SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2002
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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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
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(State or other jurisdiction of (IRS employer identification no.)
incorporation or organization)
6060 Ridge Avenue, Philadelphia, Pennsylvania 19128
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (215) 483-2800
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N/A
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Former name, former address and former fiscal year,
if changed since last report.
Indicate by check whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
--- ---
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date, August 14, 2002.
Class Outstanding
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$.10 par value common stock 5,347,655
THISTLE GROUP HOLDINGS, CO. AND SUBSIDIARIES
FORM 10-Q
FOR THE QUARTER ENDED JUNE 30, 2002
INDEX
Page
Number
------
PART I - UNAUDITED CONDENSED CONSOLIDATED FINANCIAL INFORMATION OF
THISTLE GROUP HOLDINGS, CO. AND SUBSIDIARIES
Item 1. Unaudited Condensed Consolidated Financial Statements and Notes Thereto..........3
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.............................................10
Item 3. Quantitative and Qualitative Disclosures about Market Risk......................14
PART II - OTHER INFORMATION
Item 1. Legal Proceedings...............................................................15
Item 2. Changes in Securities...........................................................15
Item 3. Defaults upon Senior Securities.................................................15
Item 4. Other Information...............................................................15
Item 5. Exhibits and Reports on Form 8-K................................................15
SIGNATURES .............................................................................16
THISTLE GROUP HOLDINGS, CO. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(IN THOUSANDS)
June 30, 2002 December 31, 2001
--------------- -----------------
ASSETS
Cash on hand and in banks ...................................................... $ 2,830 $ 3,909
Interest-bearing deposits ...................................................... 28,362 18,814
---------- ------
Total cash and cash equivalents .............................. 31,192 22,723
Investments held to maturity
(approximate fair value of $51,978 and $62,558).............. 51,385 63,824
Investments available for sale at fair value
(amortized cost of $16,165 and $16,654) ...................... 16,186 16,078
Mortgage-backed securities available for sale at fair value
(amortized cost of $296,850 and $295,998) .................... 303,389 299,216
Trading securities.............................................................. 47,711 14,261
Loans receivable (net of allowance for loan losses of
$2,023 and $2,511) ........................................... 291,795 259,220
Accrued interest receivable .................................................... 4,231 4,056
FHLB stock - at cost ........................................................... 8,844 8,844
Real estate acquired through foreclosure - net ................................. 2,052 81
Office properties and equipment - net .......................................... 6,732 6,340
Cash surrender value of life insurance ......................................... 14,862 12,563
Excess of cost over fair value of net assets acquired .......................... 7,318 7,680
Prepaid expenses and other assets .............................................. 4,887 4,240
Prepaid income taxes............................................................ 770 538
Deferred income taxes .......................................................... -- 744
---------- ---------
TOTAL ASSETS ................................................. $ 791,354 $ 720,408
========== =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits ....................................................................... $ 466,258 $ 431,583
Accrued interest payable ....................................................... 896 918
Advances from borrowers for taxes and insurance ................................ 2,049 2,571
FHLB advances .................................................................. 176,884 176,884
Payable to brokers and dealers ................................................. 47,628 14,109
Accounts payable and accrued expenses .......................................... 8,564 7,360
Other borrowings ............................................................... 4,500 1,000
Dividends payable .............................................................. 429 528
Deferred income taxes........................................................... 601 --
---------- ---------
TOTAL LIABILITIES ............................................ 707,809 634,953
---------- ---------
Company-obligated manditorily redeemable preferred securities of a subsidiary
trust holding solely junior subordinated debentures of the Company.............. 10,000 --
Commitments and Contingencies
Stockholders' Equity:
Preferred stock, no par value - 10,000,000 shares authorized,
none issued in 2002 and 2001 ................................................... -- --
Common stock - $.10 par, 40,000,000 shares authorized, 8,999,989
issued in 2002 and 2001; 5,367,655 outstanding June 30, 2002
and 6,607,955 outstanding December 31, 2001 .................................... 900 900
Additional paid-in capital ..................................................... 92,881 92,889
Common stock acquired by stock benefit plans ................................... (5,960) (6,383)
Treasury stock at cost, 3,632,334 shares at June 30, 2002 and
2,392,034 shares at December 31, 2001 .......................................... (37,773) (21,626)
Accumulated other comprehensive income.......................................... 3,934 1,286
Retained earnings - partially restricted ....................................... 19,563 18,389
---------- ---------
Total stockholders' equity ................................... 73,545 85,455
---------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY ..................................... $ 791,354 $ 720,408
========== =========
See notes to unaudited condensed consolidated financial statements.
