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 March 31, 2003
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from _____________ to _____________
Commission file number 0-24353
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THISTLE GROUP HOLDINGS, CO.
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(Exact name of registrant as specified in its charter)
Pennsylvania 23-2960768
- ------------------------------- --------------------------------
(State or other jurisdiction of IRS employer identification no.)
incorporation or organization)
6060 Ridge Avenue, Philadelphia, Pennsylvania 19128
- --------------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (215) 483-2800
--------------
N/A
---------------------------------------------------
Former name, former address and former fiscal year,
if changed since last report.
Indicate by check whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
--- ---
Indicate by check whether the registrant is an accelerated filer (as
defined in Rule 126-2 of the Exchange Act.)
Yes No X
--- ---
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, May 14,2003.
Class Outstanding
- --------------------------- --------------------
$.10 par value common stock 5,235,525
THISTLE GROUP HOLDINGS, CO. AND SUBSIDIARIES
FORM 10-Q
FOR THE QUARTER ENDED March 31, 2003
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
Item 4. Controls and Procedures.........................................14
PART II - OTHER INFORMATION
Item 1. Legal Proceedings...............................................15
Item 2. Changes in Securities and Use of Proceeds.......................15
Item 3. Defaults upon Senior Securities.................................15
Item 4. Submission of Matters to a Vote of Security Holders.............15
Item 5. Other Information...............................................15
Item 6. Exhibits and Reports on Form 8-K................................15
SIGNATURES...................................................................17
EXHIBITS.....................................................................18
2
THISTLE GROUP HOLDINGS, CO. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Dollars in Thousands, Except Per Share Data)
- --------------------------------------------------------------------------------
March 31, December 31,
ASSETS 2003 2002
-------------- -------------
Cash on hand and in banks $ 5,073 $ 4,819
Interest-bearing deposits 21,203 19,841
--------- ---------
Total cash and cash equivalents 26,276 24,660
Investments available for sale at fair value
(amortized cost - 2003, $62,608; 2002, $65,098) 64,497 66,239
Mortgage-backed securities available for sale
at fair value (amortized cost - 2003, $347,239; 2002, $361,869) 353,454 369,571
Trading securities 9,247 43,714
Loans receivable (net of allowance for loan losses - 2003, $2,607; 2002, $2,209) 310,619 299,963
Loans held for sale 239 -
Accrued interest receivable 4,014 4,260
Federal Home Loan Bank stock - at cost 13,408 12,497
Real estate acquired through foreclosure - net 1,574 1,717
Office properties and equipment - net 6,229 6,346
Prepaid expenses and other assets 5,182 5,706
Cash surrender value of life insurance 15,257 15,069
Goodwill 7,680 7,680
--------- ---------
TOTAL ASSETS $ 817,676 $ 857,422
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits $ 505,026 $ 492,880
FHLB advances 205,884 220,884
Payable to brokers and dealers 8,611 41,924
Other borrowings 1,650 3,650
Accrued interest payable 951 976
Advances from borrowers for taxes and insurance 1,378 2,611
Accounts payable and accrued expenses 6,665 7,625
Dividends payable 474 473
--------- ---------
Total liabilities 730,639 771,023
--------- ---------
Company-obligated manditorily redeemable preferred securities of a subsidiary
trust holding solely junior subordinated debentures of the Company 10,000 10,000
--------- ---------
Commitments and Contingencies
Stockholders' Equity:
Preferred stock, no par value, 10,000,000 shares authorized,
none issued in 2003 or 2002
Common stock, $.10 par value, 40,000,000 shares authorized, 8,999,989 shares
issued and 5,269,225 shares outstanding at March 31, 2003; 8,999,989 issued
and 5,259,424 shares outstanding at December 31, 2002 900 900
Additional paid-in capital 92,831 92,884
Common stock acquired by stock benefit plans (5,354) (5,537)
Treasury stock at cost, 3,730,764 shares at March 31, 2003
and 3,740,565 shares at December 31, 2002 (38,971) (39,068)
Accumulated other comprehensive income 5,350 5,836
Retained earnings - partially restricted 22,281 21,384
--------- ---------
Total stockholders' equity 77,037 76,399
--------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 817,676 $ 857,422
========= =========
See notes to unaudited condensed consolidated financial statements.
