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, 2001
------------------
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
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
YES [X] NO [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
The Registrant had 4,945,487 shares of common stock issued and outstanding as of
February 13, 2002.
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, 2001 and June 30, 2001.................................. 3
Consolidated Statements of Operations - For the Three and
Six months ended December 31, 2001 and 2000.......................... 4
Consolidated Statements of Cash Flows - For the Six
months ended December 31, 2001 and 2000.............................. 5
Notes to Consolidated Financial Statements........................... 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operation................................... 12
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..................................... 20
2
WILLOW GROVE BANCORP, INC.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Unaudited)
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA) DECEMBER 31, 2001 JUNE 30, 2001
- ---------------------------------------------------------------------------------------------- -----------------
Assets Cash and cash equivalents:
Cash on hand and non-interest-earning deposits $ 6,914 $ 4,621
Interest-earning deposits 37,906 17,588
---------------- -----------------
Total cash and cash equivalents 44,820 22,209
Assets available/held for sale:
Securities available for sale (amortized cost of $138,441 138,871 130,358
and $130,406, respectively)
Loans held for sale 5,002 2,644
Loans (net of allowance for loan losses of $4,416 and $4,313, respectively) 439,162 454,199
Accrued income receivable 3,284 3,667
Property and equipment, net 6,568 6,188
Intangible assets 1,181 1,263
Other assets 4,768 4,620
---------------- -----------------
Total assets $ 643,656 $ 625,148
================ =================
Liabilities and Stockholders' Equity
Deposits $ 509,148 $ 497,030
Federal Home Loan Bank advances 64,728 59,885
Advance payments from borrowers for taxes 2,609 3,879
Accrued interest payable 1,293 1,146
Other liabilities 3,008 2,851
---------------- -----------------
Total liabilities 580,786 564,791
---------------- -----------------
Commitments and contingencies
Stockholders' equity:
Common stock, $0.01 par value; (25,000,000 authorized;
5,143,487 issued at December 31, 2001 and June 30, 2001) 51 51
Additional paid-in capital 22,293 22,265
Retained earnings-substantially restricted 44,534 42,534
Accumulated other comprehensive income (loss) 271 (29)
Treasury stock at cost, 202,900 shares and 206,500 shares at
December 31, 2001 and June 30, 2001, respectively (2,319) (2,351)
Unallocated common stock held by
Employee Stock Ownership Plan (ESOP) (1,434) (1,494)
Recognition and Retention Plan Trust (RRP) (526) (619)
---------------- -----------------
Total stockholders' equity 62,870 60,357
---------------- -----------------
Total liabilities and stockholders' equity $ 643,656 $ 625,148
================ =================
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
DECEMBER 31, DECEMBER 31,
---------------------------- -------------------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) 2001 2000 2001 2000
- ------------------------------------------------------------------------------------------ -------------------------
Interest and dividend income:
Loans $ 8,906 $ 8,983 $ 18,174 $ 18,041
Securities, primarily taxable 2,108 2,131 4,358 3,953
------------------------- -------------------------
Total interest income 11,014 11,114 22,532 21,994
------------------------- -------------------------
Interest expense:
Deposits 4,578 5,117 9,661 10,061
Borrowings 955 1,072 1,903 1,930
Advance payment from borrowers for taxes 3 3 7 8
------------------------- -------------------------
Total interest expense 5,536 6,192 11,571 11,999
------------------------- -------------------------
Net interest income 5,478 4,922 10,961 9,995
Provision for loan losses 620 4,366 994 4,476
------------------------- -------------------------
Net interest income after provision for loan losses 4,858 556 9,967 5,519
------------------------- -------------------------
Non-interest income:
Service charges and fees 398 343 752 646
Realized gain on sale of loans available for sale 243 110 357 114
Realized gain on sale of securities available for sale 296 143 346 162
Loan servicing income, net 21 22 39 40
------------------------- -------------------------
Total non-interest income 958 618 1,494 962
------------------------- -------------------------
Non-interest expense:
Compensation and employee benefits 2,288 2,002 4,428 4,001
Occupancy 309 264 615 531
Furniture and equipment 226 164 438 325
Federal insurance premium 22 22 45 45
Amortization of intangible assets(1) 57 47 82 150
Data processing 159 139 312 274
Advertising 124 84 285 170
Community enrichment 38 37 75 75
Deposit account services 210 161 404 333
Professional fees 111 158 268 216
Other expense 394 305 770 632
------------------------- -------------------------
Total non-interest expense 3,938 3,383 7,722 6,752
------------------------- -------------------------
Income (loss) before income taxes 1,878 (2,209) 3,739 (271)
Income tax expense (benefit) 626 (821) 1,247 (124)
------------------------- -------------------------
Net Income (loss). $ 1,252 $ (1,388) $ 2,492 $ (147)
========================= =========================
Earnings (loss) per share:
Basic $ 0.26 $ (0.29) $ 0.52 $ (0.03)
Diluted $ 0.26 $ (0.29) $ 0.51 $ (0.03)
Cash dividends declared per share $ 0.13 $ 0.11 $ 0.25 $ 0.21
Weighted average shares outstanding 4,737,659 4,839,769 4,734,149 4,856,007
Weighted average diluted shares outstanding 4,846,287 4,839,769 4,840,810 4,856,007
- -----------------------------------------------------
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,
- ---------------------------------------- --------------------------------------
2001 2000
Net cash flows from operating activities:
Net income(loss) $ 2,492 $ (147)
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation 422 362
Amortization of premium and accretion of discount, net 90 (286)
Amortization of intangible assets 82 150
Provision for loan losses 994 4,476
Gain on sale of loans held for sale (357) (114)
Gain on sale of securities available for sale (346) (162)
Increase in deferred loan fees Increase in deferred loan fees 60 71
Decrease (increase) in accrued income receivable 383 (1,006)
Increase in other assets (325) (2,174)
Increase in accrued interest payable 147 530
Increase(decrease) in other liabilities 157 (331)
Expense of ESOP and RRP 181 147
Originations and purchases of loans held for sale (36,861) (14,593)
Proceeds from sale of loans held for sale 34,860 48,479
- ----------------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities $ 1,979 $ 35,402
- ----------------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Net decrease (increase) in loans 13,983 (18,582)
Purchase of securities available for sale (91,221) (60,652)
Proceeds from sales and calls of securities available for sale 69,608 21,604
Principal repayments of securities available for sale 13,834 3,401
Purchase of property and equipment, net (802) (288)
