UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2000
OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _________________ to _________________
Commission file number: 0-25191
Willow Grove Bancorp, Inc.
(Exact name of registrant as specified in its charter)
United States 23-2986192
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
Welsh and Norristown Roads, Maple Glen, Pennsylvania 19002
(Address of principal executive offices)
(215) 646-5405
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES |X| NO |_|
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
The Registrant had 5,143,487 shares of Common Stock issued and outstanding
as of November 13, 2000.
1
<PAGE>
WILLOW GROVE BANCORP, INC.
INDEX
Page No.
--------
PART I FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited)
Consolidated Statements of Financial Condition at
September 30, 2000 and June 30, 2000.................... 3
Consolidated Statements of Operations - For the Three
Months Ended September 30, 2000 and 1999................ 4
Consolidated Statements of Cash Flows - For the Three
Months Ended September 30, 2000 and 1999................ 5
Notes to Consolidated Financial Statements.............. 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operation...................... 9
Item 3. Quantitative and Qualitative Disclosures about Market
Risk.................................................... 16
PART II OTHER INFORMATION
Item 1. Legal Proceedings....................................... 16
Item 2. Changes in Securities and Use of Proceeds............... 16
Item 3. Defaults upon Senior Securities......................... 17
Item 4. Submission of Matters to a Vote of Security Holders..... 17
Item 5. Other Information....................................... 17
Item 6 Exhibits and Reports on Form 8-K........................ 17
2
<PAGE>
Willow Grove Bancorp, Inc.
Consolidated Statements of Financial Condition
(Unaudited)
(Dollars in thousands, except share data)
<TABLE>
<CAPTION>
September 30, June 30,
Assets 2000 2000
----------------------------------------------------------------------------------
<S> <C> <C>
Cash and cash equivalents:
Cash on hand and non-interest-earning deposits $ 3,115 $ 4,442
Interest-earning deposits 8,965 10,239
----------------------
Total cash and cash equivalents 12,080 14,681
Assets available for sale:
Securities (amortized cost of $119,627 and
$74,291, respectively) 116,888 70,577
Loans 4,956 35,753
Loans (net of allowance for loan losses of $3,976
and $3,905, respectively) 432,058 424,940
Accrued income receivable 3,187 2,795
Property and equipment, net 6,289 6,232
Intangible assets 1,437 1,539
Other assets 3,817 3,606
----------------------------------------------------------------------------------
Total assets $ 580,712 $ 560,123
Liabilities and Stockholders' Equity
----------------------------------------------------------------------------------
Deposits $ 447,922 $ 452,857
Federal Home Loan Bank (FHLB) advances 64,381 37,517
Advance payments from borrowers for taxes 1,642 4,725
Accrued interest payable 1,718 1,474
Other liabilities 2,941 2,907
----------------------------------------------------------------------------------
Total liabilities 518,604 499,480
Commitments and contingencies
Stockholders' equity:
Common stock, $0.01 par value; (25,000,000 authorized;
5,143,487 issued at September 30 and June 30, 2000) 51 51
Additional paid-in capital 22,266 22,270
Retained earnings-substantially restricted 44,318 43,291
Accumulated other comprehensive income (loss) (1,680) (2,340)
Treasury stock at cost, 50,000 shares and 22,500 shares (504) (211)
at September 30 and June 30, 2000, respectively
Unallocated common stock held by
employee stock ownership plan (ESOP) (1,584) (1,613)
Common stock held by recognition
and retention plan trust (RRP) (759) (805)
----------------------------------------------------------------------------------
Total stockholders' equity 62,108 60,643
Total liabilities and stockholders' equity $ 580,712 $ 560,123
==================================================================================
</TABLE>
See accompanying notes to the consolidated financial statements
3
<PAGE>
Willow Grove Bancorp, Inc.
