Exhibit 13.0 - 2000 Annual Report to Stockholders
<PAGE>
COVER:
HEADLINE at top: "What a bank should be..."
First strip montage of photos:
(1) Young couple celebrating sale of house.
(2) Strip mall in Willow Grove, PA
(3) College graduate
Second strip montage of photos:
(1) Two children playing baseball
(2) Line of people at ATM cash machine
(3) Hand writing check
Third strip montage of photos:
(1) Elderly couple enjoying beach
(2) Construction of new house
(3) Young woman buying automobile
Willow Grove logo (Willow Grove Bancorp. Inc.)
followed by
HEADLINE: "Annual Report 2000"
<PAGE>
INSIDEFRONTCOVER:
Ghosted photo of front of Willow Grove Bank branch
Mission Statement, which reads as follows:
"Our Mission
o To recognize and respond to the financial needs of every customer with
innovative, quality products and services delivered in an atmosphere of trust,
respect, courtesy and helpfulness that exceeds their highest expectations of
personalized service and contributes to the total financial well-being and
improvement of their quality of life.
o To nurture our outstanding reputation as a leader in the preservation and
enrichment of our communities by investing our time and financial support
through civic and charitable initiatives that demonstrate our commitment to
stewardship and goodwill.
o To dedicate ourselves to maintaining our independence through knowledgeable,
experienced management; timely, accurate and prudent loan practices, and fiscal
responsibility that will insure maximum profits and reward our investors with
increased shareholder value.
o To continue to employ and train highly qualified members of our communities,
and provide a superior work environment with competitive compensation and
benefits while continually recognizing the importance of mutual respect and the
value of each individual's contribution to our organization."
Table of Contents, which reads as follows:
Contents
1 Financial Highlights
2 Letter to the Shareholders
4 Investing in Our Community
5 Selected Financial and Other Information
6 Management's Discussion and Analysis of Financial Condition and
Results of Operations
19 Independent Auditor's Report
20 Financial Statements
44 Executive Officers and Directors
45 Corporate Information
<PAGE>
FINANCIAL HIGHLIGHTS (p. 1)
HEADLINE: "Financial Highlights"
Beneath are three graphs side by side:
(1) Asset Growth
1996- 312.2
1997- 354.7
1998- 405.4
1999- 472.0
2000- 560.1
(2) Loan Growth
1996- 246.8
1997- 287.8
1998- 319.5
1999- 378.5
2000- 429.5
(3) Deposit Growth
1996- 267.7
1997- 309.7
1998- 340.8
1999- 390.7
2000- 452.9
Below these three graphs appears the following table:
At June 30,
1996 1997 1998 1999 2000
----------------------------------------------------
(Dollars in thousands)
Total assets $312,236 $354,679 $405,374 $472,039 $560,123
Loans receivable, net 243,310 284,596 315,705 374,584 424,940
Deposits 267,695 309,729 340,793 390,681 452,857
Total equity 30,374 33,122 35,945 58,442 60,643
Net income 3,002 2,375 2,445 3,633 4,843
<PAGE>
President's Letter (p.2-3)
Across the top of the page appears a photomontage:
(1) Young mother with child
(2) Two boys playing baseball
(3) People at ATM cash machine
(4) Hand writing check
(5) Two business men with cellphone and laptop
(6) Young couple selling house
(7) Willow Grove strip mall
(8) College graduate
HEADLINE: "The Willow Grove Touch..."
SUBHEAD: "President's Letter to Our Shareholders"
The text of the letter, which reads as follows:
For more than 90 years, Willow Grove Bank has meant more than money saved,
money loaned, money earned. It is more than the latest technology, new and
innovative financial programs, thoughtful competitive banking strategies, and
aggressive growth. Yes, it is all of those things, but it is also much more.
It's new homes purchased - children educated - seniors financially secure -
businesses made more successful.
The Willow Grove Touch means human beings who take a personal interest in
the growth and stability of our friends, neighbors and customers. It means being
a financial institution that is essential to the development of our communities
through our professionalism and personal interaction with our customers. Most
important, we are not an out-of-town bank, headquartered hundreds of miles away.
We are locally founded and remain dedicated to enhancing the quality of hometown
life.
Long-standing community roots are an integral part of the Willow Grove Bank
story. We have always endeavored to be an active member of the communities in
which our banking offices are located; Eastern Montgomery, Bucks and
Philadelphia Counties. We've made a firm commitment to "giving back" over the
years with continuing charitable contributions to a diverse spectrum of local
organizations. During the past fiscal year, the Willow Grove Foundation and the
Bank's Community Enrichment Program have contributed over $300,000 in grants and
donations to more than 40 local organizations.
STRENGTH
I believe our continuing success, as reflected in new customers, added
shareholders, an expanding network of 11 banking offices, and growth in deposits
and loans, is the direct result of the dedication of our Board of Directors,
skilled managment and a team of enthusiastic, loyal employees. These efforts
enable us to continue making significant strides in strengthening our position
as a leading financial institution in our area.
In an effort to diversify our products and services, the Bank continues to
offer annuities, mutual funds and brokerage services in its portfolio of
products. Equally important are our efforts to diversify our lending practices
in home equity, consumer, business, construction and commercial loans. Willow
Grove Bancorp, Inc. is pleased to report our net earnings reached $4.8 million
in fiscal 2000, a 33.3% increase over fiscal 1999. We have exceeded all
regulatory capital requirements, currently maintaining a total capital position
of $61 million, with capital ratios that exceed protective levels mandated by
the Federal banking agencies.
INDEPENDENCE
In an era of mergers and multiple ownerships, we have positioned ourselves
in the marketplace as a distinctly independent entity. We intend to remain a
unique, community-focused institution, providing quality financial products and
services to those within our area.
EXPANSION
We continue to explore opportunities for the expansion of our customer
base in the Delaware Valley region with additional branch offices, remote ATM
locations, a broadened lending market and improvements in anywhere, anytime
access through touch-tone telephone and the Internet.
Our plans include strategic decisions that will build our community
relationships even further by the addition of products and services to meet the
changing needs of our customers. As we become your community financial
<PAGE>
services resource, these plans include additional insurance products, leasing,
small business lending and trust services.
SHAREHOLDERS
Many of our shareholders are the same people who comprise our customer
base. We value their expression of faith in our vision of the Bank's future. We,
in turn, are committed to nurturing our reputation, dedicating ourselves to
maintaining our independence, and providing a work environment which fosters
growth and opportunity. My promise is to continue to strive for excellence on
behalf of our customers, employees, and shareholders.
The letter is signed:
Frederick A. Marcell Jr.
President and CEO
PHOTO of Mr. Marcell.
At the bottom of page 2 there are two PIE CHARTS, as follows:
(1) 2000 Deposit Portfolio:
Certificates of deposit - 64.8%
Savings accounts - 11.7%
Non-interest-bearing checking - 10.0%
Interest-bearing checking - 6.9%
Money market accounts - 6.6%
(2) 2000 Loan Portfolio
Single-family mortgages - 48.0%
Commercial real estate - 18.9%
Home equity - 16.8%
Business loans - 6.0%
Multi-family mortgages - 5.0%
Construction - 3.5%
Other consumer - 1.8%
<PAGE>
PAGE 4
HEADLINE: "Investing in Our Community"
PHOTO of Willow Grove Morelanders, a youth baseball team.
Caption reads:
"At left, the Morelanders, play-off finalists from the Moreland Youth Club, show
off their new uniforms made possible by a Willow Grove Bank contribution. Ricky
Montinez, standing second from left, is Manager & Coach, and, kneeling in the
red shirt, General Manager Pat Malvoso."
PHOTO of three people holding large check.
Caption reads:
"Below, Charles F. Kremp 3rd, Chairman of Willow Grove Foundation and Bank
President Frederick A. Marcell Jr. present a Willow Grove Foundation
contribution to Lisa Ruff, Bucks Montgomery Center for Human Services."
PHOTO of four people holding large check.
Caption reads:
"Willow Grove Bank was proud to sponsor the 7th Annual Loyalty Day Parade. Above
are Anthony Canale, V.P. Board of Directors, Willow Grove VFW Home Association;
Roger Myers, parade coordinator; Frederick A. Marcell Jr., President & CEO,
Willow Grove Bank; and Com. Roland Fluck, Grand Parade Marshall."
PHOTO of four people holding large check.
Caption reads:
"At left, Willow Grove Bank sponsors C.A.P.T.'s (Citizens and Police Together)
24 Hour Relay Challenge. From left, Frederick A. Marcell Jr., Wendy McNamara,
Lt. Thomas McNamara, and Robert L. Smyrl."
PHOTO of four people holding large check.
Caption reads:
"A grant was presented to the Citizens for Restoration of Historic Lamott for
the purchase of the landmark Lamott Fire House. From left are McKinley Lennox
and Eugene Bivins III, of the preservation society; Frederick A. Marcell Jr.,
Willow Grove Bank; C. Harold Schuler, Jr., Executive Director, Willow Grove
Foundation; and Perry Triplett, director of Historic Lamott."
PHOTO of nine people holding large check.
Caption reads:
"At the presentation of funds to the Urban Family Council, left to right,
Carolyn Viss, Jill Page, Frederick A. Marcell Jr., William Devlin, Harold
Schuler, Dan Hullstrung, Danielle White. In front, Rebecca Brown and Ruth
Brown."
<PAGE>
Willow Grove Bancorp, Inc.
Selected Financial Data
<TABLE>
<CAPTION>
Selected Financial Condition Data at June 30, 2000 1999 1998 1997 1996
---------------------------------------------------------------------------------------------------------------
(Dollars in thousands except per share data)
<S> <C> <C> <C> <C> <C>
Total Assets $560,123 $472,039 $405,374 $354,679 $312,236
Cash and cash equivalents 14,681 4,889 18,291 4,204 4,282
Investment securities held to maturity -- -- -- 3,999 --
Securities available for sale 70,577 80,055 48,111 45,766 50,163
Loans available for sale 35,753 -- 12,152 6,173 5,140
Loans receivable, net 424,940 374,584 315,705 284,596 243,310
Deposits 452,857 390,681 340,793 309,729 267,695
Borrowings 37,517 14,986 21,000 6,500 10,120
Total equity 60,643 58,442 35,945 33,122 30,374
<CAPTION>
Selected Operating Data for the
Fiscal Year Ended June 30, 2000 1999 1998 1997 1996
---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Interest income $ 38,893 $ 32,015 $ 28,604 $ 25,423 $ 22,105
Interest expense 19,369 16,164 15,097 13,817 12,370
Net interest income 19,524 15,851 13,507 11,606 9,735
Provision for loan losses 706 531 993 185 210
Net interest income after provision for loan losses 18,818 15,320 12,514 11,421 9,525
Non-interest income 1,102 1,009 760 786 1,245
Non-interest expense 12,076 10,652 9,462 8,284 6,024
Income before income taxes 7,844 5,677 3,812 3,923 4,746
Provision for income taxes 3,001 2,044 1,367 1,548 1,744
Net Income 4,843 3,633 2,445 2,375 3,002
Earnings per share - diluted (1) $ 0.97 $ 0.46 n/a n/a n/a
Earnings per share - basic (1) $ 0.98 $ 0.46 n/a n/a n/a
Cash dividends declared (per share) $ 0.36 $ 0.08 n/a n/a n/a
Dividend payout ratio (2) 36.66% 11.34% n/a n/a n/a
<CAPTION>
Ratios at or for the Fiscal Year Ended June 30, 2000 1999 1998 1997 1996
---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Return on average assets 0.93% 0.84% 0.65% 0.71% 1.02%
Return on average equity 8.09% 7.63% 6.81% 7.54% 10.11%
Average interest-earning assets to 120.79% 120.60% 108.22% 108.06% 108.74%
average interest-bearing liabilities
Interest rate spread (3) 3.06% 2.97% 3.12% 3.21% 3.02%
Net interest margin (4) 3.85% 3.76% 3.71% 3.56% 3.40%
Nonperforming assets to total assets (5) 0.22% 0.23% 0.37% 0.54% 0.87%
Allowance for loan losses to
nonperforming loans 310.91% 293.82% 178.98% 87.62% 71.67%
Allowance for loan losses to total loans 0.91% 0.83% 0.83% 0.58% 0.79%
Average equity to average assets 11.49% 11.02% 9.59% 9.39% 10.09%
Tangible equity to end of period assets 9.03% 9.80% 8.32% 8.70% 9.00%
Total capital to risk-weighted assets (6) 15.71% 18.10% 14.89% 15.87% 16.06%
</TABLE>
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(1) Earnings per share data prior to January 1, 1999 is not applicable.
(2) Includes dividends waived by the Mutual Holding Company of $1.0 million
and $225,000, respectively.
(3) The weighted average yield on interest-earning assets less the weighted
average cost of interest -bearing liabilities.
(4) This represents net interest income as a percentage of average
interest-earning assets.
(5) Non-performing assets equals non-accrual loans plus accruing loans 90 or
more days past due.
(6) Bank only
<PAGE>
Management's Discussion and Analysis of Financial Condition and Results of
Operations
The following discussion is intended to assist in understanding our
financial condition, and the results of operations for Willow Grove Bancorp,
Inc. (the "Company") and its subsidiary Willow Grove Bank (the "Bank") for the
fiscal years ended June 30, 2000, 1999, and 1998. The information in this
section should be read in conjunction with the Company's Financial Statements
and the accompanying Notes included elsewhere herein.
General
This Annual Report 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.
Our earnings are primarily based upon our net interest income, which is
the difference between the income earned on interest-bearing assets and the
interest paid on interest-bearing liabilities and the relative amount of our
interest-earning assets to interest-bearing liabilities. Non-interest income and
expenses, the provision for loan losses, and income tax expense also affect our
results of operations.
Changes in Financial Condition
General. Our total assets increased by $88.1 million, or 18.66%, to $560.1
million at June 30, 2000 compared to an increase of $66.7 to $472.0 million
during fiscal 1999. This increase was primarily due to increases in cash and
cash equivalents, loans receivable and loans available for sale. These increases
were partially offset by a decrease in securities available for sale. The
increases in total assets were funded by $62.2 million in deposits and $22.5
million in borrowings from the Federal Home Loan Bank ("FHLB") of Pittsburgh.
Cash and Cash Equivalents. Cash and cash equivalents, which consist of
cash on hand and in other banks in interest-earning and non-interest earning
accounts, amounted to $14.7 million and $4.9 million at June 30, 2000 and 1999,
respectively. The increase was primarily due to increases in cash on hand
resulting from the opening of two new banking offices and funds maintained in
interest-earning accounts, which are intended to be utilized to fund loan and
investment activities in the future.