3
Thistle Group Holdings, Co. and subsidiaries
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS)
For the Three Months For the Six Months
Ended June 30, Ended June 30,
------------------------ ------------------------
2002 2001 2002 2001
INTEREST INCOME:
Interest on loans..................................... $ 5,368 $ 4,606 $ 10,372 $ 9,280
Interest on mortgage-backed securities................ 4,058 4,421 8,141 8,888
Interest and dividends on investments................. 1,352 2,268 2,793 4,777
--------- --------- --------- ---------
Total interest income............................. 10,778 11,295 21,306 22,945
--------- --------- --------- ---------
INTEREST EXPENSE:
Interest on deposits.................................. 3,439 4,581 6,886 9,369
Interest on borrowed money............................ 2,481 2,471 4,863 4,838
--------- --------- --------- ---------
Total interest expense............................ 5,920 7,052 11,749 14,207
--------- --------- --------- ---------
NET INTEREST INCOME 4,858 4,243 9,557 8,738
PROVISION FOR LOAN LOSSES................................ 200 120 350 240
--------- --------- --------- ---------
NET INTEREST INCOME AFTER PROVISION
FOR LOAN LOSSES....................................... 4,658 4,123 9,207 8,498
--------- --------- --------- ---------
OTHER INCOME:
Service charges and other fees........................ 215 211 463 407
Gain on sale of real estate owned..................... 6 -- 6 --
Gain on sale of mortgage-backed securities............ 356 141 356 141
Gain (loss) on sale of loans.......................... 177 -- 177 (11)
Loss on sale of investments........................... (539) -- (539) --
Loss on SBIC investments -- (57) -- (303)
Rental income......................................... 51 46 106 96
Trading revenues from brokerage operations............ 683 535 982 895
Miscellaneous other income............................ -- -- -- 83
--------- --------- --------- ---------
Total other income................................ 949 876 1,551 1,308
--------- --------- --------- ---------
OTHER EXPENSES:
Salaries and employee benefits........................ 2,142 1,895 3,929 3,679
Occupancy and equipment............................... 660 559 1,331 1,151
Federal insurance premium............................. 18 21 36 41
Professional fees..................................... 92 102 397 213
Advertising and promotion............................. 99 80 202 174
Amortization of excess of cost over fair value
of assets acquired.................................... 180 180 360 360
Interest on redeemable preferred securities........... 137 -- 137 --
Other................................................. 865 761 1,763 1,632
--------- --------- --------- ---------
Total other expenses.............................. 4,193 3,598 8,155 7,250
--------- --------- --------- ---------
INCOME BEFORE INCOME TAXES............................... 1,414 1,401 2,603 2,556
--------- --------- --------- ---------
INCOME TAXES............................................. 279 256 476 435
--------- --------- --------- ---------
NET INCOME............................................... $ 1,135 $ 1,145 $ 2,127 $ 2,121
========= ========= ========= =========
BASIC EARNINGS PER SHARE................................. $ .19 $ .17 $ .35 $ .32
DILUTED EARNINGS PER SHARE............................... $ .19 $ .17 $ .35 $ .32
WEIGHTED AVERAGE SHARES
OUTSTANDING - BASIC................................... 5,914,161 6,541,185 6,015,890 6,546,716
WEIGHTED AVERAGE SHARES
OUTSTANDING - DILUTED................................. 6,037,151 6,581,352 6,116,971 6,590,439
See notes to unaudited condensed consolidated financial statements.
4
THISTLE GROUP HOLDINGS, CO. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
For the Six Months
Ended June 30,
----------------------
2002 2001
OPERATING ACTIVITIES:
Net income.................................................................. $ 2,127 $ 2,121
Adjustments to reconcile net income to net cash provided
by (used in) operating activities:
Provision for loan losses................................................ 350 240
Depreciation............................................................. 630 499
Amortization of stock benefit plans...................................... 457 445
Amortization of excess of cost over fair value of net assets acquired.... 360 360
Amortization of net premiums (discounts) on:
Loans purchased........................................................ 43 36
Investments............................................................ (451) (523)
Mortgage-backed securities............................................. 1,975 547
(Gain) loss on sale of loans............................................. (177) 11
Gain on sale of mortgage-backed securities............................... (356) (141)
Loss on sale of investments.............................................. 539 --
(Gain) on sale of real estate owned...................................... (6) --
Net decrease in trading securities....................................... (33,450) (7,146)
Increase in other assets................................................. (3,399) (1,344)
Increase in other liabilities............................................ 34,604 6,867
-------- -------
Net cash provided by operating activities................................... 3,246 1,972
-------- -------
INVESTING ACTIVITIES:
Principal collected on:
Mortgage-backed securities............................................... 70,257 45,175
Loans.................................................................... 45,593 25,999
Loans originated............................................................ (87,097) (51,001)
Purchases of:
Investments ............................................................. (4,744) (75)
Mortgage-backed securities............................................... (94,518) (67,048)
Office properties and equipment.......................................... (1,022) (939)
Proceeds from the sale of mortgage-backed securities........................ 21,790 11,377
Proceeds from the sale of investments....................................... 15,570 --
Proceeds from the sale of loans............................................. 6,722 3,199
Proceeds from the sale of real estate owned................................. 72 --
Maturities and calls of investments......................................... 2,075 24,632
-------- -------
Net cash used in investing activities....................................... (25,302) (8,681)
--------- -------
FINANCING ACTIVITIES:
Net increase in deposits.................................................... 34,675 10,351
Net decrease in advances from borrowers for taxes and insurance............. (522) (626)
Net increase in other borrowings............................................ 3,500 750
Issuance of capital securities.............................................. 10,000 --
Purchase of treasury stock.................................................. (16,237) (1,858)
Net proceeds from exercise of stock options................................. 62 --
Cash dividends.............................................................. (953) (981)
--------- --------
Net cash provided by financing activities................................... 30,525 7,636
-------- -------
Net increase in cash and cash equivalents................................... 8,469 927
Cash and cash equivalents, beginning of period.............................. 22,723 20,320
-------- -------
Cash and cash equivalents, end of period.................................... $ 31,192 $21,247
======== =======
SUPPLEMENTAL DISCLOSURES
Interest paid on deposits and funds borrowed................................ $ 11,908 $14,283
Income taxes paid........................................................... 870 468
Noncash transfers from loans to real estate owned........................... 2,830 47
Noncash transfer of investments from available for sale to held to maturity. -- 75,446
See notes to unaudited condensed consolidated financial statements.
