UNITED STATES
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 DECEMBER 31, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________ to ________
Commission file number: 0-25191
Willow Grove Bancorp, Inc.
(Exact name of registrant as specified in its charter)
United States 23-2986192
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
Welsh and Norristown Roads, Maple Glen, Pennsylvania 19002
(Address of principal executive offices)
(215) 646-5405
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES [X ] NO [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
The Registrant had 5,143,487 shares of common stock issued and outstanding as of
February 13, 2001.
1
WILLOW GROVE BANCORP, INC.
INDEX
PAGE NO.
PART I FINANCIAL INFORMATION --------
Item 1. Financial Statements (unaudited)
Consolidated Statements of Financial Condition at
December 31, 2000 and June 30, 2000............................................ 3
Consolidated Statements of Operations - For the Three
and Six Months Ended December 31, 2000 and 1999................................ 4
Consolidated Statements of Cash Flows - For the Six
Months Ended December 31, 2000 and 1999........................................ 5
Notes to Consolidated Financial Statements..................................... 6
Item 2. Management's Discussion and Analysis of Financial
and Results of Operation....................................................... 10
Item 3. Quantitative and Qualitative Disclosures about Market Risk..................... 19
PART II OTHER INFORMATION
Item 1. Legal Proceedings ............................................................. 20
Item 2. Changes in Securities and Use of Proceeds...................................... 20
Item 3. Defaults upon Senior Securities................................................ 20
Item 4. Submission of Matters to a Vote of Security Holders............................ 20
Item 5. Other Information ............................................................. 20
Item 6 Exhibits and Reports on Form 8-K............................................... 21
2
WILLOW GROVE BANCORP, INC.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Unaudited)
(Dollars in thousands, except share data)
ASSETS December 31, 2000 June 30, 2000
- -------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents:
Cash on hand and non-interest-earning deposits $ 6,840 $ 4,442
Interest-earning deposits 9,332 10,239
--------------------------------------
Total cash and cash equivalents 16,172 14,681
Assets available for sale:
Securities (amortized cost of $110,386 and $74,291, respectively) 109,874 70,577
Loans 1,981 35,753
Loans (net of allowance for loan losses of $8,327 and $3,905, respectively) 438,832 424,940
Accrued income receivable 3,801 2,795
Property and equipment, net 6,158 6,232
Intangible assets 1,389 1,540
Other real estate owned 145 -
Other assets 4,603 3,605
- -------------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS $ 582,955 $ 560,123
LIABILITIES AND STOCKHOLDERS' EQUITY
- -------------------------------------------------------------------------------------------------------------------------
Deposits $ 459,353 $ 452,857
Federal Home Loan Bank (FHLB) advances 54,742 37,517
Advance payments from borrowers for taxes 2,889 4,725
Accrued interest payable 2,004 1,474
Other liabilities 2,576 2,907
- -------------------------------------------------------------------------------------------------------------------------
Total liabilities 521,564 499,480
Commitments and contingencies
Stockholders' equity:
Common stock, $0.01 par value; (25,000,000 authorized;
5,143,487 issued at December 31 and June 30, 2000) 51 51
Additional paid-in capital 22,265 22,270
Retained earnings-substantially restricted 42,699 43,291
Accumulated other comprehensive income (loss) (314) (2,340)
Treasury stock at cost, 96,000 shares and 22,500 shares
at December 31 and June 30, 2000, respectively (1,044) (211)
Unallocated common stock held by
employee stock ownership plan (ESOP) (1,554) (1,613)
Common stock held by recognition
and retention plan trust (RRP) (712) (805)
- -------------------------------------------------------------------------------------------------------------------------
Total stockholders' equity 61,391 60,643
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 582,955 $ 560,123
- -------------------------------------------------------------------------------------------------------------------------
SEE ACCOMPANYING NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
3
WILLOW GROVE BANCORP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
For the Three Months Ended For the Six Months Ended
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) December 31, December 31,
-----------------------------------------------------------
2000 1999 2000 1999
- ------------------------------------------------------------------------------------------------------------------
Interest and dividend income:
Loans $ 8,983 $ 8,174 $ 18,041 $ 15,830
Securities, primarily taxable 2,131 1,161 3,953 2,403
- ------------------------------------------------------------------------------------------------------------------
Total interest income $ 11,114 $ 9,335 $ 21,994 $ 18,233
- ------------------------------------------------------------------------------------------------------------------
Interest expense:
Deposits $ 5,117 $ 4,090 $ 10,061 $ 8,023
Borrowings 1,072 509 1,930 837
Advance payment from borrowers for taxes 3 4 8 9
- ------------------------------------------------------------------------------------------------------------------
Total interest expense $ 6,192 $ 4,603 $ 11,999 $ 8,869
- ------------------------------------------------------------------------------------------------------------------
Net interest income 4,922 4,732 9,995 9,364
Provision for loan losses 4,366 221 4,476 491
- ------------------------------------------------------------------------------------------------------------------
Net interest income after provision for loan losses $ 556 $ 4,511 $ 5,519 $ 8,873
- ------------------------------------------------------------------------------------------------------------------
Non-interest income:
Service charges and fees $ 343 $ 262 $ 646 $ 514
Gain on sale of loans available for sale 110 - 114 -
Gain on sale of securities available for sale 143 - 162 -
Loan servicing income, net 22 13 40 22
- ------------------------------------------------------------------------------------------------------------------
Total non-interest income $ 618 $ 275 $ 962 $ 536
- ------------------------------------------------------------------------------------------------------------------
Non-interest expense:
Compensation and employee benefits $ 2,002 $ 1,698 $ 4,001 $ 3,269
Occupancy 264 218 531 397
Furniture and equipment 164 114 325 222
Federal insurance premium 22 57 45 111
Amortization of intangible assets 47 103 150 205
Data processing 139 125 274 248
Advertising 84 89 170 168
Community enrichment 37 37 75 75
Deposit account services 161 143 333 283
Other expense 463 321 848 691
- ------------------------------------------------------------------------------------------------------------------
Total non-interest expense $ 3,383 $ 2,905 $ 6,752 $ 5,669
- ------------------------------------------------------------------------------------------------------------------
Income (loss) before income taxes $ (2,209) $ 1,881 $ (271) $ 3,740
Income taxe expense (benefit) (821) 665 (124) 1,317
- ------------------------------------------------------------------------------------------------------------------
Net Income (loss) $ (1,388) $ 1,216 $ (147) $ 2,423
- ------------------------------------------------------------------------------------------------------------------
Earnings (loss) per share:
Basic $ (0.29) $ 0.25 $ (0.03) $ 0.49
Diluted $ (0.28) $ 0.24 $ (0.03) $ 0.49
Cash dividends declared per share $ 0.11 $ 0.09 $ 0.21 $ 0.17
Weighted average shares outstanding 4,839,769 4,885,040 4,856,007 4,914,781
Weighted average diluted shares outstanding 4,936,728 4,951,626 4,956,272 4,949,955
SEE ACCOMPANYING NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
4
Willow Grove Bancorp, Inc.