Assets Available for Sale. At June 30, 2000, assets that were classified
available for sale ("AFS") consisted of securities totaling $70.6 million and
loans totaling $35.8 million. This compares to $80.1 million in AFS securities
and no AFS loans at June 30, 1999. Throughout the past four fiscal years, all of
our securities have been classified as available for sale. This classification
provides the flexibility to sell securities prior to maturity, if, for example,
we determine that our interest rate risk profile should be modified, or a sale
would be desirable to change our liquidity position, or for other
asset/liability management reasons. Securities classified as AFS are accounted
for at fair value with unrealized gains and losses, net of tax, reflected as an
adjustment to equity. As a result of changes in market interest rates, at June
30, 2000, the Company had unrealized losses on securities available for sale of
$3.7
<PAGE>
million compared to unrealized losses on securities available for sale of $2.2
million at June 30, 1999. Mortgage loans originated or purchased with the
intention of being sold into the secondary market are classified as AFS and are
carried at the lower of cost or market value with any unrealized loss reflected
in the statements of income. At June 30, 2000, $35.8 million of fixed-rate,
single-family residential mortgages were classified as AFS, compared to no
mortgage loans classified as AFS at June 30, 1999. All loans classified as AFS
at June 30, 2000 were sold in July 2000. The proceeds from such sale were used
to acquire adjustable-rate mortgage-backed securities. This transaction was
undertaken as part of our effort to reduce the Company's interest rate risk
position.
Loans. Our net loan portfolio grew to $424.9 million at June 30, 2000 from
$374.6 million at June 30, 1999. This increase of $50.3 million, or 13.44%, was
due to strong loan demand throughout our market area, and our desire to continue
to expand our lending efforts in the consumer, home equity, business,
construction and commercial real estate areas. During the year ended June 30,
2000, total mortgage loans increased by $37.0 million, or 10.30%, of which
commercial real estate and multi-family loans increased $36.7 million (56.02%),
home equity loans increased by $18.1 million (33.51%), construction mortgage
loans increased $7.2 million (92.63%) and single-family first mortgages
decreased by $25.2 million (10.87%). Commercial business loans increased by
$12.7 million (97.21%) and other consumer loans increased $1.4 million (21.57%)
in fiscal 2000. The Company's allowance for loan losses amounted to $3.9 million
at June 30, 2000. This represented a net increase of $767,000 (24.44%) from the
allowance of $3.1 million at June 30, 1999.
Intangible Assets. At June 30, 2000, the amount of our intangible assets
totaled $1.5 million. This compares to $2.0 million at June 30, 1999. Our
intangible assets are comprised of goodwill and a core deposit intangible, which
resulted from the purchase of three branch offices in 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 10 years.
Deposits. Total deposits increased by $62.2 million, or 15.91%, to $452.9
million at June 30, 2000 compared to an increase of $49.9 million, or 14.64%, to
$390.7 million at June 30, 1999. During the year ended June 30, 2000, checking
accounts grew by $14.8 million; this was an increase of 23.85% from the June 30,
1999 balance of $62.0 million. Certificates of deposit comprise the largest
component of our deposit portfolio, at June 30, 2000, these accounts totaled
$293.3 million. Certificates of deposit amounted to 64.75% of the Company's
total deposits at June 30, 2000 compared to 64.29% at June 30, 1999.
Federal Home Loan Bank Advances. The Company uses advances from the FHLB
of Pittsburgh as an additional source of funds to meet our loan demand. At June
30, 2000, the outstanding amount of these borrowings was $37.5 million, which is
a $22.5 million increase from the $15.0 million outstanding at June 30, 1999. We
also use FHLB Advances to fund certain investment strategies approved by our
Board of Directors. At June 30, 2000 and 1999, $10.0 million in borrowings were
outstanding to fund these strategies.
Equity. At June 30, 2000, our total stockholders' equity amounted to $60.6
million or 10.83% of assets compared to $58.4 million or 12.38% of assets at
June 30, 1999. This increase of $2.2 million, or 3.77% is due to increases in
net income partially offset by several factors. Total stockholders' equity
included net unrealized losses, net of taxes, of $2.3 million and $1.4 million
on securities available for sale at June 30, 2000 and June 30, 1999,
respectively. The Company paid cash dividends of $0.10, $0.09, $0.09 and $0.08
per share for the respective quarters during fiscal year ended June 30, 2000.
These regular dividends totaled $763,000. The Company executed the repurchase of
89,635 shares of common stock for its Recognition and Retention Plan (""RRP").
The shares were purchased in the open market at an aggregate price of $929,000.
The unamortized cost of these shares is reflected as a contra equity component
of stockholders' equity and these shares are being amortized over the five-year
vesting period. The Company was granted regulatory approval to repurchase up to
10% of the minority shares of our outstanding common stock through December 23,
2000. As of June 30, 2000, 22,500 shares have been purchased at an aggregate
price of $211,000 resulting in an average per share price of $9.40. These
treasury shares are reflected as a contra equity component of stockholders'
equity.
<PAGE>
Average Balances, Net Interest Income, Yields Earned and Rates Paid
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 years ended June 30, 2000, 1999 and 1998. The
table also shows the average yields and costs on interest-earning assets and
interest-bearing liabilities for each of the fiscal years and at June 30, 2000.
The Company maintained average balances of tax exempt securities of $2.3
million, $656,000 and $36,000 for the years ended June 30, 2000, 1999 and 1998,
respectively, for which the tax exempt yield has not been adjusted to a taxable
equivalent yield. Loans receivable include non-accrual loans.
<TABLE>
<CAPTION>
For the Year Ended
At -------------------------------------------------------------
June 30, 2000 June 30, 2000 June 30, 1999
------------- ------------- -------------
Interest Average Interest Average
Yield/ Average Income/ Yield/ Average Income/ Yield/
(Dollars in thousands) Cost Balance Expense Cost Balance Expense Cost
---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Interest-earning assets
Loans receivable
Real estate loans 7.88% $400,267 $ 31,564 7.89% $325,710 $ 26,141 8.03%
Other consumer loans 8.34% 7,463 552 7.40 5,795 402 6.94
Business loans 9.86% 18,667 1,857 9.95 8,995 857 9.53
------------------- -------------------
Total loans 8.00% 426,397 33,973 7.97 340,500 27,400 8.05
Securities 6.30% 76,919 4,750 6.18 63,593 3,860 6.07
Other interest-earning assets 2.74% 7,006 170 2.43 17,410 755 4.34
------------------- -------------------
Total interest-earning assets 7.76% 510,322 $ 38,893 7.62 421,503 $ 32,015 7.60
Non interest-earning assets 12,772 10,456
-------- --------
Total assets $523,094 $431,959
======== ========
Interest-bearing liabilities
Deposits
NOW and money market 2.30% $ 59,182 $ 1,347 2.28 $ 46,955 $ 1,111 2.37
Savings accounts 2.05% 50,987 1,049 2.08 43,032 896 2.08
Certificates of deposit 5.76% 267,065 14,598 5.47 241,795 13,359 5.52
------------------- -------------------
Total deposits 4.76% 377,234 16,994 4.50 331,782 15,366 4.63
Borrowings 6.61% 38,820 2,354 6.06 14,198 772 5.44
Advance payments for taxes and insurance 2.00% 3,468 21 0.51 3,423 26 0.76
------------------- -------------------
Total interest-bearing liabilities 4.43% 419,522 $ 19,369 4.62 349,403 $ 16,164 4.63
Non-interest-bearing liabilities 41,474 34,863
-------- --------
Total liabilities 460,996 384,266
Stockholders' equity 62,098 47,693
-------- --------
Total liabilities and equity $523,094 $431,959
======== ========
Net interest earning assets $ 90,800 $ 72,100
======== ========
Net interest income/interest spread $ 19,524 3.00 $ 15,851 2.97
======== ========
Net interest margin 3.83 3.76
Ratio of interest-earning assets to
interest-bearing liabilities 121.64% 120.64%
<CAPTION>
For the Year Ended
---------------------------------
June 30, 1998
-------------
Interest Average
Average Income/ Yield/
(Dollars in thousands) Balance Expense Cost
--------------------------------------------------------------------------
<S> <C> <C> <C>
Interest-earning assets
Loans receivable
Real estate loans $303,458 $ 24,824 8.18%
Other consumer loans 4,038 254 6.29
Business loans 3,423 278 8.12
-------------------
Total loans 310,919 25,356 8.16
Securities 46,372 2,923 6.30
Other interest-earning assets 6,961 325 4.67
-------------------
Total interest-earning assets 364,252 $ 28,604 7.85
Non interest-earning assets 9,558
--------
Total assets $373,810
========
Interest-bearing liabilities
Deposits
NOW and money market $ 42,991 $ 916 2.13
Savings accounts 36,984 787 2.13
Certificates of deposit 226,340 12,833 5.67
-------------------
Total deposits 306,315 14,536 4.75
Borrowings 9,532 529 5.55
Advance payments for taxes and insurance 3,274 32 0.98
-------------------
Total interest-bearing liabilities 319,121 $ 15,097 4.73
Non-interest-bearing liabilities 19,548
--------
Total liabilities 338,669
Stockholders' equity 35,141
--------
Total liabilities and equity $373,810
========
Net interest earning assets $ 45,131
========
Net interest income/interest spread $ 13,507 3.12
========
Net interest margin 3.71
Ratio of interest-earning assets to
interest-bearing liabilities 114.14%
</TABLE>
<PAGE>
Rate/Volume Analysis
The following table shows the effect of changing rates and volumes on net
interest income for the years ended June 30, 2000 and 1999, compared to the
prior fiscal year. Information provided shows the effect on net interest income
of (1) rates (change in rate multiplied times prior volume), (2) volume (changes
in volume times prior rate) and (3) rate/volume (change in rate times change in
volume).
<TABLE>
<CAPTION>
Increase (decrease) in net interest income Increase (decrease) in net interest income
for the year ended June 30, 2000 compared for the year ended June 30, 1999 compared
to the year ended June 30, 1999 due to to the year ended June 30, 1998 due to
------------------------------------------ ------------------------------------------
Rate/ Increase/ Rate/ Increase/
(Dollars in thousands) Rate Volume Volume (Decrease) Rate Volume Volume (Decrease)
------------------------------- ------- ------- ------- --------- ------- ------- ------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Interest-earning assets
Loans receivable
Real estate loans $ (457) $ 5,984 $ (105) $ 5,422 $ (469) $ 1,820 $ (34) $ 1,317
Other consumer loans 27 115 8 150 26 111 11 148
Business loans 38 922 41 1,001 48 453 78 579
------- ------- ------- ------- ------- ------- ------- -------
Total loans (392) 7,021 (56) 6,573 (395) 2,384 55 2,044
Securities 250 601 39 890 (105) 1,080 (38) 937
Other interest-earning assets (333) (451) 199 (585) (23) 488 (35) 430
------- ------- ------- ------- ------- ------- ------- -------
Total net change in income on
interest-earning assets (475) 7,171 182 6,878 (523) 3,952 (18) 3,411
------- ------- ------- ------- ------- ------- ------- -------
Interest-bearing liabilities
Deposits
NOW and money market (42) 289 (11) 236 101 84 10 195
Savings accounts (11) 166 (2) 153 (17) 129 (3) 109
Certificates of deposit (142) 1,396 (15) 1,239 (328) 876 (22) 526
------- ------- ------- ------- ------- ------- ------- -------
Total deposits (195) 1,851 (28) 1,628 (244) 1,089 (15) 830
Borrowings 89 1,339 154 1,582 (11) 259 (5) 243
Advance payments for taxes
and insurance (5) -- -- (5) (7) 1 -- (6)
------- ------- ------- ------- ------- ------- ------- -------
Total net change in expense on
interest-bearing liabilities (111) 3,190 126 3,205 (262) 1,349 (20) 1,067
------- ------- ------- ------- ------- ------- ------- -------
Change in net interest income $ (364) $ 3,981 $ 56 $ 3,673 $ (261) $ 2,603 $ 2 $ 2,344
======================================== =======================================
</TABLE>
<PAGE>
Results of Operations
General. Our net income for the year ended June 30, 2000 was $4.8 million
compared to $3.6 million and $2.4 million for the years ended June 30, 1999 and
1998, respectively. In fiscal 2000, the increase in net interest income was the
primary reason for the increase in net income compared to fiscal 1999, but this
increase in net interest income was partially offset by higher non-interest
expenses and provisions for loan losses. In fiscal 1999, the increase in net
interest income compared to fiscal 1998 again was partially offset by increases
in non-interest expenses. In fiscal 1999, $896,000 of expense was incurred with
the establishment of the Willow Grove Foundation.
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 liabilities. Our average
interest rate spread for the years ended June 30, 2000, 1999 and 1998 was 3.06%,
2.97% and 3.12%, respectively. Our net interest margin (i.e., net interest
income expressed as a percentage of average interest-earning assets) was 3.85%,
3.76%, and 3.71% for the same three fiscal years. The changes in our interest
spread have been due primarily to the fluctuations in market interest rates
whereby the relationship of rates between longer-term financial instruments and
rates on shorter-term financial instruments changed creating a flattening and
subsequently an inversion of the yield curve. A substantial portion of the
proceeds received from our various sources of funds were reinvested in new
interest-earning assets with yields that were closer to costs paid on our
interest-bearing liabilities causing the declining spread in fiscal 1999
compared to fiscal 1998, however these declines were more than offset in fiscal
year 2000 by continued growth in core deposits, reducing the overall rate paid
on deposits, and investment in higher yielding assets.. Net interest margins
increased in both fiscal 2000 and fiscal 1999 over the prior year primarily
because the proportion of interest-earning assets to interest-bearing
liabilities has been increasing. For fiscal year 2000, the average balance of
interest-earning assets to interest-bearing liabilities was 120.79%, compared to
120.60% and 114.13% for fiscal 1999 and 1998, respectively. The primary reasons
for these increases are the investment of funds raised through our initial
public offering being invested in interest-earning assets and the growth of our
non-interest -bearing checking accounts.
For the fiscal year ended June 30, 2000, net interest income totaled
$19.5 million compared to $15.9 million and $13.5 million in fiscal 1999 and
1998, respectively. The increase in fiscal 2000 of $3.6 million, or 23.17%, was
primarily due to increases in the average balances of interest-earning assets.