5
THISTLE GROUP HOLDINGS, CO. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
NOTE 1 - PRINCIPLES OF CONSOLIDATION
Thistle Group Holdings, Co., (the "Company") organized in March of 1998, has
four wholly owned subsidiaries: TGH Corp., TGH Securities, Thistle Group
Holdings Capital Trust I, and Roxborough Manayunk Bank (the "Bank"). The 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.
NOTE 2 - BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements were prepared in
accordance with instructions for Form 10-Q and, therefore, do not include all
information necessary for a complete presentation of consolidated financial
condition, results of operations, and cash flows in conformity with accounting
principles generally accepted in the United States of America. However, all
adjustments, consisting of normal recurring accruals, which, in the opinion of
management, are necessary for a fair presentation of the consolidated financial
statements, have been included. The results of operations for the three and
six-month periods ended June 30, 2002 are not necessarily indicative of the
results which may be expected for the entire fiscal year or any other future
interim period.
These unaudited consolidated financial statements should be read in conjunction
with the consolidated financial statements and related notes, which are included
in the Company's Annual Report to stockholders on Form 10-K for the year ended
December 31, 2001.
NOTE 3 - INVESTMENTS
Investments held to maturity at June 30, 2002 and December 31, 2001 consisted of
the following:
June 30, 2002 December 31, 2001
Amortized Approximate Amortized Approximate
Cost Fair Value Cost Fair Value
---------- ----------- ---------- ------------
FHLB and FHLMC bonds - more than 10 years.......... $ -- $ -- $15,201 $14,408
Municipal bonds - 5 to 10 years.................... 712 739 777 789
Municipal bonds - more than 10 years............... 50,673 51,239 47,846 47,361
------- ------- ------- -------
Total.............................................. $51,385 $51,978 $63,824 $62,558
======= ======= ======= =======
During the three months ended June 30, 2002, the Company sold $15,600 of FHLB
and FHLMC bonds, representing its entire portfolio of zero coupon agency
securities, previously classified as held to maturity, at a net loss of $709.
The Company executed the transaction to improve the interest-rate risk
characteristics of the Bank's balance sheet. The Company believes that the
transaction is isolated and nonrecurring.
Investments available for sale at June 30, 2002 and December 31, 2001 consisted
of the following:
June 30, 2002 December 31, 2001
Amortized Approximate Amortized Approximate
Cost Fair Value Cost Fair Value
---------- ----------- ---------- ------------
Mutual funds....................................... $ 1,552 $ 1,552 $ 1,530 $ 1,530
Capital trust securities........................... 9,058 8,118 9,077 8,040
Equity investments................................. 4,024 4,985 4,528 4,989
Other.............................................. 1,531 1,531 1,519 1,519
------- ------- ------- -------
Total.............................................. $16,165 $16,186 $16,654 $16,078
======= ======= ======= =======
6
NOTE 4 - MORTGAGE-BACKED SECURITIES AVAILABLE FOR SALE
Mortgage-backed securities at June 30, 2002 and December 31, 2001 consisted of
the following:
June 30, 2002 December 31, 2001
Amortized Approximate Amortized Approximate
Cost Fair Value Cost Fair Value
------------ ------------- ------------ --------------
GNMA pass-through certificates....................... $ 115,618 $ 118,871 $ 106,452 $ 108,837
FNMA pass-through certificates....................... 111,634 113,746 114,634 115,109
FHLMC pass-through certificates...................... 54,515 55,454 66,417 66,593
FHLMC collateralized mortgage obligations............ 3,685 3,737 3,904 3,904
FHLMC real estate mortgage investment conduits....... 11,398 11,581 4,591 4,773
--------- ---------- --------- ----------
Total................................................ $ 296,850 $ 303,389 $ 295,998 $ 299,216
========= ========== ========= ==========
NOTE 5 - TRADING SECURITIES
Trading securities are securities owned by TGH Securities, a wholly owned
broker/dealer subsidiary of the Company. Trading securities are recorded on a
trade date basis and are carried at fair value. These securities generally
consist of short-term municipal notes and bonds. Gains and losses, both realized
and unrealized, are included in operating income.
NOTE 6 - LOANS RECEIVABLE
Loans receivable at June 30, 2002 and December 31, 2001 consisted of the
following:
June 30, 2002 December 31, 2001
------------- -----------------
Mortgage loans:
1 - 4 family residential............................. $ 126,571 $ 125,504
Commercial real estate............................... 88,846 62,532
Home equity lines of credit and improvement loans............. 27,965 20,923
Commercial non-mortgage loans................................. 23,319 28,866
Construction loans - net...................................... 26,723 23,677
Loans on savings accounts..................................... 662 637
Consumer loans ............................................ 1,023 879
---------- ----------
Total loans.......................................... 295,109 263,018
---------- ----------
Plus: unamortized premiums.................................... 223 267
Less:
Net discounts on loans purchased..................... (13) (13)
Deferred loan fees................................... (1,501) (1,541)
Allowance for loan losses............................ (2,023) (2,511)
---------- ----------
Total $ 291,795 $ 259,220
========== ==========
NOTE 7 - DEPOSITS
The major types of deposits by amounts and percentages were as follows:
June 30, 2002 December 31, 2001
Amount % of Total Amount % of Total
---------- ---------- ----------- ----------
NOW accounts and
transaction checking $ 72,223 15.5% $ 47,372 11.0%
Money Market Demand accounts 41,334 8.9% 40,029 9.3%
Passbook accounts 118,536 25.4% 109,257 25.3%
Certificate accounts 234,165 50.2% 234,925 54.4%
---------- ----- ---------- -----
Total $ 466,258 100.0% $ 431,583 100.0%
========== ===== ========== =====
7
NOTE 8 - EARNINGS PER SHARE
Basic earnings per share excludes dilution and is computed by dividing income
available to common stockholders by the weighted-average number of common shares
outstanding for the period. Diluted earnings per share reflects the potential
dilution that could occur if securities or other contracts to issue common stock
were exercised or converted into common stock or resulted in the issuance of
common stock that then shared in the earnings of the Company.
