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, 2003
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
- ------------------------------- ---------------------------------
(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
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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, August 5, 2003.
Class Outstanding
--------------------------- -----------
$.10 par value common stock 5,224,825
THISTLE GROUP HOLDINGS, CO. AND SUBSIDIARIES
FORM 10-Q
FOR THE QUARTER ENDED June 30, 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..............................................11
Item 3. Quantitative and Qualitative Disclosures about Market Risk.......................15
Item 4. Controls and Procedures..........................................................16
PART II - OTHER INFORMATION
Item 1. Legal Proceedings................................................................17
Item 2. Changes in Securities and Use of Proceeds........................................17
Item 3. Defaults upon Senior Securities..................................................17
Item 4. Submission of Matters to a Vote of Security Holders..............................17
Item 5. Other Information................................................................17
Item 6. Exhibits and Reports on Form 8-K.................................................17
SIGNATURES ..............................................................................18
EXHIBITS ..............................................................................19
2
THISTLE GROUP HOLDINGS, CO. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Dollars in Thousands, Except Per Share Data)
- ---------------------------------------------------------------------------------------------------------
June 30, December 31,
ASSETS 2003 2002
--------- ---------
Cash on hand and in banks $ 6,687 $ 4,819
Interest-bearing deposits 59,575 19,841
--------- ---------
Total cash and cash equivalents 66,262 24,660
Investments available for sale at fair value
(amortized cost - 2003, $61,450; 2002, $65,098) 64,301 66,239
Mortgage-backed securities available for sale
at fair value (amortized cost - 2003, $392,553; 2002, $361,869) 396,561 369,571
Trading securities 11,788 43,714
Loans receivable (net of allowance for loan losses -
2003, $2,927; 2002, $2,209) 320,036 299,963
Loans held for sale 219 --
Accrued interest receivable 3,902 4,260
Federal Home Loan Bank stock - at cost 13,409 12,497
Real estate acquired through foreclosure - net 1,459 1,717
Office properties and equipment - net 7,692 6,346
Prepaid expenses and other assets 4,887 5,706
Cash surrender value of life insurance 15,434 15,069
Goodwill 7,680 7,680
--------- ---------
TOTAL ASSETS $ 913,630 $ 857,422
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits $ 549,975 $ 492,880
FHLB advances 186,884 220,884
Payable to brokers and dealers 76,732 41,924
Other borrowings 1,650 3,650
Accrued interest payable 908 976
Advances from borrowers for taxes and insurance 2,004 2,611
Accounts payable and accrued expenses 8,687 7,625
Dividends payable 470 473
--------- ---------
Total liabilities 827,310 771,023
--------- ---------
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 5,224,825 shares outstanding at June 30, 2003; 8,999,989 issued
and 5,259,424 shares outstanding at December 31, 2002 900 900
Additional paid-in capital 92,848 92,884
Common stock acquired by stock benefit plans (5,131) (5,537)
Treasury stock at cost, 3,775,164 shares at June 30, 2003
and 3,740,565 shares at December 31, 2002 (39,702) (39,068)
Accumulated other comprehensive income 4,526 5,836
Retained earnings - partially restricted 22,879 21,384
--------- ---------
Total stockholders' equity 76,320 76,399
--------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 913,630 $ 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 For the
Three Months Ended Six Months Ended
Ended June 30, Ended June 30,
-------------------- --------------------
2003 2002 2003 2002
-------- -------- -------- --------
(Restated - (Restated -
See Note 12) See Note 12)
INTEREST INCOME:
Interest on loans $ 5,715 $ 5,368 11,215 10,372
Interest on mortgage-backed securities 3,477 4,058 7,486 8,141
Interest on investments:
Taxable 204 435 405 968
Tax-exempt 782 823 1,583 1,623
Dividends 84 94 195 202
