock shall entitle the holder thereof
to 100 votes on all matters submitted to a vote of the stockholders of the
Company. In the event the Company shall at any time declare or pay any dividend
on the Common Stock payable in shares of Common Stock, or effect a subdivision
or combination or consolidation of the outstanding shares of Common Stock (by
reclassification or otherwise than by payment of a dividend in shares of Common
Stock) into a greater or lesser number of shares of Common Stock, then in each
such case the number of votes per share to which holders of shares of Series A
Preferred Stock were entitled immediately prior to such event shall be adjusted
by multiplying such number by a fraction, the numerator of which is the number
of shares of Common Stock outstanding immediately after such event and the
denominator of which is the number of shares of Common Stock that were
outstanding immediately prior to such event.
(B) Except as otherwise provided herein, in any other
Certificate of Designations creating a series of Preferred Stock or any similar
stock, or by law, the holders of shares of Series A Preferred Stock and the
holders of shares of Common Stock and any other capital stock of the Company
having general voting rights shall vote together as one class on all matters
submitted to a vote of stockholders of the Company.
(C) Except as set forth herein, or as otherwise provided by
law, holders of Series A Preferred Stock shall have no special voting rights and
their consent shall not be required
-3-
<PAGE>
(except to the extent they are entitled to vote with holders of Common Stock as
set forth herein) for taking any corporate action.
Section 4. Certain Restrictions.
--------------------
(A) Whenever quarterly dividends or other dividends or
distributions payable on the Series A Preferred Stock as provided in Section 2
are in arrears, thereafter and until all accrued and unpaid dividends and
distributions, whether or not declared, on shares of Series A Preferred Stock
outstanding shall have been paid in full, the Company shall not:
(i) declare or pay dividends, or make any other distributions,
on any shares of stock ranking junior (either as to dividends or upon
liquidation, dissolution or winding up) to the Series A Preferred
Stock;
(ii) declare or pay dividends, or make any other
distributions, on any shares of stock ranking on a parity (either as to
dividends or upon liquidation, dissolution or winding up) with the
Series A Preferred Stock, except dividends paid ratably on the Series A
Preferred Stock and all such parity stock on which dividends are
payable or in arrears in proportion to the total amounts to which the
holders of all such shares are then entitled;
(iii) redeem or purchase or otherwise acquire for
consideration shares of any stock ranking junior (either as to
dividends or upon liquidation, dissolution or winding up ) to the
Series A Preferred Stock provided that the Company may at any time
redeem, purchase or otherwise acquire shares of any such junior stock
in exchange for shares of any stock of the Company ranking junior
(either as to dividends or upon dissolution, liquidation or winding up)
to the Series A Preferred; or
(iv) redeem or purchase or otherwise acquire for consideration
any shares of Series A Preferred Stock, or any shares of stock ranking
on a parity with the Series A Preferred Stock, except in accordance
with a purchase offer made in writing or by publication (as determined
by the Board of Directors) to all holders of such shares upon such
terms as the Board of Directors, after consideration of the respective
annual dividend rates and other relative rights and preferences of the
respective series and classes, shall determine in good faith will
result in fair and equitable treatment among the respective series or
classes.
(B) The Company shall not permit any subsidiary of the Company
to purchase or otherwise acquire for consideration any shares of stock of the
Company unless the Company could, under paragraph (A) of this Section 4,
purchase or otherwise acquire such shares at such time and in such manner.
-4-
<PAGE>
Section 5. Reacquired Shares. Any shares of Series A Preferred Stock
------------------
purchased or otherwise acquired by the Company in any manner whatsoever shall be
retired and canceled promptly after the acquisition thereof. All such shares
shall upon their cancellation become authorized but unissued shares of Preferred
Stock and may be reissued as part of a new series of the Preferred Stock subject
to the conditions and restrictions on issuance set forth herein, in the
Company's Articles of Incorporation, or in any other Certificate of Designation
creating a series of Preferred Stock or any similar stock or as otherwise
required by law.
Section 6. Liquidation, Dissolution or Winding Up. Upon any
---------------------------------------------
liquidation, dissolution or winding up of the Company, no distribution shall be
made (A) to the holders of shares of stock ranking junior (either as to
dividends or upon liquidation, dissolution or winding up) to the Series A
Preferred Stock unless, prior thereto, the holders of shares of Series A
Preferred Stock shall have received $100 per share, plus an amount equal to
accrued and unpaid dividends and distributions thereon, whether or not declared,
to the date of such payment provided that the holders of shares of Series A
Preferred Stock shall be entitled to receive an aggregate amount per share,
subject to the provision for adjustment hereinafter set forth, equal to 100
times the aggregate amount to be distributed per share to holders of shares of
Common Stock, or (B) to the holders of shares of stock ranking on a parity
(either as to dividends or upon liquidation, dissolution or winding up) with the
Series A Preferred Stock, except distributions made ratable on the Series A
Preferred Stock and all such parity stock in proportion to the total amounts to
which the holders of all such shares are entitled upon such liquidation,
dissolution or winding up. In the event the Company shall at any time declare or
pay any dividend on the Common Stock payable in shares of Common Stock, or
effect a subdivision or combination or consolidation of the outstanding shares
of Common Stock ( by reclassification or otherwise than by payment of a dividend
in shares of Common Stock) into a greater or lesser number of shares of Common
Stock, then in each such case the aggregate amount to which holders of shares of
Series A Preferred Stock were entitled immediately prior to such event under the
proviso in clause (A) of the preceding sentence shall be adjusted by multiplying
such amount by a fraction the numerator of which is the number of shares of
Common Stock outstanding immediately after such event and the denominator of
which is the number of shares of Common Stock that were outstanding immediately
prior to such event.
Section 7. Consolidation, Merger, etc. In case the Company shall enter
---------------------------
into any consolidation, merger, combination or other transaction in which the
shares of Common Stock are exchanged for or changed into other stock or
securities, cash and/or any other property, then in any such case each share of
Series A Preferred Stock shall at the same time be similarly exchanged or
changed into an amount per share, subject to the provision for adjustment
hereinafter set forth, equal to 100 times the aggregate amount of stock,
securities, cash and/or any other property (payable in kind), as the case may
be, into which or for which each share of Common Stock is changed or exchanged.
In the event the Company shall at any time declare or pay any dividend on the
Common Stock payable in shares of Common Stock, or effect subdivision or
combination or consolidation of the outstanding shares of Common Stock (by
reclassification or otherwise than by payment of a dividend in shares of Common
Stock) into a greater or lesser number of shares
-5-
<PAGE>
of Common Stock, then in each such case the amount set forth in the preceding
sentence with respect to the exchange or change of shares of Series A Preferred
Stock shall be adjusted by multiplying such amount by a fraction, the numerator
of which is the number of shares of Common Stock outstanding immediately after
such event and the denominator of which is the number of shares of Common Stock
that were outstanding immediately prior to such event.
Section 8. No Redemption. The shares of Series A Preferred Stock shall
-------------
not be redeemable.
Section 9. Rank. The Series A Preferred Stock shall rank, with respect
----
to the payment of dividends and the distribution of assets, junior to all series
of any other class of the Company's Preferred Stock.
Section 10. Amendment. The Articles of Incorporation of the Company
---------
shall not be amended in any manner which would materially alter or change the
powers, preferences or special rights of the Series A Preferred Stock so as to
affect them adversely without the affirmative vote of the holders of at least
two-thirds of the outstanding shares of Series A Preferred Stock, voting
together as a single class.
-6-
EXHIBIT 10.5
<PAGE>
EMPLOYMENT AGREEMENT
THIS AGREEMENT, is entered into this 21st day of January, 1998,
("Effective Date") by and between Roxbough-Manayunck Federal Savings Bank (the
"Bank") and John F. McGill, Jr. (the "Executive").
WITNESSETH
WHEREAS, the Executive has heretofore been employed by the Bank as the
President and Chief Executive Officer and is experienced in all phases of the
business of the Bank; and
WHEREAS, the Bank desires to be ensured of the Executive's continued
active participation in the business of the Bank; and
WHEREAS, in order to induce the Executive to remain in the employ of
the Bank and in consideration of the Executive's agreeing to remain in the
employ of the Bank, the parties desire to specify the continuing employment
relationship between the Bank and the Executive;
NOW THEREFORE, in consideration of the premises and the mutual
agreements herein contained, the parties hereby agree as follows:
1. Employment. The Bank hereby employs the Executive in the capacity of
----------
President and Chief Executive Officer. The Executive hereby accepts said
employment and agrees to render such administrative and management services to
the Bank, Thistle Group Holdings ("Parent") and FJF Financial, M.H.C. ("MHC") as
are currently rendered and as are customarily performed by persons situated in a
similar executive capacity. The Executive shall promote the business of the Bank
and Parent. The Executive's other duties shall be such as the Board of Directors
for the Bank (the "Board of Directors" or "Board") may from time to time
reasonably direct, including normal duties as an officer of the Bank.
2. Term of Employment. The term of employment of Executive under this
------------------
Agreement shall be for the period commencing on the Effective Date and ending
thirty-six (36) months thereafter ("Term"). Additionally, on, or before, each
annual anniversary date from the Effective Date, the Term of employment under
this Agreement shall be extended for up to an additional period beyond the then
effective expiration date upon a determination and resolution of the Board of
Directors that the performance of the Executive has met the requirements and
standards of the Board, and that the Term of such Agreement shall be extended.
References herein to the Term of this Agreement shall refer both to the initial
term and successive terms.
<PAGE>
3. Compensation, Benefits and Expenses.
-----------------------------------
(a) Base Salary. The Bank shall compensate and pay the Executive
during the Term of this Agreement a minimum base salary at the rate of $225,000
per annum ("Base Salary"), payable in cash not less frequently than monthly;
provided, that the rate of such salary shall be reviewed by the Board of
Directors not less often than annually, and the Executive shall be entitled to
receive increases at such percentages or in such amounts as determined by the
Board of Directors. The base salary may not be decreased without the Executive's
express written consent.
(b) Discretionary Bonus. The Executive shall be entitled to
participate in an equitable manner with all other senior management employees of
the Bank in discretionary bonuses that may be authorized and declared by the
Board of Directors to its senior management executives from time to time. No
other compensation provided for in this Agreement shall be deemed a substitute
for the Executive's right to participate in such discretionary bonuses when and
as declared by the Board.
(c) Participation in Benefit and Retirement Plans. The Executive
shall be entitled to participate in and receive the benefits of any plan of the
Bank which may be or may become applicable to senior management relating to
pension or other retirement benefit plans, profit-sharing, stock options or
incentive plans, or other plans, benefits and privileges given to employees and
executives of the Bank, to the extent commensurate with his then duties and
responsibilities, as fixed by the Board of Directors of the Bank.
(d) Participation in Medical Plans and Insurance Policies. The
Executive shall be entitled to participate in and receive the benefits of any
plan or policy of the Bank which may be or may become applicable to senior
management relating to life insurance, short and long term disability, medical,
dental, eye-care, prescription drugs or medical reimbursement plans.
Additionally, Executive's dependent family shall be eligible to participate in
medical and dental insurance plans sponsored by the Savings Bank or Parent with
the cost of such premiums paid by the Savings Bank.
(e) Vacations and Sick Leave. The Executive shall be entitled to
paid annual vacation leave in accordance with the policies as established from
time to time by the Board of Directors, which shall in no event be less than
four weeks per annum. The Executive shall also be entitled to an annual sick
leave benefit as established by the Board for senior management employees of the
Bank. The Executive shall not be entitled to receive any additional compensation
from the Bank for failure to take a vacation or sick leave, nor shall he be able
to accumulate unused vacation or sick leave from one year to the next, except to
the extent authorized by the Board of Directors.
2
<PAGE>
(f) Expenses. The Bank shall reimburse the Executive or otherwise
provide for or pay for all reasonable expenses incurred by the Executive in
furtherance of, or in connection with the business of the Bank, including, but
not by way of limitation, automobile and traveling expenses, and all reasonable
entertainment expenses, subject to such reasonable documentation and other
limitations as may be established by the Board of Directors of the Bank. If such
expenses are paid in the first instance by the Executive, the Bank shall
reimburse the Executive therefor.