3
THISTLE GROUP HOLDINGS, CO. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Dollars in Thousands, Except Per Share Data)
- --------------------------------------------------------------------------------
For the Three Months
Ended March 31,
----------------------
2003 2002
---------- ----------
INTEREST INCOME:
Interest on loans $ 5,500 $ 5,004
Interest on mortgage-backed securities 4,009 4,083
Interest on investments:
Taxable 201 533
Tax-exempt 801 800
Dividends 111 108
------- -------
Total interest income 10,622 10,528
------- -------
INTEREST EXPENSE:
Interest on deposits 3,003 3,447
Interest on FHLB advances and other borrowings 2,559 2,382
------- -------
Total interest expense 5,562 5,829
------- -------
NET INTEREST INCOME 5,060 4,699
PROVISION FOR LOAN LOSSES 397 150
------- -------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 4,663 4,549
------- -------
OTHER INCOME:
Service charges and other fees 303 248
Trading revenues from brokerage operations 314 299
Writedown on real estate owned (144) -
Gain on sale of mortgage-backed securities available
for sale 374 -
Gain on sale of loans 45 -
Gain on sale of investments available for sale 212 -
Rental income 31 55
Other income 4 -
------- -------
Total other income 1,139 602
------- -------
OTHER EXPENSES:
Salaries and employee benefits 1,944 1,787
Occupancy and equipment 759 671
Professional fees 173 305
Advertising 103 103
Interest on redeemable preferred securities 134 -
Other 965 916
------- -------
Total other expenses 4,078 3,782
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INCOME BEFORE INCOME TAXES 1,724 1,369
------- -------
INCOME TAXES 353 238
------- -------
NET INCOME $ 1,371 $ 1,131
======= =======
BASIC EARNINGS PER SHARE $ 0.28 $ 0.18
======= =======
DILUTED EARNINGS PER SHARE $ 0.28 $ 0.18
======= =======
See notes to unaudited condensed consolidated financial statements.
4
THISTLE GROUP HOLDINGS, CO. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
- --------------------------------------------------------------------------------
For the Three Months
Ended March 31,
------------------------
2003 2002
---------- ----------
OPERATING ACTIVITIES:
Net income $ 1,371 $ 1,131
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Provision for loan losses 397 150
Depreciation 332 313
Amortization of stock benefit plans 217 220
Loans held for sale originated (4,142) -
Amortization of:
Net premiums (discounts) on:
Loans purchased 55 16
Investments (22) (269)
Mortgage-backed securities 1,061 862
Gain on sale of investments (212) -
Gain on sale of loans (45) -
Gain on sale of mortgage-backed securities (374) -
Proceeds from the sale of loans held for sale 3,948 -
Writedown of real estate owned 144 -
Net decrease in trading securities 34,467 247
Decrease (increase) in other assets 582 (331)
Increase in other liabilities (34,083) (1,005)
-------- --------
Net cash provided by operating activities 3,696 1,334
-------- --------
INVESTING ACTIVITIES:
Principal collected on:
Mortgage-backed securities 44,423 38,388
Loans 36,226 24,204
Loans originated (43,237) (43,880)
Loans acquired (4,097) -
Purchases of:
Investments (18) (4,202)
Mortgage-backed securities (62,695) (37,604)
Property and equipment (215) (853)
FHLB stock (911) (150)
Maturities and calls of investments 2,130 30
Proceeds from the sale of:
Mortgage-backed securities 32,215 -
Investments 612 -
-------- --------
Net cash provided by (used in) investing activities 4,433 (24,067)
-------- --------
FINANCING ACTIVITIES:
Net increase in deposits 12,146 20,333
Net increase in advances from borrowers for taxes and insurance (1,233) (1,103)
Net (decrease) increase in FHLB borrowings (15,000) 3,000
Net decrease in other borrowings (2,000) -
Purchase of treasury stock - (858)
Net proceeds from exercise of stock options 48 62
Cash dividends (474) (523)
-------- --------
Net cash (used in) provided by financing activities (6,513) 20,911
-------- --------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 1,616 (1,822)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 24,660 22,723
-------- --------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 26,276 $ 20,901
======== ========
SUPPLEMENTAL DISCLOSURES:
Interest paid on deposits and funds borrowed $ 5,587 $ 5,842
Income taxes paid - 150
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 condensed 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-month period ended March 31, 2003 are not necessarily indicative of the
results which may be expected for the entire fiscal year or any other future
interim period.