Consolidated Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
For the Three Months Ended
(Dollars in thousands except per share data) September 30,
-----------------------
2000 1999
-----------------------------------------------------------------------------
<S> <C> <C>
Interest and dividend income:
Loans $ 9,058 $ 7,656
Securities, primarily taxable 1,822 1,242
-----------------------------------------------------------------------------
Total interest income $ 10,880 $ 8,898
-----------------------------------------------------------------------------
Interest expense:
Deposits $ 4,944 $ 3,932
Borrowings 858 328
Advance payment from borrowers for taxes 5 6
-----------------------------------------------------------------------------
Total interest expense $ 5,807 $ 4,266
-----------------------------------------------------------------------------
Net interest income 5,073 4,632
Provision for loan losses 110 270
-----------------------------------------------------------------------------
Net interest income after provision for loan losses $ 4,963 $ 4,362
-----------------------------------------------------------------------------
Non-interest income:
Service charges and fees $ 303 $ 253
Gain on sale of loans available for sale 4 --
Gain on sale of securities available for sale 19 --
Loan servicing income, net 18 9
-----------------------------------------------------------------------------
Total non-interest income $ 344 $ 262
-----------------------------------------------------------------------------
Non-interest expense:
Compensation and employee benefits $ 1,999 $ 1,571
Occupancy 267 180
Furniture and equipment 161 108
Federal insurance premium 23 54
Amortization of intangible assets 103 103
Data processing 135 123
Advertising 86 80
Community enrichment 38 38
Deposit account services 172 140
Other expense 385 368
-----------------------------------------------------------------------------
Total non-interest expense $ 3,369 $ 2,765
-----------------------------------------------------------------------------
Income before income taxes $ 1,938 $ 1,859
Income taxes 697 652
-----------------------------------------------------------------------------
Net Income $ 1,241 $ 1,207
=============================================================================
Earnings per share:
Basic $ 0.25 $ 0.24
Diluted $ 0.25 $ 0.24
Cash dividends declared per share $ 0.10 $ 0.08
Weighted average shares outstanding 4,860,553 4,951,645
Weighted average diluted shares outstanding 4,860,553 4,951,645
</TABLE>
See accompanying notes to the consolidated financial statements
4
<PAGE>
Willow Grove Bancorp, Inc.
Consolidated Statements of Cash Flows
(Unaudited)
(Dollars in thousands)
<TABLE>
<CAPTION>
For the Three Months
Ended September 30,
--------------------
2000 1999
------------------------------------------------------------------------------------------
<S> <C> <C>
Net cash flows from operating activities:
Net income $ 1,241 $ 1,207
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation 181 116
Amortization of premium and accretion of discount, net (124) 41
Amortization of intangible assets 102 103
Provision for loan losses 110 270
Gain on sale of loans available for sale (4) --
Gain on sale of securities available for sale (19) --
Increase in accrued income receivable (392) (135)
(Increase)decrease in other assets (465) 88
Increase(decrease) in accrued interest payable 244 (167)
Increase in other liabilities 34 121
Expense of ESOP and RRP 143 --
Originations and purchases of loans available for sale (4,399) --
Proceeds from sale of loans available for sale 35,200 --
------------------------------------------------------------------------------------------
Net cash provided by operating activities $ 31,852 $ 1,644
------------------------------------------------------------------------------------------
Cash flows from investing activities:
Net increase in loans (7,660) (22,275)
Purchase of securities available for sale (46,635) --
Proceeds from sales and calls of securities available
for sale 223 6,506
Principal repayments of securities available for sale 933 1,224
Purchase of property and equipment, net (238) (123)
------------------------------------------------------------------------------------------
Net cash used in investing activities $(53,378) $(14,668)
------------------------------------------------------------------------------------------
Cash flows from financing activities:
Net decrease in deposits (4,935) 796
Net increase in FHLB advances with
original maturity less than 90 days 1,000 13,000
Increase in FHLB advances with original maturity
greater than 90 days 30,000 7,000
Repayment of FHLB advances with original maturity
greater than 90 days (4,136) (72)
Net decrease in advance payments from borrowers for taxes (3,083) (2,465)
Dividends paid (215) (186)
Purchase of Treasury Stock 293 --
------------------------------------------------------------------------------------------
Net cash provided by financing activities $ 18,925 $ 18,073
------------------------------------------------------------------------------------------
Net Decrease(increase) in cash and cash equivalents $ (2,601) $ 5,049
Cash and cash equivalents:
Beginning of period 14,681 4,889
------------------------------------------------------------------------------------------
End of period $ 12,080 $ 9,938
------------------------------------------------------------------------------------------
Supplemental disclosures of cash and cash flow information:
Interest paid 5,563 4,433
Income taxes paid 468 240
Non-cash items:
Change in unrealized gain (loss) on securities
available for sale 660 (320)
(net of taxes of ($316) and $189 in 2000 and 1999, respectively)
Loans transferred to other real estate owned 62 281
</TABLE>
See accompanying notes to the consolidated financial statements
5
<PAGE>
WILLOW GROVE BANCORP, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies
Description of Business
In 1998, Willow Grove Bancorp, Inc. (the "Company) completed the
reorganization of Willow Grove Bank (the "Bank") into the federal mutual holding
company form of ownership whereby the Bank converted into a federally chartered
stock savings bank as a wholly owned subsidiary of the Company, and the company
became a majority owned subsidiary of Willow Grove Mutual Holding Company (the
"MHC").
