Item 1. Business - -----------------
Thistle Group Holdings, Co. (the "Company") is a unitary thrift holding company incorporated in the Commonwealth of Pennsylvania and headquartered in Philadelphia, Pennsylvania. The Company's business is conducted principally through Roxborough Manayunk Bank (the "Bank"). Unless the context indicates otherwise, all references to the Company refer collectively to the Company and the Bank, including each of the Company's and the Bank's subsidiaries. For a description of the Company's other subsidiaries and the Bank's subsidiaries, see " - Subsidiaries."
The Company provides a full range of banking services through its main office and twelve branch offices located in the counties of Philadelphia, Chester, Montgomery, and Delaware in the Commonwealth of Pennsylvania and Wilmington, Delaware and its transactional web site RMBgo.com. For the year ended December 31, 2002, the Company had consolidated assets of $857.4 million, deposits of $492.9 million, and stockholder's equity of $76.4 million.
Competition
The Company is one of many financial institutions serving its market area of the counties of Philadelphia, Chester, Montgomery, and Delaware in the Commonwealth of Pennsylvania and Wilmington, Delaware. The competition for deposit products comes from other insured financial institutions such as commercial banks, thrift institutions and credit unions in the Company's market area. Deposit competition also includes a number of insurance products sold by local agents and investment products such as mutual funds and other securities sold by local and regional brokers. Loan competition comes primarily from other insured financial institutions such as commercial banks, thrift institutions and credit unions and mortgage banking companies.
Lending Activities
Analysis of Loan Portfolio. The following table sets forth selected data relating to the composition of the Company's loan portfolio by type of loan and type of security on the dates indicated.
Loan Maturity Schedules. The following table sets forth the estimated maturity of the Company's loan portfolio at December 31, 2002. The table does not include the effects of possible prepayments or scheduled repayments. Prepayments and scheduled principal repayments of loans totaled $119.1 million for the year ended December 31, 2002. All mortgage loans are shown as maturing based on the date of the last payment required by the loan agreement.
Due Due after within 1 through Due after 1 year 5 years 5 years Total ------- -------- --------- ------- (In Thousands)
Residential and home equity... $ 1,358 $ 8,946 $144,048 $154,352 Multi-family and commercial real estate................. 6,778 9,947 76,035 92,760 Construction.................. 10,636 13,968 3,842 28,446 Commercial.................... 5,876 15,250 5,431 26,557 Consumer...................... 153 1,246 140 1,539 ------- ------- -------- -------- Total......................... $24,801 $49,357 $229,496 $303,654 ======= ======= ======== ========
The following table sets forth as of December 31, 2002 the dollar amount of all loans due after December 31, 2003, which have fixed rates of interest and which have floating or adjustable interest rates.
Floating or Adjustable Fixed Rates Rates Total ----------- ----------- ------ (In Thousands)
Residential and home equity.............. $129,741 $ 23,253 $152,994 Multi-family and commercial real estate.. 32,316 53,666 85,982 Construction............................. 2,395 15,415 17,810 Consumer................................. 5,529 15,152 20,681 Commercial............................... 939 447 1,386 -------- -------- -------- Total.................................. $170,920 $107,933 $278,853 ======== ======== ========
Residential Mortgage Loans. The Company offers first mortgage loans secured by one- to four-family residences in the Company's primary lending area. Typically, such residences are single family homes that serve as the primary residence of the owner. The Company offers fixed-rate mortgage loans with terms of up to 30 years, fixed-rate balloon mortgages with terms up to 15 years and amortization periods up to 30 years, and adjustable-rate mortgage loans that generally adjust every one year based upon selected published indices. Owner occupied residential and non-owner occupied mortgage loans are generally originated in amounts up to 80% of the lesser of the appraised value or selling price of the property. Loans up to 97% of the appraised value are available for owner occupied properties only. Private mortgage insurance is usually required for the amount in excess of 80% of such value. Mortgage loans originated and held by the Company in its portfolio generally include due-on sale clauses which provide the Company with the contractual right to deem the loan immediately due and payable in the event that the borrower transfers ownership of the property without the Company's consent.
Adjustable-rate mortgage loans buffer the risks associated with changes in interest rates, but involve other risks because as interest rates increase, the underlying payments by the borrower increase, thus increasing the potential for default. At the same time, the marketability of the underlying collateral may be adversely affected by higher interest rates. The Company's adjustable-rate loan underwriting policy recognizes these inherent risks and the Company reviews a credit application accordingly. These risks have not had an adverse effect on the Company to date. Fixed-rate balloon mortgage loans also buffer the risks associated with changes in interest rates but involve other risks because if interest rates increase at the time the balloon payment is due it could make it more difficult for the borrower to refinance thus increasing the potential for default. At the same time, the marketability of the underlying collateral may be adversely affected by higher interest rates.
Home Equity Loans and Home Equity Lines of Credit. The Company originates home equity loans secured by 1- to 4-family residences. Home equity loans are originated as fixed-rate loans with terms from 1 to 20 years. Home equity lines are originated as variable rate loans with terms from 1 to 15 years. These loans reprice with The Wall Street Journal Prime Rate. These loans are made on owner-occupied, 1- to 4-family residences or vacation homes. The loans are generally subject to an 90% combined loan-to-value limitation, including any other outstanding mortgages or liens. Home equity loans are generally originated for retention in the Company's loan portfolio. For loans in excess of 80%, the Company does not require private mortgage insurance but instead self insures.
Multi-Family and Commercial Real Estate Loans. The Company originates both fixed-rate and adjustable-rate multi-family and commercial real estate loans within its primary market area. Multi-family loans are generally secured by apartment buildings and commercial real estate loans are generally secured by office buildings, retail stores, industrial facilities and other non-residential buildings.