These unaudited condensed 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, 2002.
NOTE 3 - INVESTMENTS
Investments available for sale at March 31, 2003 and December 31, 2002 consisted
of the following:
March 31, 2003 December 31, 2002
------------------------ -----------------------
Amortized Approximate Amortized Approximate
Cost Fair Value Cost Fair Value
--------- ----------- --------- -----------
Municipal bonds - 1 to 5 years........... $ 475 $ 513 $ 511 $ 541
Municipal bonds - 5 to 10 years.......... 255 256 255 256
Municipal bonds - more than 10 years..... 48,582 49,285 50,651 51,328
Mutual funds............................. 1,583 1,583 1,569 1,569
Capital trust securities................. 7,453 7,236 7,457 6,668
Equity investments....................... 3,465 4,829 3,864 5,086
Other.................................... 795 795 791 791
------- ------- ------- -------
Total.................................... $62,608 $64,497 $65,098 $66,239
======= ======= ======= =======
NOTE 4 - MORTGAGE-BACKED SECURITIES AVAILABLE FOR SALE
Mortgage-backed securities at March 31, 2003 and December 31, 2002 consisted of
the following:
March 31, 2003 December 31, 2002
-------------------------- --------------------------
Amortized Approximate Amortized Approximate
Cost Fair Value Cost Fair Value
---------- ----------- ---------- -----------
Agency pass-through certificates..................... $293,296 $299,302 $294,095 $301,376
Agency real estate mortgage investment conduits...... 38,811 38,921 38,362 38,693
Non-agency collateralized mortgage obligations....... 15,132 15,231 29,412 29,502
-------- -------- -------- --------
Total................................................ $347,239 $353,454 $361,869 $369,571
======== ======== ======== ========
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.
6
NOTE 6 - LOANS RECEIVABLE
Loans receivable at March 31, 2003 and December 31, 2002 consisted of the
following:
March 31, 2003 December 31, 2002
-------------- -----------------
Mortgage loans:
1 - 4 family residential.......................... $119,419 $ 125,827
Commercial real estate............................ 98,032 92,760
Home equity lines of credit and improvement loans... 32,701 28,525
Commercial loans.................................... 33,140 26,557
Construction loans - net............................ 29,779 28,446
Loans on savings accounts........................... 543 505
Consumer loans...................................... 1,121 1,034
-------- --------
Total loans................................ 314,735 303,654
-------- --------
Plus: unamortized premiums.......................... 89 144
Less:
Net discounts on loans purchased.................. (12) (12)
Deferred loan fees................................ (1,586) (1,614)
Allowance for loan losses......................... (2,607) (2,209)
-------- --------
Total...................................... $310,619 $299,963
======== ========
A summary of changes in the allowance for loan losses for the quarter ended
March 31, 2003 and for the year ended December 31, 2002 is as follows:
For the For the
Quarter Ended Year Ended
March 31, 2003 December 31, 2002
--------------- -----------------
Balance, beginning.............. $2,209 $ 2,511
Provision....................... 397 702
Charge-offs..................... -- (1,004)
Recovery........................ 1 --
------ -------
Balance ending.................. $2,607 $ 2,209
====== =======
NOTE 7 - DEPOSITS
The major types of deposits by amounts and percentages at March 31, 2003 and
December 31, 2002 were as follows:
March 31, 2003 December 31, 2002
---------------------- ---------------------
Amount % of Total Amount % of Total
--------- ---------- --------- ----------
Checking accounts $ 91,587 18.1% $ 91,584 18.6%
Money market accounts 48,710 9.7% 44,191 9.0%
Passbook accounts 125,883 24.9% 124,660 25.3%
Certificate accounts 238,846 47.3% 232,445 47.1%
-------- ----- -------- -----
Total $505,026 100.0% $492,880 100.0%
======== ===== ======== =====
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. The weighted
average shares used in the basic and diluted earnings per share computations for
the three-month periods ended March 31, 2003 and 2002 are as follows:
For the
Three Months Ended
March 31,
------------------------
2003 2002
--------- ----------
Average common shares outstanding- basic 4,826,489 6,117,618
Increase in shares due to dilutive options 140,882 79,173
--------- ---------
Adjusted shares outstanding - diluted 4,967,371 6,196,791
========= =========
7
NOTE 9 - COMPREHENSIVE INCOME
For the three-month period ended March 31, 2003, the Company reported total
comprehensive income of approximately $885. For the three-month period of the
prior year, the Company reported total comprehensive income of approximately
$379. 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 March 19, 2003, the Company declared a dividend of $.09 per share payable
April 15, 2003 to stockholders of record on March 31, 2003.