(g) Changes in Benefits. The Bank shall not make any changes in
such plans, benefits or privileges previously described in Section 3(c), (d) and
(e) which would adversely affect the Executive's rights or benefits thereunder,
unless such change occurs pursuant to a program applicable to all executive
officers of the Bank and does not result in a proportionately greater adverse
change in the rights of, or benefits to, the Executive as compared with any
other executive officer of the Bank. Nothing paid to Executive under any plan or
arrangement presently in effect or made available in the future shall be deemed
to be in lieu of the salary payable to Executive pursuant to Section 3(a)
hereof.
4. Loyalty; Noncompetition.
-----------------------
(a) The Executive shall devote his full time and attention to the
performance of his employment under this Agreement. During the term of the
Executive's employment under this Agreement, the Executive shall not engage in
any business or activity contrary to the business affairs or interests of the
Bank or Parent.
(b) Nothing contained in this Section 4 shall be deemed to
prevent or limit the right of Executive to invest in the capital stock or other
securities of any business dissimilar from that of the Bank or Parent, or,
solely as a passive or minority investor, in any business.
5. Standards. During the term of this Agreement, the Executive shall
perform his duties in accordance with such reasonable standards expected of
executives with comparable positions in comparable organizations and as may be
established from time to time by the Board of Directors.
6. Termination and Termination Pay. The Executive's employment under
-------------------------------
this Agreement shall be terminated upon any of the following occurrences:
(a) The death of the Executive during the term of this Agreement,
in which event the Executive's estate shall be entitled to receive the
compensation due the Executive through the last day of the calendar month in
which Executive's death shall have occurred.
(b) The Board of Directors may terminate the Executive's
employment at any time, but any termination by the Board of Directors other than
termination for Just Cause, shall not prejudice the Executive's right to
compensation or other benefits under the Agreement. The Executive shall have no
right to receive compensation or other benefits for any period after
3
<PAGE>
termination for Just Cause. The Board may within its sole discretion, acting in
good faith, terminate the Executive for Just Cause and shall notify such
Executive accordingly. Termination for "Just Cause" shall include termination
because of the Executive's personal dishonesty, incompetence, willful
misconduct, breach of fiduciary duty involving personal profit, intentional
failure to perform stated duties, willful violation of any law, rule or
regulation (other than traffic violations or similar offenses) or final
cease-and-desist order, or material breach of any provision of the Agreement.
(c) Except as provided pursuant to Section 9 hereof, in the event
Executive's employment under this Agreement is terminated by the Board of
Directors without Just Cause, the Bank shall be obligated to continue to pay the
Executive the salary provided pursuant to Section 3(a) herein, up to the date of
termination of the remaining Term of this Agreement, but in no event for a
period of less than eighteen (18) months, and the cost of Executive obtaining
all health, life, disability, and other benefits which the Executive would be
eligible to participate in through such date based upon the benefit levels
substantially equal to those being provided Executive at the date of termination
of employment.
(d) The voluntary termination by the Executive during the term of
this Agreement with the delivery of no less than 60 days written notice to the
Board of Directors, other than pursuant to Section 9(b), in which case the
Executive shall be entitled to receive only the compensation, vested rights, and
all employee benefits up to the date of such termination.
7. Regulatory Exclusions.
---------------------
(a) If the Executive is suspended and/or temporarily prohibited from
participating in the conduct of the Bank's affairs by a notice served under
Section 8(e)(3) or (g)(1) of the FDIA (12 U.S.C. 1818(e)(3) and (g)(1)), the
Bank's obligations under the Agreement shall be suspended as of the date of
service, unless stayed by appropriate proceedings. If the charges in the notice
are dismissed, the Bank may within its discretion (i) pay the Executive all or
part of the compensation withheld while its contract obligations were suspended
and (ii) reinstate any of its obligations which were suspended.
(b) If the Executive is removed and/or permanently prohibited from
participating in the conduct of the Bank's affairs by an order issued under
Sections 8(e)(4) or 8(g)(1) of the Federal Deposit Insurance Act ("FDIA") (12
U.S.C. 1818(e)(4) and (g)(1)), all obligations of the Bank under this Agreement
shall terminate, as of the effective date of the order, but the vested rights of
the parties shall not be affected.
(c) If the Bank is in default (as defined in Section 3(x)(1) of FDIA)
all obligations under this Agreement shall terminate as of the date of default,
but this paragraph shall not affect any vested rights of the contracting
parties.
4
<PAGE>
(d) All obligations under this Agreement shall be terminated, except to
the extent determined that continuation of this Agreement is necessary for the
continued operation of the Bank: (i) by the Director of the Office of Thrift
Supervision ("Director of OTS"), or his or her designee, at the time that the
Federal Deposit Insurance Corporation ("FDIC") enters into an agreement to
provide assistance to or on behalf of the Bank under the authority contained in
Section 13(c) of FDIA; or (ii) by the Director of the OTS, or his or her
designee, at the time that the Director of the OTS, or his or her designee
approves a supervisory merger to resolve problems related to operation of the
Bank or when the Bank is determined by the Director of the OTS to be in an
unsafe or unsound condition. Any rights of the parties that have already vested,
however, shall not be affected by such action.
(e) Notwithstanding anything herein to the contrary, any payments made
to the Executive pursuant to the Agreement, or otherwise, shall be subject to
and conditioned upon compliance with 12 USC ss.1828(k) and any regulations
promulgated thereunder.
8. Disability. If the Executive shall become disabled or incapacitated
----------
to the extent that he is unable to perform his duties hereunder, by reason of
medically determinable physical or mental impairment, as determined by a doctor
engaged by the Board of Directors, Executive shall nevertheless continue to
receive the compensation and benefits provided under the terms of this Agreement
as follows: 100% of such compensation and benefits for a period of 12 months,
but not exceeding the remaining term of the Agreement, and 65% thereafter for
the remainder of the term of the Agreement. Such benefits noted herein shall be
reduced by any benefits otherwise provided to the Executive during such period
under the provisions of disability insurance coverage in effect for Bank
employees. Thereafter, Executive shall be eligible to receive benefits provided
by the Bank under the provisions of disability insurance coverage in effect for
Bank employees. Upon returning to active full-time employment, the Executive's
full compensation as set forth in this Agreement shall be reinstated as of the
date of commencement of such activities. In the event that the Executive returns
to active employment on other than a full-time basis, then his compensation (as
set forth in Section 3(a) of this Agreement) shall be reduced in proportion to
the time spent in said employment, or as shall otherwise be agreed to by the
parties.
9. Change in Control.
-----------------
(a) Notwithstanding any provision herein to the contrary, in the
event of the involuntary termination of Executive's employment during the term
of this Agreement following any Change in Control of the Bank or Parent, or
within 24 months thereafter of such Change in Control, absent Just Cause,
Executive shall be paid an amount equal to the product of 2.999 times the
Executive's "base amount" as defined in Section 280G(b)(3) of the Internal
Revenue Code of 1986, as amended (the "Code") and regulations promulgated
thereunder. Said sum shall be paid, at the option of Executive, either in one
(1) lump sum within thirty (30) days of such termination of service or in
periodic payments over the next 36 months or the remaining term of this
Agreement whichever is less, as if Executive's employment had not been
terminated, and such payments shall be in lieu of any other future payments
which the Executive would be otherwise
5
<PAGE>
entitled to receive under Section 6 of this Agreement. Notwithstanding the
forgoing, all sums payable hereunder shall be reduced in such manner and to such
extent so that no such payments made hereunder when aggregated with all other
payments to be made to the Executive by the Bank or the Parent shall be deemed
an "excess parachute payment" in accordance with Section 280G of the Code and be
subject to the excise tax provided at Section 4999(a) of the Code. The term
"Change in Control" shall refer to (i) the sale of all, or a material portion,
of the assets of the Savings Bank or the Parent; (ii) the merger or
recapitalization of the Savings Bank or the Parent whereby the Savings Bank or
the Parent is not the surviving entity; (iii) a change in control of the Savings
Bank or the Parent, as otherwise defined or determined by the Office of Thrift
Supervision or regulations promulgated by it; or (iv) the acquisition, directly
or indirectly, of the beneficial ownership (within the meaning of that term as
it is used in Section 13(d) of the Securities Exchange Act of 1934 and the rules
and regulations promulgated thereunder) of twenty-five percent (25%) or more of
the outstanding voting securities of the Savings Bank or the Parent by any
person, trust, entity or group other than by Parent or MHC. Notwithstanding the
foregoing, a Change in Control shall not include a transaction whereby Parent or
MHC merges directly or indirectly with and into the Bank and 100% of the Common
Stock of the Bank is simultaneously acquired by a newly established parent bank
holding company or unitary savings and loan holding company. The term "person"
means an individual other than the Executive, or a corporation, partnership,
trust, association, joint venture, pool, syndicate, sole proprietorship,
unincorporated organization or any other form of entity not specifically listed
herein.
(b) Notwithstanding any other provision of this Agreement to the
contrary, Executive may voluntarily terminate his employment during the term of
this Agreement following a Change in Control of the Bank or Parent, or within
twenty-four months following such Change in Contriol, and Executive shall
thereupon be entitled to receive the payment described in Section 9(a) of this
Agreement, upon the occurrence, or within 120 days thereafter, of any of the
following events, which have not been consented to in advance by the Executive
in writing: (i) if Executive would be required to move his personal residence or
perform his principal executive functions more than thirty-five (35) miles from
the Executive's primary office as of the signing of this Agreement; (ii) if in
the organizational structure of the Bank, Executive would be required to report
to a person or persons other than the Board of Directors of the Bank; (iii) if
the Bank should fail to maintain Executive's base compensation in effect as of
the date of the Change in Control and the existing employee benefits plans,
including material fringe benefit, stock option and retirement plans; (iv) if
Executive would be assigned duties and responsibilities other than those
normally associated with his position as referenced at Section 1, herein; (v) if
Executive's responsibilities or authority have in any way been materially
diminished or reduced; or (vi) if Executive would not be reelected to the Board
of Directors of the Bank.
10. Withholding. All payments required to be made by the Bank hereunder
-----------
to the Executive shall be subject to the withholding of such amounts, if any,
relating to tax and other payroll deductions as the Bank may reasonably
determine should be withheld pursuant to any applicable law or regulation.
6
<PAGE>
11. Successors and Assigns.
----------------------
(a) This Agreement shall inure to the benefit of and be binding
upon any corporate or other successor of the Bank or Parent which shall acquire,
directly or indirectly, by merger, consolidation, purchase or otherwise, all or
substantially all of the assets or stock of the Bank or Parent.
(b) Since the Bank is contracting for the unique and personal
skills of the Executive, the Executive shall be precluded from assigning or
delegating his rights or duties hereunder without first obtaining the written
consent of the Bank.
12. Amendment; Waiver. No provisions of this Agreement may be modified,
------------------
waived or discharged unless such waiver, modification or discharge is agreed to
in writing, signed by the Executive and such officer or officers as may be
specifically designated by the Board of Directors of the Bank to sign on its
behalf. No waiver by any party hereto at any time of any breach by any other
party hereto of, or compliance with, any condition or provision of this
Agreement to be performed by such other party shall be deemed a waiver of
similar or dissimilar provisions or conditions at the same or at any prior or
subsequent time.
13. Governing Law. The validity, interpretation, construction and
--------------
performance of this Agreement shall be governed by the laws of the United States
where applicable and otherwise by the substantive laws of the State of
Pennsylvania.
14. Nature of Obligations. Nothing contained herein shall create or
----------------------
require the Bank to create a trust of any kind to fund any benefits which may be
payable hereunder, and to the extent that the Executive acquires a right to
receive benefits from the Bank hereunder, such right shall be no greater than
the right of any unsecured general creditor of the Bank.