Consolidated Statements of Cash Flows
(Unaudited)
(Dollars in thousands)
For the Six Months Ended December 31,
------------------------------------------
2000 1999
Net cash flows from operating activities:
Net (loss) income $ (147) $ 2,423
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation 362 255
Amortization of premium and accretion of discount, net (286) 6
Amortization of intangible assets 150 205
Provision for loan losses 4,476 491
Gain on sale of loans available for sale (114) --
Gain on sale of securities available for sale (162) --
Increase in deferred loan fees 71 103
Increase(decrease) in accrued income receivable (1,006) 54
(Increase)decrease in other assets (2,174) (323)
Increase(decrease) in accrued interest payable 530 (120)
Decrease in other liabilities (331) (649)
Expense of ESOP and RRP 147 55
Originations and purchases of loans available for sale (14,593) --
Proceeds from sale of loans available for sale 48,479 --
Net cash provided by operating activities $ 35,402 $ 2,500
Cash flows from investing activities:
Net increase in loans (18,582) (50,843)
Purchase of securities available for sale (60,652) (3,981)
Proceeds from sales and calls of securities available for sale 21,604 6,506
Principal repayments of securities available for sale 3,401 2,923
Proceeds from sale of other real estate owned -- 281
Purchase of property and equipment, net (288) (532)
Net cash used in investing activities $(54,517) $(45,646)
Cash flows from financing activities:
Net increase in deposits 6,496 17,006
Net increase in FHLB advances with
original maturity less than 90 days 4,500 28,000
Increase in FHLB advances with original maturity greater than 90 days 36,000 17,000
Repayment of FHLB advances with original maturity greater than 90 days (23,275) (9,202)
Net decrease in advance payments from borrowers for taxes (1,836) (1,069)
Dividends paid (446) (352)
Purchase of RRP shares -- (929)
Purchase of Treasury Stock (833) --
Net cash provided by financing activities $ 20,606 $ 50,454
Net Decrease(increase) in cash and cash equivalents $ 1,491 $ 7,308
Cash and cash equivalents:
Beginning of period 14,681 4,889
End of period $ 16,172 $ 12,197
Supplemental disclosures of cash and cash flow information:
Interest paid 11,469 8,989
Income taxes paid 2,005 1,610
Non-cash items:
Change in unrealized gain (loss) on securities available for sale 2,025 (1,615)
(net of taxes of ($1,177) and $598 in 2000 and 1999, respectively)
Loans transferred to other real estate owned 145 281
SEE ACCOMPANYING NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
WILLOW GROVE BANCORP, INC.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Description of Business
In 1998, Willow Grove Bancorp, Inc. (the "Company") completed the
reorganization of Willow Grove Bank (the "Bank") into the federal mutual holding
company form of ownership whereby the Bank converted into a federally chartered
stock savings bank as a wholly owned subsidiary of the Company, and the company
became a majority owned subsidiary of Willow Grove Mutual Holding Company (the
"MHC").
The Company provides a full range of banking services through the
Bank's eleven branches in Montgomery, Bucks, and Philadelphia counties in
Pennsylvania. All of the branches are full-service and offer commercial and
retail banking products and services. These products include checking accounts
(interest-bearing and non-interest-bearing), savings accounts, and certificates
of deposit, business loans, real estate loans, and consumer loans. The Company
is subject to competition from other financial institutions and other companies
that offer financial services. The Company is subject to the regulations of
certain federal agencies and undergoes periodic examinations by these regulatory
authorities.
2. BASIS OF FINANCIAL STATEMENT PRESENTATION
The accompanying consolidated financial statements were prepared in
accordance with instructions to Form 10-Q, and therefore, do not include
information or footnotes necessary for a complete presentation of financial
position, results of operations and cash flows in conformity with generally
accepted accounting principles. However, all normal, recurring adjustments
which, in the opinion of management, are necessary for a fair presentation of
these financial statements, have been included. These financial statements
should be read in conjunction with the audited financial statements and the
notes thereto for the period ended June 30, 2000. The results for the interim
periods presented are not necessarily indicative of the results that may be
expected for the year ending June 30, 2001.
In preparing the financial statements, management is required to make
certain estimates and assumptions that affect the carrying values of certain
assets and liabilities, and revenues and expenses for the reporting periods
contained herein, in particular the allowance for loan losses. Actual results
could differ from such estimates.
3. EARNINGS (LOSS) PER SHARE
Earnings (Loss) per share, basic and diluted, were $(0.29) and $(0.28)
for the three months ended December 31, 2000 compared to $0.25 and $0.24 for the
three months ended December 31, 1999. Earnings (Loss) per share, basic and
diluted, were $(0.03) and $(0.03) for the six months ended December 31, 2000
compared to $0.49 and $0.49 for the six months ended December 31, 1999.
6
The following is a reconciliation of the numerators and denominators of
the basic and diluted earnings per share calculations.