-------- -------- -------- --------
Total interest income 10,262 10,778 20,884 21,306
-------- -------- -------- --------
INTEREST EXPENSE:
Interest on deposits 3,029 3,439 6,032 6,886
Interest on FHLB advances and other borrowings 2,552 2,481 5,111 4,863
-------- -------- -------- --------
Total interest expense 5,581 5,920 11,143 11,749
-------- -------- -------- --------
NET INTEREST INCOME 4,681 4,858 9,741 9,557
PROVISION FOR LOAN LOSSES 320 200 717 350
-------- -------- -------- --------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 4,361 4,658 9,024 9,207
-------- -------- -------- --------
OTHER INCOME:
Service charges and other fees 321 215 624 463
Trading revenues from brokerage operations 329 683 643 982
Writedown on real estate owned (105) - (249) -
Gain on sale of real estate owned - 6 - 6
Gain on sale of mortgage-backed securities available for sale 733 356 1,107 356
Gain on sale of loans 108 177 153 177
Gain (loss) on sale of investments available for sale - (539) 212 (539)
Rental income 45 51 76 106
Other income 11 - 15 -
-------- -------- -------- --------
Total other income 1,442 949 2,581 1,551
-------- -------- -------- --------
OTHER EXPENSES:
Salaries and employee benefits 2,161 2,142 4,105 3,929
Occupancy and equipment 763 660 1,522 1,331
Professional fees 158 92 331 397
Advertising 98 99 201 202
Interest on redeemable preferred securities 131 137 265 137
Other 1,234 883 2,199 1,799
-------- -------- -------- --------
Total other expenses 4,545 4,013 8,623 7,795
-------- -------- -------- --------
INCOME BEFORE INCOME TAXES 1,258 1,594 2,982 2,963
-------- -------- -------- --------
INCOME TAXES 227 278 580 516
-------- -------- -------- --------
NET INCOME $ 1,031 $ 1,316 $ 2,402 $ 2,447
======== ======== ======== ========
BASIC EARNINGS PER SHARE $ 0.21 $ 0.22 $ 0.50 $ 0.40
======== ======== ======== ========
DILUTED EARNINGS PER SHARE $ 0.21 $ 0.22 $ 0.48 $ 0.40
======== ======== ======== ========
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 Six Months
Ended June 30,
----------------------
2003 2002
--------- ---------
(Restated -
See Note 12)
OPERATING ACTIVITIES:
Net income $ 2,402 $ 2,447
Adjustments to reconcile net income to net cash provided by
(used in) operating activities:
Provision for loan losses 717 350
Depreciation 680 630
Amortization of stock benefit plans 493 457
Loans held for sale originated (11,999) -
Amortization of:
Net premiums (discounts) on:
Loans purchased 85 43
Investments (44) (451)
Mortgage-backed securities 2,328 1,975
(Gain) loss on sale of investments (212) 539
Gain on sale of loans (153) (177)
Gain on sale of mortgage-backed securities (1,107) (356)
Gain on sale of real estate owned - (6)
Proceeds from the sale of loans held for sale 11,933 -
Writedown of real estate owned 249 -
Net decrease (increase) in trading securities 31,926 (33,450)
Decrease (increase) in other assets 808 (3,359)
Increase in other liabilities 36,414 34,604
--------- ---------
Net cash provided by operating activities 74,520 3,246
--------- ---------
INVESTING ACTIVITIES:
Principal collected on:
Mortgage-backed securities 91,683 70,257
Loans 85,044 45,593
Loans originated (101,822) (87,097)
Loans acquired (4,097) -
Purchases of:
Investments (28) (4,744)
Mortgage-backed securities (191,457) (94,518)
Property and equipment (2,026) (1,022)
FHLB stock (912) -
Maturities and calls of investments 3,320 2,075
Proceeds from the sale of:
Mortgage-backed securities 67,869 21,790
Investments 612 15,570
Loans - 6,722
Real Estate owned 13 72
--------- ---------
Net cash provided by (used in) investing activities (51,801) (25,302)
--------- ---------
FINANCING ACTIVITIES:
Net increase in deposits 57,095 34,675
Net decrease in advances from borrowers for taxes and insurance (607) (522)
Net decrease in FHLB borrowings (34,000) -
Net (decrease) increase in other borrowings (2,000) 3,500
Issuance of capital securities - 10,000
Purchase of treasury stock (834) (16,237)
Net proceeds from exercise of stock options 136 62
Cash dividends (907) (953)
--------- ---------
Net cash provided by financing activities 18,883 30,525
--------- ---------
NET INCREASE IN CASH AND CASH EQUIVALENTS 41,602 8,469
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 24,660 22,723
--------- ---------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 66,262 $ 31,192
========= =========