15. Headings. The section headings contained in this Agreement are for
--------
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
16. Severability. The provisions of this Agreement shall be deemed
------------
severable and the invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or enforceability of the other
provisions of this Agreement, which shall remain in full force and effect.
17. Arbitration. Any controversy or claim arising out of or relating to
-----------
this Agreement, or the breach thereof, shall be settled by arbitration in
accordance with the rules then in effect of the district office of the American
Arbitration Association ("AAA") nearest to the home office of the Bank, and
judgment upon the award rendered may be entered in any court having jurisdiction
thereof, except to the extent that the parties may otherwise reach a mutual
settlement of such issue. Further, the settlement of the dispute to be approved
by the Board of the Bank may include a provision for the reimbursement by the
Bank to the Executive for all reasonable costs and expenses, including
reasonable attorneys' fees, arising from such dispute, proceedings or actions,
7
<PAGE>
or the Board of the Bank or the Parent may authorize such reimbursement of such
reasonable costs and expenses by separate action upon a written action and
determination of the Board following settlement of the dispute. Such
reimbursement shall be paid within ten (10) days of Executive furnishing to the
Bank or Parent evidence, which may be in the form, among other things, of a
canceled check or receipt, of any costs or expenses incurred by Executive.
18. Confidential Information. The Executive acknowledges that during his
------------------------
or her employment he or she will learn and have access to confidential
information regarding the Savings Bank and the Parent and its customers and
businesses ("Confidential Information"). The Executive agrees and covenants not
to disclose or use for his or her own benefit, or the benefit of any other
person or entity, any such Confidential Information, unless or until the Savings
Bank or the Parent consents to such disclosure or use or such information
becomes common knowledge in the industry or is otherwise legally in the public
domain. The Executive shall not knowingly disclose or reveal to any unauthorized
person any Confidential Information relating to the Savings Bank, the Parent, or
any subsidiaries or affiliates, or to any of the businesses operated by them,
and the Executive confirms that such information constitutes the exclusive
property of the Savings Bank and the Parent. The Executive shall not otherwise
knowingly act or conduct himself (a) to the material detriment of the Savings
Bank or the Parent, or its subsidiaries, or affiliates, or (b) in a manner which
is inimical or contrary to the interests of the Savings Bank or the Parent.
Executive acknowledges and agrees that the existence of this Agreement and its
terms and conditions constitutes Confidential Information of the Savings Bank,
and the Executive agrees not to disclose the Agreement or its contents without
the prior written consent of the Savings Bank. Notwithstanding the foregoing,
the Savings Bank reserves the right in its sole discretion to make disclosure of
this Agreement as it deems necessary or appropriate in compliance with its
regulatory reporting requirements. Notwithstanding anything herein to the
contrary, failure by the Executive to comply with the provisions of this Section
may result in the immediate termination of the Agreement within the sole
discretion of the Savings Bank, disciplinary action against the Executive taken
by the Savings Bank, including but not limited to the termination of employment
of the Executive for breach of the Agreement and the provisions of this Section,
and other remedies that may be available in law or in equity.
19. Entire Agreement. This Agreement together with any understanding or
----------------
modifications thereof as agreed to in writing by the parties, shall constitute
the entire agreement between the parties hereto.
Exhibit 13
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Management's Discussion and Analysis of Financial Condition Thistle Group, Holdings Co. and Subsidiaries
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 its
transactional web site RMBgo.com and 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,
existing multi-family residential and nonresidential real estate. 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.
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
9
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Management's Discussion and Analysis of Financial Condition Thistle Group, Holdings Co. and Subsidiaries
and Results of Operations (continued)
</TABLE>
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 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 to evaluate 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, 1999, based on the information and assumptions set forth above.
Dollar amounts are expressed in thousands.
<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 $ 7,200 $ 10,650 $ 18,009 $ 19,775 $105,524 $161,158
Mortgage-backed securities 3,958 3,979 16,154 16,524 164,091 204,706
Investment securities 687 750 122,870 124,307
Interest-earning deposits 17,703 17,703
----------------------------------------------------------------------------------
Total interest-earning assets $ 29,548 $ 14,629 $ 34,163 $ 37,049 $392,485 $507,874
----------------------------------------------------------------------------------
Interest-bearing liabilities:
Deposits $ 89,577 $ 70,579 $ 125,533 $ 6,930 $292,619
Advances from borrowers for taxes and insurance 2,472 2,472
Other borrowings 3,000 3,000
FHLB Advances 30,000 10,000 $136,884 176,884
----------------------------------------------------------------------------------
Total interest-bearing liabilities $122,049 $ 70,579 $ 138,533 $ 6,930 $136,884 $474,975
----------------------------------------------------------------------------------
Excess (deficiency) of interest-earning assets
over interest-bearing liabilities $ (92,501) $ (55,950) $(104,370) $ 30,119 $255,601 $ 32,899
----------------------------------------------------------------------------------
Cumulative excess (deficiency) of interest-earning
assets over interest-bearing liabilities $ (92,501) $(148,451) $(252,821) $(222,702) $ 32,899
----------------------------------------------------------------------------------
Cumulative excess (deficiency) of interest-earning
assets over interest-bearing liabilities as a
percentage of total assets (16.67%) (26.76%) (45.57%) (40.14%) 5.93%
----------------------------------------------------------------------------------
</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
10
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Management's Discussion and Analysis of Financial Condition Thistle Group, Holdings Co. and Subsidiaries
and Results of Operations (continued)
</TABLE>
Company's assets with liabilities of a comparable duration to minimize the
impact of changing interest rates on the Company's net interest income. Since
the relative spread between financial assets and liabilities is constantly
changing, the Company's current net interest income may not be an indication of
future net interest income.
The Company constantly monitors its deposits in an effort to decrease their
interest rate sensitivity. Rates of interest paid on deposits at the Company are
priced competitively in order to meet the Company's asset/liability management
objectives and spread requirements. As of December 31, 1999, the Company's
savings accounts, checking accounts and money market deposit accounts totaled
$127.9 million 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, 1999, the Office of Thrift Supervision ("OTS") estimate of the
projected changes in net portfolio value ("NPV") in the event of 100, 200, and
300 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> <C>
300 $33,576 $(32,999) -50% 7.00% (538)
200 45,432 (21,143) -32% 9.10% (328)
100 58,269 (8,306) -12% 11.19% (118)
66,575 12.38%
(100) 79,546 12,971 19% 14.18% 181
(200) 77,600 11,025 17% 13.62% 124
(300) 74,780 8,204 12% 12.92% 55
</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 $84.5 million. In the event of an instantaneous and permanent
increase of 200 basis points, NPV would decrease $23.4 million to $61.1 million,
or 28%.
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
11
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Management's Discussion and Analysis of Financial Condition Thistle Group, Holdings Co. and Subsidiaries
and Results of Operations (continued)
</TABLE>
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.
Changes in Financial Condition
General
Total assets of the Company increased by $62.7 million or 12.7%, from
$492.0 million at December 31, 1998 to $554.8 million at December 31, 1999. The
increase is primarily attributable to growth in cash and cash equivalents, loans
receivable and investments available for sale, offset by a decrease in
mortgage-backed securities available for sale and investments held to maturity.
Growth in assets was funded by advances from the Federal Home Loan Bank of
Pittsburgh and customer deposits, net of cash used to repurchase common stock.
Cash and Investments
Cash and investments (including investments available for sale and held to
maturity) increased by $52.1 million, or 51.8%, to $152.7 million at December
31, 1999 compared to $100.5 million at December 31, 1998. The increase is
primarily attributable to increases in cash and cash equivalents and investments
of approximately $11.1 million and $41.1 million, respectively. The increase in
investments available for sale resulted from the Company's increases in the
portfolio of government agency securities as well as tax exempt securities. The
increase in cash and cash equivalents resulted from the Company increasing its
liquidity for anticipated cash needs relating to the end of century rollover.
Loans Held for Sale and Loans Receivable, Net
Aggregate loans receivable (loans receivable, net and loans held for sale)
increased $24.7 million, or 18.1%, to $161.2 million at December 31, 1999
compared to $136.5 million at December 31, 1998. The increase is generally
attributable to increases in commercial mortgage loans of $12.3 million,
commercial business loans of $5.2 million and construction loans of $4.5
million.
Mortgage-Backed Securities Available for Sale
Mortgage-backed securities available for sale decreased $25.2 million, or
11%, to $204.7 million at December 31, 1999 compared to $229.9 million at
December 31, 1998. The decrease was the result of repayments, sales and an
increase in the unrealized loss offset by purchases.
Non-Performing Assets
The Company's non-performing loans amounted to $223,000 at December 31,
1999, a decrease of $167,000 from $390,000 at December 31, 1998, or .04% of
total assets at year-end. Real estate acquired through foreclosure increased
slightly to $104,000 at December 31, 1999 compared to $82,000 at December 31,
1998.
Deposits
Deposits increased by $16.2 million, or 5.9%, to $292.6 million at December
31, 1999 from $276.4 million at December 31, 1998. This increase was primarily
attributable to increases in certificates of deposit of $21.0 million offset by
a decrease of $4.9 million in money market accounts.
Borrowings
Since the Conversion and Reorganization, the Company entered into a series
of borrowings to fund purchases of mortgage-backed securities, government agency
securities and one-to four-family residential mortgage loans. The Company's
total borrowings increased $70 million to $176.9 million at December 31, 1999
from $106.9 million at December 31, 1998. These transactions were structured to
achieve targeted spreads in order to enhance return on equity. The Federal Home
Loan Bank advances have varying maturities and have a weighted average interest
rate of 5.03% at December 31, 1999.
Equity
At December 31, 1999 total stockholders' equity was $74.7 million, or 13.5%
of total assets, compared to $100.2 million, or 20.4% of total assets at
December 31, 1998. The $25.5 million decrease was due to the combination of a
decrease of $14.1 million in unrealized gains on available for sale securities
as well as the cost of the Company's stock repurchases of $13.3 million and
dividends paid aggregating $1.7 million offset, in part, by the Company's net
income of $5.3 million. The decrease in unrealized gains on available for sale
securities was due to general increases in market interest rates.
12
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Management's Discussion and Analysis of Financial Condition Thistle Group, Holdings Co. and Subsidiaries
and Results of Operations (continued)
</TABLE>
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>
Year Ended December 31,
At 1999 1998 1997
--------------------------------------------------------------------------------------------------------
12/31/99 Average Average Average
Yield/ Average Yield/ Average Yield/ Average Yield/
Cost Balance Interest Cost Balance Interest Cost Balance Interest Cost
--------------------------------------------------------------------------------------------------------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans receivable 7.73% $144,808 $11,443 7.90% $110,059 $ 8,933 8.12% $101,472 $ 8,763 8.64%
Mortgage-backed securities 6.62% 213,971 13,745 6.42% 158,400 9,633 6.08% 93,427 6,491 6.95%
Cash and investment
securities 6.25% 96,225 6,545 6.80% 64,905 4,407 6.79% 75,802 5,164 6.81%
Tax exempt securities (1) 5.02% 49,569 2,425 4.89% 14,721 710 4.82% 3,328 164 4.94%
------------------ ------------------- ------------------
Total interest-earning assets 6.72% $504,573 $34,158 6.77% $348,085 $23,683 6.80% $274,029 $20,582 7.51%
------------------ ------------------- ------------------
Non-interest-earning assets 21,725 12,037 10,013
Total assets $526,298 $360,122 $284,042
------------------ ------------------- ------------------
Interest-bearing liabilities:
Savings accounts 3.26% $100,455 $ 3,238 3.22% $ 97,634 $ 3,590 3.68% $101,316 $ 3,806 3.76%
Certificate accounts 5.27% 149,592 7,777 5.20% 127,478 6,825 5.35% 116,523 6,223 5.34%
Other deposit accounts 1.65% 30,551 661 2.18% 22,749 535 2.35% 24,550 509 2.07%
------------------ ------------------- ------------------
Total deposits 4.19% $280,598 $11,676 4.16% $247,861 $10,951 4.42% $242,389 $10,538 4.35%
Borrowings 5.07% 154,801 7,964 5.14% 38,884 1,956 5.03% 7,884 436 5.53%
Other liabilities (escrow) 2.00% 1,687 32 1.92% 1,620 26 1.60% 1,730 28 1.62%
------------------ ------------------- ------------------
Total interest-bearing
liabilities 4.51% $437,086 $19,672 4.50% $288,365 $12,933 4.48% $252,003 $11,002 4.37%
------------------ ------------------- ------------------
Non-interest-bearing
liabilities 6,349 7,119 5,020
------------------ ------------------- ------------------
Total liabilities 443,435 295,484 257,023
------------------ ------------------- ------------------
Retained earnings 82,863 64,638 27,019
------------------ ------------------- ------------------
Total liabilities and retained
earnings $526,298 $360,122 $284,042
------------------ ------------------- ------------------
Net interest income $14,486 $10,750 $ 9,580
------------------ ------------------- ------------------
Interest rate spread 2.21% 2.27% 2.32% 3.15%
Net yield on interest-
earning assets 2.87% 3.09% 3.50%
Ratio of average interest-
earning assets to average
interest-bearing liabilities 115.44% 120.71% 108.74%
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Tax exempt securities are presented on a coupon basis.