Adjustable-rate loans for both multi-family and commercial real estate loans generally reprice every five years based on the daily average yield on U.S. Treasury securities adjusted to a constant maturity of five years plus a margin. Such loans may be amortized up to 25 to 30 years with a balloon payment after 10 to 15 years. Fixed-rate loans are generally 15 year self amortizing loans, or 5 to 10 year balloons, with up to 25 to 30 year amortizations. Adjustable-rate and fixed-rate loans are generally made in amounts up to 70% to 80% of the appraised value of the mortgaged property. In making such loans, the Company evaluates the mortgage primarily on the net operating income generated by the real estate to support the debt service. Generally, the Company obtains personal guarantees of the principals of the borrower as additional security. The Company also considers the financial resources and income level of the borrower, the borrower's experience in owning or managing similar property, the marketability of the property and the Company's lending experience, if any, with the borrower. An origination fee of 0% to 1.5% is usually charged on such loans and generally these loans carry prepayment penalties for the first five years. At December 31, 2002, multi-family loans totaled $28.8 million and commercial real estate loans totaled $64.0 million of this total loan portfolio.
Commercial real estate lending is generally deemed to entail greater risk than residential real estate lending. The repayment of commercial real estate loans is generally dependent on the successful operation of the property and the income it produces. The Company has established a Commercial Credit Administration Department to better manage these risks.
Construction Loans. The Company originates construction loans primarily for the construction of single family residences and to a lesser extent for commercial property. Construction loans for single family residences are either made to individuals or to selected developers.
With respect to construction loans to individuals, such loans have a maximum term of 12 to 18 months, have fixed or variable rates of interest based upon the prime rate published in The Wall Street Journal plus a margin and have loan to value ratios of 80% or less of the appraised value upon completion and generally do not require the amortization of principal during the term. Upon completion of construction, the loans convert to permanent residential mortgage loans.
Residential construction loans to developers and commercial construction loans generally have terms of 12 to 30 months or less, have maximum loan to value ratios between 75% and 80% or less of the appraised value upon completion and generally do not require the amortization of the principal during the term. The loans are made with floating rates of interest based on the prime rate (as published in the Wall Street Journal) plus a margin adjusted on a daily basis. Commercial construction loans may convert to permanent commercial term loans upon completion of construction. At December 31, 2002, residential construction loans totaled $13.1 million or 46.1% of the total construction loan portfolio, which primarily consisted of construction loans to developers and commercial construction loans totaled $8.7 million or 30.6% of the total construction loan portfolio.
The Company also originates ground or land loans, both to an individual to purchase a building lot on which the borrower intends to build their primary residence, as well as to developers to purchase lots on which to build homes in phases at a later date or to improve and sell to national home builders to build in phases homes at a later date. Such loans have terms of 36 months or less with a maximum loan to value ratio of 65% to 75% of the lower of appraised value or sale price. The loans are made with floating rates based on the prime rate plus a margin. At December 31, 2002, land loans (including loans to acquire and develop land) totaled $6.6 million, or 23.3%, of the total construction loan portfolio.
Construction financing generally has a higher degree of credit risk than 1-4 family residential loans. The risk is dependent largely on the value of the property when completed as compared to the estimated cost, including interest, of building the property. If the estimated value is inaccurate, the Company may have a completed project with a value too low to assure full repayment of the loan. The Company has established a Commercial Credit Administration Department to better manage these risks.
Commercial Business Loans. The Company grants commercial business loans directly to business enterprises that are located in its market area. Commercial business loans have increased from 0.2% of total loans at December 31, 1998 to 8.7% of total loans at December 31, 2002. The Company actively targets and markets to small and medium sized businesses. The majority of the loans are for less than $1.0 million. Such loans generally have personal guarantees of the borrower and consist of a limited number of commercial lines of credit secured by real estate, some working capital financing secured by accounts receivable and inventory and, to a limited extent, unsecured lines of credit. Commercial business loans originated by the Company generally have terms of five years or less and fixed rates or adjustable rates tied to the prime rate plus a margin. As of December 31, 2002, commercial business loans amounted to $26.6 million, of which $2.0 million, or 7.5%, were backed by the full faith and credit of the U.S. Government.
Commercial business loans generally are deemed to entail significantly greater risk than that which is involved with real estate lending. The repayment of commercial business loans typically is dependent on the successful operations and income stream of the borrower. Such risks can be significantly affected by economic conditions. In addition, commercial lending generally requires substantially greater oversight efforts compared to residential real estate lending. In order to better manage these risks, the Company has established a Commercial Credit Administration Department.
Consumer Loans. Office of Thrift Supervision regulations permit the Company to make aggregate secured and unsecured consumer loans up to 35% of the Company's assets. The Company has established a consumer loan department under the guidance of an individual with 20 years experience. The Company now offers a full range of auto loans, unsecured personal loans and unsecured personal lines of credit. This department also handles the origination of home equity loans and lines of credit loans.
Commercial Credit Administration Department. In July 2000 the Company hired an individual as Vice President, Credit Administration with over 30 years of experience in credit administration to establish a Commercial Credit Administration department at the Bank. The Department currently has four employees. This Department is independent of the lending department and the Vice President of Credit Administration reports directly to the Chief Executive Officer. Credit Administration supports the lending function and attempts to safeguard the Bank's loan assets by means of established practices for the extension of credit (underwriting), monitoring and managing of the inherent risks associated with the commercial loan portfolio.
Purchase and Sale of Loans and Loan Servicing. The Company has been a seller and purchaser of whole loans and participation in the secondary market. Generally, the Company sells a participation interest in commercial, commercial real estate and construction loans and retains servicing for the loans sold whenever possible. The Company generally purchases a participation interest in commercial real estate loans and construction loans in its market area. The Company at times also purchases fixed-rate residential mortgages.
In 2002, the Company began actively selling all conforming fixed-rate residential mortgage loans with terms in excess of 15 years into the secondary mortgage market primarily to Federal National Mortgage Association ("FNMA"). The Company retains servicing on these loans. The sale of these mortgage loans buffers the risks associated with changes in interest rates and generates on-going servicing fees.
The following table sets forth total loans originated, purchased, sold, and repaid during the periods indicated.