SUPPLEMENTAL DISCLOSURES:
Interest paid on deposits and funds borrowed $ 11,211 $ 11,908
Income taxes paid 767 870
Noncash transfers from loans to real estate owned - 2,830
Noncash transfers of investments held to maturity to available for sale - 51,385
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 June 30, 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 June 30, 2003 and December 31, 2002 consisted
of the following:
June 30, 2003 December 31, 2002
----------------------- -----------------------
Amortized Approximate Amortized Approximate
Cost Fair Value Cost Fair Value
--------- ----------- --------- -----------
Municipal bonds - 1 to 5 years.......... $ - $ - $ 511 $ 541
Municipal bonds - 5 to 10 years......... 255 258 255 256
Municipal bonds - more than 10 years.... 47,895 49,087 50,651 51,328
Mutual funds............................ 1,589 1,589 1,569 1,569
Capital trust securities................ 7,448 7,559 7,457 6,668
Equity investments...................... 3,465 5,010 3,864 5,086
Other................................... 798 798 791 791
------- ------- ------- -------
Total................................... $61,450 $ 64,301 $65,098 $66,239
======= ======== ======= =======
NOTE 4 - MORTGAGE-BACKED SECURITIES AVAILABLE FOR SALE
Mortgage-backed securities at June 30, 2003 and December 31, 2002 consisted of
the following:
June 30, 2003 December 31, 2002
----------------------- -----------------------
Amortized Approximate Amortized Approximate
Cost Fair Value Cost Fair Value
--------- ----------- --------- -----------
Agency pass-through certificates..................... $348,857 $353,228 $294,095 $301,376
Agency real estate mortgage investment conduits...... 36,007 35,620 38,362 38,693
Non-agency collateralized mortgage obligations....... 7,689 7,713 29,412 29,502
-------- -------- -------- --------
Total................................................ $392,553 $396,561 $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 June 30, 2003 and December 31, 2002 consisted of the
following:
June 30, 2003 December 31, 2002
------------- -----------------
Mortgage loans:
1 - 4 family residential..................... $114,497 $125,827
Commercial real estate....................... 107,577 92,760
Home equity lines of credit and improvement loans..... 34,444 28,525
Commercial loans .................................... 35,416 26,557
Construction loans - net.............................. 31,060 28,446
Loans on savings accounts............................. 420 505
Consumer loans .................................... 1,243 1,034
-------- --------
Total loans.................................. 324,657 303,654
-------- --------
Plus: unamortized premiums............................ 60 144
Less:
Net discounts on loans purchased............. (11) (12)
Deferred loan fees........................... (1,743) (1,614)
Allowance for loan losses.................... (2,927) (2,209)
-------- --------
Total $320,036 $299,963
======== ========
A summary of changes in the allowance for loan losses for the six months ended
June 30, 2003 and for the year ended December 31, 2002 is as follows:
For the For the
Six Months Ended Year Ended
June 30, 2003 December 31, 2002
---------------- -----------------
Balance, beginning......................... $2,209 $2,511
Provision.................................. 717 702
Charge-offs................................ - (1,004)
Recovery................................... 1 -
------ ------
Balance ending............................. $2,927 $2,209
====== ======
NOTE 7 - DEPOSITS
The major types of deposits by amounts and percentages at June 30, 2003 and
December 31, 2002 were as follows:
June 30, 2003 December 31, 2002
---------------------- -----------------------
Amount % of Total Amount % of Total
--------- ---------- --------- ----------
Checking accounts........ $116,975 21.3% $ 91,584 18.6%
Money market accounts.... 48,222 8.8% 44,191 9.0%
Passbook accounts........ 130,755 23.8% 124,660 25.3%
Certificate accounts..... 254,023 46.1% 232,445 47.1%
-------- ----- -------- -----
Total.................... $549,975 100.0% $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 and six month periods ended June 30, 2003 and 2002 are as follows:
7
For the For the
Three Months Ended Six Months Ended
June 30, June 30,
---------------------- ----------------------
2003 2002 2003 2002