13
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Management's Discussion and Analysis of Financial Condition Thistle Group, Holdings Co. and Subsidiaries
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,
-----------------------------------------------------------------------------------------------
1999 vs. 1998 1998 vs. 1997
-----------------------------------------------------------------------------------------------
Increase (Decrease) Due to Increase (Decrease) 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 $ 2,820 $(236) $ (74) $ 2,510 $ 742 $ (527) $ (45) $ 170
Mortgage-backed securities 3,380 542 190 4,112 4,514 (809) (563) 3,142
Cash and investment securities 2,127 8 4 2,139 (742) (17) 2 (757)
Tax exempt securities 1,681 10 24 1,715 563 (4) (13) 546
-----------------------------------------------------------------------------------------------
Total interest-earning assets $10,008 $ 324 $144 $10,476 $5,076 $(1,357) $(618) $3,101
-----------------------------------------------------------------------------------------------
Interest expense:
Deposit accounts $ 1,446 $(637) $ (84) $ 725 $ 238 $ 171 $ 4 $ 413
Borrowings 5,831 44 132 6,007 1,714 (39) (155) 1,520
Other liabilities 1 5 6 (2) (2)
-----------------------------------------------------------------------------------------------
Total interest-bearing liabilities$ 7,278 $(588) $ 48 $ 6,738 $1,950 $ 131 $(151) $1,931
-----------------------------------------------------------------------------------------------
Net change in interest income $ 2,730 $ 912 $ 96 $ 3,738 $3,126 $(1,489) $(467) $1,170
-----------------------------------------------------------------------------------------------
</TABLE>
Results of Operations
General
The Company reported net income of $5.3 million, $2.4 million and $3.4
million for the years ended December 31, 1999, 1998 and 1997, respectively. The
$2.9 million increase in net income for the year ended December 31, 1999
compared to the year ended December 1998 was primarily due to a $3.8 million or
35.9% increase in net interest income as well as a decrease in the effective tax
rate paid by the Company from 38.5% in 1998 to 23.3% in 1999 offset in part by a
$1.1 million increase in operating expenses.
The $1.0 million decrease in net income for the year ended December 31,
1998 compared to December 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.
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 2.27%, 2.32%, and 3.15% during the years ended December
31, 1999, 1998, and 1997, respectively. The Company's interest rate spread was
2.21% at December 31, 1999. The Company's net interest margin (i.e., net
interest income as a percentage of average interest-earning assets) was 2.87%,
3.09%, and 3.50% during the years ended December 31, 1999, 1998, and 1997,
respectively.
Net interest income increased $3.7 million, or 34.8%, to $14.5 million in
the year ended December 31, 1999 from $10.8 million in 1998. The increase came
as a result of a $10.5 million increase in interest income offset by a $6.7
million increase in interest expense. 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.
Interest Income
Total interest income amounted to $34.2 million for the year ended December
31, 1999 compared to $23.7 million for the year ended December 31, 1998. The
increase in 1999 of $10.5 million, or 44.2%, over 1998 was primarily due to an
increase in income from all interest-earning assets, resulting from an
14
<PAGE>
increase of $156.5 million, or 45%, in the average balance outstanding of those
assets. This increase was partially offset by a 3 basis point decrease in the
related yield (with 100 basis 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 slight decrease in
yield reflects the effects of the interest rate environment existing during
1999.
Interest Expense
Total interest expense increased by $6.7 million or 52.1% for the year
ended December 31, 1999 compared to 1998. The increase was primarily
attributable to a $6.0 million increase in interest expense in Federal Home Loan
Bank ("FHLB") borrowings and a $699,000 increase in interest on deposits.
Interest expense on FHLB borrowings increased due to a $115.9 million increase
in the average balance of such borrowings combined with a 11 basis point
increase in the average rate paid. The interest expense on deposits increased
due to a $32.7 million increase in the average balance of deposits offset by a
26 basis point decline in the average rate paid. The increase in average
borrowings and deposits was used to fund loan originations and purchase
investment securities and mortgage-backed securities.
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.
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, 1999, the provision
for loan losses amounted to $240,000 as compared to $270,000 in 1998. For the
year ended December 31, 1997, the provision for loan losses was $120,000. At
December 31, 1999 the Company's allowance for loan losses amounted to 553% of
total non-performing loans and .78% of net loans receivable.
Although management of the Company believes that the Company's allowance
for loan losses was adequate at December 31, 1999, 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
Other income for the year ended December 31, 1999 was $951,000 as compared
to $415,000 for 1998. The $536,000 increase in other income resulted from a
$137,000 net gain on asset sales in 1999 and the absence of a $115,000 net loss
on such sales during 1998, a $228,000 recovery of an accrual for interest and
penalties on a state income tax case that was settled during the year combined
with an $80,000 recovery on loans secured by commercial equipment lines that had
been charged off in prior years.
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.
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 $1.1 million or
16.2% for the year ended December 31, 1999 compared to 1998 and amounted to $8.2
million in 1999 compared to $7.1 million in 1998.
Salaries and employee benefits increased $307,000 due to normal salary
increases, addition of personnel and compensation expenses related to the
restricted stock plan. Occupancy and equipment costs increased $177,000 due to
increased depreciation related to the purchase of a new computer system in
August 1998 and to increased costs for maintenance contracts
15
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Management's Discussion and Analysis of Financial Condition Thistle Group, Holdings Co. and Subsidiaries
and Results of Operations (continued)
</TABLE>
related to the addition of new hardware. Professional costs increased $260,000
due to accounting and legal fees associated with being a listed company, legal
costs incurred related to the adoption of the Company's stock plans and various
corporate and regulatory actions, the outsourcing of the Company's internal
audit function, and consulting fees related to Y2K contingency planning.
Advertising and promotion increased $112,000 as the Company began a focused
strategic marketing effort in the latter half of 1999, which included additional
media costs for new product campaigns. Increases in other expenses amounted to
$269,000 due to costs associated with the production of the Company's initial
annual report and proxy statements, transfer agent and Nasdaqt listing fees as
well as other expenses related to the in house computer system.
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 the former Chairman, 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.
Income Taxes
Income tax expense for the year ended December 31, 1999 was $1.6 million or
23.3% of pre-tax income as compared to expense of $1.5 million or 38.4% in 1998.
The primary reason for the decrease in the effective tax rate was the reduction
in state taxes resulting from purchases of tax exempt securities. The Company
has also employed various strategies to reduce both federal and state taxes.
The Company recognized income tax expenses of $1.5 million, or 38.4%, of
re-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.
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, commercial business loans, mortgage-backed
securities, and other investments. During the years ended December 31, 1999,
1998, and 1997, the Company originated loans in the amounts of $47.5 million,
$28.0 million, and $19.8 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
loans and mortgage-backed securities totaled $67.0 million, $220.3 million, and
$33.0 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.
Until 1998, the Company had historically not utilized borrowings as a
source of funds. In 1998 and 1999, 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 has other sources of liquidity if a
need for additional funds arises.
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 13.53% at
December 31, 1999.
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, 1999, cash and cash
equivalents totaled $37.2 million.
16
<PAGE>
The Company anticipates that it will have sufficient funds available to
meet its current commitments. As of December 31, 1999, the Company had $16.3
million in commitments to fund loans. Certificates of deposit which were
scheduled to mature in one year or less as of December 31, 1999 totaled $108.6
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 10.6%,
10.6% and 30.9%, respectively, at December 31, 1999, 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,
1999. See Note 10 to the Consolidated Financial Statements.
Recent Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting 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 the fair value of a derivative depends on the intended use of the
derivative and the resulting designation. The Company adopted this statement on
January 1, 1999. The adoption of this statement did not have a material impact
on the Company's financial position or results of operations.
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
Like many financial institutions, we rely on computers to conduct our
business and information systems processing. Industry experts were concerned
that on January 1, 2000, some computers might not be able to interpret the new
year properly, causing computer malfunctions. Some banking industry experts
remain concerned that some computers may not be able to interpret additional
dates in the year 2000 properly. We have operated and evaluated our computer
operating systems following January 1, 2000 and have not identified any errors
or experienced any computer system malfunctions. We will continue to monitor our
information systems to assess whether our systems are at risk of misinterpreting
any future dates and will develop appropriate contingency plans to prevent any
potential system malfunction or correct any system failures. The Company has not
been informed of any such problem experienced by its vendors or its customers,
nor by any of the municipal agencies that provide services to the Company.
Nevertheless, it is too soon to conclude that there will not be any
problems arising from the Year 2000 problem, particularly at some of the
Company's vendors. The Company will continue to monitor its significant vendors
of goods and services with respect to Year 2000 problems they may encounter as
those companies may affect the Company's ability to continue operations, or
might adversely affect the Company's financial position, results of operations
and cash flows. The Company does not believe at this time that these potential
problems will materially impact the ability of the Company to continue its
operations, however, no assurance can be given that this will be the case.
The expectations of the Company contained in this section on Year 2000 are
forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995 and involve substantial risks and uncertainties
that may cause actual results to differ materially from those indicated by the
forward-looking statements. All forward-looking statements in this section are
based on information available to the Company on the date of this document, and
the Company assumes no obligation to update such forward-looking
statements.
17
<PAGE>
Selected Consolidated Financial Data and Other Data
Thistle Group
Holdings, Co. and Subsidiaries (Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
1999 1998 1997 1996 1995
---------------------------------------------------
<S> <C> <C> <C> <C> <C>
Income Statement Data:
Interest income $ 34,158 $23,682 $ 20,582 $ 20,264 $ 19,790
Interest expense 19,672 12,933 11,002 11,069 10,646
Net interest income 14,486 10,749 9,580 9,195 9,144
Provision for loan losses 240 270 120 139 135
Noninterest income 951 415 2,808 583 544
Noninterest expense (1) 8,221 7,075 6,824 9,890 7,234
Income (loss) before income taxes 6,796 3,819 5,444 (251) 2,319
Net income (loss) 5,348 2,350 3,354 (363) 1,432
Balance Sheet Data:
Total assets 554,759 492,039 276,650 294,332 288,199
Loans (net) 161,158 136,466 97,435 100,773 101,884
Mortgage-backed securities available
for sale 204,706 229,883 111,486 93,410 98,315
Investment securities held to maturity 54,129 34,529 46,464 44,024
Investment securities available for sale 115,463 20,274 3,698 2,631 1,566
Deposits 292,619 276,390 230,558 256,546 250,179
FHLB Advances 176,884 106,884 7,884 7,884 7,884
Stockholders' equity 74,660 100,229 28,470 24,581 25,148
Per Share Data:
Basic earnings per share (2) 0.73 0.17 NM NM NM
Diluted earnings per share (2) 0.72 0.16 NM NM NM
Cash dividends per share (2) 0.21 0.05 NM NM NM
Tangible book value per share (3) 9.60 11.14 NM NM NM
Selected Ratios: (4)
Performance
Return on average assets 1.02% .65% 1.18% (.13)% .51%
Return on average equity 6.45 3.63 12.41 (1.45) 5.98
Stockholders' equity to assets 13.46 20.37 10.27 8.35 8.72
Net interest margin (5) 2.87 3.09 3.50 3.29 3.37
Interest rate spread (5) 2.27 2.32 3.14 2.99 3.06
Asset Quality
Non-performing loans to total loans (6) 0.14 0.28 0.74 3.04 2.13
Non-performing assets to total assets (6) 0.07 0.09 0.30 1.08 .82
Allowance for loan losses as a percent of
non-performing loans 553.00 264.00 109.36 21.24 17.43
Allowance for loan losses as a percent of
total average loans at end of period 0.85 0.94 0.77 0.63 .46
Net charge-offs (recoveries) as a percent of
average loans 0.03 0.01 (.08) 0.02 0.09
</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 during 1996.