Three Months Six Months
Ended December 31, Ended December 31,
2000 2000
-------------------------- --------------------------
(Dollars in thousands, except share data)
------------- ------------ ------------- ------------
Basic Diluted Basic Diluted
------------- ------------ ------------- ------------
Net Income (loss) $ (1,388) $ (1,388) $ (147) $ (147)
Dividends on unvested common stock awards (9) (9) (18) (18)
------------- ------------ ------------- ------------
Adjusted net loss used in EPS calculations $ (1,397) $ (1,397) $ (165) $ (165)
Weighted average shares outstanding 4,839,769 4,839,769 4,856,007 4,856,007
Effect of dilutive securities:
Options -- 28,380 -- 24,467
Unvested common stock awards -- 68,579 -- 75,798
------------- ------------ ------------- ------------
Adjusted weighted average shares used in
EPS computation 4,839,769 4,936,728 4,856,007 4,956,272
============= ============ ============= ============
Earnings (loss) per share (0.29) (0.28) (0.03) (0.03)
Three Months Six Months
Ended December 31, Ended December 31,
1999 1999
-------------------------- --------------------------
(Dollars in thousands, except share data)
------------- ------------ ------------- ------------
Basic Diluted Basic Diluted
------------- ------------ ------------- ------------
Net Income $ 1,216 $ 1,216 $ 2,423 $ 2,423
Dividends on unvested common stock awards (8) (8) (8) (8)
------------- ------------ ------------- ------------
Adjusted net income used in EPS calculations $ 1,208 $ 1,208 $ 2,415 $ 2,415
Weighted average shares outstanding 4,885,040 4,885,040 4,914,781 4,914,781
Effect of dilutive securities:
Options -- 2,048 -- 2,048
Unvested common stock awards -- 64,538 -- 33,126
------------- ------------ ------------- ------------
Adjusted weighted average shares used in
EPS computation 4,885,040 4,951,626 4,914,781 4,949,955
============= ============ ============= ============
Earnings per share 0.25 0.24 0.49 0.49
7
4. LOAN PORTFOLIO
The Bank's loan portfolio consisted of the following at the dates
indicated:
December 31, 2000 June 30, 2000
---------------------------- -----------------------------
(Dollars in thousands) Percentage of Percentage of
Amount Total Amount Total
- ----------------------------------------------------------------------------------------------------
Mortgage loans:
Single-family residential $ 201,748 45.0% $ 206,340 48.0%
Multi-family residential 18,614 4.2% 21,437 5.0%
Commercial real estate 94,822 21.2% 81,076 18.9%
Construction 21,050 4.7% 14,973 3.5%
Home Equity 75,633 16.8% 72,217 16.8%
- ----------------------------------------------------------------------------------------------------
Total mortgage loans $ 411,867 91.9% $ 396,043 92.2%
- ----------------------------------------------------------------------------------------------------
Other consumer loans 8,835 2.0% 7,818 1.8%
Commercial business loans 27,227 6.1% 25,683 6.0%
- ----------------------------------------------------------------------------------------------------
Total loans receivable $ 447,929 100.0% $ 429,544 100.0%
Less:
Allowance for loan losses (8,327) (3,905)
Deferred loan origination fees (770) (699)
- ----------------------------------------------------------------------------------------------------
Loans receivable, net $ 438,832 $ 424,940
- ----------------------------------------------------------------------------------------------------
Included in loans receivable are loans on non-accrual status in the
amounts of $9.6 million and $1.3 million at December 31, 2000 and June 30, 2000,
respectively. As of December 31, 2000 the Company had impaired loans totaling
$8.5 million of which a specific reserve was established in the amount of $4.2
million related to one commercial loan in the amount of $6.7 million. This
compares to impaired loans totaling $390,000, of which no specific reserves were
required at June 30, 2000.
8
5. SECURITIES
The amortized cost of available-for-sale securities and their
estimated fair values at December 31, 2000 and June 30, 2000 are as follows:
December 31, 2000
-------------------------------------------------------
Amortized Unrealized Unrealized Estimated
(Dollars in Thousands) Cost Gains Losses Fair Value
- ----------------------------------------------------------------------- -------- -------- ----------
Equity securities $ 7,735 $ (38) $ 7,697
US government and government
agency securities 47,919 274 (548) 47,645
Mortgage backed securities 52,730 182 (351) 52,561
Municipal securities 2,002 1 (32) 1,971
-------- -------- -------- --------
Total $110,386 $ 457 $ (969) $109,874
-------- -------- -------- --------
June 30, 2000
-------------------------------------------------------
Amortized Unrealized Unrealized Estimated
(Dollars in Thousands) Cost Gains Losses Fair Value
- ----------------------------------------------------------------------- -------- -------- ----------
Equity securities $ 7,528 $ -- $ (77) $ 7,451
US government and government
agency securities 33,000 -- (1,975) 31,025
Mortgage backed securities 31,162 -- (1,536) 29,626
Municipal securities 2,601 -- (126) 2,475
-------- -------- -------- --------
Total $ 74,291 $ -- $ (3,714) $ 70,577
-------- -------- -------- --------
6. RECENT ACCOUNTING PRONOUNCEMENTS
ACCOUNTING FOR TRANSFERS AND SERVICING OF FINANCIAL ASSETS AND
EXTINGUISHMENTS OF LIABILITIES
In September 2000, the FASB issued SFAS No. 140, "Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of Liabilities."
This statement supercedes and replaces the guidance in SFAS No. 125. It revises
the standards for accounting for securitizations and other transfers of
financial assets and collateral and requires certain disclosures, although it
carries over most of SFAS No. 125's provisions without reconsideration.
The SFAS No. 140 is effective for transfers and servicing of financial
assets and extinguishments of liabilities occurring after March 31, 2001 and for
recognition and reclassification of collateral and for disclosures relating to
securitization transactions and collateral for fiscal years ending after
December 15, 2000, and is to be applied prospectively with certain exceptions.
Other than those exceptions, earlier or retroactive application of its
accounting provisions is not permitted. The Company has not yet determined the
impact, if any, of this statement on the Company's financial condition, equity,
results of operations, or disclosure.
9
7. COMPREHENSIVE INCOME (LOSS)
The following table displays net income and the components of other
comprehensive income to arrive at total comprehensive income (loss). For the
Company, the only component of other comprehensive income is the change in the
estimated fair value of investment securities available-for-sale.
Three Months Ended Six Months Ended
(Dollars in thousands) December 31, December 31,
- ------------------------------------------------------------------------------------------------------------------------------------
2000 1999 2000 1999
- ------------------------------------------------------------------------------------------------------------------------------------
Comprehensive income (loss):
Net income (loss) $(1,388) $ 1,216 $ (147) $ 2,423
Other comprehensive income (loss) net of tax
Less: reclassification adjustments 143 -- 162 --
Net change in unrealized gain (loss) 1,223 (697) 1,864 (1,017)
- ------------------------------------------------------------------------------------------------------------------------------------
Comprehensive income (loss): $ (22) $ 519 $ 1,879 $ 1,406
- ------------------------------------------------------------------------------------------------------------------------------------
8. DIVIDENDS
On July 25, 2000 and October 24, 2000, the Company declared dividends
on its common stock of $0.10 and $0.11 per share payable on August 25, 2000 and
November 22, 2000 to owners of record on August 11, 2000 and November 10, 2000.