--------- ---------- --------- ----------
Average common shares outstanding- basic 4,805,746 5,914,161 4,816,060 6,015,890
Increase in shares due to dilutive options 177,566 122,990 159,326 101,081
--------- --------- --------- ---------
Adjusted shares outstanding - diluted 4,983,312 6,037,151 4,975,386 6,116,971
========= ========= ========= =========
NOTE 9 - COMPREHENSIVE INCOME
For the three and six month periods ended June 30, 2003, the Company reported
total comprehensive income of approximately $207, and $1,092, respectively. For
the three and six-month periods of the prior year, the Company reported total
comprehensive income of approximately $4,968 and $5,486, 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 18, 2003, the Company declared a dividend of $.09 per share payable July
15, 2003 to stockholders of record on June 30, 2003.
NOTE 11 - RECENT ACCOUNTING STANDARDS
In December 2002, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards (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 For the Six Months
Ended June 30, Ended June 30,
2003 2002 2003 2002
--------- --------- --------- ---------
Net income, as reported $ 1,031 $ 1,316 $ 2,402 $ 2,447
Deduct: Total stock-based employee
compensation expense determined
under fair value based method for all
awards, net of related tax effects (26) - (52) -
--------- --------- --------- ---------
Pro forma net income $ 1,005 $ 1,316 $ 2,350 $ 2,447
========= ========= ========= =========
Earnings per share:
Basic-as reported $ 0.21 $ 0.22 $ 0.50 $ 0.40
Basic-pro forma 0.21 0.22 0.49 0.40
Diluted-as reported 0.21 0.22 0.48 0.40
Diluted-pro forma 0.20 0.22 0.47 0.40
8
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 FASB 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.
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, 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 May 2003, the FASB issued Statement No. 150, Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and Equity. The statement
improves the accounting for certain financial instruments that under previous
guidance, issuers could account for as equity. The new statement requires that
those instruments be classified as liabilities in statements of financial
position. Most of the guidance in Statement 150 is effective for all financial
instruments entered into or modified after May 31, 2003, and otherwise is
effective at the beginning of the first interim period beginning after June 15,
2003. The Company has not yet evaluated the impact of the adoption of this
statement.
In November 2002, the 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 has participated in the issue of
preferred trust securities through a trust established for such purpose. The
Company is currently assessing the trust preferred securities structure and the
continued consolidation of the related trust pursuant to FIN 46. Management does
not believe the results of the assessment will result in a material change to
the Company's balance sheet or income statement upon the adoption of FIN 46 in
the third quarter 2003.
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 periods in the year ended December 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.
9
The following table is a summary of net income and basic and diluted earnings
per share for the three and six month periods ended June 30, 2002, as previously
reported on Form 10-Q and for the same quarterly period as restated for the
adoption of SFAS No. 147:
Three Months Ended Six Months Ended
June 30, 2002 June 30, 2002
------------------ -----------------
Net income, as previously reported...................... $1,135 $2,127
Amortization of goodwill, net of tax.................... 181 320
------ ------
Net income, as restated................................. $1,316 $2,447
====== ======
Earnings per share:
Basic earnings per share, as previously reported..... $ 0.19 $ 0.35
Amortization of goodwill, net of tax................. 0.03 0.05
------ ------
Basic earnings per share, as restated................ $ 0.22 $ 0.40
====== ======
Dilute earnings per share, as previously reported.... $ 0.19 $ 0.35
Amortization of goodwill, net of tax................. 0.03 0.05
------ ------
Diluted earnings per share, as restated.............. $ 0.22 $ 0.40
====== ======
10
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.