(2) There were no shares outstanding until July 1998.
(3) Book value per share represents stockholders' equity divided by the number
of shares issued and outstanding.
(4) With the exception of end of period ratios, all ratios are based on average
monthly balances during indicated periods.
(5) 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.
(6) 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.
18
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Consolidated Statements of Financial Condition Thistle Group Holdings, Co. and Subsidiaries
(Dollars in thousands, except per share data)
</TABLE>
<TABLE>
<CAPTION>
December 31,
1999 1998
----------------------------
<S> <C> <C>
ASSETS
Cash on hand and in banks $ 19,494 $ 2,522
Interest-bearing deposits 17,703 23,614
----------------------------
Total cash and cash equivalents 37,197 26,136
Investments held to maturity (approximate fair value--1998, $53,958) 54,129
Investments available for sale at fair value (amortized cost--1999, $128,729; 1998, $20,133) 115,463 20,274
Mortgage-backed securities available for sale at fair value
(amortized cost--1999, $211,304; 1998, $228,574) 204,706 229,883
Loans receivable (net of allowance for loan losses--1999, $1,234; 1998, $1,036) 157,233 133,908
Loans held for sale 3,925 2,558
Accrued interest receivable 3,692 3,265
Federal Home Loan Bank stock--at cost 8,844 5,344
Real estate acquired through foreclosure--net 104 82
Office properties and equipment--net 2,853 2,487
Prepaid expenses and other assets 1,145 3,163
Cash surrender value of life insurance 11,590 10,810
Deferred income taxes 8,007
----------------------------
TOTAL ASSETS $554,759 $492,039
----------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits $292,619 $276,390
FHLB advances 176,884 106,884
Other borrowings 3,000
Accrued interest payable 835 469
Advances from borrowers for taxes and insurance 2,472 2,229
Accounts payable and accrued expenses 3,790 3,465
Dividends payable 467 450
Accrued income taxes 32 1,476
Deferred income taxes 447
----------------------------
Total liabilities 480,099 391,810
----------------------------
Commitments and Contingencies
Stockholders' Equity:
Preferred stock, no par value--10,000,000 shares authorized, none issued in
1999 or 1998 Common stock, $.10 par value, 40,000,000 shares authorized,
8,999,989 issued and
7,780,432 outstanding in 1999; 8,999,989 shares issued and outstanding in 1998 900 900
Additional paid-in capital 93,400 94,616
Common stock acquired by stock benefit plans (8,199) (6,075)
Treasury stock at cost, 1,219,557 shares (11,787)
Accumulated other comprehensive (loss) income (13,108) 957
Retained earnings--partially restricted 13,454 9,831
----------------------------
Total stockholders' equity 74,660 100,229
----------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $554,759 $492,039
----------------------------
</TABLE>
See notes to consolidated financial statements.
19
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Consolidated Statements of Financial Condition Thistle Group Holdings, Co. and Subsidiaries
(Dollars in thousands, except per share data)
</TABLE>
<TABLE>
<CAPTION>
Year Ended December 31,
1999 1998 1997
---------------------------------------
INTEREST INCOME:
<S> <C> <C> <C>
Interest on loans $11,443 $ 8,933 $ 8,763
Interest on mortgage-backed securities 13,745 9,632 6,491
Interest and dividends on investments 8,970 5,117 5,328
---------------------------------------
Total interest income 34,158 23,682 20,582
---------------------------------------
INTEREST EXPENSE:
Interest on deposits 11,676 10,977 10,538
Other 7,996 1,956 464
---------------------------------------
Total interest expense 19,672 12,933 11,002
---------------------------------------
NET INTEREST INCOME 14,486 10,749 9,580
PROVISION FOR LOAN LOSSES 240 270 120
---------------------------------------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 14,246 10,479 9,460
---------------------------------------
OTHER INCOME (LOSS):
Service charges and other fees 355 367 391
Loss on sale of real estate owned (2) (49)
Loss on sale of mortgage-backed securities available for sale (16) (74)
Gain on sale of investments available for sale 155 8
Gain on sale of deposit liabilities 2,234
Gain on sale of loans held for sale 9
Rental income 151 163 174
Other income 308
---------------------------------------
Total other income 951 415 2,808
---------------------------------------
OTHER EXPENSES:
Salaries and employee benefits 4,227 3,920 3,827
Occupancy and equipment 1,168 991 933
Federal insurance premium 166 145 158
Professional fees 541 281 322
Advertising 244 132 118
Other 1,875 1,606 1,466
---------------------------------------
Total other expenses 8,221 7,075 6,824
---------------------------------------
INCOME BEFORE INCOME TAXES 6,976 3,819 5,444
---------------------------------------
INCOME TAXES:
Current 2,835 1,322 2,083
Deferred (1,207) 147 7
---------------------------------------
Total income taxes 1,628 1,469 2,090
---------------------------------------
NET INCOME $ 5,348 $ 2,350 $ 3,354
---------------------------------------
BASIC EARNINGS PER SHARE $ 0.73 $ 0.17
---------------------------------------
DILUTED EARNINGS PER SHARE $ 0.72 $ 0.16
---------------------------------------
</TABLE>
See notes to consolidated financial statements.
20
<PAGE>
Consolidated Statements of Changes
in Stockholders' Equity Thistle Group Holdings, Co. and Subsidiaries
(Dollars in thousands)
<TABLE>
<CAPTION>
Common
Stock Accumulated
Acquired Other Retained
Additional by Stock Compre-hensive Earnings Total
Common Paid-In Benefit Treasury Income Partially Stockholders'
Stock Capital Plans Stock (Loss) Restricted Equity
-------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1997 $ 1,621 $16,997 $ (45) $ 735 $ 5,273 $24,581
Comprehensive Income
Net Income 3,354 3,354
Other comprehensive income, net of tax:
Net unrealized gain on investment
and mortgage-backed securities
available for sale, net of
reclassification adjustment (1) 655 655
------------
Comprehensive income -- -- -- -- -- -- 4,009
------------
Cash dividends declared (165) (165)
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
-------------------------------------------------------------------------------------------
Comprehensive income:
Net income 2,350 2,350
Other comprehensive income,
net of tax:
Net unrealized loss on investment
and mortgage-backed securities
available for sale, net of
reclassification adjustment (1) (433) (433)
------------
Comprehensive income -- -- -- -- -- -- 1,917
------------
Dividends paid - pre-organization (82) (82)
Stock conversion 738 76,171 (6,285) 70,624
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)
-------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1998 900 94,616 (6,075) 957 9,831 100,229
-------------------------------------------------------------------------------------------
Comprehensive loss:
Net income 5,348 5,348
Other comprehensive income, net of
tax:
Net unrealized loss on
investment and mortgage-backed
securities available for sale, net
of reclassification adjustment (1) (14,065) (14,065)
------------
Comprehensive loss -- -- -- -- -- -- (8,717)
------------
ESOP stock committed to be released 418 418
Excess of cost of ESOP shares
committed to be released above
fair value (41) (41)
Purchase of treasury stock $(13,326) (13,326)
Common stock acquired by stock
benefit plans (2,761) (2,761)
Restricted stock plan amortization 219 219
Exercise of stock options (1,175) 1,539 364
Dividends paid (1,725) (1,725)
-------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1999 $ 900 $ 93,400 $ (8,199) $ (11,787) $ (13,108) $ 13,454 $ 74,660
-------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
(1) Disclosure of reclassification amount, net of tax for the years ended: 1999 1998 1997
--------------------------------
Net unrealized (depreciation) appreciation arising during the year $ (14,157) $ (345) $ 655
Net gains (losses) included in net income 92 (88)
--------------------------------
Net unrealized (loss) gain on securities $ (14,065) (433) $ 655
</TABLE>
21
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Consolidated Statements of Cash Flows Thistle Group Holdings, Co. and Subsidiaries
(Dollars in thousands)
</TABLE>
<TABLE>
<CAPTION>
Year Ended December 31,
1999 1998 1997
------------------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income $ 5,348 $ 2,350 $ 3,354
Adjustments to reconcile net income to net cash (used in) provided by operating activities:
Provision for loan losses 240 270 120
Depreciation 466 319 240
Amortization of stock benefit plans 571 (10) 12
Loans held for sale originated (1,687) (1,845) (76)
Amortization of:
Goodwill 32
Net premiums (discounts) on:
Loans purchased (23) (286) 22
Investments (1,263) (1,011) (294)
Mortgage-backed securities 1,496 1,305 (506)
Gain on sale of investments (155) (8)
Gain on sale of loans held for sale (9)
Loss on sale of mortgage-backed securities 16 74
Gain on sale of deposit liabilities (2,234)
Loss on sale of real estate owned 2 49 50
Proceeds from sale of loans held for sale 1,055
(Increase) decrease in other assets (322) (11,182) 356
Increase (decrease) in other liabilities (674) (797) 4,206
------------------------------------------
Net cash provided by (used in) operating activities 4,015 (10,772) 6,328
------------------------------------------
INVESTING ACTIVITIES:
Principal collected on:
Mortgage-backed securities 46,475 47,504 15,171
Loans 30,246 24,818 22,496
Loans originated (45,854) (26,181) (19,778)
Loans acquired (7,720) (36,098) (821)
Purchases of:
Investments (72,492) (57,750) (43,354)
Mortgage-backed securities (59,279) (184,234) (32,216)
Property and equipment (832) (1,304) (119)
FHLBstock (3,500) (3,642) (10)
Proceeds from the sale of:
Real estate owned 40 180 269
Maturities of investments 2,333 20,902 54,000
Mortgage-backed securities 28,561 15,898
Investments 17,108 2,147 984
Property and equipment 204
------------------------------------------
Net cash provided by (used in) investing activities (64,914) (197,760) (3,174)
------------------------------------------
FINANCING ACTIVITIES:
Net (decrease) increase in deposits 16,229 45,832 (23,754)
Net increase (decrease) in advances from borrowers for taxes and insurance 243 43 (13)
Net increase in FHLB borrowings 70,000 99,000
Increase in other borrowings 3,000
Purchase of treasury stock (13,326)
Purchase of restricted stock plan shares (2,761)
Net proceeds from the exercise of stock options 300
Proceeds from the stock offering, net of offering costs 70,624
Cash dividends (1,725) (982) (165)
------------------------------------------
Net cash provided by (used in) financing activities 71,960 214,517 (23,932)
------------------------------------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 11,061 5,985 (20,778)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 26,136 20,151 40,929
------------------------------------------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 37,197 $ 26,136 $ 20,151
------------------------------------------
SUPPLEMENTAL DISCLOSURES:
Interest paid on deposits and funds borrowed $ 19,306 $ 11,325 $ 11,071
Income taxes paid 1,267 1,570 81
Noncash transfers from loans to real estate owned 101 168 250
Noncash transfer of investments held to maturity to available for sale 54,129
</TABLE>
See notes to consolidated financial statements.