- ----------------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities $ 5,402 $ (54,517)
- ----------------------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Net increase in deposits 12,118 6,496
Net increase in FHLB advances with
original maturity less than 90 days - 4,500
Increase in FHLB advances with original maturity greater than 90 days 9,000 36,000
Repayment of FHLB advances with original maturity greater than 90 days (4,157) (23,275)
Net decrease in advance payments from borrowers for taxes (1,270) (1,836)
Dividends paid (493) (446)
Issuance (purchase) of treasury stock 32 (833)
- ----------------------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities $ 15,230 $ 20,606
- ----------------------------------------------------------------------------------------------------------------------------
Net increase in cash and cash equivalents $ 22,611 $ 1,491
Cash and cash equivalents:
Beginning of period 22,209 14,681
- ----------------------------------------------------------------------------------------------------------------------------
End of period $ 44,820 $ 16,172
- ----------------------------------------------------------------------------------------------------------------------------
Supplemental disclosures of cash and cash flow information:
Interest paid 11,424 11,469
Income taxes paid 1,230 2,005
Non-cash items:
Change in unrealized gain (loss) on securities available for sale 470 2,025
(net of taxes of ($150) and ($316) in 2001 and 2000, respectively)
Loans transferred to other real estate owned - 145
See accompanying notes to the consolidated financial statements
5
WILLOW GROVE BANCORP, INC.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Description of Business
Willow Grove Bancorp, Inc. (the "Company") provides a full range of banking
services through its wholly-owned subsidiary, Willow Grove Bank (the "Bank" or
"Willow Grove") which has 12 branches in Dresher, Willow Grove, Maple Glen,
Warminster (2), Hatboro, Huntington Valley, Roslyn, Philadelphia (2 - Somerton
and Rhawnhurst), North Wales and Southampton. All of the branches are
full-service and offer commercial and retail banking products and services.
These products include checking accounts (interest and non-interest bearing),
savings accounts, certificates of deposit, business loans, real estate loans,
and home equity loans. The Company is subject to competition from other
financial institutions and other companies that provide financial services. The
Company is subject to the regulations of certain federal agencies and undergoes
periodic examinations by those regulatory authorities.
On December 23, 1998 the Company completed the reorganization of 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"), a federally chartered mutual
holding company (collectively, the "Reorganization"). In connection with the
Reorganization, the Company sold 2,240,878 shares of Company common stock, par
value $0.01 per share at $10.00 per share which, net of issuance costs,
generated proceeds of $21.4 million, including shares issued to the employee
stock ownership plan ("ESOP"). The Company also issued 2,812,974 shares of
Company common stock to the MHC. As an integral part of the Reorganization and
in furtherance of Willow Grove's commitment to the communities it serves, Willow
Grove and the Company established a charitable foundation known as the Willow
Grove Foundation (the "Foundation") and contributed 89,635 shares to the
Foundation.
In September 2000, Willow Grove Investment Corporation ("WGIC"), a Delaware
corporation was formed as a wholly-owned subsidiary of the Bank to hold and
manage certain investment securities.
On September 7, 2001, the Board of Directors of the Company, the Bank and
the MHC adopted a Plan of Conversion and Agreement and Plan of Reorganization
which would reorganize the current corporate structure from a two-tier mutual
holding company into a stock holding company. This proposed reorganization is
subject to the approval of the Company's shareholders, the members of the Mutual
Holding Company. The Plan of Conversion and Reorganization has been
conditionally approved by the Office of Thrift Supervision ("OTS").
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 year ended June 30, 2001. The results for the interim
periods presented are not necessarily indicative of the results that may be
expected for the year ending June 30, 2002.
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 PER SHARE
6
Earnings (loss) per share, basic and diluted, were $0.26 and $0.26 for the
three months ended December 31, 2001, respectively, compared to $(0.29) and
$(0.29) for the three months ended December 31, 2000, respectively. Earnings
(loss) per share, basic and diluted, were $0.52 and $0.51 for the six months
ended December 31, 2001, respectively, compared to $(0.03) and $(0.03) for the
six months ended December 31, 2000, respectively.
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,
2001 2001
-------------------------- --------------------------
-----------------------------------------------------
(Dollars in thousands, except per share data) Basic Diluted Basic Diluted
------------- ------------ ------------- ------------
Net Income $ 1,252 $ 1,252 $ 2,492 $ 2,492
Dividends on unvested common stock awards (7) (7) (16) (16)
Income available to common stock holders $ 1,245 $ 1,245 $ 2,476 $ 2,476
Weighted average shares outstanding 4,737,659 4,737,659 4,734,149 4,734,149
Effect of dilutive securities:
Options - 60,899 - 56,915
Unvested common stock awards - 47,729 - 49,746
------------- ------------ ------------- ------------
Adjusted weighted average shares used in
EPS computation 4,737,659 4,846,287 4,734,149 4,840,810
------------- ------------ ------------- ------------
Earnings per share $ 0.26 $ 0.26 $ 0.52 $ 0.51
============= ============ ============= ============
Three Months Six Months
Ended December 31, Ended December 31,
2000 2000
-------------------------- --------------------------
(Dollars in thousands, except per share data) Basic Diluted Basic Diluted
------------- ------------ ------------- ------------
Net Income (Loss) $ (1,388) $ (1,388) $ (147) $ (147)
Dividends on unvested common stock awards (9) (9) (9) (9)
Income available to common stock holders $ (1,397) $ (1,397) $ (156) $ (156)
Weighted average shares outstanding 4,839,769 4,839,769 4,856,007 4,856,007
Effect of dilutive securities:
Options - - - -
Unvested common stock awards - - - -
------------- ------------ ------------- ------------
Adjusted weighted average shares used in
EPS computation 4,839,769 4,839,769 4,856,007 4,856,007
------------- ------------ ------------- ------------
Earnings (loss) per share $ (0.29) $ (0.29) $ (0.03) $ (0.03)
============= ============ ============= ============
For the three months ended December 31, 2000 the company had weighted
average outstanding options of 28,280 and unvested common stock awards of
68,579. For the six months ended December 31, 2000 the company had weighted
average outstanding options of 24,467 and unvested common stock awards of
75,798. These options and awards were not included in the calculation of diluted
earnings per share for the fiscal 2000 periods presented as their effect would
have been antidilutive.