Net income for the quarter decreased by $340,000 or $.07 diluted earnings per
share from the quarter ended March 31, 2003. Set forth below is the Company's
earnings information for the quarter ended June 30, 2003 as compared to the
quarter ended March 31, 2003. (the "Linked Quarter Highlights")
LINKED QUARTER HIGHLIGHTS
(Dollars in Thousands)
QTR QTR INCREASE % INCREASE
6/30/03 3/31/03 (DECREASE) (DECREASE)
-------- -------- ---------- ----------
Interest Income $ 10,262 $ 10,622 $ (360) (3.4%)
Interest Expense 5,581 5,562 19 .3%
Net Interest Income 4,681 5,060 (379) (7.5%)
Provision for loan losses 320 397 (77) (19.4%)
Non-interest Income 1,442 1,139 303 26.6%
Non-interest Expense 4,545 4,078 467 11.4%
Net Income 1,031 1,371 (340) (24.8%)
Cash and cash equivalents 66,262 26,276 39,986 152.2%
Loans 320,255 310,858 9,397 3.0%
Deposits 549,975 505,026 44,949 8.9%
Stockholders' Equity 76,320 77,037 (717) (.9%)
o Net income decreased due to a decrease in net interest income of $379,000
and an increase in non-interest expense of $467,000, partially offset by an
increase in non-interest income of 303,000.
o Net interest income decreased $379,000 primarily as a result of a decrease
in interest income on mortgage-backed securities offset somewhat by an
increase in interest income on loans. The mortgage-backed securities
portfolio experienced rapid repayments during the second quarter. As a
result, the average yield on the portfolio decreased 58 basis points as
funds were reinvested at lower rates.
o Non-interest income for the quarter increased $303,000 due mainly to gains
on the sale of securities.
o Non-interest expense increased $467,000 or 11% quarter over quarter. The
increase was the result of increases in salaries and employee benefits and
other operating expenses. The increase in salaries and employee benefits
was due to an increase in the number of employees and incentive
compensation tied to deposit growth goals. The increase in other operating
expense was due to increased costs including telephone, security, postage,
supplies and information technology-related expenses.
o Cash and cash equivalents increased $40.0 million as a result of the
increase in customer deposits and the proceeds from the sale of certain low
yielding mortgage-backed securities during the quarter. Given the current
market environment, the Company did not feel compelled to immediately
reinvest its liquidity.
o Loans receivable increased $9.4 million or 3% over the prior quarter
despite continued heavy prepayments. Repayments, including prepayments,
were $48.7 million for the quarter ended June 30, 2003 versus $36.2 million
for the first quarter of 2003. Origination's totaled $66.4 million for the
quarter ended June 30, 2003 versus $47.4 million for the first quarter of
2003.
o Deposits increased $44.9 million for the quarter. Core deposits (checking,
money market, and passbook) increased $29.8 million and certificates
increased by $15.2 million. Much of the increase was attributable to the
opening of RMB's 14th banking office in Havertown, PA, as well as the
continued focus on increasing low cost commercial and retail deposit
relationships.
11
Comparison of Financial Condition at June 30, 2003 from December 31,2003
- ------------------------------------------------------------------------
Total assets were $913.7 million at June 30, 2003, representing an increase of
$56.2 million from the balance of $857.4 million at December 31, 2002. The
Company previously reported assets of $847.2 million in its earnings release
dated July 17, 2003 which did not include the trade date purchase of $66.5
million of mortgage-backed securities and the corresponding payable to brokers
and dealers.
Trading securities decreased $31.9 million, which also resulted in a
corresponding decrease in the payable to brokers and dealers.