22
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Notes to Consolidated Financial Statements Thistle Group Holdings, Co. and Subsidiaries
Years Ended December 31, 1999, 1998 and 1997
(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, and TGH Corp., which holds investments. The Bank has three
subsidiaries, Ridge Service Corporation, which is inactive, Montgomery Service
Corporation, which manages a small commercial real estate property, and Roxdel
Corp., which holds investments. 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, commercial real estate 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., which was organized in March of
1998, and its subsidiaries. Thistle Group Holdings, Co. has two wholly-owned
subsidiaries, TGH Corp. and Roxborough-Manayunk Bank. Roxborough-Manayunk Bank
has three wholly-owned subsidiaries, Roxdel Corp., Montgomery Service Corp. and
Ridge Service Corp. The Company's business is conducted principally through the
Bank. All significant intercompany accounts and transactions have been
eliminated in consolidation.
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 amortized 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.
23
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Notes to Consolidated Statements Thistle Group Holdings, Co. and Subsidiaries
Years Ended December 31, 1999, 1998 and 1997
(Dollars in thousands, except per share data) (continued)
</TABLE>
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 loans receivable to their estimated net realizable value or
fair value, as applicable. Such provisions are based on management's estimate of
net realizable value and/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 are
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 twenty 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 the beneficiary of
insurance policies on the lives of officers and employees of the Bank. The
Company has recognized the amount that could be realized under the insurance
policies as an asset in the statement of financial condition.
Interest Rate Risk--At December 31, 1999, 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 options
in accordance with SFAS No. 123, Accounting for Stock-Based Compensation, which
allows an entity to choose between the intrinsic value method, as defined in
Accounting Principals Board ("APB") Opinion No. 25, Accounting for Stock Issued
to Employees or the fair value method of accounting for stock-based compensation
described in SFAS No. 123. An entity using the intrinsic value method must
disclose pro forma net income and earnings per share as if the stock-based
compensation was accounted for using the fair value method. The Company
continues to account for stock-based compensation using the intrinsic value
method and has not recognized compensation expense under this method.
Earnings Per Share--Basic earnings per share for 1999 and 1998 is computed by
dividing income available to common stockholders (for 1998 the amount calculated
was 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 1999 and 1998 is computed using the weighted average
number of common shares outstanding and common share equivalents that would
24
<PAGE>
arise from the exercise of stock options. Prior period information is not
comparative and therefore not presented. The weighted average shares used in the
basic and diluted earnings per share computations for the year ended December
31, 1999 and for the period July 14, 1998 through December 31, 1998 are as
follows:
July 14,
1998 to
December December
31, 1999 31, 1998
------------------------
Average common shares outstanding--basic 7,359,241 8,372,155
Increase in shares due to dilutive options 90,626 174,732
------------------------
Adjusted shares outstanding--diluted 7,449,867 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 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. The Company declared and paid a
$.05 per share dividend for the quarters ended March 31, 1999 and June 30, 1999
and a $.06 per share dividend for the quarter ended September 30, 1999. A $.06
per share dividend was declared and payable on January 15, 2000 to shareholders
of record on December 31, 1999.
Comprehensive Income--In accordance with SFAS No. 130, Reporting Comprehensive
Income, the Company presents, 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.
Recent Accounting Pronouncements--In June 1998, the FASB issued SFAS No. 133,
Accounting 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. The Company adopted this statement on January 1, 1999. The adoption
of this statement did not have a material impact on the Company's financial
position or results of operations. In accordance with the provisions of this
statement, the Company transferred $54,129 of investments held to maturity to
available for sale.
Reclassifications--Certain items in the 1998 and 1997 consolidated financial
statements have been reclassified to conform with the presentation in the 1999
consolidated financial statements.
3. INVESTMENTS
A comparison of cost and approximate fair value of investments, by
maturity, is as follows:
<TABLE>
<CAPTION>
Available for Sale December 31, 1999
--------------------------------------------------
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 $ 3,000 $ 166 $ 2,834
5 to 10 years 3,017 52 2,965
More than 10 years 42,000 3,294 38,706
FHLB and FHLMC Bonds--More than 10 years 17,622 3,961 13,661
Municipal bonds--More than 10 years 41,613 4,484 37,129
Mutual Funds 1,345 1,345
Capital Trust securities 12,900 1,560 11,340
Equity investments 5,795 $795 544 6,046
Other 1,437 1,437
--------------------------------------------------
Total $128,729 $795 $14,061 $115,463
--------------------------------------------------
</TABLE>
25
<PAGE>
Notes to Consolidated Statements Thistle Group Holdings, Co. and Subsidiaries
Years Ended December 31, 1999, 1998 and 1997
(Dollars in thousands, except per share data) (continued)
Available for Sale December 31, 1998
Gross Gross
Amortized Unrealized Unrealized Approximate
Cost Gains Losses Fair Value
---------------------------------------------------
Mutual Funds $ 1,285 $ 1,285
Capital Trust securities 11,774 $ (127) 11,647
Equity investments 6,324 $268 6,592
Other 750 750
---------------------------------------------------
Total $ 20,133 $268 $ (127) $ 20,274
---------------------------------------------------
<TABLE>
<CAPTION>
Held to Maturity December 31, 1998
---------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Approximate
Cost Gains Losses Fair Value
---------------------------------------------------
<S> <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>
In connection with the adoption of SFAS No. 133, the Company transferred
$54,129 of investment securities held to maturity to available for sale.
Proceeds from the sale of investments available for sale during the year
ended December 31, 1999 were $17,108 resulting in a gain of $155. 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 investment
securities during the year ended December 31, 1997.
4. MORTGAGE-BACKED SECURITIES AVAILABLE FOR SALE
Mortgage-backed securities available for sale are summarized as follows:
<TABLE>
<CAPTION>
December 31, 1999
---------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Approximate
Cost Gains Losses Fair Value
---------------------------------------------------
<S> <C> <C> <C> <C>
GNMA pass-through certificates $111,825 $ 324 $3,186 $108,963
FNMA pass-through certificates 77,567 69 3,835 73,801
FHLMC pass-through certificates 20,550 260 189 20,621
FHLMC real estate mortgage investment conduits 1,362 41 1,321
---------------------------------------------------
Total $211,304 $ 653 $7,251 $204,706
---------------------------------------------------
December 31, 1998
---------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Approximate
Cost Gains Losses Fair Value
---------------------------------------------------
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
---------------------------------------------------
</TABLE>
Proceeds from the sale of mortgage-backed securities during the year ended
December 31, 1999 were $28,561 resulting in a loss of $16. 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 year ended December 31, 1997.
26
<PAGE>
5. LOANS RECEIVABLE
Loans receivable consist of the following:
December 31,
1999 1998
----------------------
Mortgage loans:
1 to 4 Family residential $110,032 $108,585
Commercial real estate 29,867 17,542
Home equity lines of credit
and improvement loans 8,518 8,273
Commercial nonmortgage loans 5,496 269
Construction loans--net 5,365 868
Loans on savings accounts 170 218
Consumer loans 126 126
----------------------
Total loans 159,574 135,881
Plus unamortized premiums 373 374
Less:
Net discounts on loans purchased
and loans acquired through merger (28) (30)
Deferred loan fees (1,452) (1,281)
Allowance for loan losses (1,234) (1,036)
----------------------
Total $157,233 $133,908
----------------------
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 $29,867 and
$17,542 at December 31, 1999 and 1998, respectively. Of the commercial real
estate loans, as of December 31, 1999 and 1998, $19,490 and $10,862 are
collateralized by multi-family residential property; $10,377 and $6,680 by
business property, respectively.
At December 31, 1999, 1998 and 1997, the Company was servicing loans for
others amounting to $1,706, $2,558 and $3,695, 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 $124, $167 and $234 at December
31, 1999, 1998 and 1997, respectively.
Following is a summary of changes in the allowance for loan losses:
Year Ended December 31,
1999 1998 1997
---------------------------
Balance, beginning $1,036 $ 783 $577
Provision 240 270 120
Charge-offs (42) (85) (83)
Recoveries 68 169
---------------------------
Balance, ending $1,234 $1,036 $783
---------------------------
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, 1999 and 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,
1999 1998
-------------------------
Impaired loans with no related
reserve for loan losses calculated
under SFAS No. 114 $1,707 $1,734
Year Ended December 31,
1999 1998 1997
---------------------------
Average impaired loans $1,246 $1,265 $1,274
Interest income recognized
on impaired loans 100 101 109
No cash basis interest income was recognized in 1999, 1998 or 1997 for the
impaired loans included above. Nonaccrual loans for which interest has been
fully reserved totaled approximately $223 and $393 at December 31, 1999 and
1998, respectively.
The Company originates and purchases fixed and adjustable interest rate
loans and mortgage-backed securities. At December 31, 1999 fixed rate loans and
mortgage-backed securities were approximately $330,000, and adjustable interest
rate loans and mortgage-backed securities were approximately $31,900.
As of December 31, 1999, the Company had approximately $16,300 in
outstanding loan commitments with interest rates ranging from 7.50% to 9.125%.
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
$1,167, $1,872 and $1,226 at December 31, 1999, 1998 and 1997, respectively.
Originations to these persons were $52, $470 and $159 for the years ended
December 31, 1999, 1998 and 1997, respectively. Loan repayments for the years
ended December 31, 1999, 1998 and 1997 were $757, $176 and $98, respectively.
27
<PAGE>
Notes to Consolidated Statements Thistle Group Holdings, Co. and Subsidiaries
Years Ended December 31, 1999, 1998 and 1997
(Dollars in thousands, except per share data) (continued)
6. OFFICE PROPERTIES AND EQUIPMENT
Office properties and equipment are summarized by major classification as
follows:
December 31,
1999 1998
-------------------
$ 528 $ 528
Buildings 2,909 2,768
Furniture and equipment 3,189 2,586
Leasehold improvements 87 87
-------------------
Total 6,713 5,969
Accumulated depreciation and amortization (3,860) (3,482)
-------------------
Net $ 2,853 $ 2,487
-------------------
7. DEPOSITS
Deposits consist of the following major classifications:
December 31,
1999 1998
----------------------------------
Weighted Weighted
Interest Interest
Amount Rate Amount Rate
----------------------------------
NOW accounts and
transaction checking $ 19,880 1.28% $ 18,142 1.40%
Money Market
Demand accounts 8,963 3.43 13,857 3.49
Passbook accounts 99,018 3.26 100,627 3.25
Certificate accounts 164,758 5.27 143,764 5.32
----------------------------------
Total $292,619 4.26% $276,390 4.22%
----------------------------------
At December 31, 1999 and 1998, the Company had deposits of $100,000 or
greater totaling approximately $34,032 and $34,978, 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 during the year ended December 31, 1997.
While frequently renewed at maturity rather than paid out, certificate
accounts were scheduled to mature contractually within the following periods:
December 31,
1999 1998
----------------------
1 year or less $108,647 $118,170
1 year to 3 years 49,174 18,516
3 years to 5 years 6,937 7,078
----------------------
Total $164,758 $143,764
----------------------
Interest expense on deposits is as follows:
Year Ended December 31,
1999 1998 1997
------------------------------
NOW and MMDA $ 661 $ 534 $ 508
Passbook 3,238 3,603 3,807
Certificates 7,800 6,851 6,235
Early withdrawal penalties (23) (11) (12)
------------------------------
Total $11,676 $10,977 $10,538
------------------------------
8. FHLB ADVANCES AND OTHER BORROWINGS
A summary of advances from the Federal Home Loan Bank ("FHLB") of Pittsburgh
follows:
December 31,
1999 1998
-----------------------------------
Weighted Weighted
Average Average
Interest Interest
Amount Rate Amount Rate
-----------------------------------
Advances from FHLB
due by December 31,
2000 $ 30,000 4.06%
2001
2002 10,000 5.05
Thereafter 136,884 5.24 $106,884 5.20%
-----------------------------------
Total $176,884 5.03% $106,884 5.20%
-----------------------------------
The advances are collateralized under a blanket collateral lien agreement.