7
4. LOAN PORTFOLIO
Information about the Bank's loan portfolio and allowance for loan losses
is presented below as of and for the periods indicated:
December 31, 2001 June 30,2001
------------------------- -------------------------
(Dollars in thousands) Percentage of Percentage of
Amount Total Amount Total
- -------------------------------------------------------------------------------------------------------------------------
Mortgage loans:
Single-family residential $ 178,439 40.15 % $ 198,310 43.17 %
Commercial real estate and multi-family residential 136,497 30.71 128,613 28.00
Construction 22,287 5.01 27,724 6.04
Home Equity 77,694 17.48 75,060 16.34
------------------------- -------------------------
Total mortgage loans $ 414,917 93.35 $ 429,707 93.55
------------------------- -------------------------
------------------------- -------------------------
Consumer loans 9,850 2.22 9,688 2.11
Commercial business loans 19,679 4.43 19,925 4.34
------------------------- -------------------------
Total loans receivable $ 444,446 100.00 % $ 459,320 100.00 %
========== ====== ========== ======
Allowance for loan losses (4,416) (4,313)
Deferred net loan origination fees (868) (808)
------------ ------------
Loans receivable, net $ 439,162 $ 454,199
========== ==========
For the Six Months Ended
December 31,
----------------------------------
2001 2000
- ---------------------------------------------------------------------------------------------
( Dollars in Thousands)
Balance at the beginning of period $ 4,313 $ 3,905
------------ ---------
Plus: Provisions for loan losses 994 4,476
Less Charge-offs for:
Mortgage loans 11 4
Consumer loans 155 51
Commercial business loans 769 -
------------ ---------
Total charge-offs 935 55
Plus: Recoveries 44 1
------------ ---------
Balance at the end of the period $ 4,416 $ 8,327
======== ========
8
5. SECURITIES
The amortized cost of available-for-sale securities and their estimated
fair values at December 31, 2001 and June 30, 2001 area as follows:
December 31, 2001
----------------------------------------------------------------
Amortized Unrealized Unrealized Estimated
(DOLLARS IN THOUSANDS) Cost Gains Losses Fair Value
- ----------------------
Equity securities $ 7,871 $ 12 $ (33) $ 7,850
US government and government 42,760 490 (79) 43,171
agency securities
Mortgage backed securities:
FNMA 33,190 241 (83) 33,348
GNMA 32,568 173 (67) 32,674
FHLMC 14,896 100 (194) 14,802
Municipal securities 7,156 2 (132) 7,026
----------------------------------------------------------------
Total $ 138,441 $ 1,018 $ (588) $ 138,871
================================================================
June 30, 2001
----------------------------------------------------------------
Amortized Unrealized Unrealized Estimated
(DOLLARS IN THOUSANDS) Cost Gains Losses Fair Value
- ----------------------
Equity securities $ 7,876 $ - $ (38) $ 7,838
US government and government 43,722 391 (315) 43,798
agency securities
Mortgage backed securities:
FNMA 22,002 61 (124) 21,939
GNMA 39,131 176 (220) 39,087
FHLMC 14,772 107 (71) 14,808
Municipal securities 2,903 6 (21) 2,888
----------------------------------------------------------------
Total $ 130,406 $ 741 $ (789) $ 130,358
================================================================
6. RECENT ACCOUNTING PRONOUNCEMENTS
Business Combinations
In June 2001, the FASB issued Statement No. 141, "Business Combinations." The
Statement addresses financial accounting and reporting for business combinations
and supersedes APB Opinion No. 16, Business Combinations, and FASB Statement No.
38, Accounting for Preacquisition Contingencies of Purchased Enterprises. All
business combinations in the scope of the Statement are to be accounted for
using the purchase method.
The provisions of the Statement apply to all business combinations initiated
after June 30, 2001. The Statement also applies to all business combinations
accounted for using the purchase method for which the date of acquisition is
July 1, 2001, or later. There was no impact on earnings, financial condition, or
equity upon adoption of Statement No. 141.
9
Goodwill and Other Intangible Assets
In June 2001, the FASB issued Statement No. 142, "Goodwill and Other Intangible
Assets" ("SFAS No. 142"). SFAS No. 142 addresses financial accounting and
reporting for acquired goodwill and other intangible assets and supersedes APB
Opinion No. 17, "Intangible Assets". It addresses how intangible assets that are
acquired individually or with a group of other assets (but not those acquired in
a business combination) should be accounted for in financial statements upon
their acquisition. SFAS No. 142 also addresses how goodwill and other intangible
assets should be accounted for after they have been initially recognized in the
financial statements.
The provisions of the SFAS No. 142 are required to be applied starting with
fiscal years beginning after December 15, 2001, except that goodwill and
intangible assets acquired after June 30, 2001, will be subject immediately to
the non-amortization and amortization provisions of the SFAS No. 142. Early
application is permitted for entities with fiscal years beginning after March
15, 2001, provided that the first interim financial statements have not
previously been issued. SFAS No. 142 is required to be applied at the beginning
of an entity's fiscal year and to be applied to all goodwill and other
intangible assets recognized in its financial statements at that date. The
Company adopted SFAS No. 142 on July 1, 2001. There was no material impact on
the Company's earnings, financial condition or equity upon adoption.