The increase in fiscal 1999 of $2.4 million, or 17.35%, was also primarily due
to increases in the average balances of interest-earning assets, in particular
mortgage loans.
Interest Income. Interest income includes the interest earned on our
various loans and securities, as well as yield adjustments for the premiums,
discounts and deferred fees recorded in connection with the acquisition of these
assets. Our total interest income for the year ended June 30, 2000 was $38.9
million compared to $32.0 million and $28.6 million for fiscal 1999 and 1998,
respectively.
The increase in interest income in fiscal 2000 compared to 1999 was
$6.9 million, or 21.48%. Increases in the average balances of loans outstanding
($85.9 million), particularly mortgage loans ($74.5 million), and an increase in
the average balance of securities ($9.9 million) were the primary reasons for
the increase in interest income. For fiscal 2000, the yield on average
interest-earning assets rose eight basis points to 7.68% from 7.60%. The major
contributing factor for this increase was the increase in the average yield on
commercial loans, which increased 42 basis points from 9.53% to 9.95% and
average yield on securities which rose 40 basis points from 6.08% to 6.48%.
These increases were somewhat offset by a 14 basis point decline in the average
yield on mortgage loan yields which fell to 7.89% in fiscal 2000 from 8.03%
during fiscal 1999.
The $3.4 million, or 11.92%, increase in interest income in fiscal
1999 compared to fiscal 1998 was due to a $2.0 million increase in interest on
loans and a $1.4 million increase in interest on securities. This was primarily
attributable to a $29.6 million increase in the average balance of loans
outstanding and $17.1 million increase in average balances of securities.
<PAGE>
Interest Expense. Interest expense consists of the interest paid to our
depositors on their interest-bearing accounts with us, and to a lesser extent,
interest paid on funds borrowed from the FHLB and certain escrow accounts. For
the fiscal year ended June 30, 2000, our total interest expense was $19.4
million. For the fiscal years ended June 30, 1999 and 1998, total interest
expense was $16.2 million and $15.1 million, respectively.
For the fiscal year ended June 30, 2000, interest expense increased
by $3.2 million, or 19.83%. The increase in interest expense for fiscal 2000 was
primarily due to a $1.6 million increase in both interest on deposits to $17.0
million and interest on borrowings to $2.4 million. The increase in interest on
deposits was mainly due to a larger average balance of deposits outstanding,
offset slightly by a reduction of the average rate paid on deposits of one basis
point from 4.62% in fiscal 2000 compared to 4.63% in fiscal 1999. Interest on
borrowings increased due to a combination of higher average balances and higher
average rates increasing 62 basis points from 5.44% in fiscal 1999 to 6.06%
during fiscal 2000.
The primary reason for the $1.1 million, or 7.07%, increase in
interest expense for the year ended June 30, 1999, compared to fiscal 1998, was
the increased cost associated with the larger average balances of deposits
outstanding, offset slightly by a reduction of the average rate paid on deposits
and larger average balances of borrowings outstanding.
During fiscal year 2000, the average balance of certificates of
deposit ("CDs") increased $42.2 million to $293.3 million, a 16.78% increase. At
June 30, 2000, CDs made up 64.7% of our deposits, this compares to 64.3% at June
30, 1999. Checking accounts increased as a percentage of total deposits at June
30, 2000, to 17.0% of the portfolio compared to 15.9% at June 30, 1999. Money
market accounts, which are more interest rate sensitive, increased $965,000 to
$29.7 million at June 30, 2000 but decreased as a percentage of the portfolio
from 7.4% at June 30, 1999 to 6.6% at June 30, 2000. Interest rates on CDs are
typically in excess of rates paid on money market and NOW accounts. Increasing
money market and checking accounts, as a percentage of total deposits, should
decrease our weighted average cost of funds in a stable interest rate
environment.
Provision for Loan Losses. We establish provisions for loan losses, which
are charges to our operating results, in order to maintain a level of total
allowance for losses that we deem adequate to absorb known and unknown losses.
Our determination of the adequacy of the allowance is based upon an evaluation
of the portfolio, loss experience, current economic conditions, volume, growth,
composition of the loan portfolio and other relevant factors. The amount of our
allowance for loan losses is only an estimate, and actual losses may vary from
these estimates. We assess our allowance for loan losses at least quarterly, and
make any necessary provision for losses needed to maintain our allowance for
losses at a level deemed adequate. For the years ended June 30, 2000, 1999, and
1998, our provisions for losses were $706,000, $531,000 and $993,000,
respectively.
At June 30, 2000, the amount of our allowance for losses was $3.9
million compared to $3.1 million at June 30, 1999. Management believed that a
$706,000 provision for loan losses in fiscal 2000 was appropriate given, among
other things, the continuing growth of our loan portfolio and the inherent
credit risk associated with increased levels of commercial real estate and
business lending. The percentage of the allowance for losses to loans increased
to 0.91% at June 30, 2000 compared to 0.83% at June 30, 1999.
During fiscal 1999, a provision for loan losses of $531,000 was made
due not only to the overall growth of the loan portfolio, but also due to the
growth of commercial and multi-family real estate loans, business loans and
consumer loans, particularly home equity loans. The primary reason for the
$462,000 decrease in the provision for fiscal 1999 compared to fiscal 1998 was
due to the adoption in 1998 of industry-wide loss experience as a factor in the
methodology we use to determine the adequacy of our allowance for losses. Prior
to 1998, our methodology placed most of its emphasis on our past loss experience
in addition to other factors. Commercial real estate, business and consumer
loans represented a smaller percentage of our loan portfolio, and we had limited
loss experience on these types
<PAGE>
of loans. With the expansion of our lending activities into commercial real
estate, business, and consumer loans, we determined that considering loss
experience of other financial institutions with a diversified loan portfolio
provided a better representation of the credit risks in our loan portfolio due
to its changing mix.
We believe that the allowance for losses was adequate at June 30,
2000 based upon the facts and circumstances known to us at that date. No
assurance can be made that additional provisions may not be needed in future
periods, which could adversely affect our results of operations. Regulatory
agencies, in the course of their regular examinations, review the allowance for
loss and carrying value of non-performing assets. No assurance can be given that
these agencies might not require changes to the allowance for losses in the
future.
Non-Interest Income. Non-interest income is comprised of service fees and
charges, loan servicing fees, and gains and losses on assets available or held
for sale. Total non-interest income for the years ended June 30, 2000, 1999, and
1998 was $1.1 million, $1.0 million, and $760,000, respectively. The increase in
non-interest income for fiscal 2000 was due primarily to increases in services
fees and charges offset by declines in net loan servicing income. Net loan
servicing income declined due to a reduction in mortgage servicing rights
recognized as a result of reduced mortgage loan sale activity. The increase in
non-interest income in fiscal 1999 was due to losses on sale of assets in fiscal
1998 not recurring during fiscal 1999 and increases in service fees and charges
due to increases in the number of accounts, particularly checking accounts.
Non-Interest Expense. The primary components of non-interest expense are:
compensation and employee benefits, occupancy expense, federal deposit insurance
premiums, data processing and a variety of other expenses. For the years ended
June 30, 2000, 1999, and 1998, non-interest expense totaled $12.1 million, $10.7
million, and $9.5 million, respectively. The primary reason for the increase in
non-interest expenses in fiscal 2000 was due to a $1.5 million increase in
compensation and employee benefits and a $524,000 increase in occupancy and
equipment expense. Included in fiscal 1999 is an $896,000 expense for the
establishment of and one-time contribution of stock to the Willow Grove
Foundation.
Compensation and benefits totaled $7.0 million, $5.5 million, and
$5.4 million, respectively, for the fiscal years ended June 30, 2000, 1999, and
1998. The primary reasons for the increases were due to an increased number of
employees as a result of opening two new banking offices in both fiscal 2000 and
fiscal 1999, plus hiring support staff to service the increased number of
products offered. Expenses of $81,000 and $90,000 attributed to the Company's
Employee Stock Ownership Plan ("ESOP") are included in fiscal 2000 and 1999,
respectively, and $108,000 was incurred in fiscal 2000 for the recognition and
retention plan. Fiscal year 1998 expenses included $566,000 in aggregate for
expenses with respect to the implementation of a directors' retirement plan and
a supplemental executive retirement plan.
In accordance with our reorganization plan and our commitment to our
communities, in fiscal 1999, we established the Willow Grove Foundation by
issuing 89,635 shares of stock to the Foundation and incurring an expense of
$896,000. Occupancy and furniture and equipment expenses were $1.4 million,
$918,000, and $964,000 for the fiscal years ended June 30, 2000, 1999, and 1998,
respectively. The $524,000 increase in fiscal 2000 compared to fiscal 1999 was
primarily due to opening two new branches and the opening of an operation
center. Federal deposit insurance premiums were $153,000, $206,000, and $195,000
for fiscal 2000, 1999, and 1998, respectively. Amortization of intangible assets
was constant at $410,000, while advertising was $370,000, $436,000, and $413,000
for the fiscal years ended June 30, 2000, 1999, and 1998, respectively. For the
fiscal years ended June 30, 2000, 1999, and 1998, data processing expenses of
$525,000, $426,000, and $388,000, respectively, deposit account service expenses
of $593,000, $441,000 and $266,000, respectively, and other expenses, which
include miscellaneous operating items, of $1.4 million, $1.3 million, and $1.1
million, respectively, all increased primarily due to our growth and
diversification efforts.
Income Taxes. Provisions for income taxes amounted to $3.0 million, $2.0
million, and $1.4 million for the years ended June 30, 2000, 1999 and 1998,
respectively. Such increases were primarily
<PAGE>
attributable to increases in pre-tax income. The effective tax rates for these
same periods were 38.26%, 36.00%, and 35.86%, respectively.
Liquidity and Commitments
Our primary sources of funds are from deposits, amortization of
loans, loan prepayments and the maturity of loans, mortgage-backed securities
and other investments, and other funds provided from operations. While scheduled
payments from the amortization of loans and mortgage-backed securities and
maturing investment securities are relatively predictable sources of funds,
deposit flows and loan prepayments can be greatly influenced by general interest
rates, economic conditions and competition. We also maintain excess funds in
short-term, interest-bearing assets that provide additional liquidity. We have
also utilized outside borrowings, primarily from the FHLB of Pittsburgh, on a
limited basis as an additional funding source.
We use our liquidity resources to fund existing and future loan
commitments, to fund maturing certificates of deposit and demand deposit
withdrawals, to invest in other interest-earning assets, and to meet operating
expenses. At June 30, 2000, we had outstanding approved loan commitments
totaling $11.1 million and certificates of deposit maturing within the next
twelve months amounting to $202.7 million. Based upon historical experience, we
anticipate that a significant portion of the maturing certificates of deposit
will be reinvested in the Bank.
We anticipate that we will continue to have sufficient funds and
alternative funding sources to meet our current commitments.
Impact of Inflation and Changing Prices
The financial statements, accompanying notes, and related financial
data presented herein have been prepared in accordance with generally accepted
accounting principles, which require the measurement of financial position and
operating results in terms of historical dollars without considering the changes
in purchasing power of money over time due to inflation. The impact of inflation
is reflected in the increased cost of our operations. Most of our assets and
liabilities are monetary in nature; therefore, the impact of interest rates has
a greater impact on our performance than the effects of general levels of
inflation. Interest rates do not necessarily move in the same direction or to
the same extent as the prices of goods and services.
Asset/Liability Management and Interest Rate Risk
The market value of assets and liabilities, as well as future
earnings, can be affected by interest rate risk. Market values of financial
assets have an inverse relationship to rates, i.e., when interest rates rise,
the market value of many of the Company's assets decline, and when rates fall,
the market value of many of the Company's assets rise. The primary assets of the
Company are loans to borrowers who often have the ability to prepay their loan.
Therefore, in a falling rate environment, the increase in the market value of
the Company's assets is limited by this option for the borrower to prepay the
loan.
The ability to maximize net interest income is largely dependent
upon the achievement of a positive interest spread that can be maintained during
fluctuations in prevailing interest rates. Interest rate sensitivity gap ("gap")
is a measure of the difference between interest-earning assets and
interest-bearing liabilities that either mature or re-price within a specified
time period. A gap is considered positive when the amount of interest-earning
assets exceeds the amount of interest-bearing liabilities, and is considered
negative when interest-bearing liabilities exceed interest-earning assets.
Generally, during a period of rising interest rates, a negative gap would
adversely affect net interest income, while a positive gap would result in an
increase in net interest income. During a period of falling interest rates, a
negative gap would generally result in an increase in net interest income, and a
positive gap would result in a decrease in net interest income. This is usually
the case; however, interest rates on differing financial instruments will not
always change at the same time or to the same extent.
<PAGE>
The following gap table shows the amount as of June 30, 2000 of assets and
liabilities projected to mature or re-price within various time periods.
<TABLE>
<CAPTION>
0 to 3 3 to 12 1 to 3 3 to 5 Over 5
(Dollars in thousands) Note months months years years years Total
-------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Interest-earning assets
Fixed rate loans and
mortgage-backed (1)
securities (2) $ 12,263 $ 35,256 $ 82,965 $ 58,879 $ 168,342 $ 357,705
Adjustable rate loans
and mortgage-backed (2)
securities (3) 37,660 45,764 33,078 21,242 -- 137,744
Investments and other
interest-earning (4)
assets (5) 19,670 1,000 -- 8,000 26,010 54,680
-----------------------------------------------------------------------------------
Total interest-earning
assets $ 69,593 $ 82,020 $ 116,043 $ 88,121 $ 194,352 $ 550,129
===================================================================================
Interest-bearing liabilities
Certificates of deposits 63,816 138,887 77,762 12,847 -- 293,312
(6)
Other deposits (7) 1,034 3,103 8,275 8,275 139,434 160,121
Borrowings (8) 20,000 8,500 8,500 11,137 -- 48,137
Escrow accounts 2,399 2,399 -- -- -- 4,798
-----------------------------------------------------------------------------------
Total interest-bearing
liabilities $ 87,249 $ 152,889 $ 94,537 $ 32,259 $ 139,434 $ 506,368
===================================================================================
Excess (deficiency) of
interest bearing assets
over interest-earning
liabilities $ (17,656) $ (70,869) $ 21,506 $ 55,862 $ 54,918 $ 43,761
Cumulative excess
(deficiency) of interest
-earning assets over
interest-bearing
liabilities $ (17,656) $ (88,525) $ (67,019) $ (11,157) $ 43,761
Cumulative excess
(deficiency) of interest
-bearing assets to
interest-earning
liabilities as a
percent of total assets (3.15)% (15.80)% (11.97)% (1.99)% 7.81%
Ratio of interest-earning
assets to interest-bearing
liabilities 79.76% 53.65% 122.75% 273.17% 139.39% 108.64%
</TABLE>
-------------------------------
(1) Loan prepayments are based upon estimates given the level of interest
rates at June 30, 2000.