NOTE 9 - COMPREHENSIVE INCOME
For the three and six-month periods ended June 30, 2002, the Company reported
total comprehensive (loss) income of approximately $1,100 and ($1,500)
respectively. For the three and six-month periods of the prior year, the Company
reported total comprehensive income of approximately $780 and $6,200
respectively. Items of other comprehensive income consisted of unrealized gains
or (losses), net of taxes, on available for sale securities and reclassification
adjustments for gains or (losses) included in net income.
NOTE 10 - DIVIDENDS
On June 19, 2002, the Company declared a dividend of $.08 per share payable July
15, 2002 to stockholders of record on June 30, 2002.
NOTE 11 - RECENT ACCOUNTING STANDARDS
In June 2001, the Financial Accounting Standards Board ("FASB") issued two new
pronouncements: SFAS No. 141, Business Combinations, and SFAS No. 142, Goodwill
and Other Intangible Assets. SFAS No. 141 is effective as follows: (a) use of
the pooling-of-interest method is prohibited for business combinations initiated
after June 30, 2001; and (b) the provisions of SFAS No. 141 also apply to all
business combinations accounted for by the purchase method that are completed
after June 30, 2001. SFAS No. 142 is effective for fiscal years beginning after
December 15, 2001 to all goodwill and other intangible assets recognized in an
entity's statement of financial position at that date, regardless of when those
assets were initially recognized. However, SFAS No. 142 does not change the
accounting prescribed for certain acquisitions by banking and thrift
institutions, resulting in continued amortization of the excess of cost over
fair value of net assets acquired under SFAS No. 72, Accounting for Certain
Acquisitions of Banking or Thrift Institutions. In October 2001, the FASB
decided to undertake a limited scope project to reconsider part of the guidance
in SFAS No. 72. In particular, the FASB decided to reconsider the provisions of
that statement that require recognition and amortization of an unidentifiable
intangible asset-an asset that is sometimes referred to in practice as "SFAS 72
goodwill". In March 2002, the FASB tentatively decided, that if the transaction
was a business combination and the core deposit intangible was separately
recognized, then preparers would cease amortization of all unidentifiable
intangible assets. The FASB decided that the final Statement would be effective
upon issuance with retroactive restatement for the nonamortization of the
unidentified intangible asset to the beginning of the fiscal year in which SFAS
No. 142 was applied in its entirety. At June 30, 2002, as the final Statement
has not yet been issued, the Company's "SFAS 72 goodwill" amounted to $7,318 and
was subject to amortization of $360 for the six months ended June 30, 2002.
In April 2002, the FASB issued SFAS No. 145, Rescission of FASB Statements No.
4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections.
The provisions of this statement related to the rescission of SFAS No. 4 are
effective for fiscal years beginning after May 15, 2002. Management has not
determined the impact of applying these provisions. Certain provisions of the
statement relating to SFAS No. 13 are effective for transactions occurring after
May 15, 2002. All other provisions of the statement are effective for financial
statements issued on or after May 15, 2002. These provisions had no impact on
the Company's financial statements.
In July 2002, the FASB issued Statement No. 146, Accounting for Costs Associated
with Exit or Disposal Activities. The standard requires companies to recognize
costs associated with exit or disposal activities when they are incurred rather
than at the date of a commitment to an exit or disposal plan. Examples of costs
covered by the standard include lease termination costs and certain employee
severance costs that are associated with a restructuring, discontinued
operation, plant closing, or other exit or disposal activity. Statement 146 is
to be applied prospectively to exit or disposal activities initiated after
December 31, 2002
NOTE 12 - CAPITAL SECURITIES
On March 26, 2002, the Company formed a wholly-owned subsidiary, Thistle Group
Holdings Capital Trust I, a Delaware business trust (the "Trust"). On April 10,
2002, the Trust sold $10.0 million of pooled floating rate capital securities
(the "Capital Securities") to MM Community Funding III, Ltd. with a stated value
and liquidation preference of $1,000 per share. The obligations of the Trust
under the Capital Securities are fully and unconditionally guaranteed by the
Company and the Trust has no independent operations. The entire proceeds from
the sale of the Capital Securities were used by the Trust to invest in floating
rate junior subordinated debt securities of the Company (the "Junior
Subordinated Debt"). The Junior Subordinated Debt is unsecured and ranks
subordinate and junior in right of payment to all indebtedness, liabilities and
8
obligations of the Company. The Junior Subordinated Debt is the sole asset of
the Trust. Interest on the Capital Securities is cumulative and payable
semi-annually in arrears. The Capital Securities mature in April 2032. The
Company has the right to optionally redeem the Junior Subordinated Debt prior to
the maturity date, but no sooner than five years after the issuance, at 100% of
the stated liquidation amount, plus accrued and unpaid distributions, if any, on
the redemption date. Upon the occurrence of certain events, the Company has the
right to redeem the Junior Subordinated Debt in whole, but not in part, at a
special redemption price before five years have elapsed. Proceeds from any
redemption of the Junior Subordinated Debt will cause a mandatory redemption of
Capital Securities having an aggregate liquidation amount equal to the principal
amount of the Junior Subordinated Debt redeemed. Additionally, under the terms
of the Junior Subordinated Debt, the Company will have the right, with certain
limitations, to defer the payment of interest on the Junior Subordinated Debt at
any time for a period not exceeding twenty consecutive quarterly periods.