Loans Held For Sale. The Company can hold as available for sale certain residential mortgage loans that have an annual yield determined by management to be at rates not compatible with its asset management strategy. These loans conform to Federal Home Loan Mortgage Corporation ("FHLMC") and FNMA guidelines and are readily salable to the secondary market. At December 31, 2002, there were no loans classified as held for sale.
Loan Commitments. The Company generally grants commitments to fund fixed-rate single-family mortgage loans for periods of up to 90 days at a specified term and interest rate. The Company also makes loan commitments for non-conforming or commercial real estate loans for up to 90 days, which generally carry additional requirements for funding. The total amount of the Company's commitments to originate loans as of December 31, 2002 was $38.7 million.
Non-Performing Loans and Problem Assets
Loan Delinquencies. When a mortgage loan is 30 days or more delinquent, the borrower is contacted by mail and telephone and payment is requested. If the delinquency continues, subsequent efforts will be made to contact the delinquent borrower. In certain instances, the Company may modify the loan or grant a limited moratorium on loan payments to enable the borrower to reorganize their financial affairs. If the loan continues in a delinquent status for 60 days, the Company will initiate foreclosure proceedings. Any property acquired as the result of foreclosure or by deed in lieu of foreclosure is classified as real estate owned ("REO") until such time as it is sold or otherwise disposed of by the Company. When REO is acquired, it is recorded at the lower of the unpaid principal balance of the related loan or its fair market value less estimated costs to sell the property. Any write-down of the property at the time that it is transferred to REO is charged to the allowance for losses. Any subsequent write-downs are charged to operations.
Loans are reviewed on a regular basis and are placed on a non-accrual status when, in the opinion of management, the collection of additional interest is doubtful. The Company continues to accrue for residential mortgage loans 90 days or more past due, however a reserve is set up for such loans, reversing amounts previously credited to income. Consumer loans generally are charged off when the loan becomes 90 days or more delinquent. Interest accrued and unpaid at the time a loan is placed on non-accrual status is charged against interest income. Subsequent payments are either applied to the outstanding principal balance or recorded as interest income, depending on the assessment of the ultimate collectibility of the loan. The Company engages a third party for loan review twice a year. The scope of the review is at a minimum 60% of the total portfolio and includes individual loan reviews, risk rating analysis, concentration analysis, credit administration review, credit deficiencies, and analysis of the allowance for loan losses.
Non-Performing Assets. The following table sets forth information with respect to the Company's non-performing assets for the periods indicated. The Company has no loans categorized as troubled debt restructurings within the meaning of Statement of Financial Accounting Standards ("SFAS") No. 15.
Classified Assets. Management, in compliance with regulatory guidelines, has instituted an internal loan review program, whereby loans are classified as special mention, substandard, doubtful or loss. When a loan is classified as substandard or doubtful, management is required to establish a general valuation reserve for loan losses in an amount that is deemed prudent. General allowances represent loss allowances which have been established to recognize inherent risk associated with lending activities, but which, unlike specific allowances, have not been allocated to particular problem assets. When management classifies a loan as a loss asset, a reserve equal to 100% of the loan balance is required to be established or the loan is to be charged-off.
An asset is considered "substandard" if it is inadequately protected by the paying capacity and net worth of the obligor or the collateral pledged, if any. "Substandard" assets include those characterized by the "distinct possibility" that the Company will sustain "some loss" if the deficiencies are not corrected. Assets classified as "doubtful" have all of the weaknesses inherent in those classified "substandard," with the added characteristic that the weaknesses present make "collection or liquidation in full," "highly questionable and improbable," on the basis of currently existing facts, conditions, and values. Assets classified as "loss" are those considered "uncollectible" and of such little value that their continuance as assets without the establishment of a specific loss reserve is not warranted. Assets which do not currently expose the Company to a sufficient degree of risk to warrant classification in one of the aforementioned categories but possess credit deficiencies or potential weaknesses are required to be designated "special mention" by management.
The following table sets forth the Company's classified assets in accordance with its classification system.
At December 31, 2002 -------------------- (In Thousands) Special Mention.............. $ 75 Substandard(1)............... 2,299 Doubtful .................... -- Loss ........................ -- ------ $2,374 ======
- ---------- (1) Includes $1.7 million of real estate owned carried at fair value.
Allowance for Losses on Loans. The Company's management evaluates the need to establish reserves against losses on loans and other assets each year based on estimated losses on specific loans and on any real estate held for sale or investment when a finding is made that a loss is estimable and probable. Such evaluation includes a review of all loans for which full collectibility may not be reasonably assured and considers, among other matters, the estimated market value of the underlying collateral of problem loans, prior loss experience, economic conditions and overall portfolio quality. These provisions for losses are charged against earnings in the year they are established.
The Company monitors its allowance for loan losses and makes additions to the allowance as economic conditions dictate. The allowance for loan losses is maintained at a level that represents management's best estimates of losses in the loan portfolio at the balance sheet date. However, there can be no assurance that the allowance for losses will be adequate to cover losses which may be realized in the future and that additional provisions for losses will not be required.
The following table sets forth information with respect to the Company's allowance for loan losses at the dates indicated:
- -------------------------- (1) Does not include loans available for sale.
Analysis of the Allowance for Loan Losses. The following table sets forth the breakdown of the allowance for loan losses by loan category and the percent of loans in each category to total loans receivable for the periods indicated. The allocation of the allowance to each category is not necessarily indicative of future losses and does not restrict the use of the allowances to absorb losses in any category.
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(1) Includes construction loans.
(2) For 2001, includes $707 valuation allowance related to $2,800 of impaired loans.
Investment Activities
The Company is required under federal regulation to maintain a sufficient level of liquid assets (including specified short-term securities and certain other investments), as determined by management and defined and reviewed for adequacy by the OTS during its regular examinations. The OTS, however, does not prescribe by regulation a minimum amount or percentage of liquid assets. The level of liquid assets varies depending upon several factors, including: (i) the yields on investment alternatives, (ii) management's judgment as to the attractiveness of the yields then available in relation to other opportunities, (iii) expectation of future yield levels, and (iv) management's projections as to the short-term demand for funds to be used in loan origination and other activities.