The MHC, which owns 2,812,974 shares of common stock, waived its portion of this
dividend, reducing the actual dividend payout amount to $446,000. The dollar
amount of dividends waived by the MHC is considered a restriction of retained
earnings of the Company. The amount of any dividend waived by the MHC shall be
available for declaration of a dividend solely to the MHC. At December 31, 2000,
the cumulative amount of dividends waived by the MHC was $1.8 million.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
This Form 10-Q contains certain forward-looking statements and
information based upon our beliefs as well as assumptions we have made. In
addition, to those and other portions of this document, the words "anticipate,"
"believe," "estimate," "expect," "intend," "should," and similar expressions, or
the negative thereof, as they relate to us are intended to identify
forward-looking statements. Such statements reflect our current view with
respect to future looking events and are subject to certain risks,
uncertainties, and assumptions. Factors that could cause future results to vary
from current management expectations include, but are not limited to, general
economic conditions, legislative and regulatory changes, monetary and fiscal
policies of the federal government, changes in tax policies, rates and
regulations of federal, state and local tax authorities, changes in interest
rates, deposit flows, the cost of funds, demand for loan products, demand for
financial services, competition, changes in the quality or composition of the
Company's loan and investment portfolios, changes in accounting principles,
policies or guidelines, and other economic, competitive, governmental and
technological factors affecting the Company's operations, markets, products,
services and fees. Should one or more of these risks or uncertainties
materialize, or should underlying assumptions prove incorrect, actual results
may vary materially from those described herein as anticipated, believed,
estimated, expected, or intended. We do not intend to update these
forward-looking statements.
10
RESULTS OF OPERATIONS
GENERAL - Operations for the three-month and six-month periods ended
December 31, 2000 were adversely effected by a $4.4 million provision for loan
losses which included a $4.2 million provision related to one non-performing
commercial loan. Net losses for the three-month and six-month periods ended
December 31, 2000 were $1.4 million and $147,000, respectively. Excluding the
effect of the additional $4.2 million provision, net income would have been $1.2
million and $2.5 million for the three-month and six-month periods ended
December 31, 2000. This compares to net income of $1.2 million and $2.4 million
for the respective prior year periods. Net interest income grew as a result of a
continuing larger interest-earning asset base. However, as a result of greater
increases on the average rates paid on interest-bearing liabilities compared to
the increases in average rates earned on interest-earning assets, together with
the effect of the large non-performing loan, the Company's net-interest margin
decreased 39 basis points and 34 basis points, respectively, for the three-month
and six-month periods ended December 31, 2000 compared to similar prior year
periods. For the three-month and six-month periods ended December 31, 2000
increases in net interest income were partially offset by increases in
non-interest expense compared to the same prior year periods.
NET INTEREST INCOME - Net interest income is determined by our interest
rate spread (i.e., the difference between the yields on interest-earning assets
and the rates paid on interest-bearing liabilities) and also the amount of
interest-earning assets relative to interest-bearing and non-interest-bearing
deposit liabilities.
For the three-month and six-month periods ended December 31, 2000, net
interest income increased $190,000 and $631,000, or 4.0% and 6.7%, respectively,
compared to the three-month and six-month periods ended December 31, 1999.
During the three-month and six-month periods ended December 31, 2000, the
increase in net interest income was primarily the result of increased average
balances on interest-earning assets. However, the result of greater increases on
the average rates paid on interest-bearing liabilities compared to the increases
in average rates earned on interest-earning assets contributed to a decline in
interest rate spread. For the three-month and six-month periods ended December
31, 2000 the Company's interest rate spread declined 54 basis points and 45
basis points to 2.46% and 2.58%, respectively, compared to 3.00% and 3.03% at
December 31, 1999. Excluding the effect of the non-performing loan, net interest
spread would have been 2.56% and 2.63% for the three-month and six-month periods
ended December 31, 2000, respectively.
Average interest-earning assets increased $79.0 million and $83.0
million, or 16.0% and 17.2%, for the three-month and six-month periods ended
December 31, 2000 compared to the respective prior year periods. Average
interest-bearing liabilities for the three-month and six-month periods ended
December 31, 2000, increased on average $63.5 million and $68.8 million, or
15.6% and 17.4%, respectively, over the same period one year ago. The ratio of
average interest-earning assets to average interest-bearing liabilities
increased 40 basis points to 121.95% for the three-month period ended December
31, 2000 compared to 121.55% for the three-month period ended December 31, 1999.
Conversely, the ratio of average interest-earning assets to average
interest-bearing liabilities declined slightly, 22 basis points, to 121.91% for
the six-month period ended December 31, 2000 compared to 122.13% for the
six-month period ended December 30, 1999. For the three-month period ended
December 31, 2000, the decline in interest rate spread, offset slightly by the
increase in the ratio of interest-earning assets to interest-bearing
liabilities, reduced net interest margin 39 basis points to 3.40% from 3.79% one
year ago. For the six-month period ended December 31, 2000 the decline in
interest rate spread combined with the decrease in the ratio of interest-earning
assets to interest-bearing liabilities reduced net interest margin 34 basis
points to 3.50% from 3.84% at December 31, 1999.
11
The following table presents the average daily balances for various
categories of assets and liabilities, and income and expense related to those
assets and liabilities for the three-month and six-month periods ended December
31, 2000 and 1999. The Company maintained average balances of tax-exempt
securities of $2.6 million and $2.0 million for the periods ending December 31,
2000 and 1999, respectively, for which the tax-exempt yield has not been
adjusted to a taxable equivalent yield. Loans receivable include non-accrual
loans.