NOTE 11 - RECENT ACCOUNTING STANDARDS
In December 2002, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 148, Accounting for Stock-Based Compensation --Transition and Disclosure, an
amendment of FASB Statement No. 123. SFAS No. 148 amends SFAS No. 123 to provide
alternative methods of transition for a voluntary change to the fair value based
method of accounting for stock-based employee compensation. In addition, this
Statement amends the disclosure requirements of SFAS No. 123 to require
prominent disclosures in both annual and interim financial statements about the
method of accounting for stock-based employee compensation and the effect of the
method used on reported results. This statement is effective for financial
statements for fiscal years ending after December 15, 2002. The Company has
provided the required interim disclosures below.
The Company applies APB Opinion No. 25 and related interpretations in accounting
for stock options and, accordingly, no compensation expense has been recognized
in the financial statements. Had the Company determined compensation expense
based on the fair value at the grant date for its stock options under SFAS No.
123, the Company's net income and income per share would have been reduced to
the pro forma amounts indicated below:
For the Three Months
Ended March 31,
---------------------
2003 2002
--------- ---------
Net income, as reported $ 1,371 $ 1,131
Deduct: Total stock-based employee
compensation expense determined
under fair value based method for all
awards, net of related tax effects (26) --
------- -------
Pro forma net income $ 1,345 $ 1,131
======= =======
Earnings per share:
Basic-as reported $ 0.28 $ 0.18
Basic-pro forma 0.28 0.18
Diluted-as reported 0.28 0.18
Diluted-pro forma 0.27 0.18
In April 2003, the FASB issued Statement No. 149, Amendment of Statement 133 on
Derivative Instruments and Hedging Activities. The Statement amends and
clarifies accounting for derivative instruments, including certain derivative
instruments embedded in other contracts, and for hedging activities under
Statement 133.
The new guidance amends Statement 133 for decisions made as part of the
Derivatives Implementation Group process that effectively required amendments to
Statement 133, in connection with other Board projects dealing with financial
instruments and regarding implementation issues raised in relation to the
application of the definition of a derivative, particularly regarding the
meaning of an "underlying" and the characteristics of a derivative that contains
financing components.
8
The amendments set forth in Statement 149 improve financial reporting by
requiring that contracts with comparable characteristics be accounted for
similarly. In particular, this Statement clarifies under what circumstances a
contract with an initial net investment meets the characteristic of a derivative
as discussed in Statement 133. In addition, it clarifies when a derivative
contains a financing component that warrants special reporting in the statement
of cash flows. Statement 149 amends certain other existing pronouncements. Those
changes will result in more consistent reporting of contracts that are
derivatives in their entirety or that contain embedded derivatives that warrant
separate accounting.
This Statement is effective for contracts entered into or modified after June
30, 2003, except as stated below and for hedging relationships designated after
June 30, 2003. The guidance should be applied prospectively. Currently, the
Company has no derivatives that require application of this statement.