The Company provides a full range of banking services through the Bank's
eleven branches in Montgomery, Bucks, and Philadelphia counties in Pennsylvania.
All of the branches are full-service and offer commercial and retail banking
products and services. These products include checking accounts
(interest-bearing and non-interest-bearing), savings accounts, and certificates
of deposit, business loans, real estate loans, and consumer loans. The Company
is subject to competition from other financial institutions and other companies
that offer financial services. The Company is subject to the regulations of
certain federal agencies and undergoes periodic examinations by these regulatory
authorities.
2. Basis of Financial Statement Presentation
The accompanying consolidated financial statements were prepared in
accordance with instructions to Form 10-Q, and therefore, do not include
information or footnotes necessary for a complete presentation of financial
position, results of operations and cash flows in conformity with generally
accepted accounting principles. However, all normal, recurring adjustments
which, in the opinion of management, are necessary for a fair presentation of
these financial statements, have been included. These financial statements
should be read in conjunction with the audited financial statements and the
notes thereto for the period ended June 30, 2000. The results for the interim
periods presented are not necessarily indicative of the results that may be
expected for the year ending June 30, 2001.
In preparing the financial statements, management is required to make
certain estimates and assumptions that affect the carrying values of certain
assets and liabilities, and revenues and expenses for the reporting periods
contained herein, in particular the allowance for loan losses. Actual results
could differ from such estimates.
3. Earnings Per Share
Earnings per share, basic and diluted, were $0.25 and $0.25, respectively,
for the three months ended September 30, 2000. This compares to basic and
diluted earnings per share of $0.24 and $0.24, respectively, for the three
months ended September 30, 1999.
6
<PAGE>
The following is a reconciliation of the numerators and denominators of
the basic and diluted earnings per share calculations.
<TABLE>
<CAPTION>
Three Months Three Months
Ended September 30, Ended September 30,
2000 1999
------------- -------------- -------------- -----------
(Dollars in thousands, except share data)
------------- -------------- -------------- -----------
Basic Diluted Basic Diluted
------------- -------------- -------------- -----------
<S> <C> <C> <C> <C>
Net Income $ 1,241 $ 1,241 $ 1,207 $ 1,207
Dividends on unvested common stock awards (9) (9) -- --
----------- ----------- ----------- -----------
Adjusted net income used in EPS calculations $ 1,232 $ 1,232 $ 1,207 $ 1,207
Weighted average shares outstanding 4,860,553 4,860,553 4,951,645 4,951,645
Effect of dilutive securities:
Options -- 20,544 -- --
Unvested common stock awards -- 83,018 -- --
----------- ----------- ----------- -----------
Adjusted weighted average shares used in
EPS computation 4,860,553 4,964,115 4,951,645 4,951,645
=========== =========== =========== ===========
Earnings per share $ 0.25 $ 0.25 $ 0.24 $ 0.24
</TABLE>
4. Loan Portfolio
The Bank's loan portfolio consisted of the following at the dates
indicated:
<TABLE>
<CAPTION>
Sept. 30, 2000 June 30, 2000
------------------------- -------------------------
(Dollars in thousands) Percentage of Percentage of
Amount Total Amount Total
-------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Mortgage loans:
Single-family residential $ 204,186 46.7% $ 206,340 48.0%
Multi-family residential 20,834 4.8% 21,437 5.0%
Commercial real estate 87,200 20.0% 81,076 18.9%
Construction 17,079 3.9% 14,973 3.5%
Home Equity 74,372 17.0% 72,217 16.8%
-------------------------------------------------------------------------------------------
Total mortgage loans $ 403,671 92.4% $ 396,043 92.2%
-------------------------------------------------------------------------------------------
Other consumer loans 8,552 2.0% 7,818 1.8%
Commercial business loans 24,510 5.6% 25,683 6.0%
-------------------------------------------------------------------------------------------
Total loans receivable $ 436,733 100.0% $ 429,544 100.0%
Less:
Allowance for loan losses (3,976) (3,905)
Deferred loan origination fees (699) (699)
-------------------------------------------------------------------------------------------
Loans receivable, net $ 432,058 $ 424,940
-------------------------------------------------------------------------------------------
</TABLE>
7
<PAGE>
5. Securities
The amortized cost of available-for-sale securities and their estimated
fair values at September 30, 2000 and June 30, 2000 are as follows:
September 30, 2000
--------------------------------------------------
Amortized Unrealized Unrealized Estimated
(Dollars in Thousands) Cost Gains Losses Fair Value
--------------------------------------- -------- -------- ----------
Equity securities $ 7,827 $ 16 $ (58) $ 7,785
US government and government 37,513 30 (1,505) 36,038
agency securities
Mortgage backed securities 72,285 36 (1,156) 71,165
Municipal securities 2,002 82 (102) 1,900
-------- -------- -------- --------
Total $119,627 $ 82 $ (2,821) $116,888
======== ======== ======== ========
June 30, 2000
--------------------------------------------------
Amortized Unrealized Unrealized Estimated
(Dollars in Thousands) Cost Gains Losses Fair Value
--------------------------------------- -------- -------- ----------
Equity securities $ 7,528 $ -- $ (77) $ 7,451
US government and government 33,000 -- (1,975) 31,025
agency securities
Mortgage backed securities 31,162 -- (1,536) 29,626
Municipal securities 2,601 -- (126) 2,475
-------- -------- -------- --------
Total $ 74,291 $ -- $ (3,714) $ 70,577
======== ======== ======== ========
6. Recent Accounting Pronouncements
Accounting for Derivative Instruments and Hedging Activities
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("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 imbedded 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
designated as (a) a hedge of certain exposure to changes in the fair value of a
recognized asset 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
No. 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.
Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities
In September 2000, the FASB issued SFAS No. 140, "Accounting for Transfers
and Servicing of Financial Assets and Extinguishments of Liabilities." This
statement supercedes and replaces the guidance in SFAS No. 125. It revises the
standards for accounting for securitizations and other transfers of financial
assets and collateral and requires certain disclosures, although it carries over
most of SFAS No. 125's provisions without reconsideration.
8
<PAGE>
The SFAS No. 140 is effective for transfers and servicing of financial
assets and extinguishments of liabilities occurring after March 31, 2001 and for
recognition and reclassification of collateral and for disclosures relating to
securitization transactions and collateral for fiscal years ending after
December 15, 2000 and is to be applied prospectively with certain exceptions.
Other than those exceptions, earlier or retroactive application of its
accounting provisions is not permitted. The Company has not yet determined the
impact, if any, of this statement on the Company's financial condition, equity,
results of operations, or disclosure.
7. Comprehensive Income
The following table displays net income and the components of other
comprehensive income to arrive at total comprehensive income. For the Company,
the only component of other comprehensive income is the change in the estimated
fair value of investment securities available-for-sale.
Three Months Ended
(Dollars in thousands) September 30,
-------------------------------------------------------------------------------
2000 1999
-------------------------------------------------------------------------------
Comprehensive income:
Net income $ 1,241 $ 1,207
Other comprehensive income (loss) net of tax
Net change in unrealized gain (loss) 660 (320)
-------------------------------------------------------------------------------
Total comprehensive income: $ 1,901 $ 887
-------------------------------------------------------------------------------
8. Dividends
On July 25, 2000, the Company declared a dividend on its common stock of
$0.10 per share payable on August 25, 2000 to owners of record on August 11,
2000. The MHC, which owns 2,812,974 shares of common stock, waived its portion
of this dividend, reducing the actual dividend payout amount to $215,000. The
dollar amount of dividends waived by the MHC is considered a restriction of
retained earnings of the Company. The amount of any dividend waived by the MHC
shall be available for declaration of a dividend solely to the MHC. At September
30, 2000, the cumulative amount of dividends waived by the MHC was $1.5 million.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
This Form 10-Q contains certain forward-looking statements and information
based upon our beliefs as well as assumptions we have made. In addition, to
those and other portions of this document, the words "anticipate," "believe,"
"estimate," "expect," "intend," "should," and similar expressions, or the
negative thereof, as they relate to us are intended to identify forward-looking
statements. Such statements reflect our current view with respect to future
looking events and are subject to certain risks, uncertainties, and assumptions.