Three Months Ended December 31,
--------------------------------------------------------------------------------------------------------------------------
(Dollars in thousands) 2000 1999
------------------------------------------------------------------------------ ----------------------------------------
Average Average Average Average
BALANCE INTEREST YIELD/COST BALANCE INTEREST YIELD/COST
------- -------- ---------- ------- -------- ----------
Interest-earning assets:
Loans receivable:
Mortgage loans $ 409,446 $ 8,302 8.11% $ 390,579 $7,657 7.84%
Other consumer loans 8,808 152 6.85% 7,078 120 6.73%
Commercial loans 25,379 529 8.27% 16,164 397 9.74%
--------------------------- ---------------------------
Total loans $ 443,633 $ 8,983 8.03% $ 413,821 $8,174 7.84%
Securities $ 120,490 $ 2,070 6.82% $ 74,747 $1,123 5.96%
Other interest-earning assets 9,951 61 2.43% 6,467 38 2.33%
--------------------------- ---------------------------
Total interest-earning assets $ 574,074 $ 11,114 7.68% $ 495,035 $9,335 7.48%
------------ ----------
Noninterest-earning assets 12,502 13,686
------------- --------------
Total assets $ 586,576 $ 508,721
============= ==============
Interest-bearing liabilities:
Deposits:
NOW and money market accounts $ 60,668 $ 384 2.51% $ 57,000 $ 324 2.26%
Savings accounts 51,692 269 2.06% 51,779 268 2.05%
Certificates of deposit 291,890 4,464 6.07% 260,499 3,498 5.33%
--------------------------- ---------------------------
Total deposits $ 404,250 $ 5,117 5.02% $ 369,278 $4,090 4.39%
Total borrowings 64,259 1,072 6.62% 35,458 509 5.70%
Total escrows 2,222 3 0.54% 2,529 4 0.63%
--------------------------- ---------------------------
Total interest-bearing
liabilities $ 470,731 $ 6,192 5.22% $ 407,265 $4,603 4.48%
------------ ----------
Noninterest bearing liabilities 50,913 39,979
------------- --------------
Total liabilities $ 521,644 $ 447,244
Total equity 64,932 61,477
------------- --------------
Total liabilities and equity $ 586,576 $ 508,721
============= ==============
Net interest-earning assets $ 103,343 $ 87,770
Net interest income/interest rate spread $ 4,922 2.46% $4,732 3.00%
======================== =======================
Net interest margin 3.40% 3.79%
========== ==========
Ratio of average interest-earning assets
to average interest-bearing liabilities 121.95% 121.55%
========== ==========
12
Six Months Ended December 31,
-------------------------------------------------------------------------------------------------------------------------
(Dollars in thousands) 2000 1999
------------------------------------------------------------------------------- --------------------------------------
Average Average
Average Yield/ Average Yield/
BALANCE INTEREST COST BALANCE INTEREST COST
------- -------- ---- ------- -------- ----
Interest-earning assets:
Loans receivable:
Mortgage loans $ 410,333 $ 16,565 8.07% $ 379,252 $ 14,878 7.85%
Other consumer loans 8,516 299 6.96% 6,830 235 6.83%
Commercial loans 25,055 1,177 9.32% 14,700 717 9.68%
-------------------------- --------------------------
Total loans $ 443,904 $ 18,041 8.06% $ 400,782 $ 15,830 7.84%
Securities 113,563 3,837 6.70% 76,762 2,337 6.04%
Other interest-earning assets 8,968 116 2.57% 5,865 66 2.23%
-------------------------- --------------------------
Total interest-earning assets $ 566,435 $ 21,994 7.70% $ 483,409 $ 18,233 7.48%
------------ -------------
Non-interest-earning assets 12,290 12,391
-------------- -------------
Total assets $ 578,725 $ 495,800
============== =============
Interest-bearing liabilities:
Deposits:
NOW and money market accounts $ 59,935 $ 727 2.41% $ 57,628 $ 661 2.28%
Savings accounts 52,100 540 2.06% 50,678 523 2.05%
Certificates of deposit 292,100 8,794 5.97% 254,964 6,839 5.32%
-------------------------- --------------------------
Total deposits $ 404,135 $ 10,061 4.94% $ 363,270 $ 8,023 4.38%
Total borrowings 57,539 1,930 6.65% 29,567 837 5.62%
Total escrows 2,948 8 0.54% 2,963 9 0.60%
-------------------------- --------------------------
Total interest-bearing liabilities $ 464,622 $ 11,999 5.12% $ 395,800 $ 8,869 4.45%
------------ -------------
Non-interest-bearing liabilities 49,569 38,781
-------------- -------------
Total liabilities $ 514,191 $ 434,581
Total equity 64,534 61,219
-------------- -------------
Total liabilities and equity $ 578,725 $ 495,800
============== =============
Net interest-earning assets $ 101,813 $ 87,609
Net interest income/interest rate spread $ 9,995 2.58% $ 9,364 3.03%
========================= =========================
Net interest margin 3.50% 3.84%
============= ============
Ratio of average interest-earning assets
to average interest-bearing liabilities 121.91% 122.13%
============= ============
13
INTEREST INCOME - Interest income on loans increased $809,000 million,
or 9.9%, and $2.2 million, or 14.0%, for the three-month and six-month periods
ended December 31, 2000, respectively, compared to the similar prior year
periods. The increases in average loan balances and increase in average loan
rates were primarily responsible for the increase in income. Interest income on
securities and other interest-earning assets increased $970,000, or 83.5%, and
$1.6 million, or 64.5%, for the three-month and six-month periods ended December
31, 2000 compared to the respective prior year periods. The increase in average
securities balances and increase in average securities rates accounted for the
increase during the three-month and six-month periods ended December 31, 2000
compared to the three-month and six-month periods ended December 31, 1999.
INTEREST EXPENSE - Interest expense on deposit accounts increased $1.0
million, or 25.1%, and $2.0 million, or 25.4%, for the three-month and six-month
periods ended December 31, 2000 compared to similar prior year periods. The
increase in average balances on deposits and increased average deposit rates
were primarily responsible for the increase. Interest expense on borrowings
increased $563,000, or 110.6%, and $1.1 million, or 130.6%, for the three-month
and six-month periods ended December 31, 2000 compared to the respective prior
year periods. The increase in average balances on borrowings and increased
average borrowing rates were primarily responsible for the increase. The
increase in borrowings was in part to provide an additional source of funds to
the Company for the purpose of originating loans in our market area as part of
our plan to diversify the loan portfolio.
PROVISION FOR LOAN LOSSES - The Company's provision for loan losses was
$4.4 million for the three-month period ended December 31, 2000, of which $4.2
million related to one non-performing loan totaling $6.7 million. For the six
months ended December 31, 2000, the provision for loan loss was $4.5 million.
This compares to $221,000 and $491,000 for the three-month and six-month periods
ended December 31, 1999. Other than the $4.2 million provision made on the one
non-performing loan, the Company's provision for loan losses on the remainder of
its loan portfolio during the three and six month periods ended December 31,
2000 were slightly less than the provision made in the prior corresponding
period. Including the $4.2 provision for loan loss on the one non-performing
loan, the ratio of allowance for loan losses to net loans increased to 1.86% at
December 31, 2000 compared to .91% at June 30, 2000. The ratio of the allowance
for loan losses to total non-performing loans was 85.5% at December 31, 2000
compared to 310.9% at June 30, 2000. The significant increase in the Company's
provision for loan losses during the three and six months ended December 31,
2000 was primarily due to one $6.7 million commercial business loan that was
placed on non-accrual status during the quarter ended December 31, 2000. This
loan is to a local business and is secured by inventory, receivables, equity
securities and certain interests in real estate. The Bank is vigorously pursuing
its legal remedies as well as a possible work-out with the borrower. With the
exception of this loan and certain other smaller non-performing loans, the
Company's loan portfolio continues to perform well and the Company's management
believes that the credit quality of the remainder of its portfolio is relatively
strong. Management believes that the Company's allowance for loan losses was
adequate at December 31, 2000, however, no assurance can be given as to the
amount or timing of additional provisions for loan losses in the future as a
result of any further deterioration in the loan which was primarily responsible
for the provision in the second quarter in fiscal 2001 or as a result in any
additional increases in the amount of the Company's non-performing loans from
the remainder of the Company's loan portfolio. In recent periods the Company has
significantly increased the amounts of its commercial real estate, construction,
consumer and commercial business loans. Such loans generally are considered to
involve a higher degree of risk than single-family residential mortgage loans.