(2) Mortgage-backed securities are at fair value.
(3) Included in the period in which the rate is expected to change adjusted
for estimated prepayments.
(4) Amounts stated are at fair value.
(5) Re-pricing or maturity of callable securities is estimated based upon the
interest rate environment at June 30, 2000.
(6) Includes non interest-bearing checking accounts.
(7) Includes estimates for the re-pricing of non-maturity deposits.
(8) Re-pricing or maturity of callable advances is estimated based upon the
interest rate environment at June 30, 2000.
At June 30, 2000, the ratio of the cumulative interest-earning assets
maturing or re-pricing in one-year or less to interest-bearing liabilities
maturing or re-pricing in one-year or less is 53.65%, which
<PAGE>
results in a cumulative one-year gap to total assets ratio of negative 15.80%.
The amounts shown are based upon certain assumptions concerning the amount of
loan prepayments and the re-pricing of non-maturity deposits.
At June 30, 2000 the Company had approximately $36 million in
single-family, fixed-rate loans classified as held for sale. These loans were
sold in July, 2000 and the proceeds invested in adjustable-rate mortgage-backed
securities which are expected to re-price during the next twelve months. This
transaction is expected to reduce the negative gap within the one-year time
period.
Asset/liability management policies, designed to better match the
maturities and re-pricing of our interest-earning assets and interest-bearing
liabilities, have been adopted. These interest rate risk and asset/liability
management actions are taken under the guidance of the Asset/Liability
Management Committee ("ALCO"), which is comprised of directors Langan, Kremp,
and Ramsey, our President, and three executive officers. The ALCO's purpose is
to communicate, coordinate, and control asset/liability management consistent
with our business plan and Board approved policies. The objective of the ALCO is
to manage assets and funding sources to produce results that are consistent with
liquidity, capital adequacy, growth, risk and profitability goals. The ALCO
meets at least quarterly and monitors the volume and mix of assets and funding
sources taking into account the relative costs and spreads, the interest rate
sensitivity gap and liquidity needs. The ALCO also reviews economic conditions
and interest rate projections, current and projected liquidity needs and capital
positions, anticipated changes in the mix of assets and liabilities, and
interest rate exposure limits versus current projections pursuant to gap
analysis and interest income simulations. At each meeting, the ALCO will
recommend changes in strategy as appropriate. Interest rate risk issues are also
discussed by the Board of Directors on a regular basis. Management meets weekly
to monitor progress in achieving asset liability targets approved by the Board,
particularly the type and rate on asset generation and sources of funding.
In order to manage our assets and liabilities and improve our interest
rate risk position, emphasis has been placed on the origination of assets with
shorter maturities or adjustable rates such as commercial and multi-family real
estate loans, construction loans, commercial business loans, and home equity
loans. At the same time, other actions include attempts to increase our core
deposits and the use FHLB Advances as additional sources of funds.
The ALCO regularly reviews interest rate risk by, among other things,
examining the impact of alternative interest rate environments on net interest
income and net portfolio value ("NPV"), and the change in NPV. NPV is the
difference between the market value of assets and the market value of
liabilities and off-balance sheet items under various interest rate scenarios.
Sensitivity is the difference (measured in basis points) between the NPV to
assets ratio at market rate and the NPV to assets ratio determined under each
rate scenario. The ALCO monitors both the NPV and Sensitivity according to
guidelines established by the Office of Thrift Supervision ("OTS") in Thrift
Bulletin 13A "Management of Interest Rate Risk, Investment Securities and
Derivative Activities", and board approved limitations.
Presented below, as of June 30, 2000 and 1999, is an analysis of the
interest rate risk position as measured by NPV and Sensitivity based upon
various rate scenarios. These values have been obtained from data submitted by
the Bank to the OTS. The OTS performs scenario analysis to estimate current or
base case economic value and estimates NPV that would result from instantaneous,
parallel shifts of the Treasury yield curve of plus and minus 100, 200 and 300
basis points. The model does not value new business activities. It only provides
an estimate of economic value at a point in time and the economic value of the
same portfolio under the above referenced interest rate scenarios.
<PAGE>
Estimated change in NPV and Sensitivity
June 30, 2000
Net Portfolio Value Sensitivity
--------------------------------------------
Percent To
(Dollars in thousands) Amount Change Assets
--------------------------------------------------------------------------------
Hypothetical change in
interest rates
up 300 basis points $(31,638) (58)% 4.43% -531 bp
up 200 basis points (21,461) (39) 6.23 -351
up 100 basis points (10,700) (20) 8.03 -170
no change - base case -- 9.74
down 100 basis points 8,959 16 11.08 +135
down 200 basis points 12,978 24 11.63 +189
down 300 basis points 16,067 29 12.01 +227
June 30, 2000
Net Portfolio Value Sensitivity
--------------------------------------------
Percent To
(Dollars in thousands) Amount Change Assets
--------------------------------------------------------------------------------
Hypothetical change in
interest rates
up 300 basis points $(29,439) (55)% 5.56% -571 bp
up 200 basis points (19,280) (36) 7.64 -363
up 100 basis points (9,141) (14) 9.60 -167
no change - base case 11.27
down 100 basis points 5,939 11 12.28 +101
down 200 basis points 9,382 17 12.81 +154
down 300 basis points 12,480 23 13.26 +199
The change in the NPV ratio at market levels between June 30, 2000 and
1999 is the result of (1) the increase in the Company's assets from $472 million
to $560 million, and (2) increases in the general level of interest rates. The
decline in sensitivity from 363 basis points to 351 basis points is attributable
to increases in shorter-term and adjustable rate assets and increases in core
deposits.
NPV is more sensitive and may be more negatively impacted by rising
interest rates than by declining rates. This occurs primarily because as rates
rise, the market value of long-term fixed rate assets, like fixed rate mortgage
loans, declines due to both the rate increase and slowing prepayments. When
rates decline, these assets do not experience a similar appreciation in value
due to the increases in prepayments. The value of deposits and borrowings tend
to change in approximately the same proportions in rising and falling rate
environments.
<PAGE>
Quarterly Financial Data
The following table presents selected quarterly operating data for the
fiscal years ended June 30, 2000 and 1999.
<TABLE>
<CAPTION>
For the Quarter Ending
(Dollars in thousands, June 30, March 31, December 31, September 30,
except per share data) 2000 2000 1999 1999
---------------------------------------------------------------------------------------------------------
Unaudited
<S> <C> <C> <C> <C>
Total interest income $10,602 $10,058 $ 9,335 $ 8,898
Total interest expense 5,416 5,084 4,603 4,266
-------------------------------------------------------
Net interest income 5,186 4,974 4,732 4,632
Provision for loan loss 20 195 221 270
Total non-interest income 286 279 275 262
Total non-interest expense 3,285 3,121 2,905 2,765
Income tax expense 929 755 665 652
-------------------------------------------------------
Net income $ 1,238 $ 1,182 $ 1,216 $ 1,207
=======================================================
Per share data
Basic $ 0.25 $ 0.24 $ 0.25 $ 0.24
Diluted $ 0.25 $ 0.24 $ 0.24 $ 0.24
<CAPTION>
For the Quarter Ending
(Dollars in thousands, June 30, March 31, December 31, September 30,
except per share data) 1999 1999 1998 1998
---------------------------------------------------------------------------------------------------------
Unaudited
<S> <C> <C> <C> <C>
Total interest income $ 8,586 $ 8,070 $ 7,755 $ 7,604
Total interest expense 4,101 3,961 4,140 3,962
-------------------------------------------------------
Net interest income 4,485 4,109 3,615 3,642
Provision for loan loss 180 121 140 90
Total non-interest income 215 214 279 300
Total non-interest expense 2,764 2,491 3,193 2,204
Income tax expense 628 578 226 611
-------------------------------------------------------
Net income $ 1,128 $ 1,133 $ 335 $ 1,037
=======================================================
Per share data
Basic and diluted (1) $ 0.23 $ 0.23 n/a n/a
</TABLE>
(1) Earnings per share data prior to January 1, 1999 is not applicable
<PAGE>
Market for Common Equity and Related Stockholders Matters
Willow Grove Bancorp, Inc.'s common stock is traded on The Nasdaq Stock Market
(NASDAQ) under the symbol WGBC. Local newspaper listings also include WillowG
and WillGrvBcp. At September 21, 2000 there were 1,457 registered shareholders
of record, not including the number of persons or entities whose stock is held
in nominee or "street" name through various brokerage firms or banks. The
following table shows the quarterly high and low trading prices of our stock,
and the amount of cash dividends declared per share since our conversion on
December 23, 1998.
Stock price Cash dividends
Quarter ended: High Low per share
---- --- ---------
December 31, 1998 $10.63 $10.00 $ 0.00
March 31, 1999 10.50 9.63 0.00
June 30, 1999 10.00 9.13 0.08
September 30, 1999 10.38 9.13 0.08
December 31, 1999 9.50 8.88 0 09
March 31, 2000 9.00 8.38 0.09
June 30, 2000 10.00 8.50 0.10
<PAGE>
Independent Auditors' Report
The Board of Directors
Willow Grove Bancorp, Inc.:
We have audited the accompanying consolidated statements of financial condition
of Willow Grove Bancorp, Inc. and subsidiary as of June 30, 2000 and 1999, and
the related consolidated statements of income, changes in stockholders' equity
and comprehensive income, and cash flows for each of the years in the three-year
period ended June 30, 2000. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Willow Grove
Bancorp, Inc. and subsidiary as of June 30, 2000 and 1999, and the results of
their operations and their cash flows for each of the years in the three-year
period ended June 30, 2000, in conformity with accounting principles generally
accepted in the United States of America.
/s/ KPMG LLP
--------------------------
Philadelphia, Pennsylvania
July 24, 2000
<PAGE>
Willow Grove Bancorp, Inc.
Consolidated Statements of Financial Condition
<TABLE>
<CAPTION>
At June 30,
(Dollars in thousands, except share data) 2000 1999
---- ----
<S> <C> <C>
Assets
Cash and cash equivalents:
Cash on hand and non-interest-bearing deposits $ 4,442 $ 3,447
Interest-bearing deposits 10,239 1,442
--------- ---------
Total cash and cash equivalents $ 14,681 $ 4,889
Assets available for sale:
Securities (amortized cost of $74,291 and $82,296 respectively) 70,577 80,055
Loans 35,753 --
Loans (net of allowance for loan losses
of $3,905 and $3,138 respectively) 424,940 374,584
Accrued income receivable 2,795 2,519
Property and equipment, net 6,232 5,135
Intangible assets 1,540 1,950
Other assets 3,605 2,907
--------- ---------
Total assets $ 560,123 $ 472,039
--------- ---------
Liabilities and Stockholder's Equity
Deposits $ 452,857 $ 390,681
Federal Home Loan Bank advances 37,517 14,986
Advance payments from borrowers for taxes 4,725 4,403
Accrued interest payable 1,474 706
Other liabilities 2,907 2,821
--------- ---------
Total Liabilities 499,480 413,597
--------- ---------
Commitments and contingencies
Stockholders' equity:
Common stock, $.01 par value; (25,000,000 authorized;
5,143,487 issued at June 30, 2000 and 1999) 51 51
Additional paid-in capital 22,270 22,295
Retained earnings - substantially restricted 43,291 39,211
Accumulated other comprehensive income (loss) (2,340) (1,412)
Treasury stock at cost, 22,500 shares (211) --
Unallocated common stock held by:
Employee Stock Ownership Plan (ESOP) (1,613) (1,703)
Recognition and Retention Plan Trust (RRP) (805) --
--------- ---------
Total stockholders' equity 60,643 58,442
--------- ---------
Total liabilities and stockholders' equity $ 560,123 $ 472,039
--------- ---------
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
<PAGE>
Willow Grove Bancorp, Inc.
Consolidated Statements of Income
<TABLE>
<CAPTION>
For the year ended June 30,
(Dollars in thousands, except per share data) 2000 1999 1998
---- ---- ----
<S> <C> <C> <C>
Interest and dividend income:
Loans $ 33,973 $ 27,400 $ 25,356
Securities, primarily taxable 4,920 4,615 3,248
-------- -------- --------
Total interest income 38,893 32,015 28,604
-------- -------- --------
Interest expense:
Deposits 16,994 15,366 14,536
Borrowings 2,354 772 529
Advanced payments from borrowers for taxes 21 26 32
-------- -------- --------
Total interest expense 19,369 16,164 15,097
-------- -------- --------
Net interest income 19,524 15,851 13,507
Provisions for loan losses 706 531 993
-------- -------- --------
Net interest income after provisions for loan losses 18,818 15,320 12,514
-------- -------- --------
Non-interest income:
Service charges and fees 1,103 846 618
Loss on sale of real estate held for investments -- -- (25)
Loss on sale of securities available for sale (46) -- (105)
Gain on sale of loans available for sale -- 10 69
Loan servicing income, net 45 153 203
-------- -------- --------
Total non-interest income 1,102 1,009 760
-------- -------- --------
Non-interest expense:
Compensation and employee benefits 7,026 5,475 5,386
Occupancy 935 599 636
Furniture and equipment 507 319 328
Federal insurance premiums 153 206 195
Amortization of intangible assets 410 410 410
Data processing 525 426 388
Advertising 370 436 413
Foundation expense -- 896 --
Community enrichment 150 175 373
Deposit account services 593 441 266
Other expenses 1,407 1,269 1,067
-------- -------- --------
Total non-interest expense 12,076 10,652 9,462
-------- -------- --------
Income before income taxes 7,844 5,677 3,812
Income taxes 3,001 2,044 1,367
-------- -------- --------
Net income $ 4,843 $ 3,633 $ 2,445
-------- -------- --------
Earnings per share: (1)
Basic $ 0.98 $ 0.46 N/A
Diluted $ 0.97 $ 0.46 N/A
</TABLE>
-------------------------
(1) Earnings per share is presented in the 1999 financial statements from
January 1, 1999 to June 30, 1999. Earnings per share prior to January 1,
1999 are not applicable.
See accompanying Notes to Consolidated Financial Statements.
<PAGE>
Willow Grove Bancorp, Inc.