Factors that could cause future results to vary from current management
expectations include, but are not limited to, general economic conditions,
legislative and regulatory changes, monetary and fiscal policies of the federal
government, changes in tax policies, rates and regulations of federal, state and
local tax authorities, changes in interest rates, deposit flows, the cost of
funds, demand for loan products, demand for financial services, competition,
changes in the quality or composition of the Company's loan and investment
portfolios, changes in accounting principles, policies or guidelines, and other
economic, competitive, governmental and technological factors affecting the
Company's operations, markets, products, services and fees. Should one or more
of these risks or uncertainties materialize, or should underlying assumptions
prove incorrect, actual results may vary materially from those described herein
as anticipated, believed, estimated, expected, or intended. We do not intend to
update these forward-looking statements.
9
<PAGE>
Changes in Financial Condition
General. Total assets of the Company increased by $20.6 million or 3.7% to
$580.7 million at September 30, 2000 compared to $560.1 million at June 30,
2000. The increase in assets resulted from loans increasing $7.1 million or 1.7%
and securities available for sale ("AFS") increasing $46.3 million or 65.6%
primarily as a result of adjustable rate securities purchased utilizing proceeds
from a $35.0 million fixed rate loan sale during the quarter. Total liabilities
amounted to $518.6 million, an increase of 3.8% from June 30, 2000. Deposits
declined $4.9 million or 1.1% to $447.9 million while borrowings increased $26.9
million during the quarter. Total stockholders' equity increased to $62.1
million at September 30, 2000, which included the purchase of 27,500 additional
shares of treasury stock as part of an ongoing stock repurchase program.
Cash and cash equivalents. Cash and cash equivalents amounted to $12.1
million and $14.7 million at September 30, 2000 and June 30, 2000, respectively.
Cash decreases during the period were primarily a result of funding loan growth.
Assets Available for Sale. At September 30, 2000, assets that were
classified AFS consisted of securities totaling $116.9 million and loans
totaling $5.0 million. This compares to $70.6 million in AFS securities and
$35.8 million in AFS loans at June 30, 2000. The increase of $46.3 million or
65.6% in AFS securities and the decrease of $30.8 million or 86.1% in AFS loans
were primarily a result of adjustable rate securities purchased with proceeds
from a $35.0 million fixed rate loan sale during the quarter. At September 30,
2000 the Company had unrealized losses on securities available for sale of $2.7
million compared to unrealized losses on securities available for sale of $3.7
million at June 30, 2000. The decrease in unrealized losses is a result of
decreases in the general level of interest rates.
Loans. The net loan portfolio of the Company increased from $424.9 million
at June 30, 2000 to $432.1 million at September 30, 2000. The increase in the
Company's net loan portfolio was due, in large part, to the Company's continuing
efforts to expand its lending activities with a concentrated effort to expand
multi-family, commercial real estate, consumer and business loans. However, the
decline in multi-family and business loans for the three-month period ended
September 30, 2000, in managements opinion, is temporary in nature.
During the three months ended September 30, 2000, the Company's commercial
real estate mortgage loans increased by $6.1 million or 7.6%, construction loans
increased $2.1 million or 14.1%, home equity loans increased $2.2 million or
3.0%, single-family residential mortgage loans decreased by $2.2 million or
1.0% and multi-family loans decreased $603 thousand or 2.8%. During the same
period, the Company's other consumer loans increased $734 thousand or 9.4% and
commercial business loans decreased $1.2 million or 4.6%. Such changes in the
Bank's loan portfolio reflect the Company's continuing efforts to diversify its
loan portfolio and increase its holdings in loans that generally have higher
yields and shorter terms to maturity and/or repricing than single-family
residential mortgage loans. However, commercial real estate loans, multi-family
residential mortgage loans, construction loans, home equity loans and other
consumer loans all generally are deemed to have increased credit risk
characteristics in comparison to single-family residential mortgage loans.
10
<PAGE>
The following table sets forth information with respect to non-performing
assets identified by the Company, including non-accrual loans and other real
estate owned.