While the Company believes that its oversight of the risk elements in its loan
portfolio is adequate, no assurance can be given that there may not be
additional increases in the Company's non-performing loans and, as a result, its
provisions for loan losses.
14
For the Six Months Ended
December 31,
--------------------------------------
2000 1999
- ---------------------------------------------------------------------------------------------
( Dollars in Thousands)
Allowance at beginning of period $ 3,905 $ 3,138
------------ -------------
Provisions 4,476 491
Charge-offs:
Mortgage loans 4 51
Non-mortgage loans 51 13
Commercial business loans -- --
------------ -------------
Total charge-offs 55 64
Recoveries 1 146
------------ -------------
Allowance for loan losses at end of period $ 8,327 $ 3,711
------------ -------------
Allowance for loan losses to total non-performing
loans at end of period 85.45% 309.51%
------------ -------------
Allowance for loan losses to loans net of deferred
fees at end of period 1.86% 0.87%
------------ -------------
Ratio of charge-offs to average loans 0.01% 0.02%
------------ -------------
NON-INTEREST INCOME - Non-interest income increased $343,000, or 124.7 %,
and $426,000, or 79.5%, for the three-month and six-month periods ended December
31, 2000 compared to similar periods in the prior year. These increases were
primarily a result of the Company taking advantage of market opportunities to
realize gains upon the sale of loans and securities available-for-sale as well
as increases in general service fees and charges. Gains on AFS loans were
$110,000 and $114,000 for the three-month and six-month periods ended December
31, 2000 compared to no gains for the respective prior year period. Similarly,
gains on AFS securities were $143,000 and $162,000 for the three-month and
six-month periods ended December 31, 2000 compared to no gains for the
respective prior year period.
NON-INTEREST EXPENSE - Non-interest expense, increased $478,000, or
16.5%, and $1.1 million, or 19.1%, for the three-month and six-month periods
ended December 31, 2000 compared to the similar periods in the prior year.
Compensation and employee benefits expense increased $304,000, or 17.9%, and
$732,000, or 22.4%, for the three-month and six-month periods ended December 31,
2000 compared to the similar periods in the prior year. The increases were
primarily a result of general increases in salary levels, compensation charges
related to the ESOP, RRP and the increase in Company employees as a result of
operation of two additional banking offices and the expansion of our lending
function to support the Company's loan diversification plan. Occupancy and
furniture and fixture expense increased $96,000 or 28.9% and $237,000 or 38.3%
for the three-month and six-month periods ended December 31, 2000, respectively,
compared to similar periods in the prior year. The increases were a result of
management's continuing efforts to update equipment and facilities and the
operation of two additional banking offices and an operations center to better
service the Company's needs. Amortization of intangible assets declined $56,000,
or 54.4%, and $55,000, or 26.8 %, for the three-month and six-month periods
ended December 31, 2000 compared to the similar periods in the prior year. These
declines were a result of revised estimates of useful lives based on a recent
empirical analysis. Deposit account services expense increased $18,000 or,
12.6%, and $50,000 or, 17.7%, for the three-month and six-month periods ended
December 31, 2000 compared to the similar periods in the prior year. These
increases are a result of the growth of additional accounts associated with two
additional banking offices as well as continued efforts in acquiring core
deposit accounts. All other non-interest operating expenses, in the aggregate,
increased $116,000 and $119,000, or 18.4% and 9.2% for the three-month and
six-month period ended December 31, 2000. These increases were primarily the
result of legal expenses associated with loan workout of an impaired credit and
other corporate legal matters.
INCOME TAX - The benefit for income taxes for the three-month and
six-month periods ended December 31, 2000 were ($821,000) and ($124,000),
respectively. This compares to provisions for income tax expense of $665,000 and
$1.3 million for the three-month and six-month periods ended December 31, 1999.
The reduction in the provisions for income taxes in the three-month and
six-month periods ended December 31, 2000 primarily relates to the decrease in
pretax income resulting from the $4.2 million provision sustained during the
year.
15
CHANGES IN FINANCIAL CONDITION
GENERAL. Total assets of the Company increased by $22.8 million, or
4.1%, to $583.0 million at December 31, 2000 compared to $560.1 million at June
30, 2000. The increase in assets resulted from loans increasing $13.9 million,
or 3.3%, and securities available-for-sale ("AFS") increasing $39.3 million, or
55.7%. This increase was primarily a result of fixed-rate and adjustable-rate
securities purchased utilizing proceeds from a sale of an aggregate $35.0
million fixed-rate loans during the year. Total liabilities amounted to $521.6
million, an increase of $22.1 million, or 4.4%, from June 30, 2000. Deposits
increased $6.5 million, or 1.4%, to $459.4 million while borrowings increased
$17.2 million, or 45.9%, to $54.7 million at December 31, 2000. Total
stockholders' equity increased $748,000 to $61.4 million at December 31, 2000
compared to $60.6 million at June 30, 2000. Changes in stockholders' equity
reflect the purchase of additional shares of Treasury stock and a $2.0 million
decline in accumulated other comprehensive loss, primarily as a result of
declining interest rates.
CASH AND CASH EQUIVALENTS. Cash and cash equivalents amounted to $16.2
million and $14.7 million at December 31, 2000 and June 30, 2000, respectively.
Cash increased slightly during the period as a result of increased deposit
balances.
ASSETS AVAILABLE FOR SALE. At December 31, 2000, assets that were
classified AFS consisted of securities totaling $109.9 million and loans
totaling $2.0 million. This compares to $70.6 million in AFS securities and
$35.8 million in AFS loans at June 30, 2000. The increase of $39.3 million, or
55.7%, in AFS securities and the decrease of $33.8 million, or 94.5%, in AFS
loans were primarily a result of fixed-rate and adjustable-rate securities
purchased utilizing proceeds from a sale of an aggregate $35.0 million
fixed-rate loans during the year. At December 31, 2000, the Company had
unrealized losses on securities AFS of $512,000 compared to unrealized losses on
securities AFS of $3.7 million at June 30, 2000. The decrease in unrealized
losses is a result of decreases in the general level of interest rates.