Consolidated Statements of Changes in Stockholders' Equity
and Comprehensive Income
<TABLE>
<CAPTION>
Accumulated Common
Additional other stock
Common paid in Retained comprehensive Treasury acquired by Total
(Dollars in thousands, except per share data) stock capital earnings income (loss) stock benefit plans Equity
-------- ---------- -------- -------------- -------- ------------- ------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance - June 30, 1997 $ -- $ -- $ 33,420 $ (298) $ -- $ -- $ 33,122
Net income -- -- 2,445 -- -- -- 2,445
Other comprehensive income -- -- -- 378 -- -- 378
-------- -------- -------- -------- -------- -------- --------
Balance - June 30, 1998 -- -- 35,865 80 -- -- 35,945
Net income -- -- 3,633 -- -- -- 3,633
Other comprehensive loss -- -- -- (1,492) -- -- (1,492)
Issuance of 5,143,487 $.01 par
shares of common stock 51 22,295 -- -- -- -- 22,346
Capitalization of Mutual Holding Company -- -- (100) -- -- -- (100)
Common stock (179,270 shares)
acquired by ESOP -- -- -- -- -- (1,793) (1,793)
ESOP shares committed to be released -- -- -- -- -- 90 90
Cash dividends paid - ($0.08 per share) -- -- (187) -- -- -- (187)
-------- -------- -------- -------- -------- -------- --------
Balance - June 30, 1999 51 22,295 39,211 (1,412) -- (1,703) 58,442
Net income -- -- 4,843 -- -- -- 4,843
Other comprehensive loss -- -- -- (928) -- -- (928)
Common stock (89,635 shares)
acquired by RRP -- -- -- -- -- (929) (929)
ESOP shares committed to be released -- (9) -- -- -- 90 81
Amortization of RRP shares -- (16) -- -- -- 124 108
Treasury stock acquired (22,500 shares at cost) -- -- -- -- (211) -- (211)
Cash dividends paid - ($0.36 per share) -- -- (763) -- -- -- (763)
-------- -------- -------- -------- -------- -------- --------
Balance - June 30, 2000 $ 51 22,270 43,291 (2,340) (211) (2,418) $ 60,643
-------- -------- -------- -------- -------- -------- --------
</TABLE>
<TABLE>
<CAPTION>
For the year ended June 30,
---------------------------------
2000 1999 1998
------- ------- -------
<S> <C> <C> <C>
Net unrealized gains (losses) on securities available for sale arising during the period $ (957) $(1,492) $ 313
Less: reclassifications adjustment for gains (losses) included in net income (29) -- (65)
------- ------- -------
Other comprehensive income (loss) (928) (1,492) 378
Net income 4,843 3,633 2,445
------- ------- -------
Comprehensive income $ 3,915 $ 2,141 $ 2,823
------- ------- -------
</TABLE>
See accompanying Notes to consolidated financial statements.
<PAGE>
Willow Grove Bancorp, Inc.
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
For the year ended June 30,
(Dollars in thousands) 2000 1999 1998
---- ---- ----
<S> <C> <C> <C>
Net cash flows from operating activities:
Net income $ 4,843 $ 3,633 $ 2,445
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation 575 409 453
Amortization of premium and accretion
of discount, net 12 94 85
Amortization of intangible assets 410 410 410
Foundation contribution expense -- 896 --
Provision for loan losses 706 531 993
Loss on sale of real estate held for investment -- -- 25
Gain on sale of loans available for sale -- (10) (69)
Loss on sale of securities available for sale 46 -- 105
Decrease in deferred loan fees (101) (292) (385)
Increase in accrued income receivable (276) (410) (172)
Decrease (increase) in other assets (153) 325 (147)
Increase in accrued interest payable 768 317 101
Deferred income tax benefit (327) (446) (738)
(Decrease) increase in other liabilities 86 (45) 1,919
Expense of ESOP & RRP 189 90 --
Originations and purchases of
loans available for sale (35,753) (2,865) (36,396)
Proceeds from sale of loans available for sale -- 15,027 30,486
-------- -------- --------
Net cash provided by (used in) operating activities (28,975) 17,664 (885)
-------- -------- --------
Cash flows from investing activities:
Net increase in loans (50,915) (59,153) (31,706)
Purchase of securities available for sale (7,098) (83,581) (55,878)
Proceeds from maturities and calls
of securities held to maturity -- -- 3,999
Proceeds from sales, calls and maturities
of securities available for sale 11,477 38,100 53,270
Principal repayments of securities
available for sale 3,568 11,075 682
Proceeds from sale of real estate
held for investment -- -- 155
Proceeds from sale of other
real estate owned 281 -- --
Purchase of property and equipment, net (1,672) (772) (1,401)
-------- -------- --------
Net cash used in investing activities (44,359) (94,331) (30,879)
-------- -------- --------
</TABLE>
See accompanying Notes to consolidated financial statements.
<PAGE>
Willow Grove Bancorp, Inc.
Consolidated Statements of Cash Flows - Continued
<TABLE>
<CAPTION>
For the year ended June 30,
(Dollars in thousands, except per share data) 2000 1999 1998
---- ---- ----
<S> <C> <C> <C>
Cash flows from financing activities:
Net increase in deposits 62,176 49,888 31,067
Net increase (decrease) in advances
with original maturity less than 90 days (2,000) 4,000 11,000
Increase in FHLB advances with
original maturity greater than 90 days 53,000 1,000 4,000
Repayment of FHLB advances with
original maturity greater than 90 days (28,469) (11,014) --
Net increase (decrease) in advance
payments from borrowers for taxes 322 (78) 284
Repayment of notes payable -- -- (500)
Dividends paid (763) (187) --
Acquisition of stock for Recognition
and Retention Plan (929) -- --
Purchase of treasury stock (211) -- --
Proceeds from stock issuance, net -- 19,656 --
-------- -------- --------
Net cash provided by financing activities 83,126 63,265 45,851
-------- -------- --------
Net increase (decrease) in cash and cash equivalents 9,792 (13,402) 14,087
Cash and cash equivalents:
Beginning of year 4,889 18,291 4,204
-------- -------- --------
End of year $ 14,681 $ 4,889 $ 18,291
-------- -------- --------
Supplemental disclosures of cash and cash flow information
Interest paid $ 18,601 $ 15,847 $ 14,966
Income taxes paid $ 2,909 $ 2,085 $ 1,854
Noncash items:
Change in unrealized gain (loss) on securities
available for sale (net of taxes of $545,
$912 and ($232) in 2000, 1999, and 1998, respectively) (928) (1,492) 378
Foundation contribution -- 896 --
</TABLE>
See accompanying Notes to consolidated financial statements.
<PAGE>
Willow Grove Bancorp, Inc.
Notes to 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 eleven branches in Dresher, Willow Grove, Maple Glen,
Warminster (2), Hatboro, Huntington Valley, Roslyn, Philadelphia (2 - Somerton
and Rhawnhurst), and North Wales. 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. Earnings per
share is presented in the 1999 financial statements from January 1, 1999 to June
30, 1999. Earnings per share presentation for periods prior to January 1, 1999
is not meaningful.
Basis of Financial Statement Presentation
The Company has prepared its accompanying consolidated financial statements in
accordance with generally accepted accounting principles ("GAAP") as applicable
to the banking industry. Certain amounts in prior years are reclassified for
comparability to current year's presentation. Such reclassification, when
applicable have no effect on net income. The consolidated financial statements
include the balances of the Company and its wholly owned subsidiary. All
material inter-company balances and transactions have been eliminated in
consolidation.
In preparing the consolidated financial statements, the Company is required to
make estimates and assumptions that affect the reported amounts of assets and
liabilities as of the date of the statement of financial condition and revenue
and expense for the period. Actual results could differ significantly from those
estimates. Material estimates that are particularly susceptible to significant
change in the near-term include the determination of the allowance for loan
losses.
Risks and Uncertainties
In the normal course of its business, the Company encounters two significant
types of risk: economic and regulatory. There are three main components of
economic risk: interest rate risk, credit risk, and market risk. The Company is
subject to interest rate risk to the degree that its interest-bearing
liabilities mature or re-price at different speeds, or on a different basis from
its interest-earning assets. The Company's primary credit risk is the risk of
default on the Company's loan portfolio that results from the borrower's
inability to make contractually required payments. The Company's lending
activities are concentrated in Pennsylvania. The largest concentration of the
Company's loan portfolio is located in eastern Pennsylvania. The ability of the
Company's borrowers to repay amounts owed is dependent on several factors,
including the economic conditions in the borrower's geographic region and the
borrower's financial condition. Market risk reflects changes in the value of
collateral underlying loans, the valuation of real estate held by the Company,
the valuation of loans held for sale, securities available for sale and
<PAGE>
Willow Grove Bancorp, Inc.
Notes to Consolidated Financial Statements
mortgage servicing assets. The Company is subject to certain regulations as
further described herein and in note 12. Compliance with regulations causes the
Company to incur significant costs. In addition, the possibility of future
changes to such regulations presents the risk that future costs will be incurred
which may impact the Company.
Cash and Cash Equivalents
For purposes of the statements of cash flows, cash and cash equivalents include
cash and interest bearing deposits with original maturities of three months or
less.
The Company is required to maintain certain daily balances in accordance with
Federal Reserve Bank requirements. The reserve balances maintained in accordance
with such requirements at June 30, 2000 and 1999 were $4.0 million and $2.3
million, respectively. Such reserve requirements are satisfied through vault
cash balances.
Loans Available for Sale
Mortgage loans originated and intended for sale in the secondary market are
carried at the lower of cost or market calculated on an aggregate basis, with
any unrealized losses reflected in the statement of income. Loans transferred
from loans available for sale to loans receivable are transferred at the lower
of cost or market value at the date of transfer.
Securities
The Company divides its securities portfolio into two segments: (a) held to
maturity and (b) available for sale. Securities in the held to maturity category
are carried at cost, adjusted for amortization of premiums and accretion of
discounts, using the level yield method, based on the Company's intent and
ability to hold the securities until maturity. Marketable securities included in
the available for sale category are carried at fair value, with unrealized gains
or losses, net of taxes, reflected as an adjustment to equity. The fair value of
marketable securities for sale is determined from publicly quoted market prices.
Securities available for sale which are not readily marketable, which include
Federal Home Loan Bank of Pittsburgh stock, are carried at cost which
approximates liquidation value. Premiums and discounts on securities are
amortized/accreted using the interest method.
At the time of purchase, the Company makes a determination of whether or not it
will hold the securities to maturity, based upon an evaluation of the
probability of future events. Securities, which the Company believes may be
involved in interest rate risk, liquidity, or other asset/liability decisions,
which might reasonably result in such securities not being held to maturity, are
classified as available for sale. If securities are sold, a gain or loss is
determined by the specific identification method and is reflected in the
operating results in the period the trade occurs.
Allowance for Loan Losses
The allowance for loan losses is maintained at a level that management considers
adequate to provide for loan losses based on an evaluation of known and inherent
risks in the loan portfolio. Management's judgement is based upon periodic
evaluation of the portfolio, past loss experience, current economic conditions,
and other relevant factors. While management uses the best information available
to make such evaluations, future adjustments to the allowance may be necessary
if economic conditions differ substantially from the assumptions used in making
the evaluation. In addition, various regulatory agencies, as an integral part of
their examination process, periodically review the Company's allowance for loan
losses. Such agencies may require the Company to recognize additions to the
allowance based on their judgment of information available to them at the time
of their examination.
A loan is considered to be impaired when, based on current information, it is
possible that the Company will not receive all amounts due in accordance with
the contractual terms of the loan agreement. For purposes of applying the
measurement criteria for impaired loans, the Company excludes large groups of
<PAGE>
Willow Grove Bancorp, Inc.
Notes to Consolidated Financial Statements
smaller balance homogeneous loans, primarily consisting of residential real
estate and consumer loans, as well as commercial loans with balances of less
than $100,000. Such loans are evaluated collectively for impairment. Interest
income recognition on impaired loans is the same as interest income recognition
on non-accrual loans as described below. Cash receipts on impaired loans are
generally applied to principal. A valuation allowance is established against
impaired loans when the Company determines that the fair value of the loan or
its related collateral is less than the recorded investment of the impaired
loan.
Mortgage Servicing Rights
The Company recognizes mortgage servicing rights as assets, regardless of how
such assets were acquired.
Impairment of mortgage servicing rights is assessed based upon a fair market
valuation of those rights on a disaggregated basis. Impairment, if any, is
recognized in the statement of income. There was no impairment in the mortgage
servicing rights at June 30, 2000 and 1999.
Loans, Loan Origination Fees, and Uncollected Interest
Loans are recorded at cost, net of unearned discounts, deferred fees, and
allowances. Discounts or premiums on purchased loans are amortized using the
interest method over the remaining contractual life of the portfolio, adjusted
for actual prepayments. Loan origination fees and certain direct origination
costs are deferred and amortized over the contractual life of the related loans
using the level yield method.
Interest receivable on loans is accrued to income as earned. Non-accrual loans
are loans on which the accrual of interest has ceased because the collection of
principal or interest payments is determined to be doubtful by management. It is
the policy of the Company to discontinue the accrual of interest and reverse any
accrued interest when principal or interest payments are delinquent more than 90
days (unless the loan principal and interest are determined by management to be
fully secured and in the process of collection), or earlier if the financial
condition of the borrower raises significant concern with regard to the ability
of the borrower to service the debt in accordance with the terms of the loan.
Interest income on such loans is not accrued until the financial condition and
payment record of the borrower demonstrates the ability to service the debt.
Property and Equipment
Property and equipment are stated at cost, less accumulated depreciation and
amortization. The Company computes depreciation and amortization using the
straight-line method over the estimated useful lives of the assets which range
from 5 to 40 years. Significant renovations and additions are capitalized.
Leasehold improvements are depreciated over the shorter of the useful lives of
the assets or the related lease term. When assets are retired or otherwise
disposed of, the cost and related accumulated depreciation are removed from the
accounts and any resulting gain or loss is reflected in income for the period.
The cost of maintenance and repairs is charged to expense as incurred.
Intangible Assets
Intangible assets include a core deposit intangible and goodwill, which
represents the excess cost over fair value of assets acquired and liabilities
assumed. The core deposit intangible is being amortized to expense over a
ten-year life and goodwill is being amortized to expense over a period of
fifteen years. The carrying amount of intangible assets at June 30, 2000 and
1999 is net of accumulated amortization of $2.6 million and $2.2 million,
respectively.
Income Taxes
Deferred tax assets and liabilities are recognized for future tax consequences
attributable to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax
<PAGE>
Willow Grove Bancorp, Inc.