Investment securities, including mortgage-backed securities, are classified at the time of purchase, based upon management's intentions and abilities, as securities held to maturity or securities available for sale. Debt securities acquired with the intent and ability to hold to maturity are classified as held to maturity and are stated at cost and adjusted for amortization of premium and accretion of discount, which are computed using the level yield method and recognized as adjustments of interest income. Other debt securities are classified as available for sale to serve principally as a source of liquidity. Securities classified as trading are securities owned by TGH Securities, the Company's wholly owned broker dealer subsidiary.
Current regulatory and accounting guidelines regarding investment securities (including mortgage backed securities) require the Company to categorize securities as "held to maturity," "available for sale" or "trading." As of December 31, 2002, the Company had securities classified as "available for sale" in the amount of $435.8 million and securities classified as "trading" in the amount of $43.7 million. Securities classified as "available for sale" are reported for financial reporting purposes at fair value with net changes in fair value from period to period included as a separate component of stockholders' equity, net of income taxes. Securities classified as trading are carried at fair value and are recorded on a trade date basis with changes recognized in operations. At December 31, 2002, the Company's securities available for sale had an amortized cost of $427.0 million and fair value of $435.8 million (unrealized gain of $8.8 million). Changes in the fair value of securities available for sale do not affect the Company's income. In addition, changes in the fair value of securities available for sale do not affect the Bank's regulatory capital requirements or its loan-to-one borrower limit.
At December 31, 2002, the Company's investment portfolio policy allowed investments in instruments such as: (i) U.S. Treasury obligations, (ii) U.S. federal agency or federally sponsored agency obligations, (iii) mortgage-backed securities, (iv) banker's acceptances, (v) certificates of deposit, and (vi) investment grade corporate bonds, and commercial paper, (vii) equity securities, (viii) capital trust securities, and (ix) mutual funds. The board of directors may authorize additional investments.
The Bank maintains a significant portfolio of mortgage-related securities (including mortgage- backed securities and collateralized mortgage obligations ("CMOs") as a means of investing in housing- related mortgage instruments and to absorb excess liquidity and supplement the Company's lending activity. Mortgage-backed securities (which also are known as mortgage participation certificates or pass- through certificates) represent a participation interest in a pool of single-family or multi-family residential mortgages. The principal and interest payments on mortgage-backed securities are passed from the mortgage originators, as servicer, through intermediaries (generally U.S. Government agencies and government-sponsored enterprises) that pool and repackage the participation interests in the form of securities, to investors such as the Bank. Such U.S. Government agencies and government sponsored enterprises, which guarantee the payment of principal and interest to investors, primarily include FHLMC,
FNMA and the Government National Mortgage Association ("GNMA"). The Bank also invests in certain non-agency mortgage-related securities rated AAA by national securities rating agencies.
FHLMC is a public corporation chartered by the U.S. Government. FHLMC issues participation certificates backed principally by conventional mortgage loans. FHLMC guarantees the timely payment of interest and the ultimate return of principal on participation certificates. FNMA is a private corporation chartered by the U.S. Congress with a mandate to establish a secondary market for mortgage loans. FNMA guarantees the timely payment of principal and interest on FNMA securities. FHLMC and FNMA securities are not backed by the full faith and credit of the United States, but because FHLMC and FNMA are U.S. Government-sponsored enterprises, these securities are considered to be among the highest quality investments with minimal credit risks. GNMA is a government agency within the Department of Housing and Urban Development which is intended to help finance government-assisted housing programs. GNMA securities are backed by Federal Housing Administration ("FHA") and the Department of Veterans Affairs ("VA"), and the timely payment of principal and interest on GNMA securities are guaranteed by the GNMA and backed by the full faith and credit of the U.S. Government. Because FHLMC, FNMA and GNMA were established to provide support for low-and middle-income housing, there are limits to the maximum size of loans that qualify for these programs which is currently $322,700.
Mortgage-related securities typically are issued with stated principal amounts, and the securities are backed by pools of mortgages that have loans with interest rates that are within a range and have varying maturities. The underlying pool of mortgages can be composed of either fixed-rate or adjustable- rate loans. As a result, the risk characteristics of the underlying pool of mortgages (i.e., fixed-rate or adjustable rate) as well as prepayment risk, are passed on to the certificate holder. Thus, the life of a mortgage-backed pass-through security thus approximates the life of the underlying mortgages.
The Bank's mortgage-related securities include CMOs. CMOs were developed in response to investor concerns regarding the uncertainty of cash flows associated with the prepayment option of the underlying mortgagor and are typically issued by governmental agencies, governmental sponsored enterprises and special purpose entities, such as trusts, corporations or partnerships, established by financial institutions or other similar institutions. A CMO can be (but is not required to be) collateralized by loans or securities which are insured or guaranteed by FNMA, FHLMC or the GNMA. In contrast to pass-through mortgage-related securities, in which cash flow is received pro rata by all security holders, the cash flow from the mortgages underlying a CMO is segmented and paid in accordance with a predetermined priority to investors holding various CMO classes. By allocating the principal and interest cash flows from the underlying collateral among the separate CMO classes, different classes of bonds are created, each with its own stated maturity, estimated average life, coupon rate and prepayment characteristics.
A senior-subordinated structure often is used with CMOs to provide credit enhancement for securities which are backed by collateral which is not guaranteed by FNMA, FHLMC or the GNMA. These structures divide mortgage pools into various risk classes: a senior class and one or more subordinated classes. The subordinated classes provide protection to the senior class. When cash flow is impaired, debt service goes first to the holders of senior classes. In addition, incoming cash flows also may go into a reserve fund to meet any future shortfalls of cash flow to holders of senior classes. The holders of subordinated classes may not receive any funds until the holders of senior classes have been paid and, when appropriate, until a specified level of funds has been contributed to the reserve fund.