The $30,000 of advances due by December 31, 2000 were borrowed under an
overnight line of credit. The interest rate on these advances adjusts daily.
Also, included in the table above at December 31, 1999 and 1998 are 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.
These advances are included in the year in which they mature.
The Company has other borrowings of $3,000 at December 31, 1999 from an
unaffiliated lender. The borrowing carries a variable interest rate which was
7.5% at December 31, 1999 and is due in December 2002.
9. INCOME TAXES
As of January 1, 1996, the Bank changed 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.
Beginning January 1, 1999, the Bank changed its method of computing reserves for
bad debts to the specific charge-off method. The bad debt deduction allowable
under this method is available to large banks with assets greater than $500
million. Generally, this method allows the Bank to deduct an annual addition to
the reserve for bad debts equal to its net charge-offs.
28
<PAGE>
A thrift institution required to change its method of computing reserves
for bad debts to the experience method 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. Amounts that
had been previously deferred will be reversed for financial reporting purposes
and will be included in the income tax return of the Company, increasing income
tax payable. The change from the experience method to the specific charge-off
method in 1999 will not result in a recapture of bad debt reserves for tax
purposes. Retained earnings at December 31, 1999 and 1998 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
--------------------------
1999 $1,628 $1,628
1998 1,258 $211 1,469
1997 1,870 220 2,090
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,
1999 1998 1997
---------------------------------------------------------------
Amount Percent Amount Percent Amount Percent
---------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Tax at federal tax rate $2,371 34.0% $1,298 34.0% $1,776 34.0%
Tax-exempt income (727) (10.4) (202) (5.3) (45) (0.9)
Decrease resulting from amortization of goodwill
premiums and discounts related to an acquisition--net (4) (0.1)
State income tax expense, net of federal income tax 139 3.6 145 2.8
Other (16) (0.3) 234 6.1 218 4.2
---------------------------------------------------------------
Total $1,628 23.3% $1,469 38.4% $2,090 40.0%
---------------------------------------------------------------
</TABLE>
Items that give rise to significant portions of the deferred tax accounts
are as follows:
December 31,
1999 1998
------------------
Deferred tax assets:
Unrealized loss on investments
and mortgage-backed securities $6,754
Deferred loan fees 493 $ 436
Allowance for loan losses 313 159
Reserve for uncollected interest 16 19
Supplemental pension and other
retirement accruals 561 468
Office properties and equipment 58
------------------
8,137 1,140
------------------
Deferred tax liabilities:
Office properties and equipment (12)
State taxes (614)
Unrealized gain on investments
and mortgage-backed securities (493)
Other (118) (480)
------------------
(130) (1,587)
------------------
Total $8,007 $ (447)
------------------
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, 1999,
that the Bank meets all capital adequacy requirements to which it is subject.
As of December 31, 1999, 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.
29
<PAGE>
Notes to Consolidated Statements Thistle Group Holdings, Co. and Subsidiaries
Years Ended December 31, 1999, 1998 and 1997
(Dollars in thousands, except per share data) (continued)
<TABLE>
<CAPTION>
Well-Capitalized
Required for Under Prompt
Capital Adequacy Corrective Action
Actual Purposes Provisions
------------------------------------------------------------------
Amount Ratio Amount Ratio Amount Ratio
------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
At December 31, 1999:
Tangible $57,781 10.6% $ 8,214 1.5% N/A N/A
Core (Leverage) 57,781 10.6 16,429 3.0 $27,381 5.0%
Tier 1 risk-based 57,781 30.2 N/A N/A 32,857 6.0
Total risk-based 59,015 30.9 15,296 8.0 19,120 10.0
Well-Capitalized
Required for Under Prompt
Capital Adequacy Corrective Action
Actual Purposes Provisions
------------------------------------------------------------------
Amount Ratio Amount Ratio Amount Ratio
------------------------------------------------------------------
At December 31, 1998:
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
</TABLE>
Capital at December 31, 1999 for financial statement purposes differs from
tangible, core (leverage), and Tier 1 risk-based capital amounts by $12,247
representing the exclusion of unrealized loss on securities available for sale
and $29,126 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, 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.
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 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. On November 18, 1999, the Board of Directors elected to
terminate the defined benefit pension plan effective December 31, 1999 and is
currently waiting for approval of such termination from the Internal Revenue
Service. The amounts shown for December 31, 1999 are after the effect of
curtailment. The curtailment will not result in any additional funding or
expenses for the Company.
The following table sets forth the plan's net periodic pension cost at
December 31, 1999, 1998 and 1997:
1999 1998 1997
--------------------------
Service cost--benefits earned
during the period $103 $106 $ 95
Interest cost on projected
benefit obligation 97 119 103
Actual return on plan assets (70) (97) (81)
Net amortization and deferral (9) (17) (19)
--------------------------
Net periodic pension cost $121 $111 $ 98
--------------------------
30
<PAGE>
The following table sets forth the plan's prepaid pension asset at December
31, 1999 and 1998:
1999 1998
------------------
Actuarial present value of benefit obligations:
Vested benefits $1,168 $1,602
Nonvested benefits 4
------------------
Accumulated benefit obligation 1,168 1,606
Effect of future salary increases 588
------------------
Projected benefit obligation 1,168 2,194
Plan assets at fair value 1,408 1,852
------------------
Plan assets greater than (less than)
projected benefit obligation 240 (342)
Unrecognized:
Prior service cost 24
Net loss from past experience 1 518
Net asset at date of transition (52) (59)
------------------
Prepaid pension asset $ 189 $ 141
------------------
The following table sets forth a reconciliation of beginning and ending
balances of the benefit obligation:
Year Ended
December 31,
1999 1998
--------------------
Balance, beginning $2,194 $1,852
Service cost 103 106
Interest cost 97 115
Actuarial gains and losses 41 50
Benefits paid (710) (42)
Plan amendments 113
Reduction due to curtailment (557)
--------------------
Balance, ending $1,168 $2,194
--------------------
The following table sets forth a reconciliation of beginning and ending
balances of the fair value of plan assets:
Year Ended
December 31,
1999 1998
--------------------
Balance, beginning $1,852 $1,631
Actual return on plan assets 70 97
Contributions by employer 196 166
Benefits paid (710) (42)
--------------------
Balance, ending $1,408 $1,852
--------------------
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% for the years ended December 31, 1999 and
1998, respectively. The expected long-term rate of return on assets was 6.0% for
1999 and 1998, 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 and $463 in 1997. As of July 1998,
contributions to the profit-sharing plan were suspended. Plan assets consist
primarily of a diversified stock portfolio.
Effective January 1, 2000, the Company amended the profit-sharing plan and
instituted a 401(k) defined contribution plan which provides for pre-tax
contributions by eligible employees with matching contributions at the
discretion of the Board of Directors.
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 accordance
with AICPA Statement of Position 93-6, Employers' Accounting for Employee Stock
Ownership Plans, which requires the Company to recognize compensation expense
equal to the fair value of the ESOP shares during the periods in which they
become committed to be released. To the extent that the fair value of the ESOP
shares differs from the cost of such shares, this differential is charged or
credited to equity as additional paid-in capital. Management expects the
recorded amount of expense to fluctuate as continuing adjustments are made to
reflect changes in the fair value of the ESOP shares. As of December 31, 1999,
62,850 shares were committed to be released of which 41,900 shares have not yet
been allocated to participant accounts.
The Company recorded compensation and employee benefit expense related to the
ESOP of $350 and $200 for the years ended December 31, 1999 and 1998,
respectively.
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
reorganization, the options were adjusted to reflect the exchange ratio (see
Note 1). At December 31, 1999, options outstanding under the 1994 and 1992 Plans
totaled 66,623 with an exercise price ranging from $1.80 to $2.07.
During the year ended December 31, 1999, the stockholders of the Company
approved the adoption of the 1999 Stock Option Plan. Common stock totaling
785,637 shares has been reserved for issuance under the Plan. An aggregate of
502,985 shares have been granted to the Company's executive officers,
non-employee directors and other key employees subject to vesting and other
provisions of the Plan.
31
<PAGE>
Notes to Consolidated Statements Thistle Group Holdings, Co. and Subsidiaries
Years Ended December 31, 1999, 1998 and 1997
(Dollars in thousands, except per share data) (continued)
The following table summarizes transactions regarding the stock option
plans:
<TABLE>
<CAPTION>
Weighted Weighted
Number Average Average
of Exercise Exercise Remaining
Option Price Price Contractual
Shares Range Per Share Life
-----------------------------------------------------
<S> <C> <C> <C>
Outstanding at January 1, 1997 222,064 $1.80-$2.07 $1.94
Granted
Canceled
Exercised
---------------------------------------
Outstanding at December 31, 1997 222,064 $1.80-$2.07 $1.94 72 months
---------------------------------------
Exercisable at December 31, 1997 222,064 $1.80-$2.07 $1.94
---------------------------------------
Granted
Canceled
Exercised
---------------------------------------
Outstanding at December 31, 1998 222,064 $1.80-$2.07 $1.94 60 months
---------------------------------------
Exercisable at December 31, 1998 222,064 $1.80-$2.07 $1.94
---------------------------------------
Granted 502,985 $7.00-$8.94 $8.88
Canceled
Exercised 155,441 $1.80-$2.07 $1.93
---------------------------------------
Outstanding at December 31, 1999 569,608 $1.80-$8.94 $8.07 112 months
---------------------------------------
Exercisable at December 31, 1999 460,231 $1.80-$8.94 $7.93
---------------------------------------
</TABLE>
The Company applies APB Opinion No. 25 in accounting for stock options and,
accordingly, no compensation expense has been recognized in the financial
statements. Had the Company determined compensation expense based on the fair
value at the grant date for its stock options under SFAS No. 123, the Company's
net income and income per share would have been reduced to the pro forma amounts
indicated below:
December 31,
1999
------------
Net income:
As reported $5,348
Pro forma 4,667
Net income per common and common equivalent share:
Earnings per common share
As reported $ 0.72
Pro forma $ 0.63
Weighted average fair value of
options granted during the period $ 1.77
The binomial option-pricing model was used to determine the grant date fair
value of options. Significant assumptions used to calculated the above fair
value of the awards are as follows:
December 31,
1999
-------------
Risk free interest rate of return 6.50%
Expected option life (months) 120
Expected volatility 27.11%
Expected dividends 3.4%
Restricted Stock 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 the year ended December 31, 1997. All shares are
fully vested.
During the year ended December 31, 1999, the stockholders of the Company
approved the adoption of the 1999 Restricted Stock Plan ("RSP"). There are
314,254 shares authorized under the RSP. As of December 31, 1999, the Company
had outstanding awards aggregating to 243,460 shares to the Company's Board of
Directors, executive officers and other key employees subject to vesting and
other provisions of the RSP. At December 31, 1999, the deferred cost of the
unearned RSP shares totaled $2,542 and is recorded as a charge against
stockholders' equity. Compensation expense will be recognized ratably over a
five year vesting period for executive officers and other key employees and over
a four year vesting period for non-employee directors. For the year ended
December 31, 1999, the Company recognized compensation and employee benefit
expense of $219 related to the RSP.
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
32
<PAGE>
relating to this benefit was approximately $179, $328 and $184 for the years
ended December 31, 1999, 1998 and 1997, respectively.
14. SHAREHOLDER RIGHTS PLAN
On September 13, 1999, the Company's Board of Directors adopted a Shareholder
Rights Plan. Under the Plan, each shareholder of record at the close of business
on September 30, 1999 received a dividend distribution of one Right for each
outstanding share of common stock. The Rights expire on September 13, 2009 and
thereafter have no further value. They are redeemable by the Board of Directors
at a price of $.01 per Right at any time within the ten year period until a
person or group has acquired 15% or more of the then outstanding common stock.
The rights will be exercisable only if a person or group acquires 15% or more of
the Company's common stock or announces a tender offer, the consummation of
which would result in ownership by a person or group of 15% of the common stock.