September 30, June 30,
2000 2000
--------------------------
(Dollars in Thousands)
Accruing loans past due 90 days or more
Mortgage loans $ 100 $ 9
Other consumer loans 6 --
------ ------
Total $ 106 $ 9
------ ------
Non-accrual loans:
Mortgage loans
Single-family residential $1,130 $ 828
Multifamily and Commercial Real Estate -- 140
Construction 466 --
Home Equity 194 10
Other consumer loans 2 19
Commercial business loans -- 250
------ ------
Total $1,792 $1,247
------ ------
Total non-performing loans $1,898 $1,256
------ ------
Total non-performing assets $1,898 $1,256
------ ------
Intangible Assets. The Company's intangible assets amounted to $1.4
million and $1.5 million at September 30, 2000 and June 30, 2000, respectively.
Such assets are comprised of goodwill and a core deposit intangible resulting
from the Bank's purchase of three branch offices from another institution in
March 1994. The goodwill is being amortized on a straight-line basis over a
15-year period while the core deposit intangible is being amortized over 10
years.
Deposits. The Company's total deposits decreased by $4.9 million, or 1.1%,
to $447.9 million at September 30, 2000 compared to $452.9 million at June 30,
2000. The reduction was primarily a result of increased competition for deposits
in a rising rate environment. Savings accounts declined $1.2 million or 2.2%,
checking accounts declined $2.6 million or 3.5% and certificates of deposit
decreased $1.1 million or less than 1%. The Company intends to continue its
marketing efforts promoting core deposits to help fund asset growth and believes
the decline in deposit balances during the three-months ended September 30, 2000
is temporary in nature.
Federal Home Loan Bank Advances. The Company utilizes advances from the
FHLB of Pittsburgh primarily as an additional source of funds to meet loan
demand. FHLB advances increased $26.9 million or 71.6% to $64.4 million at
September 30, 2000 compared to $37.5 million at June 30, 2000. We also use FHLB
advances to fund certain investments approved by our Board of Directors. At
September 30, 2000 $15.0 million in borrowings were designated to fund these
strategies compared to $10.0 million outstanding at June 30, 2000.
Equity. Total stockholders' equity of the Company amounted to $62.1
million or 10.7% of assets at September 30, 2000 compared to $60.6 million or
10.8% of total assets at June 30, 2000. The increase of $1.5 million or 2.4% was
attributed to increases in net income and a reduction in net unrealized losses
on securities available for sale partially offset by dividends paid and treasury
stock purchased. Net income for the quarter ended September 30, 2000 was $1.2
million. Total stockholders' equity of the Company included net unrealized
losses, net of taxes, of $1.7 million and $2.3 million on securities available
for sale at September 30, 2000 and June 30, 2000, respectively. The Company paid
cash dividends of $0.10 per share during the quarter ended September 30, 2000.
These regular dividends totaled $215,000. The Company acquired 27,500 shares of
additional Treasury stock during the quarter at an average per share price of
$10.65.
11
<PAGE>
As of September 30, 2000, the Company had repurchased 50,000 shares of its
common stock in connection with its authorization to repurchase 10% of its
common stock, or 233,000 shares. Management will continue to repurchase shares
of common stock under this authorization as market conditions warrant.
Results of Operations
General - Net income for the three-month period ended September 30, 2000
was $1.2 million. This compares to similar net income of $1.2 million for the
respective prior year period. Net interest income grew as a result of a
continuing larger interest-earning asset base. For the three-month period ended
September 30, 2000, there was a reduction in provision for loan loss and an
increase in non-interest income compared to the same prior year period. For the
three-month period ended September 30, 2000 the increase in net interest income
was offset by increases in non-interest expense compared to the same prior year
period. Return on average assets and return on average equity were 0.85% and
7.94%, respectively, for the three-months ended September 30, 2000. This
compares to return on average assets and return on average equity of 1.00% and
8.16%, respectively, for the comparable prior year period.
Net Interest Income - Net interest income is determined by our interest
rate spread (i.e., the difference between the yields on interest-earning assets
and the rates paid on interest-bearing liabilities) and also the amount of
interest-earning assets relative to interest-bearing and non-interest-bearing
deposit liabilities.