Mortgage-related securities generally bear yields which are less than those of the loans which underlie such securities because of their payment guarantees or credit enhancements which reduce credit risk to nominal levels. However, mortgage-related securities are more liquid than individual mortgage loans and may be used to collateralize certain obligations of the Bank.
Investment Portfolio. The following table sets forth the carrying value (fair value or amortized cost, as applicable) of the Company's investment securities portfolio, short-term investments, FHLB stock, mortgage-backed securities, and trading securities at the dates indicated.
At December 31, ----------------------------------------- 2002 2001 2000 -------- -------- -------- (In Thousands) Investment Securities: Trading securities.............. $ 43,714 $ 14,261 $ 28,034 -------- -------- -------- FHLB and FHLMC bonds............ -- 15,201 16,203 Other agencies.................. 791 769 47,874 Municipal bonds................. 52,125 48,623 46,101 Mutual funds.................... 1,569 1,530 1,439 Capital trust securities........ 6,668 8,040 10,727 Subordinated debt............... -- 750 750 -------- -------- -------- Total investment securities... 61,153 74,913 123,094 -------- -------- -------- Interest-bearing deposits........ 19,841 18,814 16,188 FHLB of Pittsburgh stock......... 12,497 8,844 8,594 Mortgage-backed securities....... 369,571 299,216 258,870 Equity investments............... 5,086 4,989 5,104 -------- -------- -------- Total Investments............. $511,862 $421,037 $439,884 ======== ======== ========
Investment Portfolio Maturities. The following table sets forth certain information regarding the carrying values, weighted average yields and maturities of the Company's investment and mortgage-backed securities portfolio at December 31, 2002. The table does not include trading securities, equity investments, interest bearing deposits, federal funds sold and FHLB stock, and does not take into consideration the effects of scheduled repayments or the effects of possible prepayments.
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(1) Tax exempt securities are presented on a coupon basis.
(2) Includes "AAA" rated securities of Washington Mutual Mortgage Securities Corporation and First Horizon Mortgage Pass-Through Trust with book values of $9,937, and $19,474, respectively, and fair values of $9,943, and $19,558, respectively.
Sources of Funds
General. Deposits are the major source of the Company's funds for lending and other investment purposes. In addition to deposits, the Company derives funds from the amortization, prepayment or sale of loans, maturities of investment securities and operations. Scheduled loan principal repayments are a relatively stable source of funds, while deposit inflows and outflows and loan prepayments are significantly influenced by general interest rates and market conditions. The Company can also borrow from the Federal Home Loan Bank ("FHLB") of Pittsburgh and the Federal Reserve.
Deposits. Consumer and commercial deposits are attracted principally from within the Company's primary market area through the offering of a broad selection of deposit instruments including checking, regular savings, money market deposits, term certificate accounts and individual retirement accounts. Deposit account terms vary according to the minimum balance required, the time periods the funds must remain on deposit and the interest rate, among other factors. The Company regularly evaluates the internal cost of funds, surveys rates offered by competing institutions, reviews the Company's cash flow requirements for lending and liquidity and executes rate changes when deemed appropriate. The Company does not obtain funds through brokers, nor does it solicit funds outside the Commonwealth of Pennsylvania or the State of Delaware. Information regarding the average balances of various deposits and rates paid thereon for the three years ended December 31, 2002, 2001 and 2000, contained in average balance sheet under the section captioned "Management's Discussion and Analysis of Financial Operations" in the Company's Annual Report to Stockholders for the year ended December 31, 2002 (the "Annual Report"), is incorporated herein by reference.
Jumbo Certificates of Deposit. The following table indicates the amount of the Company's certificates of deposit of $100,000 or more by time remaining until maturity as of December 31, 2002.
Certificates Maturity Period of Deposits --------------- ------------ (In Thousands)
Within three months................ $ 4,791 Three through six months........... 7,375 Six through twelve months.......... 10,436 Over twelve months................. 13,761 ------- $36,363 =======
Borrowings
Deposits are the primary source of funds of the Company's lending and investment activities and for its general business purposes. The Bank may obtain advances from the FHLB of Pittsburgh to supplement its supply of lendable funds. Advances from the FHLB of Pittsburgh are typically secured by a pledge of the Bank's stock in the FHLB of Pittsburgh and a portion of the Company's first mortgage loans and certain other assets. The following table sets forth certain information as to FHLB advances at the dates indicated.
Subsidiaries
TGH Corp.
TGH Corp., a Delaware Corporation, was organized by the Company in 1999 to hold certain investments. TGH Corp. is not a material part of the Company's operations.
TGH Securities
TGH Securities, a Pennsylvania corporation, was formed by the Company in February 2000, and commenced business on May 23, 2000. TGH Securities, a registered broker-dealer, buys and sells short- term municipal bonds.
Other Subsidiaries
The Bank has three subsidiaries, Ridge Service Corporation, which is inactive, Montgomery Service Corporation, which manages a small commercial real estate property and invested in small business investment companies, and Roxdel Corp., which holds investments.
Personnel
As of December 31, 2002, the Company had 129 full-time employees and 30 part-time employees. The employees are not represented by a collective bargaining unit. The Company believes its relationship with its employees to be satisfactory.
Regulation
Set forth below is a brief description of certain laws which relate to the regulation of the Company and the Bank. The description does not purport to be complete and is qualified in its entirety by reference to applicable laws and regulations.
Regulation of the Company
Recent Legislation to Curtail Corporate Accounting Irregularities. On July 30, 2002, President Bush signed into law the Sarbanes-Oxley Act of 2002 (the "Act"). The Securities and Exchange Commission (the "SEC") has promulgated certain regulations pursuant to the Act and will continue to
propose additional implementing or clarifying regulations as necessary in furtherance of the Act. The passage of the Act and the regulations implemented by the SEC subject publicly-traded companies to additional and more cumbersome reporting regulations and disclosure. Compliance with the Act and corresponding regulations may increase the Company's expenses.