15. 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,
1999 1998
-----------------------------------------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
-----------------------------------------------------
<S> <C> <C> <C> <C>
Assets:
Cash and cash equivalents $ 37,197 $ 37,197 $ 26,136 $ 26,136
Investments held to maturity 54,129 53,958
Investments available for sale 115,463 115,463 20,274 20,274
Mortgage-backed securities available for sale 204,706 204,706 229,883 229,883
Loans receivable 157,233 154,756 133,908 135,906
Loans held for sale 3,925 3,925 2,558 2,558
Federal Home Loan Bank stock 8,844 8,844 5,344 5,344
Liabilities:
NOW, MMDA and Passbook accounts 127,861 127,861 132,636 132,636
Certificate accounts 164,758 164,224 143,764 144,389
FHLB Advances 176,884 150,225 106,884 121,250
Other borrowings 3,000 3,000
</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.
Other Borrowings--As the borrowing is variable rate, the carrying value is a
reasonable estimate of fair value.
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.
The fair value estimates presented herein are based on pertinent information
available to management as of December 31, 1999 and 1998. 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.
33
<PAGE>
Notes to Consolidated Statements Thistle Group Holdings, Co. and Subsidiaries
Years Ended December 31, 1999, 1998 and 1997
(Dollars in thousands, except per share data) (continued)
16. PARENT COMPANY FINANCIAL INFORMATION
Condensed financial statements of Thistle Group Holdings, Co. are as
follows:
Condensed Statements of Financial Condition
December 31,
1999 1998
---------------------
Assets
Cash and cash equivalents $ 5,139 $ 13,390
Investments available for sale 3,651 18,989
Investment in subsidiaries 61,458 61,537
Loans receivable 8,199 6,075
Accrued interest receivable 356
Prepaid expenses and other assets 103 556
---------------------
Total assets $78,550 $100,903
---------------------
Liabilities and Stockholders' Equity
Other borrowings $ 3,000
Dividends payable 467 $ 450
Other liabilities 423 224
---------------------
Total liabilities 3,890 674
---------------------
Stockholders' equity 74,660 100,229
---------------------
Total liabilities and stockholders' equity $78,550 $100,903
---------------------
Condensed Statements of Income
Year Ended
December 31,
1999 1998
----------------------
Income:
Interest on loans $ 521 $ 215
Interest and dividends on investments 558 374
Gain on sale of investments 262 8
----------------------
Total income 1,341 597
----------------------
Interest on other borrowings 78
----------------------
Operating expenses 150 23
----------------------
Income before income taxes and equity
in undistributed income of subsidiaries 1,113 574
Income tax expense 347 176
----------------------
Income before equity in undistributed
income of subsidiaries 766 398
Equity in undistributed income of subsidiaries4,582 1,952
----------------------
Net income $ 5,348 $ 2,350
----------------------
Condensed Statements of Cash Flows
Year Ended
December 31,
1999 1998
----------------------
Operating activities:
Net income $ 5,348 $ 2,350
Adjustments to reconcile net income to
net cash provided by operating activities:
(Equity in) undistributed earnings
of subsidiary (4,582) (1,952)
Gain on sale of investments (262) (8)
Decrease (increase) in other assets 809 (912)
Increase in other liabilities 216 452
----------------------
Net cash provided by (used in)
operating activities 1,529 (70)
----------------------
Investing activities:
Purchase of investments (6,600) (14,820)
Increase in loans receivable (2,124) (6,075)
Proceeds from the sale of investments 5,895 2,147
Dividends received from subsidiaries 4,800 900
----------------------
Net cash provided by (used in)
investing activities 1,971 (17,848)
----------------------
Financing activities:
Net proceeds from stock offering 70,624
Proceeds from other borrowings 3,000
Capital contribution to subsidiary (38,632)
Purchase of treasury stock (13,326)
Dividends paid (1,725) (900)
Net proceeds from exercise of
stock options 300
----------------------
Net cash (used in) provided by
financing activities (11,751) 31,092
----------------------
(Decrease) increase in cash (8,251) 13,174
Cash, beginning of year 13,390 216
----------------------
Cash, end of year $ 5,139 $ 13,390
----------------------
Supplemental Disclosure:
Noncash transfer of investments
to subsidiary $ 16,162
34
<PAGE>
17. QUARTERLY FINANCIAL DATA (Unaudited)
Unaudited quarterly financial data for the years ended December 31, 1999
and 1998 is as follows:
<TABLE>
<CAPTION>
1999 1998
----------------------------------------------------------------------------------
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 $7,770 $8,311 $8,924 $9,153 $4,827 $4,984 $6,575 $7,296
Interest expense 4,300 4,688 5,167 5,517 2,626 2,777 3,324 4,206
----------------------------------------------------------------------------------
Net interest income 3,470 3,623 3,757 3,636 2,201 2,207 3,251 3,090
Provision for loan losses 30 120 45 45 15 15 15 225
----------------------------------------------------------------------------------
Net interest income after provision for loan losses 3,440 3,503 3,712 3,591 2,186 2,192 3,236 2,865
----------------------------------------------------------------------------------
Non-interest income 148 400 146 257 124 143 134 14
Non-interest expense 1,921 2,067 2,276 1,957 1,644 1,639 1,953 1,839
----------------------------------------------------------------------------------
Income before taxes 1,667 1,836 1,582 1,891 666 696 1,417 1,040
Provision for income taxes 462 427 292 447 243 272 524 430
----------------------------------------------------------------------------------
Net income $1,205 $1,409 $1,290 $1,444 $ 423 $ 424 $ 893 $ 610
----------------------------------------------------------------------------------
Per share:
Earnings per share--basic $ 0.16 $ 0.19 $ 0.18 $ 0.20 $ 0.10 $ 0.07
Earnings per share--diluted 0.15 0.19 0.18 0.20 0.09 0.07
Common stock price range of the Company:
High 9.94 9.25 9.00 7.69 10.06 9.81
Low 8.50 8.25 7.00 6.62 7.50 7.75
</TABLE>
Independent Auditors' Report
To the Board of Directors of
Thistle Group Holdings, Co. and Subsidiaries:
We have audited the accompanying consolidated statements of financial
condition of Thistle Group Holdings, Co. and subsidiaries (the "Company") as of
December 31, 1999 and 1998, and the related consolidated statements of income,
changes in stockholders' equity and cash flows for each of the three years in
the period ended December 31, 1999. 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 subsidiaries at December 31, 1999 and 1998, and the results of
their operations and their cash flows for each of the three years in the period
ended December 31, 1999 in conformity with generally accepted accounting
principles.
/s/ Deloitte & Touche LLP
Philadelphia, Pennsylvania
January 24, 2000
35
<PAGE>
Corporate Information Thistle Group Holdings, Co. and Subsidiaries
<TABLE>
<CAPTION>
Headquarters
<S> <C> <C>
Thistle Group Holdings, Co. Market Makers Branch Offices
6060 Ridge Avenue
Philadelphia, Pennsylvania 19128 Sandler O'Neill & Partners 6060 Ridge Avenue
F.J. Morrissey & Co., Inc. Philadelphia, Pennsylvania 19128
Annual Shareholders' Meeting Tucker Anthony Inc. (215) 483-2800
Trident Securities, Inc.
Thistle Group Holdings, Co.'s Friedman Billings Ramsey & Co., Inc. 7568 Ridge Avenue
Annual shareholders' meeting will Ryan Beck & Co., Inc. Philadelphia, Pennsylvania 19128
be held on April 19, 2000 at 9:30 a.m. (215) 483-1434
at the Williamson's restaurant atop the Annual Report & Form 10-K
GSBBuilding, One Belmont Avenue 8345 Ridge Avenue
Philadelphia, Pennsylvania. Copies of Thistle Group Philadelphia, Pennsylvania 19128
Holdings, Co.'s Annual Report and (215) 483-1200
Dividend Reinvestment Plan Form 10-K are available without
charge by writing: 4370 Main Street
Thistle Group Holdings, Co. offers Philadelphia, Pennsylvania 19127
its shareholders a convenient method Thistle Group Holdings, Co. (215) 483-1500
of increasing their investment in Shareholder Relations
the Company. Through the Automatic 6060 Ridge Avenue 1024 Church Lane
Dividend Reinvestment Plan stock- Philadelphia, Pennsylvania 19128 Yeadon, Pennsylvania 19151
holders may have their dividends and (610) 622-4567
optional cash contributions of Stock Listing
between $100 and $1000 per quarter 6503-15 Haverford Avenue
reinvested in additional common Shares of Thistle Group Holdings, Philadelphia, Pennsylvania 19151
shares without incurring brokerage Co.'s common stock are traded on (215) 748-6312
commissions or service charges. Share- The Nasdaq Stock Market under
holders not enrolled in this plan, as the symbol THTL.
well as brokers and custodians who
hold stock for clients, may receive a Transfer Agent and Registrar
copy of the plan and enrollment card
by contacting Registrar and Transfer Registrar and Transfer Company
Investor Relations Department at 10 Commence Street
(800) 368-5948 or Pam Cyr, Vice Cranford, NewJersey 07016
President, Finance at (215)483-2800.
Independent Auditors
Deloitte & Touche LLP
24th Floor
1700 Market Street
Philadelphia, Pennsylvania 19103-3984
Special Counsel
Malizia, Spidi, & Fisch, P.C.
One Franklin Square
1301 K Street, N.W., Suite 700 East
Washington, D.C. 20005
</TABLE>
36
Exhibit 21
<PAGE>
<TABLE>
<CAPTION>
Subsidiaries of the Registrant
Jurisdiction of Incorporation Name under which
Name or Origination business is conducted
- ---- -------------- ---------------------
<S> <C> <C>
Roxborough-Manayunk Bank United States (2)
TGH Corp. Delaware (2)
Montgomery Services Corporation(1) Pennsylvania (2)
Ridge Service Corporation(1) Pennsylvania (2)
Roxdel Corp(1) Delaware (2)
</TABLE>
- -------------------------
(1) Subsidiary of Roxborough-Manayunk Bank.
(2) Same as corporate name.
Exhibit 23
<PAGE>
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statement Nos.
333-67655 and 333-84347 of Thistle Group Holdings, Co. on Forms S-8 of our
report dated January 24, 2000, incorporated by reference in this Annual Report
on Form 10-K of Thistle Group Holdings, Co. for the year ended December 31,
1999.
/s/Deloitte & Touche LLP
DELOITTE & TOUCHE LLP
Philadelphia, Pennsylvania
March 29, 2000
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
ANNUAL REPORT ON FORM 10-K 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-31-1999
<PERIOD-END> DEC-31-1999
<CASH> 19,494
<INT-BEARING-DEPOSITS> 17,703
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 320,169
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 157,233
<ALLOWANCE> 1,234
<TOTAL-ASSETS> 544,759
<DEPOSITS> 292,619
<SHORT-TERM> 0
<LIABILITIES-OTHER> 187,480
<LONG-TERM> 0
0
0
<COMMON> 900
<OTHER-SE> 73,760
<TOTAL-LIABILITIES-AND-EQUITY> 554,759
<INTEREST-LOAN> 11,443
<INTEREST-INVEST> 0
<INTEREST-OTHER> 22,715
<INTEREST-TOTAL> 34,158
<INTEREST-DEPOSIT> 11,676
<INTEREST-EXPENSE> 19,672
<INTEREST-INCOME-NET> 14,486
<LOAN-LOSSES> 240
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 8,221
<INCOME-PRETAX> 6,976
<INCOME-PRE-EXTRAORDINARY> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,348
<EPS-BASIC> .73
<EPS-DILUTED> .72
<YIELD-ACTUAL> 2.87
<LOANS-NON> 223
<LOANS-PAST> 223
<LOANS-TROUBLED> 104
<LOANS-PROBLEM> 2,125
<ALLOWANCE-OPEN> 1,036
<CHARGE-OFFS> (42)
<RECOVERIES> 0
<ALLOWANCE-CLOSE> 1,234
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