In November 2002, the Financial Accounting Standards Board ("FASB") issued FASB
Interpretation No. 45, Guarantor's Accounting and Disclosure Requirements for
Guarantees, including Indirect Guarantees of Indebtedness of Others. This
Interpretation elaborates on the disclosures to be made by a guarantor in its
interim and annual financial statements about its obligations under certain
guarantees that it has issued. It also clarifies that a guarantor is required to
recognize, at the inception of a guarantee, a liability for the fair value of
the obligation undertaken in issuing the guarantee. This Interpretation also
incorporates, without change, the guidance in FASB Interpretation No. 34,
Disclosure of Indirect Guarantees of Indebtedness of Others, which is being
superseded. The initial recognition and initial measurement provisions of this
Interpretation are applicable on a prospective basis to guarantees issued or
modified after December 31, 2002, irrespective of the guarantor's fiscal
year-end. The disclosure requirements in this Interpretation are effective for
financial statements of interim or annual periods ending after December 15,
2002. The Company currently has no guarantees that would be required to be
recognized, measured or disclosed under this Interpretation.
In January 2003, the FASB issued FASB Interpretation No. 46, Consolidation of
Variable Interest Entities. The Interpretation clarifies the application of
Accounting Research Bulletin No. 51, Consolidated Financial Statements, to
certain entities in which equity investors do not have the characteristics of a
controlling financial interest or do not have sufficient equity at risk for the
entity to finance its activities without additional subordinated financial
support from other parties. The Company is not a party to any variable interest
entities covered by the Interpretation.
NOTE 12 - ACCOUNTING FOR GOODWILL
On October 1, 2002, the Company adopted Statement of Financial Accounting
Standards ("SFAS") No. 147, Acquisitions of Certain Financial Institutions,
which allows financial institutions, meeting certain criteria, to reclassify
their identifiable intangible asset balances to goodwill and retroactively cease
amortization beginning as of January 1, 2002. Accordingly, the Company
retroactively ceased amortization of goodwill beginning January 1, 2002 and
restated earnings for the quarterly period ended March 31, 2002. The Company
will be required to annually review the asset for impairment.
At January 1, 2003, the Company, utilizing an independent third party
specialist, tested the goodwill for impairment. Based on this analysis, no
impairment existed.
The following table is a summary of net income and basic and diluted earnings
per share for the quarterly period ended March 31, 2002, as previously reported
on Form 10-Q and for the same quarterly period as restated for the adoption of
SFAS No. 147:
Quarter ended
March 31, 2002
--------------
Net income, as previously reported.......................... $ 992
Amortization of goodwill, net of tax........................ 139
------
Restated net income......................................... 1,131
======
Earnings per share:
Basic earnings per share, as previously reported......... 0.16
Amortization of goodwill, net of tax..................... 0.02
------
Basic earnings per share, as restated.................... 0.18
======
Diluted earnings per share, as previously reported....... 0.16
Amortization of goodwill, net of tax..................... 0.02
------
Diluted earnings per share, as restated.................. 0.18
======
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.
Earnings per share for the first quarter of 2003 increased 27% over the quarter
ended December 31, 2002 from $.22 diluted earnings per share to $.28 diluted
earnings per share. Set forth below is the Company's earnings information for
the quarter ended March 31, 2003 as compared to the quarter ended December 31,
2002. (the "Linked Quarter Highlights")
LINKED QUARTER HIGHLIGHTS
(Dollars in Thousands)
QTR QTR $ INCREASE % INCREASE
3/31/03 12/31/02 (DECREASE) (DECREASE)
--------- ---------- ---------- ----------
Interest Income $ 10,622 $ 10,636 $ (14) (-.1%)
Interest Expense 5,562 5,736 (174) (-3.0%)
Net Interest Income 5,060 4,900 160 3.3%
Provision for loan losses 397 202 195 96.5%
Non-interest Income 1,139 696 443 63.6%
Non-interest Expense 4,078 4,069 9 0.2%
Net Income 1,371 1,094 277 25.3%
Loans 310,858 299,963 10,895 3.6%
Deposits 505,026 492,880 12,146 2.5%
Stockholders' Equity 77,037 76,399 638 0.8%
o Net income increased $277,000 primarily as the result of a $603,000
increase in net interest income and non-interest income.
o Net interest income increased $160,000 primarily due to a decrease in
interest expense. The average cost of funds decreased 20 basis points on a
linked quarter basis.