General. The Company is a unitary savings and loan holding company subject to regulatory oversight by the OTS. As such, the Company is required to register and file reports with the OTS and is subject to regulation and examination by the OTS. In addition, the OTS has enforcement authority over the Company and its non-savings association subsidiaries, should such subsidiaries be formed, which authority also permits the OTS to restrict or prohibit activities that are determined to be a serious risk to the subsidiary savings association. This regulation and oversight is intended primarily for the protection of the depositors of the Bank and not for the benefit of stockholders of the Company.
As a unitary savings and loan holding company, the Company generally is not subject to any restrictions on its business activities. While the Gramm-Leach-Bliley Act (the "GLB Act") terminated the "unitary thrift holding company" exemption from activity restrictions on a prospective basis, the Company enjoys grandfathered status under this provision of the GLB Act because it acquired the Bank prior to May 4, 1999. As a result, the Company's freedom from activity restrictions as a unitary savings and loan holding company was not affected by the GLB Act. However, if the Company were to acquire control of an additional savings association, its business activities would be subject to restriction under the Home Owners' Loan Act. Furthermore, if the Company were in the future to sell control of the Bank to any other company, such company would not succeed to the Company's grandfathered status under the GLB Act and would be subject to the same activity restrictions. The continuation of the Company's exemption from restrictions on business activities as a unitary savings and loan holding company is also subject to the Company's continued compliance with the Qualified Thrift Lender ("QTL") test. See "- Regulation of the Bank - Qualified Thrift Lender Test."
Regulation of the Bank
General. Set forth below is a brief description of certain laws that relate to the regulation of the Bank. The description does not purport to be complete and is qualified in its entirety by reference to applicable laws and regulations. As a federally chartered, SAIF-insured savings association, the Bank is subject to extensive regulation by the OTS and the Federal Deposit Insurance Corporation ("FDIC"). Lending activities and other investments must comply with various federal statutory and regulatory requirements. The Bank is also subject to certain reserve requirements promulgated by the Federal Reserve Board.
The OTS regularly examines the Bank and prepares reports for the consideration of the Bank's Board of Directors on any deficiencies that are found in the Bank's operations. The Bank's relationship with its depositors and borrowers is also regulated to a great extent by federal and state law, especially in such matters as the ownership of savings accounts and the form and content of the Bank's mortgage documents.
The Bank must file reports with the OTS concerning its activities and financial condition, in addition to obtaining regulatory approvals prior to entering into certain transactions such as mergers with or acquisitions of other savings institutions. This regulation and supervision establishes a comprehensive framework of activities in which an institution can engage and is intended primarily for the protection of
the SAIF and depositors. The regulatory structure also gives the regulatory authorities extensive discretion in connection with their supervisory and enforcement activities and examination policies, including policies with respect to the classification of assets and the establishment of adequate loan loss reserves for regulatory purposes.
Insurance of Deposit Accounts. The deposit accounts held by the Bank are insured by the SAIF to a maximum of $100,000 for each insured member (as defined by law and regulation). Insurance of deposits may be terminated by the FDIC upon a finding that the institution has engaged in unsafe or unsound practices, is in an unsafe or unsound condition to continue operations or has violated any applicable law, regulation, rule, order or condition imposed by the FDIC or the institution's primary regulator.
The Bank is required to pay insurance premiums based on a percentage of its insured deposits to the FDIC for insurance of its deposits by the SAIF. Under the risk-based system established by the FDIC for setting deposit insurance premiums, the 2003 insurance assessment rates for SAIF-member institutions range from 0% to .27% of insured deposits on an annualized basis, with the assessment rate for most savings institutions set at 0%.
In addition, all FDIC-insured institutions are required through 2017 to pay assessments to the FDIC to fund interest payments on bonds issued by the Financing Corporation ("FICO"), an agency of the Federal government established to recapitalize the predecessor to the SAIF. The current annual assessment rate is approximately .0168% of insured deposits.
Loans to One Borrower. A savings association may not make a loan or extend credit to a single or related group of borrowers in excess of 15% of the associations's unimpaired capital and surplus. An additional amount may be lent, equal to 10% of the unimpaired capital and surplus, under certain circumstances. At December 31, 2002, the Bank's lending limit for loans to one borrower was approximately $8.5 million and the Bank had no outstanding commitments that exceeded the loans to one borrower limit at the time originated or committed.
Regulatory Capital Requirements. OTS capital regulations require savings institutions to meet three capital standards: (1) tangible capital equal to 1.5% of total adjusted assets, (2) core capital equal to at least 3% of total adjusted assets for savings institutions that receive the highest supervisory rating for safety and soundness and 4% of total adjusted assets for all other thrifts, and (3) risk-based capital equal to 8% of total risk-weighted assets. At December 31, 2002, the Bank was in compliance with its regulatory capital requirements.
For purposes of the OTS capital regulations, tangible capital is defined as core capital less all intangible assets, except for certain mortgage servicing rights, and less certain investments. Core, or Tier 1, capital is defined as common stockholders' equity, noncumulative perpetual preferred stock and minority interests in the equity accounts of consolidated subsidiaries, certain nonwithdrawable accounts and pledged deposits of mutual savings associations and qualifying supervisory goodwill, less nonqualifying intangible assets, certain mortgage servicing rights and certain investments.
The risk-based capital standard for savings institutions requires the maintenance of total risk-based capital of 8% of risk-weighted assets. Risk-based capital equals the sum of core and supplementary capital. The components of supplementary capital include, among other items, cumulative perpetual preferred stock, perpetual subordinated debt, mandatory convertible subordinated debt, intermediate-term preferred stock, general valuation loan and lease loss allowances up to a maximum of 1.25% of risk-weighted assets,
and up to 45% of unrealized gains on equity securities. Overall, supplementary capital is limited to 100% of core capital. A savings association must calculate its risk-weighted assets by multiplying each asset and off-balance sheet item by various risk factors as determined by the OTS, which range from 0% for cash to 100% for delinquent loans, property acquired through foreclosure, commercial loans, and other assets.