Consequently, distributions on the Capital Securities would be deferred and
accumulate interest, compounded quarterly. The Capital Securities were issued
without registration under the Securities Act of 1933, as amended, in reliance
upon an exemption from registration as provided by Regulation S.
NOTE 13 - TENDER OFFER
During the quarter, the Company completed its Issuer Tender Offer ("ITO"),
repurchasing 1,129,000 shares at a price of $13.00 per share. The Company's ITO
expired at midnight on the evening of June 20, 2002.
9
THISTLE GROUP HOLDINGS, CO. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The Private Securities Litigation Reform Act of 1995 contains safe harbor
provisions regarding forward-looking statements. When used in this discussion,
the words "believes", "anticipates", "contemplates", "expects", and similar
expressions are intended to identify forward-looking statements. Such statements
are subject to certain risks and uncertainties, which could cause actual results
to differ materially from those projected. Those risks and uncertainties include
changes in interest rates, risks associated with the effect of opening a new
branch, the ability to control costs and expenses, new legislation and
regulations and general market conditions.
Overview
- --------
The Company is having outstanding success collecting core deposit (checking,
money market and passbook) accounts and originating new loan accounts. Robust
deposit growth continues with total deposits at June 30, 2002 exceeding $466
million up $49 million from $417 million a year ago. Loans outstanding increased
$51 million to $292 million from $241 million a year ago. Of such increase,
commercial real estate and commercial loans increased $38 million and home
equity loans and lines increased $10 million. The ability to implement the
Company's plan of loan origination and core deposit growth is firmly in place
and now successfully being implemented through a thirteen banking office
franchise.
(Dollars in Thousands)
6/30/02 6/30/01 % Increase
Deposits $ 466,000 $ 417,000 12%
Core Deposits 232,000 178,000 29%
Loans 292,000 241,000 21%
All of the growth in deposits has been in core deposits. The Company's focus is
on building lasting relationships on both the retail and commercial levels.
LINKED QUARTER HIGHLIGHTS
(Dollars in Thousands)
QTR QTR INCREASE % INCREASE
6/30/02 3/31/02 (DECREASE) (DECREASE)
---------- ---------- ------------ ----------
Net Interest Income $ 4,721 $ 4,699 $ 22 .5%
Provision for loan losses 200 150 50 33.3%
Non-interest Income 949 602 347 57.6%
Non-interest Expense 4,056 3,962 94 2.4%
Net Income 1,135 992 143 14.4%
Loans 291,795 278,730 13,065 4.7%
Deposits 466,258 451,916 14,342 3.2%
Stockholders' Equity 73,545 84,733 (11,188) (13.2)%
o Stockholders' equity decreased $11.2 million during the quarter,
primarily due to the Company's issuer tender offer, which was
completed on June 20, 2002. The Company repurchased 1,129,000 shares
at $13 per share, which reduced its outstanding common shares by 17%
o Checking accounts increased by $10.4 million or 17% for the quarter.
o Loans receivable increased $13 million or 4.7% for the quarter.
Commercial real estate and commercial loans grew $10.2 million and
home equity loans and lines increased $4.8 million.
o TGH Securities' trading revenues increased $384,000 over the prior
quarter reflecting the 58% increase in non-interest income. Such
increase reflects the cyclical nature of the municipal note business
during peak periods.
o The increase in consolidated non-interest expense is directly
attributable to increased trading revenues partially offset by the
absence of $200,000 in costs in the first quarter of the year related
to the Company's contested annual meeting. However, non-interest
expense at the Bank level remained flat for the quarter at $3.6
million.
On July 30, 2002 the President signed into law the Sarbanes-Oxley Act of 2002
(the "Act"), following an investigative order proposed by the SEC on chief
financial officers and chief executive officers of 947 large public companies on
June 27, 2002. Additional regulations are expected to be promulgated by the SEC.
As a result of the accounting restatements by large public companies, the
passage of the Act and regulations expected to be implemented by the SEC,
publicly-registered companies, such as the Company, will be subject to
additional reporting regulations and disclosure. These new regulations, which
are intended to curtail corporate fraud, will require certain officers to
personally certify certain SEC filings and financial statements and may require
additional measures to be taken by our outside auditors, officers and directors.
10
Comparison of Financial Condition at June 30, 2002 from December 31, 2001
- -------------------------------------------------------------------------
Total assets were $791.3 million at June 30, 2002, representing an increase of
$70.9 million from the balance of $720.4 million at December 31, 2001. The
increase was due to an increase of $33 million in trading securities resulting
from the operations of TGH Securities. In addition, loans receivable increased
$33 million and were funded by an increase in deposits of $35 million.
Investments held to maturity decreased $12.4 million due to the sale of certain
agency securities of $14.9 million and calls of municipal bonds of $2.0 million,
offset by purchases of $4.7 million.
Trading securities increased $33.4 million to $47.7 million at June 30, 2002
from $14.3 million at December 31, 2001. Fluctuations in the balance of trading
securities are due to the operations of TGH Securities.
Loans receivable increased $32.6 million, or 12.6%, to $291.8 million at June
30, 2002 from $259.2 million at December 31, 2001. This increase was primarily
the result of $87.1 million of loan originations, offset by principal repayments
of $45.6 million and the sale of $6.7 million of residential loans. The
residential loans were sold to improve interest rate risk. The transaction
generated a gain of $177,000.