Asset Retirement Obligations -
In June 2001, the FASB issued Statement No. 143, "Accounting for Asset
Retirement Obligations." This Statement addresses financial accounting and
reporting for obligations associated with the retirement of tangible long-lived
assets and the associated asset retirement costs. It applies to legal
obligations associated with the retirement of long-lived assets that result from
the acquisition, construction, development and (or) the normal operation of a
long-lived asset, except for certain obligations of lessees. As used in this
Statement, a legal obligation is an obligation that a party is required to
settle as a result of an existing or enacted law, statute, ordinance, or written
or oral contract or by legal construction of a contract under the doctrine of
promissory estoppel. This Statement requires that the fair value of a liability
for an asset retirement obligation be recognized in the period in which it is
incurred if a reasonable estimate of fair value can be made. The associated
asset retirement costs are capitalized as part of the carrying amount of the
long-lived asset.
This Statement amends FASB Statement No. 19, Financial Accounting and Reporting
by Oil and Gas Producing Companies, and it applies to all entities. It is
effective for financial statements issued for fiscal years beginning after June
15, 2002. Earlier application is encouraged. The Bank does not expect the
adoption of the Statement to have an impact on it's earnings, financial
condition, or equity.
Impairment or Disposal of Long-Lived Assets
In August 2001, the FASB issued Statement No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets." This Statement addresses financial
accounting and reporting for the impairment or disposal of long-lived assets and
supersedes SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets to Be Disposed Of. However, the Statement retains the
fundamental provisions of Statement 121 for (a) recognition and measurement of
the impairment of long-lived assets to be held and used and (b) measurement of
long-lived assets to be disposed of by sale.
This Statement supersedes the accounting and reporting provisions of APB Opinion
No. 30, Reporting the Results of Operations-Reporting the Effects of Disposal of
a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring
Events and Transactions, for the disposal of a segment of a business. However,
this Statement retains the requirement of Opinion 30 to report discontinued
operations separately from continuing operations and extends that reporting to a
component of an entity that either has been disposed of (by sale, by
abandonment, or in distribution to owners) or is classified as held for sale.
This Statement also amends ARB No. 51, Consolidated Financial Statements, to
eliminate the exception to consolidation for a temporarily controlled
subsidiary.
The provisions of this Statement are effective for financial statements issued
for fiscal years beginning after December 15, 2001, and interim periods within
those fiscal years, with earlier application encouraged. The
10
provisions of this Statement generally are to be applied prospectively. The Bank
does not expect the adoption of the Statement to have an impact on it's
earnings, financial condition, or equity.
7. COMPREHENSIVE INCOME
The following table displays net income and the components of other
comprehensive income to arrive at total comprehensive income. 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,
- --------------------------------------------------------------------------------------------------------
2001 2000 2001 2000
- --------------------------------------------------------------------------------------------------------
Comprehensive income:
Net income (loss) $ 1,252 $ (1,388) $ 2,492 $ (147)
Other comprehensive income net of tax
Less: reclassification adjustments 296 143 346 162
Net change in unrealized gain (loss) (2,010) 1,223 (46) 1,864
- --------------------------------------------------------------------------------------------------------
Comprehensive income (loss): $ (462) $ (22) $ 2,792 $ 1,879
- --------------------------------------------------------------------------------------------------------
8. DIVIDENDS
On July 24, 2001 and October 23, 2001, the Company declared dividends on
its common stock of $0.12 and $0.13 per share, respectively, payable on August
17, 2001 and November 20, 2001 respectively, to owners of record on August 3,
2001 and November 9, 2001, respectively. The MHC, which owns 2,812,974 shares of
common stock, waived its portion of this dividend, reducing the actual dividend
payout amount attributable to their dividends to $493,000. 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, 2001, the
cumulative amount of dividends waived by the MHC was $3.2 million. Additionally,
on January 22, 2002, the Company's Board of Directors declared a $.13 per share
cash dividend payable February 15, 2002 to shareholders of record on February 1,
2002.
9. SUBSEQUENT EVENT
On September 7, 2001, the Boards of Directors of the Company, the Bank and
the MHC adopted a Plan of Conversion and Agreement and Plan of Reorganization
("Plan") which would reorganize the current corporate structure from a two-tier
mutual holding company into a stock holding company, followed by the issuance of
all the Bank's outstanding stock to a newly formed holding company, Willow Grove
Bancorp, Inc. Pursuant to the Plan, as amended, Willow Grove Bancorp, Inc. will
offer for sale between 4,122,500 and 6,414,125 common shares at $10.00 per share
to the Bank's depositors, members of the community, current stockholders of the
Company and the Bank's Employee Stock Ownership Plan ("ESOP"). The Plan further
provides for the issuance by Willow Grove Bancorp, Inc. of an amount of common
shares upon the completion of the offering ranging between 3,118,082 shares and
4,851,369 shares in exchange for current shares of the Company. The costs of
issuing the common stock will be deferred and deducted from the sale proceeds of
the offering. If the conversion is unsuccessful, all deferred costs will be
charged to operations. Through September 30, 2001, the Bank had incurred $56,000
of deferred conversion costs. The transaction is subject to approval by
regulatory authorities and members of the Bank and shareholders of the Company.
At the completion of the conversion and reorganization, the Bank will establish
a liquidation account in the amount equal to the greater of (1) the Bank's
retained earnings of $35.9 million at June 30, 1998, the date of the final
offering circular utilized in the mutual holding company reorganization or (2)
56.9% of retained earnings contained in the final offering circular. The
liquidation account will be maintained for the benefit of eligible account
holders and supplemental eligible account holders who maintain deposit accounts
in the Bank after conversion.
In the event of a complete liquidation (and only in such event), each eligible
account holder and supplemental eligible account holder will be entitled to
receive a liquidation distribution from the liquidation account in the amount of
the then current adjusted balance of deposit accounts held, before any
liquidation distribution may be made with respect to common stock. Except for
the repurchase of stock and payment of dividends by the Bank, the
11
existence of the liquidation account will not restrict the use or application of
such retained earnings.
The Bank may not declare, pay a cash dividend on, or repurchase any of its
common stock, if the effect thereof would cause retained earnings to be reduced
below either the amount required for the liquidation account or the regulatory
capital requirements of SAIF insured institutions.
12
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 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.