In addition to the above regulatory capital requirements, the OTS's prompt corrective action regulation classifies savings associations by capital levels and provides that the OTS will take various corrective actions, including imposing significant operational restrictions, against any thrift that fails to meet the regulation's capital standards. Under this regulation, a "well capitalized" savings association is one that has a total risk-based capital ratio of at least 10%, a Tier 1 risk-based capital ratio of at least 6% and a leverage capital ratio of 5%, and is not subject to any capital order or directive. A thrift is deemed "adequately capitalized" category if it has a total risk-based capital ratio of at least 8%, a Tier 1 risk-based capital ratio of at least 4%, and a leverage capital ratio of at least 4%. Institutions with lower capital levels are deemed to be "undercapitalized," "significantly undercapitalized" or "critically undercapitalized," depending on their capital levels. A thrift that falls within any of the three undercapitalized categories is subject to severe regulatory sanctions under the prompt corrective action regulation. At December 31, 2002, the Bank was classified as "well capitalized."
Dividend and Other Capital Distribution Limitations. The OTS imposes various restrictions or requirements on the ability of savings institutions to make capital distributions, including cash dividends.
A savings association, such as the Bank, that is a subsidiary of a savings and loan holding company must file an application or a notice with the OTS at least 30 days before making a capital distribution. Savings associations are not required to file an application for permission to make a capital distribution and need only file a notice if the following conditions are met: (1) they are eligible for expedited treatment under OTS regulations, (2) they would remain adequately capitalized after the distribution, (3) the annual amount of capital distribution does not exceed net income for that year to date added to retained net income for the two preceding years, and (4) the capital distribution would not violate any agreements between the OTS and the savings association or any OTS regulations. Any other situation would require an application to the OTS.
The OTS may disapprove an application or notice if the proposed capital distribution would: (i) make the savings association undercapitalized, significantly undercapitalized, or critically undercapitalized; (ii) raise safety or soundness concerns; or (iii) violate a statue, regulation, or agreement with the OTS (or with the FDIC), or a condition imposed in an OTS-approved application or notice. Further, a federal savings association, like the Bank, cannot distribute regulatory capital that is needed for its liquidation account.
Qualified Thrift Lender Test. Federal savings institutions must meet one of two Qualified Thrift Lender ("QTL") tests. To qualify as a QTL, a savings institution must either (i) be deemed a "domestic building and loan association" under the Internal Revenue Code by maintaining at least 60% of its total assets in specified types of assets, including cash, certain government securities, loans secured by and other assets related to residential real property, educational loans and investments in premises of the institution or (ii) satisfy the statutory QTL test set forth in the Home Owner's Loan Act by maintaining at least 65% of its "portfolio assets" in certain"Qualified Thrift Investments". Qualified thrift investments consist primarily of an institution's residential mortgage loans and other loans and investments relating to residential real estate and manufactured housing and also include student, credit card and small business loans, stock issued by a Federal Home Loan Bank, the FHLMC and the FNMA, and other enumerated assets. For purposes of the statutory QTL test, portfolio assets are defined as total assets minus intangible
assets, property used by the institution in conducting its business, and liquid assets equal to 10% of total assets. A savings institution must maintain its status as a QTL on a monthly basis in at least nine out of every 12 months. A failure to qualify as a QTL would result in a number of sanctions, including certain operating restrictions. At December 31, 2002, the Bank was in compliance with its QTL requirement, with 76.4% of its assets invested in Qualified Thrift Investments.
Federal Home Loan Bank System. The Bank is a member of the FHLB of Pittsburgh, which is one of 12 regional FHLBs that administers the home financing credit function of savings associations. Each FHLB serves as a reserve or central bank for its members within its assigned region. It is funded primarily from proceeds derived from the sale of consolidated obligations of the FHLB System. It makes loans to members (i.e., advances) in accordance with policies and procedures established by the Board of Directors of the FHLB.
As a member, the Bank is required to purchase and maintain stock in the FHLB of Pittsburgh in an amount equal to the greater of 1% of its aggregate unpaid residential mortgage loans, home purchase contracts or similar obligations at the beginning of each year or 5% of the Bank's advances from the FHLB. At December 31, 2002, the Bank was in compliance with this requirement.
Federal Reserve System. The Federal Reserve Board requires all depository institutions to maintain non-interest bearing reserves at specified levels against their transaction accounts (primarily checking, NOW, and Super NOW checking accounts) and non-personal time deposits. The balances maintained to meet the reserve requirements imposed by the Federal Reserve Board may be used to satisfy the liquidity requirements that are imposed by the OTS. At December 31, 2002, the Bank was in compliance with these Federal Reserve Board requirements.
Item 2.
Item 2. Properties - ------------------
The Company conducts its business through its main office located in Philadelphia, Pennsylvania and its 12 branch locations throughout Philadelphia, Chester, Montgomery, and Delaware counties, Pennsylvania and Wilmington, Delaware. Eight of the Company's office and branch facilities are owned by the Company and five branch facilities are leased. Management of the Company considers the physical condition of each of the Company's administrative and branch offices to be good and adequate for the conduct of the Company's business. At December 31, 2002 property and equipment totalled approximately $6.3 million.
Item 3.
Item 3. Legal Proceedings - --------------------------
The Company is periodically involved as a plaintiff or defendant in various legal actions, such as actions to enforce liens, condemnation proceedings on properties in which the Company holds mortgage interests, matters involving the making and servicing of mortgage loans and other matters incident to the Company's business. In the opinion of management, none of these actions individually or in the aggregate is believed to be material to the financial condition or results of operations of the Company.
Item 4.
Item 4. Submission of Matters to a Vote of Security Holders - ------------------------------------------------------------
No matters were submitted to a vote of security holders during the fourth quarter of the fiscal year ended December 31, 2002.
Part II
Item 5.
Item 5. Market for the Registrant's Common Equity and Related Stockholder Matters - --------------------------------------------------------------------------------
The information contained in the Section captioned "Stock Market Information" in the Annual Report and incorporated herein by reference.
Item 6.
Item 6. Selected Financial Data - --------------------------------
The information contained in the table captioned "Selected Consolidated Financial Data and Other Data" in the Annual Report is incorporated herein by reference.