Deposits increased $34.7 million, or 8.03%, to $466.3 million at June 30, 2002
from $431.6 million at December 31, 2001. NOW accounts, transaction checking and
money market accounts increased $26.2 million; passbook accounts increased $9.3
million, and certificates decreased $760,000 as a result of focused marketing
and business development initiatives aimed at building the Company's core
deposit base as well as the addition of new banking offices.
Accounts payable and accrued expenses increased $34.7 million to $56.2 million
at June 30, 2002 from $21.5 million at December 31, 2001. The fluctuation is due
mainly to activity at TGH Securities and represents monies due to
brokers/dealers for securities purchased. This payable may fluctuate from period
to period, depending upon the amount of securities owned by TGH Securities at
each quarter or yearend.
Total stockholders' equity decreased $11.9 million to $73.5 million at June 30,
2002 from $85.4 million at December 31, 2001 primarily due to treasury stock
purchases from the company's issuer tender offer of $14.7 million and dividends
paid of $1.0 million offset by an a increase in the accumulated other
comprehensive income of $2.6 million as a result of changes in the net
unrealized gain on the available for sale securities portfolio due to
fluctuations in the interest rates and net income of $2.1 million. Because of
interest rate changes, the Company's accumulated other comprehensive income
(loss) may fluctuate for each interim and year-end period.
Non-performing Assets
- ---------------------
The following table sets forth information regarding non-performing loans and
real estate owned.
At At
June 30, 2002 December 31, 2001
------------- -----------------
(Dollars in Thousands)
Total non-performing loans...................... $ 464 $3,178
Real estate owned............................... 2,052 81
------- ------
Total non-performing assets..................... $ 2,516 $3,259
======= ======
Total non-performing loans to
total loans..................................... .16% 1.23%
Total non-performing assets to
total assets.................................... .32% .45%
Allowance for loan loss......................... $ 2,023 $2,511
Allowance for loan losses as a percentage
of total non-performing assets.................. 80% 98%
Allowance for loan losses as a percentage
of total non-performing loans................... 436% 79%
Allowance for loan losses as a percentage
of total average loans.......................... .73% 1.05%
During the quarter ended June 30, 2002, the Company foreclosed on one
non-performing commercial real-estate loan and transferred the balance of the
$2.8 million loan to real estate owned. The real estate is being carried at fair
market value less
11
estimated selling costs and is currently being marketed for sale. Upon transfer
to real estate owned, the Company did not incur any additional loss.
Comparison of Operations for the Three and Six-Month Periods Ended
June 30, 2002 and 2001
- ------------------------------------------------------------------
Net Income. Net income for the three months ended June 30, 2002 was $1.1 million
or $.19 diluted earnings per share as compared to net income of $1.1 million or
$.17 diluted earnings per share for the three months ended June 30, 2001. Net
income for the six months ended June 30, 2002 was $2.1 million or $.35 diluted
earnings per share as compared to net income of $2.1 million per share or $.32
diluted earnings per share for the same period of the prior year.
Total Interest Income. Interest income for the quarter ended June 30, 2002
decreased $517,000 over the quarter ended June 30, 2001, primarily due to a
decrease in the average yield of 89 basis points, partially offset by an
increase of $65.4 million in the average balance of interest-earning assets.
Interest income for the six months ended June 30, 2002 decreased $1.6 million
over the six months ended June 30, 2001 primarily due to a decrease in the
average yield of 93 basis points partially offset by an increase of $47.6
million in the average balance of interest-earning assets.
Total Interest Expense. Interest expense for the quarter ended June 30, 2002
decreased $1 million over the quarter ended June 30, 2001 due to a decrease in
the average cost of funds of 111 basis points, partially offset by an increase
in the average balance of interest-bearing liabilities of $70.8 million.
Interest expense for the six months ended June 30, 2002 decreased $2.3 million
over the six months ended June 30, 2001. The decrease in interest expense is due
to a decrease in the average cost of funds of 112 basis points partially offset
by an increase in the average balance of interest-bearing liabilities of $52.1
million.
Net Interest Income. Net interest income for the quarter ended June 30, 2002
increased $478,000 or 11.3% over the quarter ended June 30, 2001. Net interest
income for the six months ended June 30, 2002 increased $682,000 or 7.8% over
the six months ended June 30, 2001.
Provision for Losses on Loans. The provision for losses on loans for the three
and six months ended June 30, 2002 totaled $200,000 and $350,000, respectively,
as compared to $120,000 and $240,000 for the same periods in 2001. The increase
in the provision for losses on loans for the three and six months ended June 30,
2002, as compared to the same periods in 2001, is precipitated by increased
non-performing loans and a larger loan portfolio, specifically commercial real
estate loans, commercial non-mortgage loans and construction loans-net. See
"Note 6 - Loans Receivable to the Notes To Unaudited Condensed Consolidated
Financial Statements." 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 will continue to review its loan portfolio to determine the extent,
if any, to which additional loss provisions may be deemed necessary. The
allowance for loan losses is at a level that represents management's best
estimates of losses in the loan portfolio at the balance sheet date. There can
be no assurance that the allowance for losses will be adequate to cover losses,
which may in fact be realized in the future, and that additional provisions for
losses will not be required.
Other Income. Non-interest income for the quarter ended June 30, 2002 increased
$73,000 over the quarter ended June 30, 2001. Non-interest income for the six
months ended June 30, 2002 increased $243,000 over the six months ended June 30,
2001. The quarter and six months ended June 30, 2001 reflected net operating
losses of $57,000 and $303,000, respectively, for a subsidiary's investment in
small business investment companies. Such losses were not recurring items for
the same comparative periods of 2002. Trading revenues from TGH Securities
increased $148,000 and $87,000 for the quarter and six months ended,
respectively, versus the same periods of the prior year.