Notes to Consolidated Financial Statements
bases. Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect on deferred tax
assets and liabilities of a change in tax rates is recognized in income in the
period that includes the enactment date.
Earnings Per Share
Earnings per share ("EPS") consists of two separate components, basic EPS and
diluted EPS. Basic EPS is computed by dividing net income by the weighted
average number of common shares outstanding for each period presented. Diluted
EPS is calculated by dividing net income by the weighted average number of
common shares outstanding plus dilutive common stock equivalents ("CSE"). Common
stock equivalents consist of dilutive stock options granted through the
Company's stock option plan and unvested common stock awards. Common stock
equivalents which are considered antidilutive are not included for the purposes
of this calculation. At June 30, 2000 there were no antidilutive shares however,
for the quarter ended March 31, 2000 there were 89,635 antidilutive CSE's.
Stock Options
The Company accounts for its stock option plan in accordance with the provisions
of Accounting Principles Board ("APB") Opinion No. 25, "Accounting for Stock
Issued to Employees," and related interpretations, as permitted by statement No.
123, "Accounting for Stock-Based Compensation". As such, compensation expense is
recorded on the date of grant only if the current market price of the underlying
stock exceeds the exercise price. Statement No. 123 requires entities which
continue to apply the provisions of APB Opinion No. 25 to provide pro-forma
earnings per share disclosures for stock option grants made in 1995 and
subsequent years as if the fair value based method defined in Statement No. 123
had been applied.
Recent Accounting Pronouncements
Accounting for Derivative Instruments and Hedging Activities
In June 1998 the FASB issued SFAS No. 133, Accounting for Derivative Instruments
and Hedging Activities. This statement, as amended, establishes accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts, (collectively referred to as
derivatives) and for hedging activities. It requires that an entity recognize
all derivatives as either assets or liabilities in the statement of financial
condition and measure those instruments at fair value. The accounting for
changes in the fair value of a derivative depends on the intended use of the
derivative and the resulting designation. If certain conditions are met, a
derivative may be specifically designed as (a) a hedge of certain exposure to
changes in the fair value of a recognized asset or liability or an unrecognized
firm commitment, (b) a hedge of an exposure to variable cash flows of a
forecasted transaction, or (c) a hedge of a foreign currency exposure. This
statement, as amended, is effective for all fiscal quarters of fiscal years
beginning after June 15, 2000. The Company adopted SFAS 133 on July 1, 2000. The
Company has determined that there is no impact on operations, financial
condition, and equity as a result of the adoption of SFAS No. 133.
(2) Earnings Per Share
Earnings per share, basic and diluted, were $0.98 and $0.97, respectively for
the year ended June 30, 2000.
The following is a reconciliation of the numerators and denominators of the
basic and diluted earnings per share calculations. Earnings per share for fiscal
1999 reflects the six-month period from January 1, 1999 to June 30, 1999.
<PAGE>
Willow Grove Bancorp, Inc.
Notes to Consolidated Financial Statements
<TABLE>
<CAPTION>
For the 6- month period
Year Ended June 30, January 1 to June 30,
2000 1999
---- ----
(Dollars in thousands, except per share data) Basic Diluted Basic Diluted
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net Income $ 4,843 $ 4,843 $ 2,261 $ 2,261
Dividends on unvested common stock awards (25) (25) -- --
----------- ----------- ----------- -----------
Adjusted net income used in EPS calculations $ 4,818 $ 4,818 $ 2,261 $ 2,261
Weighted average shares outstanding 4,899,955 4,899,955 4,968,699 4,968,699
Effect of dilutive securities:
Options -- 1,825 -- --
Unvested common stock awards -- 61,226 -- --
----------- ----------- ----------- -----------
Adjusted weighted average shares used in
EPS computation 4,899,955 4,963,006 4,968,699 4,968,699
----------- ----------- ----------- -----------
Earnings per share $ 0.98 $ 0.97 $ 0.46 $ 0.46
----------- ----------- ----------- -----------
</TABLE>
(3) Securities Available for Sale
Securities available for sale at June 30, 2000 and 1999 consisted of the
following:
<TABLE>
<CAPTION>
June 30, 2000
------------------------------------------------------------------
Amortized Unrealized Unrealized Estimated
(Dollars in thousands) Cost Gains Losses Fair Value
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
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
----------- ----------- ----------- -----------
<CAPTION>
June 30, 1999
------------------------------------------------------------------
Amortized Unrealized Unrealized Estimated
(Dollars in thousands) Cost Gains Losses Fair Value
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Equity securities $ 11,068 $ 47 $ (63) $ 11,052
US Government and government agency securities 35,000 -- (1,123) 33,877
Mortgage-backed securities 34,229 56 (1,049) 33,236
Municipal securities 1,999 -- (109) 1,890
----------- ----------- ----------- -----------
Total $ 82,296 $ 103 $ (2,344) $ 80,055
----------- ----------- ----------- -----------
</TABLE>
Proceeds from the sales of securities available for sale for the years ended
June 30, 2000, 1999 and 1998 were $9.5 million, $0, and $36.3 million,
respectively. Gross gains of $57,000, $0, and $24,000 were realized in fiscal
2000, 1999, 1998, respectively. There were gross losses of $103,000, $0, and
$129,000, in fiscal 2000, 1999, 1998, respectively.
Accrued interest receivable on securities amounted to $530,000 and $753,000 at
June 30, 2000 and 1999, respectively.
<PAGE>
Willow Grove Bancorp, Inc.
Notes to Consolidated Financial Statements
The amortized cost and estimated fair value of securities available for sale at
June 30, 2000, by contractual maturity, are shown below.
<TABLE>
<CAPTION>
Amount of securities maturing
-------------------------------------------------------
After 5 After 10
After 1 year years but years or no
Within one but within within 10 stated
(Dollars in thousands) year 5 years years maturity Total
---------- ------------- --------- ----------- -------
<S> <C> <C> <C> <C> <C>
US Government and government
agency securities $ -- $ 7,684 $14,188 $ 9,153 $31,025
Municipal securities: 600 -- -- 1,875 2,475
------- ------- ------- ------- -------
Total debt securities 600 7,684 14,188 11,028 33,500
Equity securities -- -- -- 7,451 7,451
Mortgage-backed securities -- -- -- 29,626 29,626
------- ------- ------- ------- -------
Total securities at fair value $ 600 $ 7,684 $14,188 $48,105 $70,577
Total securities at amortized cost $ 600 $ 8,000 $15,000 $50,691 $74,291
------- ------- ------- ------- -------
</TABLE>
The Company must maintain stock as a member of the Federal Home Loan Bank of
Pittsburgh ("FHLB") of $3.4 million and $3.0 million as of June 30, 2000 and
1999, respectively.
For mortgage-backed securities, expected maturities will differ from contractual
maturities because borrowers may have the right to call or prepay the obligation
with or without call or prepayment penalties. Substantially all of the Company's
U.S. Government and government agency securities are callable within one year.
As described in note 10, certain securities available for sale are maintained to
collateralize advances from the FHLB.
(4) Loans
Loans receivable as of June 30, 2000 and 1999 consisted of the following:
June 30,
-----------------------------
(Dollars in thousands) 2000 1999
---- ----
Real estate loans:
Single-family residential $ 206,340 $ 231,498
Multi-family residential 21,437 12,938
Commercial real estate 81,076 52,769
Construction 14,973 7,773
Home equity 72,217 54,090
--------- ---------
Total real estate loans 396,043 359,068
Other consumer loans 7,818 6,431
Commercial business loans 25,683 13,023
--------- ---------
Total Loans 429,544 378,522
Less:
Allowance for loan losses (3,905) (3,138)
Deferred loan fees (699) (800)
--------- ---------
Total loans receivable, net $ 424,940 $ 374,584
--------- ---------
As described in note 10, certain loans are maintained to collateralize advances
from the FHLB.
<PAGE>
Willow Grove Bancorp, Inc.
Notes to Consolidated Financial Statements
Included in loans receivable are loans on non-accrual status in the amounts of
$1.2 million and $1.1 million at June 30, 2000 and 1999, respectively. Interest
income that would have been recognized on such non-accrual loans during the
years ended June 30, 2000, 1999 and 1998, had they been current in accordance
with their original terms was $104,000, $143,000, and $90,000, respectively.
Interest income that was recognized on these non-accrual loans during the years
ended June 30, 2000, 1999 and 1998 totaled $29,000, $7,000, and $46,000,
respectively.
As of June 30, 2000 and 1999, the Company had impaired loans with a total
recorded investment of $390,000 and $13,000, respectively, and an average
recorded investment for the years ended June 30, 2000, 1999 and 1998 of
$107,000, $37,000, and $464,000, respectively. Cash of $24,000, $83,000, and
$1.2 million was collected on these impaired loans during the years ended June
30, 2000, 1999 and 1998, respectively. Interest income of $22,000 was recognized
on such loans during the year ended June 30, 2000, no interest income was
recognized on such loans for the year ended June 30, 1999 and 1998. As of June
30, 2000 and 1999, there were no recorded investments in impaired loans for
which there was a related specific allowance for credit losses
The following is a summary of the activity in the allowance for loan losses for
the years ended June 30, 2000, 1999 and 1998:
Years ended June 30,
---------------------------------------
(Dollars in thousands) 2000 1999 1998
---- ---- ----
Balance, beginning of year $ 3,138 $ 2,665 $ 1,678
Provision for loan losses 706 531 993
Charge-offs (85) (58) (6)
Recoveries 146 -- --
------- ------- -------
Balance, end of year $ 3,905 $ 3,138 $ 2,665
------- ------- -------
(5) Mortgage Servicing Activity
A summary of mortgage servicing rights activity follows:
Years ended June 30,
---------------------------------------
(Dollars in thousands) 2000 1999 1998
---- ---- ----
Balance, beginning of year $ 236 $ 251 $ 213
Originated servicing rights -- 119 144
Amortization (109) (134) (106)
------- ------- -------
Balance, end of year $ 127 $ 236 $ 251
------- ------- -------
At June 30, 2000, 1999 and 1998, the Company serviced loans for others of $64.3
million, $67.0 million, and $66.4 million, respectively. Loans serviced by
others for the Company as of June 30, 2000, 1999 and 1998 were $3.9 million,
$2.8 million and $2.9 million, respectively.
<PAGE>
Willow Grove Bancorp, Inc.
Notes to Consolidated Financial Statements
(6) Deposits
Deposit balances by type with related interest rates consisted of the following
at June 30, 2000, and 1999:
<TABLE>
<CAPTION>
June 30, 2000 June 30, 1999
------------------------ ------------------------
Percent of Percent of
(Dollars in thousands) Amount Total Amount Total
-------- ---------- -------- -----------
<S> <C> <C> <C> <C>
Savings accounts (passbook, statement, clubs) $ 53,042 11.7% $ 48,773 12.5%
Money market accounts 29,706 6.6 28,741 7.4
Certificates of deposit less than $100,000 246,030 54.4 213,998 54.8
Certificates of deposit greater than $100,000(1) 47,282 10.4 37,159 9.5
Interest-bearing checking accounts 31,420 6.9 29,013 7.4
Non-interest-bearing checking accounts 45,377 10.0 32,997 8.4
-------- ----- -------- -----
Total $452,857 100.0% $390,681 100.0%
-------- ----- -------- -----
</TABLE>
----------
(1) Deposit balances in excess of $100,000 are not federally insured.
While certificates of deposit are frequently renewed at maturity rather that
paid out, a summary of certificates of deposit by contractual maturity at June
30, 2000 is as follows:
Years ended June 30, (Dollars in thousands)
-------------------- ---------------------
2001 $ 202,703
2002 60,627
2003 17,135
2004 9,733
2005 2,053
2006 and thereafter 1,061
---------
$ 293,312
---------
Interest expense on deposits for the years ended June 30, 2000, 1999 and 1998
consisted of the following:
(Dollars in thousands) 2000 1999 1998
---- ---- ----
Savings accounts $ 1,049 $ 896 $ 787
Checking accounts 1,347 1,111 916
Certificates 14,598 13,359 12,833
------- ------- -------
Total $16,994 $15,366 $14,536
------- ------- -------
<PAGE>
Willow Grove Bancorp, Inc.
Notes to Consolidated Financial Statements
(7) Property and Equipment
<TABLE>
<CAPTION>
(Dollars in thousands) Depreciable Lives June 30, 2000 June 30, 1999
----------------- ------------- -------------
<S> <C> <C> <C>
Land $ 1,323 $ 1,323
Buildings 15 to 40 years 4,588 4,178
Furniture, fixtures, and equipment 5 to 7 years 4,214 2,952
-------- --------
Total 10,125 8,453
Less accumulated depreciation (3,893) (3,318)
-------- --------
Property and equipment, net $ 6,232 $ 5,135
-------- --------
</TABLE>
Amounts charged to operating expense for depreciation for the years ended June
30, 2000, 1999 and 1998 amounted to $575,000, $409,000, and $453,000,
respectively.
(8) Income Taxes
The Small Business Job Protection Act of 1996, enacted on August 20, 1996,
provides for the repeal of the tax bad debt deduction computed under the
percentage of taxable income method. Upon repeal, the Company is required to
recapture into income, over a six-year period, the portion of its tax bad debt
reserves that exceeds its base year reserves (i.e., tax reserves for tax years
beginning before 1988). The base year tax reserves, which may be subject to
recapture if the Company ceases to qualify as a bank for federal income tax
purposes, are restricted with respect to certain distributions. The Company's
total tax bad debt reserves at June 30, 2000 are approximately $7.8 million, of
which $6.2 million represents the base year amount and $1.6 million is subject
to recapture. The Company has previously recorded a deferred tax liability for
the amount to be recaptured; therefore, this recapture does not impact the
statement of income.
Income tax expense (benefit) for the years ended June 30, 2000, 1999 and 1998
consisted of the following:
(Dollars in thousands) Current Deferred Total
------- ------ -------
For the year ended June 30, 2000 Federal $ 2,849 $ (327) $ 2,522
State 479 -- 479
------- ------ -------
Total $ 3,328 $ (327) $ 3,001
------- ------ -------
For the year ended June 30, 1999 Federal $ 2,311 $ (446) $ 1,865
State 179 -- 179
------- ------ -------
Total $ 2,490 $ (446) $ 2,044
------- ------ -------
For the year ended June 30, 1998 Federal $ 1,873 $ (738) $ 1,135
State 232 -- 232
------- ------ -------
Total $ 2,105 $ (738) $ 1,367
------- ------ -------
<PAGE>
Willow Grove Bancorp, Inc.