Item 7.
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations - --------------------------------------------------------------------------------
The information contained in the section captioned "Management's Discussion and Analysis of Financial Condition and Results of Operations" in the Annual Report is incorporated herein by reference.
Item 7A.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk - --------------------------------------------------------------------
The information contained in the sections captioned "Market Rate Risk", "Gap Table," and "Net Portfolio Value" in the Annual Report are incorporated herein by reference.
Item 8.
Item 8. Financial Statements and Supplementary Data - ----------------------------------------------------
The Company's consolidated financial statements listed in Item 15 are incorporated herein by reference from the Annual Report.
Item 9.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure - --------------------------------------------------------------------------------
None.
Part III
Item 10.
Item 10. Directors and Executive Officers of the Registrant - ------------------------------------------------------------
The information contained under the sections captioned "Section 16(a) Beneficial Ownership Reporting Compliance" and "Proposal I" - "Election of Directors" and "- Biographical Information" in the Registrant's 2003 Proxy Statement (the "Proxy Statement") are incorporated herein by reference.
Item 11.
Item 11. Executive Compensation - --------------------------------
The information contained under the section captioned "Proposal I -- Election of Directors - Director and Executive Compensation" in the Proxy Statement is incorporated herein by reference.
Item 12.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters - --------------------------------------------------------------------------------
(a) Security Ownership of Certain Beneficial Owners -----------------------------------------------
Information required by this item is incorporated herein by reference to the Section captioned "Voting Securities and Principal Holders Thereof -- Security Ownership of Certain Beneficial Owners" of the Proxy Statement.
(b) Security Ownership of Management --------------------------------
Information required by this item is incorporated herein by reference to the sections captioned "Voting Securities and Principal Holders Thereof -- Security Ownership of Certain Beneficial Owners" and "Proposal I -- Election of Directors" of the Proxy Statement.
(c) Changes in Control ------------------
Management of the Company knows of no arrangements, including any pledge by any person of securities of the Company, the operation of which may at a subsequent date result in a change in control of the Company.
(d) Securities Authorized for Issuance Under Equity Compensation Plans --------------------------------------------------------------
Set forth below is information as of December 31, 2002 with respect to compensation plans under which equity securities of the Registrant are authorized for issuance.
Item 13.
Item 13. Certain Relationships and Related Transactions - --------------------------------------------------------
The information required by this item is incorporated herein by reference to the section captioned "Proposal I -- Election of Directors" and "Voting Securities and Principal Holders Thereof" of the Proxy Statement.
Item 14.
Item 14. 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 Annual Report on Form 10-K, 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.
Item 15.
Item 15. Exhibits, Financial Statements, and Reports on Form 8-K - -----------------------------------------------------------------
(a) Listed below are all financial statements and exhibits filed as part of this report, and are incorporated by reference.
1. The consolidated statements of financial condition of the Company and subsidiaries as of December 31, 2002 and 2001, and the related consolidated statements of income, changes in stockholders' equity and cash flows for each of the years in the three year period ended December 31, 2002, together with the related notes and the independent auditors' report of Deloitte & Touche LLP, independent certified public accountants.
2. Schedules omitted as they are not applicable.
3. Exhibits
The following Exhibits are filed as part of this report:
------------------------
* Incorporated by reference to the identically numbered exhibit to the Company's Form S-1 Registration Statement No. 333-48749 filed on March 27, 1998.
** Incorporated by reference to Exhibit 1 to the Company's Form 8-A filed on September 30, 1999.
*** Incorporated by reference to the appropriate exhibit of the Company's proxy material filed on June 21, 1999.
**** Incorporated by reference to the identically number exhibits to the Form 10-K for December 31, 1999 filed on March 30, 2000.
*****Incorporated by reference to the identically numbered exhibit to the Form 10-K for December 31, 2001 filed on March 12, 2002.
****** Not filed in accordance with the provisions of Item 601(b)(4)(iii) of Regulation S-K. The Company agrees to provide a copy of these documents to the Commission upon request.
+ Management contract or compensatory plan or arrangement.
(b) Reports on Form 8-K.
A Form 8-K, dated October 17, 2002 was filed with the SEC on October 18, 2002 which reported under Items 5 and 9 that the Registrant had executed a Standstill Agreement with Jewelcor Management, Inc., Seymour Holtzman, James A. Mitarotonda and Barington Companies Equity Partners, L.P. No financial statements were filed with this report.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized as of March 19, 2003
THISTLE GROUP HOLDINGS, CO.
By: /s/John F. McGill, Jr. ----------------------------------- John F. McGill, Jr., President and Chief Executive Officer (Duly Authorized Representative)
Pursuant to the requirement of the Securities Exchange Act of 1934, this report has been signed below on March 19, 2003 by the following persons on behalf of the Registrant and in the capacities indicated.
SECTION 302 CERTIFICATION
I, John F. McGill, Jr., Chief Executive Officer, certify that:
1. I have reviewed this annual report on Form 10-K of Thistle Group Holdings, Co.;
2. Based on my knowledge, this annual 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 annual report;
3. Based on my knowledge, the financial statements, and other financial information included in this annual 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 annual 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 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 annual 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 annual report (the "Evaluation Date"); and
(c) presented in this annual 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 annual 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: March 19, 2003 /s/John F. McGill, Jr. ----------------------------------- John F. McGill, Jr. Chief Executive Officer
SECTION 302 CERTIFICATION
I, Pamela M. Cyr, Chief Financial Officer, certify that:
1. I have reviewed this annual report on Form 10-K of Thistle Group Holdings, Co.;
2. Based on my knowledge, this annual 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 annual report;
3. Based on my knowledge, the financial statements, and other financial information included in this annual 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 annual 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 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 annual 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 annual report (the "Evaluation Date"); and
(c) presented in this annual 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 annual 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: March 19, 2003 /s/Pamela M. Cyr ----------------------------------- Pamela M. Cyr Chief Financial Officer