Non-interest Expenses. Non-interest expense for the quarter and six months ended
June 30, 2002 increased $595,000 and $905,000, respectively, over the
comparative 2001 periods. Salaries and employee benefits increased $247,000 and
$250,000, respectively, over the same periods of the prior year. Such increases
are due to the variable nature of compensation for TGH Securities' personnel,
the addition of personnel in lending and for two new banking offices as well as
normal salary increases. Occupancy and equipment costs increased $101,000 and
$180,000, respectively, over the same periods of the prior year. The increases
were due to depreciation expense in connection with the completion of the
installation of a new enterprise-wide telephone system in the first quarter of
2002 as well as additional equipment purchases and related expenses for two new
banking offices. Professional fees remained flat for the quarter ended June 30,
2002 versus the prior year period and increased $184,000 for the six months
ended June 30, 2002 versus the prior year period. The increase for the six-month
period was related to fees incurred in connection with the Company's contested
Annual Meeting held in April 2002. Other expenses increased $104,000 and
$131,000, respectively, due to increases in payroll taxes, telephone expenses,
and other printing and mailing expenses resulting from the Company's contested
Annual Meeting.
12
Critical Accounting Policies
- ----------------------------
In Management's opinion, the most critical accounting policy impacting the
Company's financial statements is the evaluation of the allowance for loan
losses. Management carefully monitors the credit quality of the loan portfolio
and makes estimates about the amount of credit losses that have been incurred at
each financial statement date. Management evaluates the fair value of collateral
supporting the impaired loans using independent appraisals and other measures of
fair value. This process involves subjective judgments and assumptions and is
subject to change based on factors that may be outside the control of the
Company.
Liquidity and Capital Resources
- -------------------------------
On June 30, 2002 the Bank was in compliance with its three regulatory capital
requirements as follows:
Amount Percent
-------- -------
(in Thousands)
Tangible capital............................ $ 52,870 7.40%
Tangible capital requirement................ 10,795 1.50%
--------- -----
Excess over requirement..................... $ 42,075 5.90%
========= =====
Core capital................................ $ 52,870 7.40%
Core capital requirement.................... 28,787 4.00%
--------- -----
Excess over requirement..................... $ 24,083 3.40%
========= =====
Risk based capital.......................... $ 54,893 16.31%
Risk based capital requirement.............. 26,930 8.00%
--------- -----
Excess over requirement..................... $ 27,963 8.31%
========= =====
The Company's primary sources of funds are deposits, borrowings, and proceeds
from principal and interest payments on loans, mortgage-backed securities and
other investments. While maturities and scheduled amortization of loans and
mortgage-backed securities are a predictable source of funds, deposit flows and
mortgage prepayments are greatly influenced by general interest rates, economic
conditions, competition and the consolidation of the financial institution
industry.
The primary investment activity of the Company is the origination and purchase
of mortgage loans, mortgage-backed securities and other investments. During the
six months ended June 30, 2002, the Company originated $87.1 million of mortgage
loans. The Company also purchases loans and mortgage-backed securities to reduce
liquidity not otherwise required for local loan demand. Purchases of
mortgage-backed securities totaled $94.5 million during the six-month period
ended June 30, 2002. Other investment activities include investment in U.S.
government and federal agency obligations, municipal bonds, debt and equity
investments in financial services firms, FHLB of Pittsburgh stock, commercial
and consumer loans.
The Company's most liquid assets are cash and cash equivalents, which include
investments in highly liquid, short-term investments. The level of these assets
is dependent on the Company's operating, financing and investing activities
during any given period. At June 30, 2002, cash and cash equivalents totaled
$31.2 million. The Bank's liquidity ratio was 7.07% at June 30, 2002.
The Company anticipates that it will have sufficient funds available to meet its
current commitments. As of June 30, 2002, the Company had $35.1 million in
commitments to fund loans. Certificates of deposit, which were scheduled to
mature in one year or less, as of June 30, 2002 totaled $158.1 million.
Management believes that a significant portion of such deposits will remain with
the Company.
13
Additional Key Operating Information and Ratios
- -----------------------------------------------
For the For the
Three Months Ended Six Months Ended
June 30, June 30,
-------------------- -------------------
2002(1) 2001(1) 2002(1) 2001(1)
Return on average assets .56% .64% .58% .61%
Return on average equity 4.94% 5.28% 4.93% 4.89%
Yield on average interest-earning assets 6.14% 7.04% 6.28% 7.16%
Cost of average interest-bearing liabilities 3.66% 4.77% 3.71% 4.83%
Interest rate spread (2) 2.48% 2.26% 2.56% 2.33%
Net interest margin 2.82% 2.79% 2.91% 2.84%
At June 30, 2002 At December 31, 2001
---------------- --------------------
Tangible book value per share $12.34 $11.77
(1) The ratios for the three and six-month periods are annualized and yields
were adjusted for the effects of tax-free investments using the statutory
tax rate.
(2) Interest rate spread represents the difference between the average yield on
interest-earning assets and the average cost of interest-bearing
liabilities.
Quantitative and Qualitative Disclosures about Market Risk
- ----------------------------------------------------------
Qualitative Analysis. There have been no material changes from the Qualitative
Analysis information regarding market risk disclosed under the heading "Net
Portfolio Value" in the Company's Management's Discussion and Analysis of
Financial Condition and Results of Operations included in the annual report on
Form 10-K for the year ended December 31, 2001.