RESULTS OF OPERATIONS
GENERAL - The Company reported net income of $1.3 million for the three
months ended December 31, 2001. This compares to a net loss of $1.4 million for
the three months ended December 31, 2000. Net income for the six months ended
December 31, 2001 was $2.5 million compared to a net loss of $147,000 for the
comparable six months ended December 31, 2000. The Company's results for the
quarter ended December 31, 2001 included a charge-off of $546,000 related to a
non-performing commercial business loan which first became impaired in the
fourth quarter of 2000. The results for the quarter ended December 30, 2000,
included a $4.2 million charge-off with respect to such loan. Excluding such
charge-offs and realized gains on securities sales, net income would have been
$1.5 million for the quarter ended December 31, 2001 compared to $1.2 million
for the quarter ended December 31, 2000. The Company's net interest margin
increased nine basis points to 3.49% for the three months ended December 31,
2001 from 3.40% for the three months ended December 31, 2000. The net interest
margin for the six-month periods ended December 31, 2001 and 2000 was 3.50%. The
return on average assets for the three-month and six-month periods ended
December 31, 2001 and 2000 are 0.78%, 0.78% and (0.95%), (0.05%), respectively.
The return on average equity for the same periods are 7.95%, 7.96% and (9.55%),
(0.46%), respectively.
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.
Net interest income for the three-month and six-month periods ended
December 31, 2001 was $5.5 million and $11.0 million, respectively. This
compares to $4.9 million and $10.0 million in net interest income for the
respective prior year periods. For the three-month and six-month periods ended
December 31, 2001, net interest income grew $556,000 or 11.3% and $966,000 or
9.7%, respectively, over the prior comparable three-month and six-month periods.
These increases were primarily a result of the combination of increased balances
on average interest-earning assets and a reduction in interest rates paid on
average interest-bearing liabilities which more than offset a reduction in
average interest rates earned on interest-earning assets. For the three-month
and six-month periods ended December 31, 2001 the Company's interest rate spread
increased 35 basis points and 22 basis points to 2.81% and 2.80%, respectively,
compared to 2.46% and 2.58% for the respective three-month and six-month periods
ending December 31, 2000.
Average interest-earning assets increased $49.4 million and $54.3
million, or 8.6% and 9.6%, respectively, for the three-month and six-month
periods ended December 31, 2001 compared to the respective prior year periods.
Average interest-bearing liabilities for the three-month and six-month periods
ended December 31, 2001 increased on average $50.3 million and $55.2 million, or
10.7% and 11.9%, respectively, over the comparable prior periods. The ratio of
average interest-earning assets to average interest-bearing liabilities declined
to 119.65% and 119.42%, respectively, for the three-month and six-month periods
ended December 31, 2001 compared to an average 121.95% and 121.91%,
respectively, for the corresponding three-month and six-month periods ended
December 31, 2000. The Company's net interest margin increased nine basis points
to 3.49% for the three months ended December 31, 2001 from 3.40% for the three
months ended December 31, 2000. The increase in net interest margin was a result
of the
13
increase in net interest income more than offsetting a decline in the ratio of
average interest-earning assets to average interest-bearing liabilities.
However, for both the six-month periods ended December 31, 2001 and 2000 and the
net interest margin was 3.50% due largely to the impact of a reduction in the
ratio of average interest-earning assets to average interest-bearing liabilities
which offset a reduction in interest rates paid on average interest-bearing
liabilities.
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 period ended December
31, 2001 and 2000. The Company maintained average balances of tax-exempt
securities of $6.1 million and $2.6 million for the three-month periods ending
December 31, 2001 and 2000, 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) 2001 2000
- -------------------------------------- ----------------------------------- --------------------------------------
Average Average Average Average
BALANCE INTEREST YIELD/COST BALANCE INTEREST YIELD/COST
Interest-earning assets:
Loans receivable:
Mortgage loans $ 430,828 $ 8,395 7.76 % $ 409,446 $ 8,302 8.11 %
Consumer loans 9,990 136 5.40 8,808 152 6.85
Commercial business loans 20,770 375 7.16 25,379 529 8.27
------------------------ -------------------------
Total loans 461,588 8,906 7.68 443,633 8,983 8.03
Securities 140,180 2,008 5.77 120,490 2,070 6.82
Other interest-earning assets 21,689 100 1.83 9,951 61 2.43
------------------------ -------------------------
Total interest-earning assets 623,457 11,014 7.03 574,074 11,114 7.68
Noninterest-earning assets 15,590 12,502
------------ ------------
Total assets $ 639,047 $ 586,576
============ ============
Interest-bearing liabilities:
Deposits:
NOW and money market accounts $ 73,413 $ 302 1.63 % $ 60,668 $ 384 2.51 %
Savings accounts 62,398 324 2.06 51,692 269 2.06
Certificates of deposit 318,181 3,952 4.93 291,890 4,464 6.07
------------------------ -------------------------
Total deposits 453,992 4,578 4.00 404,250 5,117 5.02
Total borrowings 65,044 955 5.83 64,259 1,072 6.62
Total escrows 2,024 3 0.59 2,222 3 0.54
------------------------ -------------------------
Total interest-bearing liabilities 521,060 5,536 4.22 470,731 6,192 5.22
Non-interest-bearing liabilities 55,274 50,913
------------ ------------
Total liabilities 576,334 521,644
Total equity 62,713 64,932
------------ ------------
Total liabilities and equity $ 639,047 $ 586,576
============ ============
Net interest-earning assets $ 102,397 $ 103,343
============ ============
Net interest income/interest rate spread $ 5,478 2.81 % $ 4,922 2.46 %
===================== =====================
Net interest margin 3.49% 3.40%
========= =========
Ratio of average interest-earning assets
to average interest-bearing liabilities 119.65% 121.95%
========= =========
14
Six Months Ended December 31,
- -------------------------------------------------------------------------------------------------------------------
(Dollars in thousands) 2001 2000
- ------------------------------------------------- ---------------------------- ------------------------------
Average Average
Average Yield/ Average Yield/
BALANCE INTEREST COST BALANCE INTEREST COST
Interest-earning assets:
Loans receivable:
Mortgage loans $ 433,274 $ 17,082 7.85 % $ 410,333 $ 16,565 8.07 %
Consumer loans 9,978 272 5.41 8,516 299 6.96
Commercial business loans 20,337 820 8.00 25,055 1,177 9.32
------------------- -------------------
Total loans 463,589 18,174 7.80 443,904 18,041 8.06
Securities 137,761 4,150 5.98 113,563 3,837 6.70
Other interest-earning assets 19,387 208 2.13 8,968 116 2.57
------------------- -------------------
Total interest-earning assets 620,737 22,532 7.22 566,435 21,994 7.70
--------- ---------
Non-interest-earning assets 15,526 12,290
---------- ----------
Total assets $ 636,263 $ 578,725
========== ==========
Interest-bearing liabilities:
Deposits:
NOW and money market accounts $ 71,828 $ 662 1.83 % $ 59,935 $ 727 2.41 %
Savings accounts 61,034 634 2.06 52,100 540 2.06
Certificates of deposit 319,635 8,365 5.19 292,100 8,794 5.97
------------------- -------------------
Total deposits 452,497 9,661 4.24 404,135 10,061 4.94
Total borrowings 64,850 1,903 5.82 57,539 1,930 6.65
Total escrows 2,456 7 0.57 2,948 8 0.54
------------------- -------------------
Total interest-bearing liabilities 519,803 11,571 4.42 464,622 11,999 5.12
--------- ---------
Non-interest-bearing liabilities 54,266 49,569
--------- ----------
Total liabilities 574,069 514,191
Total equity 62,194 64,534
--------- ----------
Total liabilities and equity $ 636,263 $ 578,725
========== ==========
Net interest-earning assets $ 100,934 $ 101,813
========== ==========
Net interest income/interest rate spread $ 10,961 2.80 % $ 9,995 2.58 %
========= ===== ======== =====
Net interest margin 3.50% 3.50%
===== =====
Ratio of average interest-earning assets
to average interest-bearing liabilities 119.42% 121.91%
======= =======
15
INTEREST INCOME - Interest income on loans decreased $77,000, or 0.9% for
the three-month period ended December 31, 2001 compared to the three-month
period ended December 31, 2000. Interest income on loans increased $133,000, or
0.7% for the six-month period ended December 31, 2001 compared to the six-month
period ended December 31, 2000. An overall increase in average balance of loans
was more than offset by an overall decrease in average rates earned for the
three-month period ended December 31, 2001 compared to the three-month period
December 31, 2000. However, an increase in the average balance of loans offset
an overall decrease in average rates earned for the six-month period ended
December 31, 2001 compared to the six-month period ended December 31, 2000.
Interest income on securities decreased $23,000, or 1.1% for the three-month
period ended December 31, 2001 compared to the three-month period ended December
31, 2000. Interest income on securities increased $405,000, or 10.3% for the
six-month period ended December 31, 2001 compared to the six-month period ended
December 31, 2000, and overall increase in the average balance of securities was
offset by an overall decrease in average rates earned for the three-month period
ended December 31, 2001 compared to the three-month period December 31, 2000.
However, an increase in average balances of securities were able to offset
overall decreases in average rates earned for the six-month period ended
December 31, 2001 compared to the six-month period ended December 31, 2000.
INTEREST EXPENSE - Interest expense on deposit accounts decreased $539,000
and $400,000, or 10.5% and 4.0%, respectively, for the three-month and six-month
periods ended December 31, 2001 compared to the similar prior year periods. The
increase in average balances on deposits was more than offset by the decrease in
average rates on deposits and were primarily responsible for the overall
decreases in interest expense. Similarly, interest expense on borrowings
decreased $117,000 and $27,000, or 10.9% and 1.4%, respectively, for the
three-month and six-month periods ended December 31, 2001 compared to the
similar prior year periods. The increase in average balances on borrowings was
more than offset by the decrease in average borrowing rates and was primarily
responsible for the overall decrease in interest expense.
PROVISION FOR LOAN LOSSES - The Company's provision for loan loss for the
three months and six months ended December 31, 2001 was $620,000 and $994,000,
respectively. This compares to $4.4 million and $4.5 million, respectively, for
the corresponding prior year period. The provisions for loan losses during the
three months and six months ended December 31, 2000 were due primarily to a $4.2
million charge-off of the carrying value of one commercial business loan. During
the three months ended December 31, 2001, the Company charged-off the remaining
carrying value of $546,000 with respect to this loan as the result of a new
appraisal received with respect to the real property securing this loan. The new
appraisal, which was received in anticipation of a sale of the property by the
trustee in bankruptcy, indicated that, due to current economic conditions as
well as an expected prolonged bankruptcy proceeding, the property's value had
declined significantly from the prior appraisal obtained by the Company in 1999.
During the quarter ended December 31, 2001, the Company also charged-off the
remaining carrying value of $112,000 of another commercial business loan to a
local construction company. Such charge-offs during the three months ended
December 31, 2001 were partially offset by a $44,000 recovery on a previously
charged-off commercial business loan. The Company's allowance for loan loss as a
percentage of its loan portfolio increased to 1.00% at December 31, 2001
compared to 0.91% at June 30, 2001. The provisions for loan losses are based
primarily upon the Company's regular review of credit quality and is based upon,
but not limited to, the following factors: an evaluation of the portfolio, loss
experience, current economic conditions, volume, growth and composition of the
portfolio. Management believes, to the best of its knowledge, that the Company's
allowance covers all known and inherent losses in the portfolio that are both
probable and reasonably estimable at December 31, 2001, 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 potential increases in the amount of the Company's
non-performing loans in the remainder of the Company's loan portfolio.
NON-INTEREST INCOME - Non-interest income increased $337,000, or 54.5% for
the three-month period ended December 31, 2001 compared $618,000 for the similar
prior year period. Non-interest income increased $532,000, or 56.1% to $1.5
million for the six-month period ended December 31, 2001 compared $962,000 for
the similar prior year period. The increases were primarily a result of the
Company taking advantage of market opportunities to realize gains upon the sale
of loans and securities as well as increases in general service fees and
charges.