Mortgage-backed securities decreased $27.0 million, primarily due to repayments
of $91.7 million and sales of $67.9 million, offset by purchases of $191.5
million.
Loans receivable increased $20.1 million, or 6.7% to $320.0 million at June 30,
2003 from $300.0 million at December 31, 2002. The increase was primarily the
result of $105.9 million in loan originations and loan purchases, offset by
principal repayments of $85.0 million, One-to-four family residential loans
decreased $11.3 million, or 9.0% while commercial real estate and commercial
loans increased $23.7 million, or 19.8% and home equity loans and lines
increased $5.9 million, or 20.7%.
Deposits increased $57.1 million, or 11.6 %, to $550.0 million at June 30, 2003
from $492.9 million at December 31, 2002. Checking accounts increased $25.4
million or 27.7%, money market accounts increased $4.0 million, or 9.1%,
passbook accounts increased $6.1 million, or 4.9% and certificate accounts
increased $21.6 million, or 9.3%.
FHLB advances decreased $34.0 million to $186.9 million at June 30, 2003 from
$220.9 million at December 31, 2002. The decrease was due to the repayment of
overnight borrowings.
Total stockholders' equity decreased $79,000 to $76.3 million at June 30, 2003
from $76.4 million at December 31, 2002, primarily due to a decrease in
accumulated other comprehensive income of $1.3 million, treasury stock purchases
of $634,000 and by dividends paid of $906,000 offset by net income of $2.4
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, 2003 December 31, 2002
------------- -----------------
(Dollars in Thousands)
Total non-performing loans (1).............. $ 912 $ 506
Real estate owned........................... 1,459 1,717
------ ------
Total non-performing assets................. $2,371 $2,223
====== ======
Total non-performing loans to
total loans................................. 0.28% 0.17%
Total non-performing assets to
total assets................................ 0.26% 0.26%
Allowance for loan loss..................... $2,927 $2,209
Allowance for loan losses as a percentage
of total non-performing assets.............. 123.40% 99.37%
Allowance for loan losses as a percentage
of total non-performing loans............... 320.94% 437.00%
Allowance for loan losses as a percentage
of total average loans...................... 0.93% 0.78%
- --------------
(1) Non-performing loans exclude loans restructured and performing under their
modified terms. Such loans totaled $1,978 and $0 for the periods ended June
30, 2003 and December 31, 2002, respectively.
12
Comparison of Operations for the Three-Month and Six-Month
Periods Ended June 30, 2003 and 2002
- ------------------------------------------------------------
Net income for the quarter ended June 30, 2003 decreased $285,000 or 21.7% from
the quarter ended June 30, 2002. Net income for the six months ended June 30,
2003 decreased $45,000 or 1.8% from the six months ended June 30, 2002.
Net interest income for the quarter ended June 30, 2003 decreased $177,000 or
3.6% from the quarter ended June 30, 2002. Net interest income for the six
months ended June 30, 2003 increased $184,000 or 1.9% from the six months ended
June 30, 2002.
Interest income for the quarter ended June 30, 2003 decreased $516,000 or 4.8%
over the quarter ended June 30, 2002, primarily due to a decrease in the average
yield on interest-earning assets of 82 basis points, partially offset by an
increase in the average balance of $72.8 million. Interest expense for the
quarter ended June 30, 2003 decreased $339,000 or 5.7% from the quarter ended
June 30, 2002 due to a decrease in the average cost of funds on interest-bearing
liabilities of 63 basis points, partially offset by an increase in the average
balance of $74.4 million.
Interest income for the six months ended June 30, 2003 decreased $422,000 or
2.0% from the six months ended June 30, 2002, primarily due to a decrease in the
average yield on interest-earning assets of 80 basis points, partially offset by
an increase in the average balance of $86.8 million. Interest expense for the
six months ended June 30, 2003 decreased $606,000 or 5.2% from the six months
ended June 30, 2002 due to a decrease in the average cost of funds on
interest-bearing liabilities of 66 basis points, partially offset by an increase
in the average balance of $89.4 million.