o The provision for loan losses increased $195,000 primarily due to an
increase in loans classified as substandard, an increase in non-performing
loans and an increase in commercial real estate and commercial loans. The
Company increased its allowance for loan losses as a percentage of total
average loans to 0.84% from 0.75% on a linked quarter basis.
o Non-interest income for the quarter increased $443,000 primarily due to net
gains on the sale of securities and an increase in trading revenues, which
more than offset a writedown on real estate owned.
o Non-interest expense increased $9,000 due to a $156,000 increase in
salaries and employee benefits and occupancy and equipment costs which were
offset by a decrease in other expense as the prior quarter contained costs
related to the repurchase of shares and a standstill agreement executed
with a former stockholder.
o Loans receivable increased $10.9 million for the current quarter despite
continued heavy prepayments. Originations and purchases of loans of $51
million for the quarter more than offset sales and repayments of $40
million.
Deposits increased $12.1 million for the quarter. Core deposits (checking, money
market, and passbook) increased $5.7 million and certificates of deposit
increased by $6.4 million.
10
Comparison of Financial Condition at March 31, 2003 from December 31, 2002
- --------------------------------------------------------------------------
Total assets were $817.7 million at March 31, 2003, representing a decrease of
$39.7 million from the balance of $857.4 million at December 31, 2002. Trading
securities decreased $34.5 million, which also resulted in a corresponding
decrease in the payable to brokers and dealers. Loans receivable increased $10.7
million funded by an increase in deposits of $12.1 million. Mortgage-backed
securities decreased $16.1 million. These repayments were used to reduce FHLB
overnight advances of $15.0 million.
Investments available for sale decreased $1.7 million, primarily due to
maturities of $2.1 million and sales of $612,000.
Mortgage-backed securities decreased $16.1 million, primarily due to repayments
of $44.4 million and sales of $32.2 million, offset by purchases of $62.7
million.
Loans receivable increased $10.7 million, or 3.6%, to $310.6 million at March
31, 2003 from $300.0 million at December 31, 2002. This increase was primarily
the result of $47.4 million of loan originations and loan purchases, offset by
principal repayments of $36.2 million. One-to four-family residential loans
decreased by 5.1% while commercial real estate loans and commercial loans
increased by 5.7% and 24.8%, respectively.
Deposits increased $12.1 million, or 2.4%, to $505.0 million at March 31, 2003
from $492.9 million at December 31, 2002. Checking accounts and money market
accounts increased $4.5 million; passbook accounts increased $1.2 million and
certificates of deposit increased $6.4 million.
FHLB advances decreased $15.0 million to $205.9 million at March 31, 2003 from
$220.9 million at December 31, 2002. The decrease was due to the repayment of
overnight borrowings.
Total stockholders' equity increased $638,000 to $77.0 million at March 31, 2003
from $76.4 million at December 31, 2002, primarily due to net income of $1.4
million, partially offset by a decrease in accumulated other comprehensive
income of $486,000 and by dividends paid of $474,000. 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
March 31, 2003 December 31, 2002
-------------- -----------------
(Dollars in Thousands)
Total non-performing loans.................... $ 893 $ 506
Real estate owned............................. 1,574 1,717
------ ------
Total non-performing assets................... $2,467 $2,223
====== ======
Total non-performing loans to
total loans................................... 0.29% 0.17%
Total non-performing assets to
total assets.................................. 0.30% 0.26%
Allowance for loan loss....................... $2,607 $2,209
Allowance for loan losses as a percentage
of total non-performing assets................ 105.67% 99.37%
Allowance for loan losses as a percentage
of total non-performing loans................. 292.00% 437.00%
Allowance for loan losses as a percentage
of total average loans........................ 0.84 % 0.78%
11
Comparison of Operations for the Three-Month Periods Ended March 31, 2003 and
- --------------------------------------------------------------------------------
2002
- ----
Net income for the quarter ended March 31, 2003 was $1.4 million or $.28 diluted
earnings per share as compared to net income of $1.1 million or $.18 diluted
earnings per share for the quarter ended March 31, 2002. The increase in net
income was primarily due to an increase in net interest income and non-interest
income, which more than offset an increase in the provision for loan losses and
an increase in non-interest expense.