Notes to Consolidated Financial Statements
The expense for income taxes differed from that computed at the statutory
federal corporate rate for the years ended June 30, 2000, 1999 and 1998 as
follows:
<TABLE>
<CAPTION>
June 30, 2000 June 30, 1999 June 30, 1998
------------------------- ------------------------- -----------------------
Percentage of Percentage of Percentage of
(Dollars in thousands) Amount pretax income Amount pretax income Amount pretax income
------ ------------- ------ ------------- ------ -------------
<S> <C> <C> <C> <C> <C> <C>
At federal statutory rate $ 2,667 34% $ 1,930 34% $ 1,296 34%
Adjustment resulting from:
State tax, net of federal tax benefit 316 4 118 2 152 4
Low income housing tax credits (29) -- (29) -- (29) --
Other 47 -- 25 -- (52) (2)
-------------------------------------------------------------------------------------------------------------------------------
Income tax expense per
statement of income $ 3,001 38% $ 2,044 36% $ 1,367 36%
------- -- ------- -- ------- --
</TABLE>
Significant deferred tax assets and liabilities of the Company as of June 30,
2000 and 1999 are as follows:
June 30, June 30,
(Dollars in thousands) 2000 1999
-------- --------
Deferred loan fees $ 319 $ 272
Retirement plan reserves 328 300
Employee benefits 198 149
Intangible asset amortization 335 292
Capital loss carryover 90 85
Charitable contributions 12 216
Uncollected interest 37 50
Book bad debt reserves 1,328 1,067
Unrealized loss on securities available for sale 1,351 861
Other, net 16 34
------- -------
Gross deferred tax assets 4,014 3,326
------- -------
Tax bad debt reserves (21) --
Tax bad debt reserves in excess of base year (550) (688)
Prepaid expenses (16) (37)
Originated mortgage servicing rights (43) (80)
Depreciation (46) --
------- -------
Gross deferred tax liabilities (676) (805)
------- -------
Net deferred tax asset $ 3,338 $ 2,521
------- -------
The realizability of deferred tax assets is dependent upon a variety of factors,
including the generation of future taxable income, the existence of taxes paid
and recoverable, the reversal of deferred tax liabilities and tax planning
strategies. Based upon these and other factors, management believes it is more
likely than not that the Company will realize the benefits of these deferred tax
assets.
(9) Benefit Plans
The Company has a money purchase pension plan to which the Company contributes
for all eligible employees, 7.5% of their base salary. The expense of such plan
was $222,000, $193,000 and $182,000 for the years ending June 30, 2000, 1999 and
1998, respectively.
<PAGE>
Willow Grove Bancorp, Inc.
Notes to Consolidated Financial Statements
The Company also has a 401(k) plan which covers all eligible employees and
permits them to make certain contributions to the plan on a pretax basis.
Employees are permitted to contribute up to 10% of salary to this plan. The
Company matches fifty cents for every dollar contributed. The expense of such
plan was $110,000, $89,000 and $79,000 for the years ended June 30, 2000, 1999
and 1998, respectively.
Effective June 30, 1998, the Company adopted non-qualified supplemental
retirement plans for the Company's Board of Directors (the "Directors' Plan")
and for the Company's president (the "President's Plan"). The Directors' Plan
provides for fixed annual payments to qualified directors for a period of ten
years from retirement. Benefits to be paid accrue at the rate of 20% per year on
completion of six full years of service, with full benefit accrual at ten years
of service. At the time these plans were adopted credit was given for past
service. The President's Plan provides for payments for a period of ten years
beginning at retirement based on a percentage of annual compensation not to
exceed an established cap. Full benefits become accrued at age 68 with partial
vesting prior thereto. Both plans provide for full payments in the event of a
change in control of the Company. The costs of each of the Directors' Plan and
President's Plan were $60,000 and $18,000, $60,000 and $18,000 and $566,000 and
$234,000, respectively, for the years ended June 30, 2000, 1999 and 1998. The
expense of these plans incurred in 1998 included the cost for past service. The
Directors' Plan and President's Plan are intended to be and are unfunded.
The ESOP
Concurrent with the Reorganization, the Company adopted an ESOP. The ESOP
borrowed $1.8 million from the Company and used the funds to purchase 179,270
shares of the Company's stock issued in the Reorganization. The loan has an
interest rate of 7.75% and has an amortization schedule of 15 years. Shares
purchased are held in a suspense account for allocation among the participants
as the loan is repaid. Contributions to the ESOP and shares released from the
loan collateral will be in an amount proportional to repayment of the ESOP loan.
Shares are allocated to participants based on compensation as described in the
plan, in the year of allocation. At June 30, 2000, there were 11,952 ESOP shares
allocated to participants, representing a fair value of $112,000, in addition,
there were 5,976 shares committed to be released. The Company recorded
compensation expense of $81,000 and $90,000 for the ESOP for the years ended
June 30, 2000 and June 30, 1999, respectively.
RRP
Pursuant to the 1999 Recognition and Retention Plan and Trust Agreement (the
"RRP"), the Company acquired 89,635 shares at a cost of $929,000. On October 26,
1999, 89,635 shares were awarded to directors and management from the RRP Trust.
As of June 30, 2000, no granted shares were vested pursuant to the terms of the
Plan.
At June 30, 2000, the deferred cost of unearned RRP shares totaled $805,000 and
is recorded as a charge against stockholders' equity. Compensation expense on
RRP shares granted is recognized ratably over the five year vesting period in an
amount which totals the market price of the Company's stock at the date of
grant. The Company recorded compensation expense of $108,000 related to the RRP
for the year ended June 30, 2000.
Stock Option Plan
The Company adopted a stock option plan in fiscal 2000 ("the Plan") for
officers, directors and certain employees of the Company or its subsidiaries.
Pursuant to the terms of the Plan, the number of common shares reserved for
issuance is 224,088 of which 56,988 options remain unawarded. All options have
been granted with an exercise price equal to fair market value at the date of
grant and expire in 10 years from the date of grant. All stock options granted
vest over a five year period from the date of grant.
<PAGE>
Willow Grove Bancorp, Inc.
Notes to Consolidated Financial Statements
A summary of the status of the Plan as of June 30, 2000 and changes during the
year is presented below:
Weighted
Average
Number of Exercise
Shares Price
--------- ----------
Outstanding at beginning of year -- --
Granted 167,100 $ 9.06
Forfeited -- $ --
Outstanding at end of year 167,100 $ 9.06
Exercisable at end of year -- $ --
The weighted-average fair value of awards granted is $3.32
The Black-Scholes option pricing model was used to determine the fair value of
options at the grant date. Significant assumptions used in the model included a
weighted-average risk-free rate of return of 5.8% in 2000; expected option life
of 10 years; expected dividend yield of 3.45% and expected stock price
volatility of 26.07%.
SFAS No 123, "Accounting for Stock-based Compensation" encourages, but does not
require, the adoption of fair-value accounting for stock-based compensation to
employees. The Company, as permitted, has elected not to adopt the fair value
accounting provisions of SFAS 123, and has instead continued to apply APB
Opinion 25 and related interpretations in accounting for the Plan and to provide
the required proforma disclosures for SFAS No. 123. Had the Company determined
compensation cost based on the fair value at the grant date for its stock
options under SFAS No. 123, the Company's net income and earnings per share
would have been reduced to the proforma amounts indicated below:
For the year ended
June 30, 2000
-----------------------
(Dollars in thousands, except per share date) As reported Proforma
----------- --------
Net income $ 4,843 $ 4,769
Dilited earnings per share $ 0.97 $ 0.96
The following table summarizes all stock options outstanding for the Plan as of
June 30, 2000, segmented by range of exercise prices:
Weighted Weighted
average average
Number of exercise remaining
Price shares price contractual life
----- --------- ---------- ----------------
$ 9.06 167,100 $ 9.06 9.33 years
(10) Federal Home Loan Bank Advances
Under terms of its collateral agreement with the FHLB, the Company maintains
otherwise unencumbered qualifying assets (principally qualifying 1-4 family
residential mortgage loans and U.S. Government
<PAGE>
Willow Grove Bancorp, Inc.
Notes to Consolidated Financial Statements
and government agency, and mortgage-backed securities) in the amount of at least
as much as its advances from the FHLB. The Company's FHLB stock is also pledged
to secure these advances.
At June 30, 2000, such advances have contractual maturities as follows:
Weighted Amount
(Dollars in thousands) Average Rate Outstanding
------------ -----------
Due by June 30,
2001 6.78% $ 23,000
2002 7.04 6,000
2003 7.24 1,000
2004 5.79 807
2005 5.23 1,710
Thereafter 5.75 5,000
---- --------
Total 6.61% $ 37,517
---- --------
At June 30, 2000, $4.0 million of the above advances with contractual maturities
beyond one year are callable by the FHLB within one year.
(11) Commitments and Contingencies
At June 30, 2000 and 1999, the Company was committed to fund loans as follows:
June 30, June 30,
(Dollars in thousands) 2000 1999
-------- --------
Loans with fixed rates of interest $ 1,519 $ 5,497
Loans with variable rates of interest 9,539 8,469
------- -------
Total commitments to funds loans $11,058 $13,966
------- -------
Financial Instruments With Off-Balance Sheet Risk
In the normal course of business, the Company is a party to financial
instruments with off-balance sheet risk to meet the financing needs of its
customers. At June 30, 2000 the Company is committed to the funding of first
mortgage loans of approximately $5.1 million, construction loans of
approximately $3.9 million, and commercial business loans of approximately $2.1
million.
The Company uses the same credit policies in extending commitments as it does
for on-balance sheet instruments. The Company controls its exposure to loss from
these agreements through credit approval processes and monitoring procedures.
Commitments to extend credit are generally issued for one year or less and may
require payment of a fee. The total commitment amounts do not necessarily
represent future cash disbursements, as many of the commitments expire without
being drawn upon. The Company may require collateral in extending commitments,
which may include cash, accounts receivable, securities, real or personal
property, or other assets. For those commitments which require collateral, the
value of the collateral generally equals or exceeds the amount of the
commitment.
Concentration of Credit Risk
The Company offers residential and construction real estate loans as well as
commercial and consumer loans. The Company's lending activities are concentrated
in Pennsylvania. The largest concentration of the Company's loan portfolio is
located in eastern Pennsylvania. The ability of the Company's borrowers to repay
amounts owed is dependent on several factors, including the economic conditions
in the borrower's geographic region and the borrower's financial condition.
<PAGE>
Willow Grove Bancorp, Inc.
Notes to Consolidated Financial Statements
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 and operating results of the Company.
Other Commitments
In connection with the operation of eleven of its banking offices, the Company
leases certain office space. The leases are classified as operating leases, with
rent expense of $375,000, $148,000, and $205,000 for the years ended June 30,
2000, 1999 and 1998, respectively. Minimum payments over the remainder of the
lease are summarized as follows:
Minimum Lease
(Dollars in thousands) Payments
-------------
Year ended June 30,
2001 $ 453
2002 430
2003 389
2004 348
2005 and thereafter 191
-------
$ 1,811
-------
(12) Regulatory Matters
The Bank is subject to various regulatory capital requirements administered by
the federal banking agencies. Failure to meet minimum capital requirements can
initiate certain mandatory, and possibly additional discretionary actions by
regulators that if undertaken, could have a direct material effect on the Bank's
financial statements. Under capital adequacy guidelines and the regulatory
framework for prompt corrective action, the Bank must meet specific capital
guidelines that involve quantitative measures of the Bank's assets, liabilities,
and certain off-balance sheet items as calculated under accounting practices.
The Bank's capital amounts and classifications are also subject to qualitative
judgments by the regulators about components, risk weightings, and other
factors.
Quantitative measures established by regulation to ensure capital adequacy
require the Bank to maintain certain minimum amounts and ratios (set forth in
the table below). Management believes that the Bank meets, as of June 30, 2000,
all capital adequacy requirements to which it is subject.
As of June 30, 2000 the most recent notification from the OTS categorized the
Bank as well capitalized under the regulatory framework for prompt corrective
action. To be categorized as well capitalized the Bank must maintain minimum
ratios as set forth in the table. There are no conditions or events since that
notification that management believes have changed the institution's category.
<PAGE>
Willow Grove Bancorp, Inc.
Notes to Consolidated Financial Statements
The Bank's actual capital amounts and ratios are presented in the following
table.
<TABLE>
<CAPTION>
To be Well
For Capital Capitalized Under
Adequacy Prompt Corrective
Actual Capital Purposes Action Provisions
---------------- ------------------ -----------------
(Dollars in thousands) Amount Ratio Amount Ratio Amount Ratio
------ ----- ------ ----- ------- ------
<S> <C> <C> <C> <C> <C> <C>
As of June 30, 2000:
Tangible capital (to tangible assets) $50,611 9.0% $ 8,399 1.5% N/A N/A
Core capital (to adjusted tangible assets) 50,611 9.0 22,431 4.0 28,039 5.0
Tier I capital (to risk-weighted assets) 50,611 14.6 N/A N/A 20,815 6.0
Risk-based capital (to risk-weighted assets) 54,516 15.7 27,753 8.0 34,692 10.0
As of June 30, 1999:
Tangible capital (to tangible assets) $46,180 9.8% $ 7,079 1.5% N/A N/A
Core capital (to adjusted tangible assets) 46,180 9.8 18,855 4.0 23,568 5.0
Tier I capital (to risk-weighted assets) 46,180 16.9 N/A N/A 16,352 6.0
Risk-based capital (to risk-weighted assets) 49,318 18.1 21,803 8.0 27,253 10.0
</TABLE>
The Bank is not under any agreement with the regulatory authorities nor is it
aware of any current recommendations by the regulatory authorities which, if
they were to be implemented, would have a material effect on liquidity, capital
resources, or operations of the Bank.
(13) Fair Value of Financial Instruments
The Company's methods for determining the fair value of its financial
instruments as well as significant assumptions and limitations are set forth
below.
Limitations
Estimates of fair value are made at a specific point in time, based upon, where
available, relevant market prices and information about the financial
instrument. Such estimates do not include any premium or discount that could
result from offering for sale at one time the Company's entire holdings of a
particular financial instrument. For a substantial portion of the Company's
financial instruments, no quoted market exists. Therefore, estimates of fair
value are necessarily based on a number of significant assumptions (many of
which involve events outside the control of management). Such assumptions
include assessments of current economic condition, perceived risks associated
with these financial instruments and their counterparties, future expected loss
experience, and other factors. Given the uncertainties surrounding these
assumptions, the reported fair values represent estimates only and, therefore,
cannot be compared to the historical accounting model. Use of different
assumptions or methodologies is likely to result in significantly different fair
value estimates.