Quantitative Analysis. Exposure to interest rate risk is actively monitored by
management. The Company's objective is to maintain a consistent level of
profitability within acceptable risk tolerances across a broad range of
potential interest rate environments. The Company uses the OTS Net Portfolio
Value ("NPV") Model to monitor its exposure to interest rate risk, which
calculates changes in net portfolio value. Reports generated from assumptions
provided and modified by management are reviewed by the Asset/Liability
Management Committee and reported to the Board of Directors quarterly. The
Interest Rate Sensitivity of Net the Net Portfolio Value Report shows the degree
to which balance sheet line items and net portfolio value are potentially
affected by a 100 to 300 basis point (1 basis point equals 1/100th of a
percentage point) upward and downward parallel shift (shock) in the Treasury
yield curve.
Since the NPV Model measures exposure to interest rate risk of the Bank to
assure capital adequacy for the protection of the depositors, only the Bank's
financial information is used for the model. However, the Bank is the primary
subsidiary and most significant asset of the Company, therefore the OTS NPV
model provides a reliable basis upon which to perform the quantitative analysis.
The following table presents the Bank's NPV as of June 30, 2002. The NPV was
calculated by the OTS, based on information provided by the Bank.
Net Portfolio Value
Net Portfolio Value As a % of Assets
------------------- -------------------
Change in Rates Net Portfolio
In Basis Points Dollar Amount Dollar Change % Change Value Ratio Basis Point Change
- --------------- ------------- ------------- -------- ----------- ------------------
300 $ 31,463 $ (41,335) (57) % 4.57 % (515)
200 47,867 (24,930) (34) % 6.75 % (298)
100 62,766 (10,031) (14) % 8.59 % (113)
0 72,798 -- -- -- --
(100) 70,634 (2,164) (3) % 9.33 % (39)
(200) * * * * *
(300) * * * * *
* Scenario not used due to the low prevailing interest rate environment
14
THISTLE GROUP HOLDINGS, CO. AND SUBSIDIARIES
PART II
ITEM 1. LEGAL PROCEEDINGS
The Company has been a party to a legal proceeding involving a shareholder that
conducted an election of director's contest, Jewelcor Management, Inc.
("Jewelcor"). On March 19, 2002, Jewelcor filed a legal proceeding in the Court
of Common Pleas of Philadelphia County, Pennsylvania against the Company and
each of its directors. The proceeding requested preliminary and permanent
injunctive relief and a declaratory judgment to postpone the Company's April 3,
2002 Annual Meeting of Stockholders. On March 26, 2002, the court granted
Jewelcor's petition for a preliminary injunction to delay the Company's Annual
Meeting to a date no earlier than April 17, 2002. The Company complied with the
court's order and held its Annual Meeting of Stockholders on April 17, 2002.
However, on March 27, 2002, the Company and each of its directors appealed the
court's order and on April 29, 2002, the Company filed preliminary objections
asking the court to dismiss Jewelcor's action since it was moot and legally
defective. Because the case is substantially moot, the Company withdrew its
appeal in early July, and the only remaining issue is one of attorneys' fees.
Currently, the Company does not believe that this matter will have a material
effect on its financial statements.
The Company and each of its directors also have been a party to a second,
similar legal proceeding that Jewelcor filed on June 11, 2002, in the Court of
Common Pleas of Philadelphia County, Pennsylvania. This action seeks damages in
connection with the Company's rescheduling of its 2002 Annual Meeting, the
amendment of its by-laws and the July 2002 tender offer. The Company has filed
preliminary objections asking the court to dismiss Jewelcor's action as moot and
legally defective. Currently, the Company does not believe that this matter will
have a material effect on its financial statements.
In addition, from time to time, the Company is a party to routine legal
proceedings in the ordinary course of business, such as claims to enforce liens,
condemnation proceedings on properties in which the Company holds a security
interest, claims involving the making and servicing of real property loans, and
other issues incident to the business of the Company. In the Company's opinion,
such lawsuits pending or known to be contemplated against the Company at June
30, 2002 would have no material effect on the operations or income of the
Company or the Bank, taken as a whole.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
( c ) Reference is made to Footnote 12 to the Company's June 30, 2002 unaudited
condensed consolidated financial statements, incorporated herein by reference to
this Quarterly Report on Form 10-Q.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Information incorporated by reference to Item 4 of the March 31, 2002 Form 10-Q
filed on May 7, 2002.
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) The following Exhibits are filed as part of this report:
3(i) Articles of Incorporation****
3(ii) Amended 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*
10.7 1999 Stock Option Plan ***
10.8 1999 Restricted Stock Plan***
99.0 Certification Pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
b) Reports on Form 8-K
c) None
- ----------------
* Incorporated by reference to the identically numbered exhibit to the
Company's Form S-1 Registration Statement No. 333-48749 filed on March 27,
1998.
** Incorporated by reference to Exhibit 1 to the Company's Form 8-A filed on
September 30, 1999.
*** Incorporated by reference to the appropriate exhibit of the Company's proxy
material filed on June 21, 1999.
**** Incorporated by reference to the identically numbered exhibits to the Form
10-K for December 31, 1999 filed on March 30, 2000.
*****Incorporated by reference to the identically numbered exhibit to the Form
10-K for December 31, 2001 filed on March 12, 2002.
15
THISTLE GROUP HOLDINGS, CO. AND SUBSIDIARIES
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
THISTLE GROUP HOLDINGS, CO.
Date: August 14, 2002 By: /s/ John F. McGill, Jr.
----------------------------------------
John F. McGill, Jr.
President and Chief Executive Officer
(Principal Executive Officer)
Date: August 14, 2002 By: /s/ Jerry Naessens
----------------------------------------
Jerry Naessens
Chief Financial Officer
(Principal Financial Officer)
16