Net interest income for the quarter ended March 31, 2003 increased $361,000 or
7.7 % over the quarter ended March 31, 2002.
Interest income for the quarter ended March 31, 2003 increased $94,000 over the
quarter ended March 31, 2002, primarily due to an increase in the average
balance of interest earning assets of $100.8 million, partially offset by a
decrease in the average yield of 78 basis points. Interest expense for the
quarter ended March 31, 2003 decreased $267,000 over the quarter ended March 31,
2002 due to a decrease in the average cost of funds of 69 basis points,
partially offset by an increase in the average balance of interest-bearing
liabilities of $104.4 million.
The provision for loan losses for the quarter ended March 31, 2003 increased
$247,000 over the quarter ended March 31, 2002. The Company's allowance for loan
losses as a percentage of total average loans decreased to 0.84% from 1.01%, a
year ago, due mainly to one commercial real estate loan that was charged off and
transferred to real estate owned.
Non-interest income for the quarter ended March 31, 2003 increased $537,000 over
the quarter ended March 31, 2002, primarily due to net gains on the sale of
securities of $586,000, which more than offset a $144,000 writedown on real
estate owned. Such writedown of real estate owned is reflective of the current
disposition value of this asset.
Non-interest expense for the quarter ended March 31, 2003 increased $296,000
over the quarter ended March 31, 2002, primarily due to increases in salaries
and employee benefits and occupancy and equipment costs of $157,000 and $88,000,
respectively. Such costs represent the addition of personnel and normal salary
increases as well as increases in maintenance and depreciation expense. In
addition, the current year quarter included $134,000 of interest expense on
redeemable preferred securities not present in the prior year quarter.
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 March 31, 2003 the Bank was in compliance with its three regulatory capital
requirements as follows:
Amount Percent
-------- -------
(Dollars in Thousands)
Tangible capital.......................... $55,018 7.06%
Tangible capital requirement.............. 11,687 1.50%
------- ----
Excess over requirement................... $43,331 5.56%
======= ====
Core capital.............................. $55,018 7.06%
Core capital requirement.................. 31,165 4.00%
------- ----
Excess over requirement................... $23,853 3.06%
======= ====
Risk based capital........................ $57,626 14.76%
Risk based capital requirement............ 31,228 8.00%
------- ----
Excess over requirement................... $26,398 6.76%
======= ====
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.
12
The primary investment activity of the Company is the origination and purchase
of mortgage loans, mortgage-backed securities and other investments. During the
three months ended March 31, 2003, the Company originated $47.4 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
loans and mortgage-backed securities totaled $66.8 million during the
three-month period ended March 31, 2003. 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 March 31, 2003, cash and cash equivalents totaled
$26.3 million. The Bank's liquidity ratio was 5.55% at March 31, 2003.
The Company anticipates that it will have sufficient funds available to meet its
current commitments. As of March 31, 2003, the Company had $48.8 million in
commitments to fund loans. Certificates of deposit, which were scheduled to
mature in one year or less, as of March 31, 2003 totaled $154.8 million.
Management believes that a significant portion of such deposits will remain with
the Company.
Additional Key Operating Information and Ratios
- -----------------------------------------------
For the
Three Months Ended
March 31,
--------------------
2003(1) 2002(1)
------- -------
Return on average assets 0.67% 0.63%
Return on average equity 7.13% 5.22%
Yield on average interest-earning assets 5.64% 6.42%
Cost of average interest-bearing liabilities 3.07% 3.77%
Interest rate spread (2) 2.57% 2.65%
Net interest margin (3) 2.80% 3.00%
At March 31, 2003 At December 31, 2002
----------------- --------------------
Tangible book value per share (4) $13.16 $13.07
- ----------------
(1) The ratios for the three-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.
(3) Net interest margin represents net interest income as a percentage of
average interest-earning assets.
(4) Tangible book value per share represents stockholders' equity less
goodwill divided by the number of shares issued and outstanding.
13
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, 2002.