The estimated fair values presented neither include nor give effect to the
values associated with the Company's banking or other businesses, existing
customer relationships, branch banking network, property, equipment, goodwill,
or certain tax implications related to the realization of unrealized gains or
losses. The fair value of non-interest-bearing demand deposits, savings and NOW
accounts, and money market deposit accounts is equal to the carrying amount
because these deposits have no stated maturity. This approach to estimating fair
value excludes the significant benefit that results from the low-cost funding
provided by such deposit liabilities, as compared to alternative sources of
funding. As a consequence, this presentation may distort the actual fair value
of a banking organization that is a going concern.
The following methods and assumptions were used to estimate the fair value of
each major classification of financial instruments at June 30, 2000 and 1999:
<PAGE>
Willow Grove Bancorp, Inc.
Notes to Consolidated Financial Statements
Cash and cash equivalents, Accrued interest receivable, Deposits with no stated
maturity, and Accrued interest payable have carrying values that approximate
fair value.
Securities Available for Sale
Current quoted market prices were used to determine fair value.
Loans
Fair values were estimated for portfolios of loans with similar financial
characteristics. Loans were segregated by type and each loan category was
further segmented by fixed and adjustable-rate interest terms. The estimated
fair value of the segregated portfolios was calculated by discounting cash flows
based on estimated maturity and prepayment speeds using estimated market
discounted rates that reflected credit and interest risk inherent in the loans.
The estimate of the maturities and prepayment speeds was based on the Company's
historical experience. Cash flows were discounted using market rates adjusted
for portfolio differences.
Loans Available for Sale
The fair value of mortgage loans originated and intended for sale in the
secondary market is based on contractual cash flows using current market rates,
calculated on an aggregate basis.
Certificates of Deposit
Fair value was estimated by discounting the contractual cash flows using current
market rates offered in the Company's market area for deposits with comparable
terms and maturities.
FHLB Advances
Fair value was estimated using discounted cash flow analysis based on the
Company's current incremental borrowing rate for similar types of borrowing
arrangements.
Commitments to Extend Credit
The majority of the Company's commitments to extend credit carry current
interest rates if converted to loans. Because commitments to extend credit are
generally unassignable by either the Company or the borrower, they only have
value to the Company and the borrower. The estimated fair value approximates the
recorded deferred fee amounts.
The carrying amounts and estimated fair values of the Company's financial
instruments, including off-balance sheet financial instruments, were at June 30,
2000 and 1999:
<PAGE>
Willow Grove Bancorp, Inc.
Notes to Consolidated Financial Statements
<TABLE>
<CAPTION>
June 30, 2000 June 30, 1999
----------------------- ---------------------
Carrying Carrying
(Dollars in thousands) Amount Fair Value Amount Fair Value
-------- ---------- -------- ----------
<S> <C> <C> <C> <C>
Assets
Cash and cash equivalents $ 14,681 $ 14,681 $ 4,889 $ 4,889
Securities available for sale 70,577 70,577 80,055 80,055
Loans available for sale 35,753 35,753 -- --
Loans, net 424,940 415,578 374,584 380,266
Accrued income receivable 2,795 2,795 2,519 2,519
Liabilities
Deposits with no stated maturity $159,545 $159,545 $139,524 $139,524
Certificates of Deposit 293,312 290,476 251,157 254,000
FHLB advances 37,517 37,458 14,986 14,435
Accrued interest payable 1,474 1,474 706 706
<CAPTION>
Carrying Carrying
Amount Fair Value Amount Fair Value
-------- ---------- -------- ----------
<S> <C> <C> <C> <C>
Off Balance Sheet Financial Instruments:
Commitments to extend credit $ 11,058 $ 6 $ 13,966 $ 22
</TABLE>
(14) Comprehensive Income (Loss)
The tax effects allocated to each component of "Other comprehensive income" are
as follows:
<TABLE>
<CAPTION>
June 30, 2000
-------------------------------------
Before-tax Tax After-tax
(Dollars in thousands) Amount Benefit Amount
---------- ------- ---------
<S> <C> <C> <C>
Unrealized gains on securities available for sale:
Unrealized holding losses arising during the period $(1,519) $ 562 $ (957)
Less: reclass adjustment for losses included in net income $ (46) $ 17 $ (29)
Other comprehensive loss $(1,473) $ 545 $ (928)
------- ------- -------
<CAPTION>
June 30, 1999
-------------------------------------
Before-tax Tax After-tax
(Dollars in thousands) Amount Benefit Amount
---------- ------- ---------
<S> <C> <C> <C>
Unrealized gains on securities available for sale:
Unrealized holding losses arising during the period $(2,404) $ 912 $(1,492)
Other comprehensive loss $(2,404) $ 912 $(1,492)
------- ------- -------
<CAPTION>
June 30, 1998
-------------------------------------
Before-tax Tax After-tax
(Dollars in thousands) Amount Benefit Amount
---------- ------- ---------
<S> <C> <C> <C>
Unrealized gains on securities available for sale:
Unrealized holding losses arising during the period $ 505 $ (192) $ 313
Less: reclass adjustment for losses included in net income (105) 40 (65)
Other comprehensive income $ 610 $ (232) $ 378
------- ------- -------
</TABLE>
<PAGE>
Willow Grove Bancorp, Inc.
Notes to Consolidated Financial Statements
(15) Dividend Policy
The Company's ability to pay dividends is dependent, in part, upon its ability
to obtain dividends from the Bank. The future dividend policy of the Company is
subject to the discretion of the Board of Directors and will depend upon a
number of factors, including future earnings, financial conditions, cash needs,
and general business conditions. Holders of common stock will be entitled to
receive dividends as and when declared by the Board of Directors of the Company
out of funds legally available for that purpose. Such payment, however, will be
subject to the regulatory restrictions set forth by the OTS. In addition, FDICIA
provides that, as a general rule, a financial institution may not make a capital
distribution if it would be undercapitalized after making the capital
distribution.
To date, the MHC has waived its receipt of cash dividends from the Company. The
dollar amount of dividends waived by the MHC are considered as a restriction on
the retained earnings of the Company. The amount of any dividend waived by the
MHC shall be available for declaration as a dividend solely to the MHC. At June
30, 2000, the cumulative amount of such waived dividend was $1.0 million.
(16) Parent Company Financial Information (Willow Grove Bancorp, Inc.)
Condensed Statement of Financial Condition
June 30, June 30,
(Dollars in thousands) 2000 1999
-------- --------
Assets:
Cash on deposit with subsidiary bank $ 89 $ 142
Note receivable from subsidiary bank 10,620 11,293
Investment in subsidiary bank 49,810 46,718
Other assets 267 455
------- -------
Total assets 60,786 58,608
------- -------
Liabilities and stockholders' equity:
Other liabilities 143 166
------- -------
Total liabilities 143 166
Total stock holders' equity 60,643 58,442
------- -------
Total liabilities and stockholders' equity $60,786 $58,608
------- -------
Condensed Statement of Income
For the year ended June 30,
(Dollars in thousands) 2000 1999
-------- --------
Income:
Interest income on note receivable $ 412 $ 143
Equity in undistributed income of subsidiary 4,760 2,366
------- -------
Total income 5,172 2,509
------- -------
Expense:
Professional 166 125
Stationary and printing 45 31
Charitable foundation -- 896
Other 52 11
------- -------
Total expense 263 1,063
------- -------
Income before taxes 4,909 1,446
Income tax expense (benefit) 66 (313)
------- -------
Net income $ 4,843 $ 1,759
------- -------
<PAGE>
Willow Grove Bancorp, Inc.
Notes to Consolidated Financial Statements
Condensed Statement of Cash Flows
<TABLE>
<CAPTION>
For the year ended June 30,
(Dollars in thousands) 2000 1999
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income $ 4,843 $ 1,759
Less items not affecting cash flows:
Equity in undistributed income of subsidiary (4,760) (2,366)
(Increase) decrease in accrued interest receivable 142 (142)
Foundation contribution expense -- 896
(Increase) decrease in other assets 188 (313)
Increase (decrease) in other liabilities (23) 166
-------- --------
Net cash provided by operating activities 390 --
-------- --------
Cash flows from investing activities:
Capital investment in subsidiary bank -- (9,828)
(Issuance) repayments of notes receivable from subsidiary 531 (11,293)
-------- --------
Net cash provided by investing activities 531 (21,121)
-------- --------
Cash flows from financing activities:
Proceeds from stock issuance -- 21,450
Treasury stock purchases (212)
Dividends paid (762) (187)
-------- --------
Net cash used in financing activities (974) 21,263
-------- --------
Net increase (decrease) in cash and cash equivalents $ (53) $ 142
Cash and cash equivalents at beginning of period 142 --
Cash and cash equivalents at end of period $ 89 $ 142
-------- --------
</TABLE>
<PAGE>
PAGE 44
HEADLINE: "Executive Officers and Directors"
Photo of Directors seated at table and standing.
CAPTION reads:
"The Directors: (seated left to right) Elizabeth H. Gemmill, Frederick A.
Marcell Jr., William W. Langan, Chairman; (standing left to right) William B.
Weihenmayer, Lewis W. Hull, Charles F. Kremp 3rd, J. Ellwood Kirk, A. Brent
O'Brien, and Samuel H. Ramsey III."
Below that, a listing of Executive Officers and Directors, as follows:
EXECUTIVE OFFICERS OF WILLOW GROVE BANK AND WILLOW GROVE BANCORP, INC.
Frederick A. Marcell Jr.
President and Chief Executive Officer
Thomas M. Fewer
Senior Vice President
Christopher E. Bell
Senior Vice President and Chief Financial Officer
John T. Powers
Senior Vice President and Corporate Secretary
DIRECTORS OF WILLOW GROVE BANK AND WILLOW GROVE BANCORP, INC.
Elizabeth H. Gemmill
Managing Trustee, Warwick Foundation, Philadelphia, PA
Lewis W. Hull
Chairman of Hull Corporation and Hull Company (manufacturing companies),
Hatboro, PA
J. Ellwood Kirk
Retired President of Willow Grove Bank
Charles F. Kremp, 3rd
President of Kremp Florist,
Willow Grove, PA
William W. Langan
President and owner of Marmetal Industries, Inc., Horsham, PA
Frederick A. Marcell Jr.
President and Chief Executive Officer of Willow Grove Bank since July 1992
A. Brent O'Brien
President and owner of Bean, Mason & Eyer (insurance broker), Doylestown, PA
Samuel H. Ramsey III
Owner of Samuel H. Ramsey, III, Certified Public Accountants
<PAGE>
William B. Weihenmayer
Self-employed real estate investor, Huntingdon Valley, PA
Below LISTING:
PHOTO of President and Chairman
CAPTION reads:
"At left, Frederick A. Marcell Jr., President of Willow Grove Bancorp, Inc., and
William W. Langan, Chairman."
<PAGE>
INSIDE BACK COVER (p. 45)
HEADLINE: "Corporate Information"
TEXT which reads as follows:
"CORPORATE HEADQUARTERS
Willow Grove Bancorp, Inc.
Welsh and Norristown Roads
Maple Glen, Pennsylvania 19002-8030
www.wgbank.com
ANNUAL MEETING
The annual meeting of the stockholders will be held on November 9, 2000 at 11:00
am:
The Fairway Room
North Hills Country Club
99 Station Avenue
North Hills, Pennsylvania
INDEPENDENT AUDITORS
KPMG LLP
1600 Market Street
Philadelphia, Pennsylvania 19103
SHAREHOLDER INQUIRIES
For information relating to the annual report on Form 10-K, press releases,
reports filed with the SEC and the annual meeting of stockholders, call
Frederick A. Marcell Jr. or Christopher E. Bell at 215-646-5405.
GENERAL COUNSEL
Duffy, North, Wilson, Thomas & Nicholson
104 North York Road
Hatboro, Pennsylvania 19040
SPECIAL COUNSEL
Elias, Matz, Tiernan & Herrick LLP
734 15th Street, N.W., 12th Floor
Washington, DC 20005
TRANSFER AGENT AND REGISTRAR
For information relating to your stock holdings, stock transfer requirements,
lost certificates, dividends, tax forms and related matters, contact:
Registrar and Transfer Company
10 Commerce Drive
Cranford, New Jersey 07016-3572
800-368-5948
COMMON STOCK
Willow Grove Bancorp, Inc.'s common stock is traded on The Nasdaq Stock Market
(NASDAQ) under the symbol WGBC. Newspaper stock listings: WillowG. or
WillGrvBcp.
MARKET MAKERS
Boenning & Scattergood, Inc.
F. J. Morrissey & Co., Inc.
Friedman Billings Ramsey & Co., Inc.
Keefe, Bruyette & Woods, Inc.
Knight Securities LP
<PAGE>
Ryan, Beck & Co.
Sandler O'Neill & Partners
Spear Leeds & Kellogg
Tucker Anthony, Inc.
Below TEXT is a LISTING of Office Locations:
HEADLINE: "Office Locations"
Maple Glen
Welsh and Norristown Roads
Maple Glen, PA 19002-8030
Warminster
Warminster Square Shopping Center
1555 West Street Road
Warminster, PA 18974
K-Mart Plaza
1141 Ivyland Road
Warminster, PA 18974
Willow Grove
9 Easton Road
Willow Grove, PA 19090
Dresher
701 Twining Road
Dresher, PA 19025
Huntingdon Valley
Huntingdon Valley Shopping Center
761 Huntingdon Pike
Huntingdon Valley, PA 19006
Hatboro
2 North York Road
Hatboro, PA 19040
North Wales
122 N. Main Street
North Wales, PA 19454
Rhawnhurst
8200 Castor Avenue
Philadelphia, PA 19152
Roslyn Valley
Roslyn Valley Shopping Center
1331 Easton Road
Roslyn, PA 19001
Somerton
Lumar Shopping Center
11730 Bustleton Avenue
<PAGE>
Philadelphia, PA 19116
<PAGE>
BACK COVER
PHOTO of Willow Grove Bank branch entrance.
Superimposed are three photographs which are continuations of strip photo
montages from front cover:
(1) Two business men with cellphone and computer
(2) Young mother with child
(3) Red Barn
At the bottom:
Willow Grove Logo (Willow Grove Bank)
and
HEADLINE: "Growing with our neighbors since 1909."
