THISTLE GROUP HOLDINGS CO - 10-K Annual Report

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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.
---------------------------------------
(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
----

Securities registered pursuant to Section 12(g) of the Act:

Common Stock, par value $.10 per share
--------------------------------------
(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)

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
- -----------------

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

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

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.

At December 31,
--------------------------------------------------------------------------------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
$ % $ % $ % $ % $ %
------ ----- ----- ----- ----- ----- ----- ----- ----- -----
(Dollars in Thousands)

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
======= ======= ====== ====== =======

- ---------------------
(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

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

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

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

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.

Multi-Family
Residential and
and Commercial
Home Equity Real Estate Construction Consumer Commercial Total
----------- ----------- ------------ -------- ---------- -----
(In Thousands)

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
======= ====== ===== === ===== =======

7

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.

Floating or
Fixed Rates Adjustable Rates Total
----------- ---------------- -------
(In Thousands)

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
======= ====== =======

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

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.

Year Ended December 31,
-------------------------------------------------------------
1999 1998 1997 1996 1995
--------- --------- --------- --------- ---------

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
========= ========= ========= ========= =========

9

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

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.

At December 31,
----------------------------------------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
(In Thousands)

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%
====== ====== ====== ====== ======

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

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:

At December 31,
----------------------------------------------------------------------
1999 1998 1997 1996 1995
----------- ------------ ------------- ------------ ------------
(Dollars in Thousands)

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%

- -----------------------
(1) Does not include loans available for sale.

12

The following table sets forth certain information regarding the allocation
of the allowance for loan losses by type.

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)

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%
====== ====== ====== ====== ====== ====== ===== ====== ====== ======

- ----------------------
(1) Includes residential construction loans.
(2) At December 31, 1995, includes loans secured by commercial equipment
leases.

13

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

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

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.

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
----- ----- ----- ----- ----- ----- ----- ----- ----- ----- -----

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
===== ==== === ==== ====== ==== ======= ==== ======= ==== =======

- --------------------
(1) Consists of FNMA and FHLMC debentures and certificates of deposit.
(2) Tax exempt securities are presented on a coupon basis.

16

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

Deposit Portfolio. Deposits in the Company as of December 31, 1999, were
represented by various types of savings programs described below.

Minimum Balance as of Percentage of
Category Term Interest Rate(1) Balance Amount December 31, 1999 Total Deposits
- -------- ---- ---------------- -------------- ----------------- --------------
(In Thousands)

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
=======

- -------------------------
(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

Time Deposits Maturity Schedule. The following table sets forth the amount
and maturities of time deposits at December 31, 1999.

Amount Due
-----------------------------------------------------------------
December 31, December 31, December 31, December 31,
Interest Rate 2000 2001 2002 2003 Total
- ------------- -------------- ------------ ------------- ------------- -------
(In Thousands)

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
======= ====== ====== ===== =======

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

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

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

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

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

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

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

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

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

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

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.

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