LOANS. The net loan portfolio of the Company increased from $424.9
million at June 30, 2000 to $438.8 million at December 31, 2000. The increase in
the Company's net loan portfolio was due, in large part, to the Company's
continuing efforts to expand its lending activities with a concentrated effort
to expand multi-family, commercial real estate, consumer and business loans.
During the six months ended December 31, 2000, the Company's commercial
real estate mortgage loans increased by $13.7 million or 17.0%, construction
loans increased $6.1 million or 40.6%, home equity loans increased $3.4 million
or 4.7%, single-family residential mortgage loans decreased by $4.6 million or
2.2% and multi-family loans decreased $2.8 million or 13.2%. The decline in the
Company's multi-family loan portfolio during the six-month period ended December
31, 2000, was in management's opinion, a temporary event. During the same
period, the Company's other consumer loans increased $1.0 million or 13.0% and
commercial business loans increased $1.5 million or 6.0%. Such changes in the
Bank's loan portfolio reflect the Company's continuing efforts to diversify its
loan portfolio and increase its holdings in loans that generally have higher
yields and shorter terms to maturity and/or repricing than single-family
residential mortgage loans. However, commercial real estate loans, multi-family
residential mortgage loans, construction loans, home equity loans and other
consumer loans all generally are deemed to have increased credit risk
characteristics in comparison to single-family residential mortgage loans.
16
The following table sets forth information with respect to
non-performing assets identified by the Company, including non-accrual loans and
other real estate owned.
December 31, June 30,
2000 2000
--------------------------------------
(Dollars in Thousands)
Accruing loans past due 90 days or more:
Mortgage loans $ 101 $ 9
Other consumer loans -- --
---------------- ---------------
Total $ 101 $ 9
---------------- ---------------
Non-accrual loans:
Mortgage loans
Single-family residential $ 876 $ 828
Multi-family and Commercial Real Estate 1,298 140
Construction 466 --
Home Equity 191 10
Other consumer loans 19 19
Commercial business loans 6,794 250
---------------- ---------------
Total $ 9,644 $ 1,247
---------------- ---------------
Total non-performing loans $ 9,745 $ 1,256
---------------- ---------------
Other real estate owned, net $ 145 $ --
---------------- ---------------
Total non-performing assets $ 9,890 $ 1,256
---------------- ---------------
Non-performing loans to total loans, net of deferred fees 2.18% 0.29%
Non-performing assets to total assets 1.70% 0.22%
Non-accrual commercial business loans increased $6.5 million at
December 31, 2000 compared to June 30, 2000. The increase is related to the
previously mentioned local business loan on which a $4.2 million specifically
allocated allowance for loan losses has been established. Non-accrual
multi-family and commercial real estate loans increased $1.2 million at December
31, 2000 compared to June 30, 2000. The primary reason for the increase was
related to one borrower who defaulted on two commercial real estate loans
secured with real estate collateral with an estimated value of $2.2 million.
Non-accrual construction loans increased $464,000 at December 31, 2000 compared
to June 30, 2000. The increase is related to one loan for the construction of an
office building in Montgomery County, Pennsylvania. The Company foreclosed on
the loan and the property was sold at sheriff's sale in December 2000. Proceeds
from the sheriff's sale of $506,000 were received in February 2001 satisfying
the obligation in full.
INTANGIBLE ASSETS. The Company's intangible assets amounted to $1.4
million and $1.5 million at December 31, 2000 and June 30, 2000, respectively.
Such assets are comprised of goodwill and a core deposit intangible resulting
from the Bank's purchase of three branch offices from another institution in
March 1994. The goodwill is being amortized on a straight-line basis over a
15-year period while the core deposit intangible is being amortized over the
remaining estimated period of benefit, currently estimated at 5.5 years.
DEPOSITS. The Company's total deposits in the aggregate increased by $6.5
million, or 1.4%, to $459.4 million at December 31, 2000 compared to $452.9
million at June 30, 2000. This increase occurred in a highly competitive market
for deposits coinciding with a rising rate environment. Savings accounts
declined $582,000 or 1.1%, checking accounts increased $3.2 million or 3.0% and
certificates of deposit decreased $3.8 million or 1.3%. The Company intends to
continue its marketing efforts promoting core deposits to help fund asset growth
and believes the decline in the savings balance component of deposits, during
the six-months ended December 31, 2000, is temporary in nature.
17
FEDERAL HOME LOAN BANK ADVANCES. The Company utilizes advances from the
FHLB of Pittsburgh primarily as an additional source of funds to meet loan
demand. FHLB advances increased $17.2 million or 45.9% to $54.7 million at
December 31, 2000 compared to $37.5 million at June 30, 2000. We also use FHLB
advances to fund certain investments approved by our Board of Directors.
EQUITY. Total stockholders' equity of the Company amounted to $61.4
million, or 10.5%, of assets at December 31, 2000 compared to $60.6 million or
10.8% of total assets at June 30, 2000. The increase of $748,000, or 1.2%, was
attributed to a reduction in net unrealized losses on AFS securities which more
than offset the combination of a net operating loss, dividends paid and
additional shares of Treasury stock purchased during the six-month period ended
December 31, 2000. Net loss for the six-month period ended December 31, 2000 was
$147,000. Total stockholders' equity of the Company included net unrealized
losses, net of taxes, of $314,000 and $2.3 million on AFS securities at December
31, 2000 and June 30, 2000, respectively. The Company paid cash dividends of
$0.10 and $0.11 per share during the quarters ended September 30, 2000 and
December 31, 2000, respectively. These regular dividends totaled $446,000. The
Company acquired 73,500 shares of additional Treasury stock at an aggregate cost
of $833,000 during the six-month period ended December 31, 2000. As of December
31, 2000, the Company had repurchased 96,000 shares of its common stock at an
average price of $10.88 in connection with its authorization to repurchase its
common stock. On January 19, 2001 the Company's Board of Directors approved an
extension to repurchase up to 137,051 of additional shares of common stock
during the next six months as market conditions warrant.
LIQUIDITY AND COMMITMENTS
The Company's liquidity, represented by cash and cash equivalents, is a
product of its operating, investing, and financing activities. The Company's
primary sources of funds are deposits, amortizations, prepayments and maturities
of outstanding loans and mortgage-backed securities, maturities of investment
securities and other short-term investments and funds provided from operations.