NON-INTEREST EXPENSE - Non-interest expense increased $555,000 or 16.4% to
$3.9 million for the three-month period ended December 31, 2001 compared to $3.4
million for the three-month period ended December 31, 2000. Non-interest expense
increased $970,000 or 14.4% to $7.7 million for the six-month period ended
December 31, 2001 compared to $7.7 million for the six-month period ended
December 31, 2000. Compensation and employee benefits expense increased $286,000
and $427,000, or 14.3% and 10.7%, respectively for the three-month
16
and six-month periods ended December 31, 2001 compared to the similar period in
the prior year. These increases were primarily a result of general increases in
compensation and benefits and costs associated with the operation of our twelfth
banking office in May 2001 in Southampton, Bucks County. Occupancy costs
increased $107,000 and $197,000, or 25.0% and 23.0%, respectively for the
three-month and six-month periods ended December 31, 2001 compared to the
similar period in the prior year. These increases were primarily a result of
costs associated with the opening of our twelfth banking office combined with a
reduction on depreciable life to three years from four years with respect to
technology related assets. Additionally, other increased costs included
corporate advertising partially related to the implementation of our Online
Banking product and other expense which was primarily the result of general
expenses associated with deposit and loan servicing.
INCOME TAX EXPENSE - The provision for income taxes for the three-month and
six-month periods ended December 31, 2001 were $626,000 and $1.2 million,
respectively. This compares to a tax benefit of $821,000 and $124,000 for the
similar prior year three-month and six-month periods. The increase in provision
for taxes for the three-month and six-month periods ended December 31, 20001
primarily relates to an increase in pre-tax income. The computed effective tax
rate for the three-month and six-month periods ended December 31, 2001 was
33.3%.
CHANGES IN FINANCIAL CONDITION
GENERAL. Total assets of the Company increased by $18.5 million or 3.0% to
$643.7 million at December 31, 2001 compared to $625.1 million at June 30, 2001.
The increase in assets resulted from cash increasing $22.6 million primarily as
a result of accelerated prepayments on loans and mortgage-backed securities
combined with continued deposit growth. Net loans declined $15.0 million or 3.3%
from $454.2 million to $439.2 million due primarily to a decrease in the
single-family residential mortgage loan portfolio. Specifically, commercial real
estate and multi-family real estate loans increased $7.9 million or 6.1%, home
equity loans increased $2.6 million or 3.5% and other consumer loans increased
$162,000 or 1.7% while single-family residential decreased $19.9 million or
10.0%, construction and commercial business loans decreased by $5.4 million or
19.6%, and $246,000 or 1.2%, respectively, in the six months ended December 31,
2001. Total liabilities amounted to $580.8 million at December 31, 2001, an
increase of 2.8% from June 30, 2001. Deposits increased $12.1 million or 2.4% to
$509.1 million, with core deposits increasing $20.6 million or 11.7%, while
borrowings increased $4.8 million or 8.1% from June 30, 2001. Total
stockholders' equity increased $2.5 million to $62.9 million at December 31,
2001. The change in stockholders' equity was primarily the result of net income
for the six months ended December 31, 2001.
CASH AND CASH EQUIVALENTS. Cash and cash equivalents amounted to $44.8
million and $22.2 million at December 31, 2001 and June 30, 2001, respectively.
Cash and cash equivalents increased during the period as a result of increased
cash flows from loans and mortgage-backed securities and increased deposit
balances.
ASSETS AVAILABLE OR HELD FOR SALE. At December 31, 2001, securities
classified AFS and loans classified held-for-sale amounted to $138.9 million and
$4.5 million, respectively. This compares to $130.4 million in available for
sale securities and $2.6 million in held-for-sale loans at June 30, 2001. The
increase of $8.5 million, or 6.5%, in available for sale securities was part of
the Company's investment strategies to increase profitability. At December 31,
2001, the Company had unrealized gains on available for sale securities of
$430,000 net of unrealized losses, compared to unrealized losses on available
for sale securities of $48,000 at June 30, 2001. The increase in unrealized
gains is a result of decline in the general level of interest rates. The
increase in held-for-sale loans at December 31, 2001 of $2.4 million or 89.2%
represents the Company's continued activity in the secondary market for
residential mortgage loans in order to position the Company to realize gains
upon the sale of loans.
LOANS. The net loan portfolio of the Company declined $15.0 million, or
3.3%, from $454.2 million at June 30, 2001 to $439.2 million at December 31,
2001. The decrease in the Company's net loan portfolio was due, in large part,
to a decrease in the single-family residential mortgage loan portfolio
During the six-months ended December 31, 2001, the Company's commercial
real estate and multi-family real estate loans increased $7.9 million or 6.1%,
home equity loans increased $2.6 million or 3.5% and other consumer loans
increased $162,000 or 1.7% while single-family residential decreased $19.9
million or 10.0%, construction and commercial business loans decreased by $5.4
million or 19.6%, and $246,000 or 1.2%, respectively. Generally, changes in the
mix of 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
17
generally are deemed to have increased credit risk characteristics in comparison
to single-family residential mortgage loans.
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,
2001 2001
--------------------------------------
(Dollars in Thousands)
Accruing loans past due 90 days or more:
Real estate $ 226 $ 42
Commercial business loans - -
Other - 49
---------------- ---------------
Total 226 91
---------------- ---------------
Non-accrual loans:
Mortgage loans
Single-family residential 1,669 1,485
Commercial real estate and multi-family residential 723 675
Construction - -
Home Equity 360 278
Consumer loans 30 151
Commercial business loans 93 966
---------------- ---------------
----------------
Total 2,875 3,555
---------------- ---------------
Performing troubled debt restructurings 1,696 1,535
---------------- ---------------
Total non-performing loans 4,797 5,181
Other real estate owned, net 19 -
---------------- ---------------
Total non-performing assets $ 4,816 $ 5,181
================ ===============
Non-performing loans to total loans, net of deferred fees 1.08% 1.13%
Non-performing assets to total assets 0.75% 0.83%
Total non-performing assets decreased $365,000 at December 31, 2001
compared to June 30, 2001. The decrease was primarily related to a reduction in
non-performing commercial business and consumer loans partially offset by
increases in single-family residential, home equity and multi-family and
nonresidential loans.