The provision for loan losses for the quarter and six months ended June 30, 2003
increased $120,000 and $367,000, respectively, over the quarter and six months
ended June 30, 2002. The Company's allowance for loan losses as a percentage of
loans was .91% at June 30, 2003 versus .70% at June 30, 2002. Loans classified
substandard were $2.9 million at June 30, 2003 versus $464,000 at June 30, 2002.
Non-interest income for the quarter ended June 30, 2003 increased $493,000 over
the quarter ended June 30, 2002 primarily due to gains on the sale of securities
offset by a decrease in trading revenues at TGH Securities, the Company's
wholly-owned subsidiary. The decrease in trading revenues is a direct result of
a reduction in trading activity due to the current interest rate environment.
Non-interest income for the six months ended June 30, 2003 increased $1.0
million over the six months ended June 30, 2002 primarily due to gains on the
sale of securities.
Non-interest expense for the quarter ended June 30, 2003 increased $532,000 or
13.3% over the quarter ended June 30, 2002 due mainly to increases in occupancy
and equipment costs and other operating expenses of $103,000 and $351,000,
respectively. Such costs represent increases in maintenance and depreciation
expense and other operating expenses including telephone, security, postage,
supplies and information technology-related expenses.
Non-interest expense for the six months ended June 30, 2003 increased $828,000
or 10.6% over the six months ended June 30, 2002 due mainly to increases in
salaries and employee benefits, occupancy and equipment costs, and other
operating expenses of $176,000, $191,000 and $400,000, respectively. The
increase in salaries and employee benefits is due primarily to additional
personnel and normal salary increases offset by a decrease in compensation for
TGH Securities, which is directly related to the decrease in its trading
revenues. The increase in occupancy and equipment costs is due to increases in
maintenance and depreciation expense. The increase in other operating expense is
due to increases in operating expenses including telephone, security, postage,
supplies and information technology-related expenses.
Critical Accounting Policies
- ----------------------------
The following is a summary of those accounting policies that the Company
considers to be critical as they require management's most difficult judgments
as a result of the need to make estimates about the effects of matters that are
inherently uncertain.
Allowance for Loan Losses- the allowance for loan losses represents management's
estimate of probable losses based on information available as of the date of the
financial statements. The allowance for loan losses is based on management's
evaluation of the collectibility of the loan portfolio, including past loan loss
experience, known and inherent losses, information about specific borrower
situations and estimated collateral values, and economic conditions.
The Company's allowance review procedures consist of the following:
13
- Identifying large balance loans for individual review under Statement
of Financial Accounting Standards No. 114, "Accounting by Creditors
for Impairment of a Loan". In general, these consist of large balance
commercial loans and commercial mortgages (Statement 114 loans).
- Calculating the estimated fair value, using observable market prices,
discounted cash flows or the value of the underlying collateral for
Statement 114 loans which are determined to be impaired as defined by
Statement 114.
- Classifying all non-impaired large balance loans based on credit risk
ratings and allocating an allowance for loan losses based on
appropriate factors, including recent loss history for similar loans.
- Identifying all smaller balance homogeneous loans for evaluation
collectively under the provisions of Statement of Financial Accounting
Standards No. 5, "Accounting for Contingencies". In general, these
loans include residential mortgages, consumer loans, installment
loans, smaller balance commercial loans and mortgages and lease
receivables
- Reviewing the results to determine the appropriate balance of the
allowance for loan losses. This review gives additional consideration
to factors such as the mix of loans in the portfolio, the balance of
the allowance relative to total loans and non-performing assets,
trends in the overall risk profile of the portfolio, trends in
delinquencies and non-accrual loans and local and national economic
conditions.
Goodwill - With the adoption of Statement of Financial Accounting Standards 142
and 147, effective January 1, 2002 the Company ceased amortization of goodwill.
The recorded goodwill is subject to impairment testing to determine whether
write-downs of the recorded balances are necessary. Such testing is based upon a
number of factors, which are based upon assumptions and management judgments.