The Company also utilizes borrowings, generally in the form of FHLB advances, as
a source of funds. While scheduled payments from the amortization of loans and
mortgage related securities and maturing investment securities and short-term
investments are relatively predictable sources of funds, deposit flows and loan
prepayments are greatly influenced by general interest rates, economic
conditions and competition. In addition, the Company invests excess funds in
short-term interest-earning assets which provide liquidity to meet lending
requirements.
Liquidity management is both a daily and long term function of business
management. Excess liquidity is generally invested in short-term investments
such as U.S. Treasury securities. The Company uses its sources of funds
primarily to meet its ongoing commitments, to pay maturing certificates of
deposit and savings withdrawals, fund loan commitments and maintain a portfolio
of mortgage backed and mortgage related securities and investment securities. At
December 31, 2000, the total approved investment and loan origination
commitments outstanding amounted to $14.0 million. Certificates of deposit
scheduled to mature in one year or less at December 31, 2000 totaled $232.1
million. Based on historical experience, management believes that a significant
portion of maturing deposits will remain with the Company. The Company has the
ability to utilize borrowings, typically in the form of FHLB advances as an
additional source of funds. The maximum borrowing capacity available to the
Company from the Federal Home Loan Bank was $379.9 million, as of December 31,
2000, based on qualifying collateral. The Company is required to maintain a
minimum of 4% of its assets in regulatory eligible liquid investments. As of
December 31, 2000, the Company had 28.2% in eligible liquid investments. The
Company anticipates that it will continue to have sufficient funds, together
with borrowings, to meet its current commitments.
18
CAPITAL
At December 31, 2000 and June 30, 2000, the Bank had regulatory capital
which was well in excess of regulatory limits set by the Office of Thrift
Supervision. The current requirements and the Bank's actual capital levels are
detailed below:
To be Well
For Capital Capitalized Under
Adequacy Prompt Corrective
Actual Capital Purposes Action Provisions
----------------------- -------------------------------------------------------
Amount Ratio Amount Ratio Amount Ratio
----------------------- ----------------------- ---------------------------
(Dollars in thousands)
AS OF DECEMBER 31, 2000
Tangible capital $ 50,693 8.7% $ 8,747 1.5% $ 11,663 2.0%
(to tangible assets)
Core capital 50,693 8.7% 23,284 4.0% 29,104 5.0%
(to adjusted tangible assets)
Tier I capital 50,693 14.0% N/A N/A 21,697 6.0%
(to risk-weighted assets)
Risk-based capital 55,260 15.3% 28,929 8.0% 36,161 10.0%
(to risk-weighted assets)
AS OF JUNE 30, 2000
Tangible capital $ 50,611 9.0% $ 8,399 1.5% $ 11,199 2.0%
(to tangible assets)
Core capital 50,611 9.0% 22,431 4.0% 28,039 5.0%
(to adjusted tangible assets)
Tier I capital 50,611 14.6% N/A N/A 20,815 6.0%
(to risk-weighted assets)
Risk-based capital 54,516 15.7% 27,753 8.0% 34,692 10.0%
(to risk-weighted assets)
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
For a discussion of the Company's asset and liability management
policies as well as the potential impact of interest rate changes upon the
market value of the Company's portfolio equity, see "Management's Discussion and
Analysis of Financial Condition and Results of Operations" in the Company's
Annual Report for the year ended June 30, 2000. Management, as part of its
regular practices, performs periodic reviews of the impact of interest rate
changes upon net interest income and the market value of the Company's portfolio
equity. Management closely monitors interest rate risk and takes appropriate
short-term actions to maintain this risk at acceptable levels while focusing on
a longer-term loan diversification plan, which concentrates on the acquisition
of shorter maturity or repricing assets. Based on, among other factors, such
reviews, management believes that there are no material changes in the market
risk of the Company's asset and liability position since June 30, 2000.
19
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is involved in routine legal proceedings in the normal
course of business which, in the aggregate, are believed by management to be
immaterial to the financial condition of the Company.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
Not applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
a. An annual meeting of stockholders of the Company was held on
November 9, 2000 ("Annual Meeting").
b. Not applicable.
c. There were 5,093,487 shares of common stock of the Company
eligible to be voted at the Annual Meeting and 4,784,043 shares
were represented at the meeting by the holders thereof, which
constituted a quorum. The items voted upon at the Annual Meeting
and the vote for each proposal were as follows:
1. Election of directors for a three-year term.
FOR WITHHELD
----------------- -----------------
Lewis W. Hull 4,754,016 30,027
Charles F. Kremp, 3rd 4,755,889 28,154
Rosemary C. Loring, Esq. 4,755,612 28,431
2. Proposal to ratify the appointment of KPMG LLP, as the
Company's independent auditors for the year ending June 30,
2001.
FOR AGAINST ABSTAIN
----------------- ----------------- -----------------
4,779,208 2,921 1,914
Each of the proposals was adopted by the stockholders of the
Company.
d. Not applicable.
ITEM 5. OTHER INFORMATION
Not applicable.
20
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) List of Exhibits (filed herewith unless otherwise noted)
2.1 Plan of Reorganization*
2.2 Plan of Stock Issuance*
3.1 Federal Stock Charter of Willow Grove Bancorp, Inc.*
3.2 Bylaws of Willow Grove Bancorp, Inc.*
4.0 Form of Stock Certificate of Willow Grove Bancorp, Inc.*
10.1 Form of Employment Agreement entered into between Willow Grove Bank and Frederick A. Marcell,
Jr.*
10.2 Form of Employment Agreement entered into between Willow Grove Bank and each of
Christopher E. Bell, Thomas M. Fewer and John T. Powers*
10.3 Supplemental Executive Retirement Agreement*
10.4 Non-Employee Director's Retirement Plan*
10.5 1999 Stock Option Plan**
10.6 1999 Recognition and Retention Plan and Trust Agreement**
- -------------
* Incorporated by reference from the Company's Registration Statement on
Form S-1 as filed on September 18, 1999, as amended, and declared
effective on November 12, 1999 (File No. 333-63737)
** Incorporated by reference from the Company's Proxy Statement on
Schedule 14A as filed on June 23, 1999 (File No. 000-25191).
(b) Not applicable.
21
SIGNATURES
In accordance with the requirements of the Securities Exchange Act of 1934, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
WILLOW GROVE BANCORP, INC.
Date: February 14, 2001 By: /s/ Frederick A. Marcell Jr.
-----------------------------------
Frederick A. Marcell Jr.
President and Chief Executive Officer
Date: February 14, 2001 By: /s/ Christopher E. Bell
-----------------------------------
Christopher E. Bell
Senior Vice President and Chief
Financial Officer
22