INTANGIBLE ASSETS. Intangible assets include a core deposit intangible and
unidentified intangible asset, which represent the excess cost over fair value
of assets acquired over liabilities assumed. The core deposit intangible and
unidentified intangible asset are being amortized to expense over an accelerated
twelve-year life and straight line ten-year life, respectfully. The carrying
amount of intangible assets at December 31, 2001 and at June 30, 2001 was $1.2
million and $1.3 million, respectively, and was net of amortization of $2.9
million and $2.8 million, respectively.
DEPOSITS. The Company's total deposits increased by $12.1 million, or 2.4%
to $509.1 million at December 31, 2001 compared to $497.0 million at June 30,
2001. This increase occurred despite the Company being located in a highly
competitive market for deposits. Savings accounts increased $7.1 million or
12.1%, checking and money market accounts increased $13.5 million or 11.5% and
certificates of deposit decreased $8.5 million or 2.6%. The Company intends to
continue its marketing efforts promoting core deposits in its efforts to help
fund asset growth.
FEDERAL HOME LOAN BANK ADVANCES. The Company utilizes advances from the
Federal Home Loan Bank of Pittsburgh ("FHLB") primarily as an additional source
of funds to meet loan demand. FHLB advances increased $4.8 million or 8.1% to
$64.7 million at December 31, 2001 compared to $59.9 million at June 30, 2001.
The Company also uses FHLB advances to fund certain investment strategies
approved by our Board of Directors.
EQUITY. Total stockholders' equity of the Company amounted to $62.9
million, or 9.8%, of assets at
18
December 31, 2001 compared to $60.4 million or 9.7% of total assets at June 30,
2001, an increase of $2.5 million, or 4.2%. Changes in stockholders' equity
reflect year-to-date net income of $2.5 million, as well as an increase of
$300,000 in accumulated other comprehensive income, primarily as a result of the
increase in the value of the available for sale portfolio due to a decline in
interest rates. Total stockholders' equity of the Company included net
unrealized gains (losses), net of taxes, of $271,000 and ($29,000) on available
for sale securities at December 31, 2001 and June 30, 2001, respectively. The
Company paid a cash dividend of $0.13 and $0.12 per share during the quarter
ended December 31, 2001 and September 30, 2001, respectively. These regular
dividends totaled $493,000. No shares were repurchased during the six-month
period ended December 31, 2001.
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, 2001, the total approved investment and loan origination
commitments outstanding amounted to $23.7 million. Certificates of deposit
scheduled to mature in one year or less at December 31, 2001 totaled $224.7
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 $374.4 million, as of September 30,
2001, based on qualifying collateral. The Company is required to maintain
sufficient liquidity to ensure its safe and sound operation. The Company
anticipates that it will continue to have sufficient funds, together with
borrowings, to meet its current commitments. .........
19
CAPITAL
At December 31, 2001, 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:
Required to Be Well Capitalized
Required for Capital under Prompt
Actual Capital Adequacy Purposes Corrective Action Provision
--------------------- ---------------------- -------------------------------
(DOLLARS IN THOUSANDS) Amount Ratio Amount Ratio Amount Ratio
---------------------- --------------------- ---------------------- -------------------------------
AS OF DECEMBER 31, 2001
Tangible capital $ 53,215 8.3% $ 9,645 1.5% $ 12,860 2.0%
(to tangible assets)
Core capital 53,215 8.3% 25,661 4.0% 32,077 5.0%
(to adjusted tangible assets)
Tier I capital 53,215 14.2% N/A N/A 22,554 6.0%
(to risk-weighted assets)
Risk-based capital 57,631 15.3% 30,072 8.0% 37,590 10.0%
(to risk-weighted assets)
AS OF JUNE 30, 2001
Tangible capital $ 51,428 8.3% $ 9,370 1.5% $ 12,495 2.0%
(to tangible assets)
Core capital 51,428 8.3% 24,938 4.0% 31,172 5.0%
(to adjusted tangible assets)
Tier I capital 51,428 13.8% N/A N/A 22,305 6.0%
(to risk-weighted assets)
Risk-based capital 55,741 15.0% 29,740 8.0% 37,175 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 to stockholders for the year ended June 30, 2001. 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,
2001.
20
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Not applicable.
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 8, 2001 ("Annual Meeting").
b. Not applicable.
c. There were 4,937,387 shares of common stock of the Company
eligible to be voted at the Annual Meeting and 4,715,328 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
------------- ----------
Frederick A. Marcell Jr. 4,573,052 142,276
William B. Weihenmayer 4,589,048 126,280
2. Proposal to ratify the appointment of KPMG LLP, as the
Company's independent auditors for the year ending June
30, 2002.
FOR AGAINST ABSTAIN
--------- --------- --------
4,705,869 6,742 2,717
Each of the proposals was adopted by the stockholders of
the Company.
d. Not applicable.
ITEM 5. OTHER INFORMATION
Not applicable.
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.*
21
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**
10.7 Incentive Compensation Plan***
- -------------
* Incorporated by reference from the Company's Registration Statement on
Form S-1, 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).
*** Incorporated by reference from the Company's Annual Report on Form 10-K
for the year ended June 30, 2001.
(b) A Current Report on Form 8-K was filed by the Company on September 10,
2001 with respect to the Company's press release announcing the
Adoption of Plan of Conversion and Agreement and Plan of
Reorganization.
A Current Report on Form 8-K was filed by the Company on July 26, 2001
with respect to the Company's press release announcing earnings results
for the period ended June 30, 2001.
22
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, 2002 By: /s/ Frederick a Marcell Jr.
-------------------------------------
Frederick A. Marcell Jr.
President and Chief Executive Officer
Date: February 14, 2002 By: /s/ Christopher E. Bell
-------------------------------------
Christopher E. Bell
Senior Vice President and Chief
Financial Officer
23