These factors include among other things, future growth rates, discount rates,
and earnings capitalization rates.
Liquidity and Capital Resources
- -------------------------------
On June 30, 2003, the Bank was in compliance with its three regulatory capital
requirements as follows:
Amount Percent
--------- -------
(Dollars in Thousands)
Tangible capital.......................... $55,496 6.9%
Tangible capital requirement.............. 12,123 1.5%
------- ----
Excess over requirement................... $43,373 5.4%
======= ====
Core capital.............................. $55,496 6.9%
Core capital requirement.................. 32,368 4.0%
------- ----
Excess over requirement................... $23,128 2.9%
======= ====
Risk based capital........................ $58,424 13.5%
Risk based capital requirement............ 34,527 8.0%
------- ----
Excess over requirement................... $23,897 5.5%
======= ====
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, 2003, the Company originated $101.8 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 $129.1 million during the six-month
period ended June 30, 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
14
during any given period. At June 30, 2003, cash and cash equivalents totaled
$66.3 million. The Bank's liquidity ratio was 13.2% at June 30, 2003.
The Company anticipates that it will have sufficient funds available and $66.0
million in commitments to purchase mortgage backed securities to meet its
current commitments. As of June 30, 2003, the Company had $22.7 million in
commitments to fund loans. Certificates of deposit, which were scheduled to
mature in one year or less, as of June 30, 2003 totaled $144.1 million.
Management believes that a significant portion of such deposits will remain with
the Company.
Additional Key Operating Information and Ratios
- -----------------------------------------------
For the For the
Three Months Ended Six Months Ended
June 30, June 30,
----------------- ------------------
2003(1) 2002(1) 2003(1) 2002(1)
------- ------- ------- -------
Return on average assets .49% .70% .58% .66%
Return on average equity 5.36% 6.12% 6.24% 5.67%
Yield on average interest-earning assets 5.32% 6.14% 5.48% 6.28%
Cost of average interest-bearing liabilities 3.03% 3.66% 3.05% 3.71%
Interest rate spread (2) 2.29% 2.48% 2.43% 2.56%
Net interest margin (3) 2.53% 2.82% 2.66% 2.91%
At June 30, 2003 At December 31, 2002
---------------- --------------------
Tangible book value per share (4) $13.14 $13.07
- --------------
(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.
(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.
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 June 30, 2003. The NPV was
calculated by the OTS, based on information provided by the Bank.
15
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 $21,333 $ (34,496) (62%) 2.67% (392)
200 36,068 (19,761) (35%) 4.41% (218)
100 48,464 (7,365) (13%) 5.81% (78)
0 55,829 - - 6.59% ----
(100) 54,717 (1,112) (2%) 6.40% (19)
(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 of the Company's disclosure controls and procedures (as defined in
Rule 13a-15(e) under the Securities Exchange Act of 1934 (the "Exchange Act")),
the Company's principal executive officer and principal financial officer have
concluded that as of the end of the period covered by this Quarterly Report on
Form 10-Q such disclosure controls and procedures 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 control over financial reporting. During the quarter
under report, there was no change in the Company's internal control over
financial reporting that has materially affected, or is reasonably likely to
materially affect, the Company's internal control over financial reporting.
16
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 June 30, 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 OTHER INFORMATION
None.
ITEM 5. 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******
31 Certification Pursuant to Rule 13a - 14 (a)
32 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 July 22, 2003 the Company filed a Form 8-K (Items 7 and 9), which
included the Company's first-quarter 2003 press release, dated July
17, 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.
*** 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)
17
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 13, 2003 By: /s/ John F. McGill, Jr.
------------------------------
John F. McGill, Jr.
Chief Executive Officer
(Principal Executive Officer)
Date: August 13, 2003 By: /s/ Pamela M. Cyr
------------------------------
Pamela M. Cyr
Chief Financial Officer
(Principal Financial Officer)
18