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 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 March 31, 2003. 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 $21,138 $(31,905) (60%) 2.80% (375)
200 35,085 (17,959) (34%) 4.52% (203)
100 47,269 (5,774) (11%) 5.95% (60)
0 53,043 -- -- 6.55% --
(100) 49,141 (3,902) (7%) 6.02% (53)
(200) * * * * *
(300) * * * * *
* Scenario not used due to the low prevailing interest rate environment
Controls and Procedures
- -----------------------
(a) Evaluation of disclosure controls and procedures. Based on their
evaluation as of a date within 90 days of the filing date of this Quarterly
Report on Form 10-Q, the Registrant's principal executive officer and principal
financial officer have concluded that the Registrant's disclosure controls and
procedures (as defined in Rules 13a-14(c) and 15d-14(c) under the Securities
Exchange Act of 1934 (the "Exchange Act")) are effective to ensure that
information required to be disclosed by the Company in reports that it files or
submits under the Exchange Act is recorded, processed, summarized and reported
within the time periods specified in Securities and Exchange Commission rules
and forms.
(b) Changes in internal controls. There were no significant changes in
the Registrant's internal controls or in other factors that could significantly
affect these controls subsequent to the date of their evaluation, including any
corrective actions with regard to significant deficiencies and material
weaknesses.
14
THISTLE GROUP HOLDINGS, CO. AND SUBSIDIARIES
PART II
ITEM 1. LEGAL PROCEEDINGS
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 March 31, 2003 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
Not applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On April 16, 2003, the Annual Meeting of stockholders of the Company was held to
elect nominees for director and to ratify the appointment of the Company's
independent auditors. With respect to the election of directors, the results
were as follows:
Nominee For Withheld
------- --- --------
Add B. Anderson, Jr. 4,668,253 (97.8% of votes cast) 103,835
Francis E. McGill, III 4,668,650 (97.8% of votes cast) 103,438
With respect to the ratification of Deloitte & Touche LLP as the Company's
independent certified accountants, the results were as follows:
For Against Abstain
--- ------- -------
4,738,583 (99.4 % of votes cast) 28,370 5,135
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***
10.9 Consulting Agreement with Jerry Naessens******
10.10 Amended Non-Qualified Retirement and Death Benefit with
Jerry Naessens******
10.11 Split Dollar Life Insurance Agreement with Jerry
Naessens******
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
On April 22, 2003 the Company filed a Form 8-K (Items 7 and 9), which
included the Company's first-quarter 2003 press release, dated April
21, 2003.
- ------------------
* 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.
15
*** Incorporated by reference to the appropriate exhibit of the Company's proxy
material filed on June 21, 1999. (File No. 000-24353)
**** Incorporated by reference to the identically numbered exhibits to the Form
10-K for the year ended December 31, 1999 filed on March 30, 2000. (File
No. 000-24353)
*****Incorporated by reference to the identically numbered exhibit to the Form
10-K for the year ended December 31, 2001 filed on March 12, 2002. (File
No. 000-24353)
****** Incorporated by reference to the identically numbered exhibits to the
Form 10-K for the year ended December 31, 2002 filed on March 19, 2003.
(File No. 000-24353)
16
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: May 14, 2003 By: /s/ John F. McGill, Jr.
-----------------------------
John F. McGill, Jr.
Chief Executive Officer
(Principal Executive Officer)
Date: May 14, 2003 By: /s/ Pamela M. Cyr
-----------------------------
Pamela M. Cyr
Chief Financial Officer
(Principal Financial Officer)
17
SECTION 302 CERTIFICATION
I, John F. McGill, Jr., certify that:
1. I have reviewed this quarterly report on Form 10-Q of Thistle Group
Holdings, Co.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
(a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;
(b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
(c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent functions):
(a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
(b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officer and I have indicated in this
quarterly report whether there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Date: May 14, 2003 /s/ John F. McGill, Jr.
---------------------------
John F. McGill, Jr.
Chief Executive Officer
SECTION 302 CERTIFICATION
I, Pamela M. Cyr, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Thistle Group
Holdings, Co.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
(a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;
(b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
(c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent functions):
(a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
(b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officer and I have indicated in this
quarterly report whether there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Date: May 14, 2003 /s/ Pamela M. Cyr
---------------------------
Pamela M. Cyr
Chief Financial Officer