For the three-month period ended September 30, 2000, net interest income
increased $441,000 or 9.5% compared to the three-month period ended September
30, 1999. During the three-month period ended September 30, 2000, the increase
in net interest income was a result of increased volume of interest-earning
assets compared to interest-bearing liabilities. The benefits associated with
volume increases of interest-earning assets were partially offset by a decline
in interest rate spread and by a slight decline in the ratio of interest-earning
assets to interest-bearing liabilities. Interest rate spread declined 36 basis
points to 2.72% at September 30, 2000 compared to 3.08% at September 30, 1999.
The decrease in interest rate spread is a result of increased interest costs
associated with fundings, specifically certificates of deposit and borrowings,
in excess of increased yields associated with interest-earning assets.
Average interest-earning assets increased $86.1 million or 18.2% for the
three-months ended September 30, 2000 compared to the respective prior year
period. The increase in interest-earning assets more than offset the increase in
interest-bearing liabilities which, for the three-month period ended September
30, 2000, increased on average $74.2 million over the same period one year ago.
However, the ratio of average interest-earning assets to average
interest-bearing liabilities declined 108 basis points to 121.67% for the
three-month period ended September 30, 2000 compared to 122.75% at September 30,
1999. This decrease is primarily a result of growth in interest-earning assets
funded with interest-bearing liabilities as opposed to other non-interest
bearing liability sources such as capital as was the case in respective prior
periods. For the three-month period ended September 30, 2000, the decline in
interest rate spread combined with the decline in interest-earning assets to
interest-bearing liabilities reduced net interest margin. Net interest margin
declined 33 basis points from 3.94% for the three-month period ended September
30, 1999 to 3.61% for the three-month period ended September 30, 2000.
12
<PAGE>
The following table presents the average daily balances for various
categories of assets and liabilities, and income and expense related to those
assets and liabilities for the three-month period ended September 30, 2000 and
1999. The Company maintained average balances of tax exempt securities of $2.6
million and $2.0 for the periods ending September 30, 2000 and 1999,
respectively, for which the tax exempt yield has not been adjusted to a taxable
equivalent yield. Loans receivable include non-accrual loans. [OBJECT OMITTED]
<TABLE>
<CAPTION>
Three Months Ended September 30,
==========================================================================================================================
(Dollars in thousands) 2000 1999
================================================================================== =====================================
Average Average Average Average
Balance Interest Yield/Cost Balance Interest Yield/Cost
-------- -------- ---------- ------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
Interest-Earning Assets:
Loans Receivable:
Mortgage loans $411,219 $ 8,263 8.04% $367,925 $ 7,220 7.85%
Other Consumer loans 8,223 147 7.09% 6,582 116 6.99%
Commercial loans 24,731 648 10.40% 13,236 320 9.59%
-------------------- --------------------
Total Loans $444,173 $ 9,058 8.09% $387,743 $ 7,656 7.83%
Securities $105,722 $ 1,768 6.63% $ 78,776 $ 1,215 6.12%
Other interest-earning assets 7,986 54 2.68% 5,263 27 2.04%
-------------------- --------------------
Total interest-earning assets $557,881 $ 10,880 7.74% $471,782 $ 8,898 7.48%
-------- --------
Noninterest-earning assets 12,992 11,096
-------- --------
Total assets $570,873 $482,878
======== ========
Interest-bearing liabilities:
Deposits:
NOW and money market accounts $ 59,201 $ 344 2.31% $ 58,257 $ 337 2.30%
Savings accounts 52,509 272 2.06% 49,577 255 2.04%
Certificates of deposit 292,310 4,328 5.87% 249,428 3,340 5.31%
-------------------- --------------------
Total deposits $404,020 $ 4,944 4.85% $357,262 $ 3,932 4.37%
Total borrowings 50,818 858 6.70% 23,676 328 5.50%
Total Escrows 3,674 5 0.54% 3,398 6 0.70%
-------------------- --------------------
Total interest-bearing liabilities $458,512 $ 5,807 5.02% $384,336 $ 4,266 4.40%
-------- --------
Noninterest bearing liabilities 48,226 37,582
-------- --------
Total liabilities $506,738 $421,918
Total equity 64,135 60,960
-------- --------
Total liabilities and equity $570,873 $482,878
======== ========
Net interest-earning assets $ 99,369 $ 87,446
Net interest income/interest rate spread $ 5,073 2.72% $ 4,632 3.08%
======================== =========================
Net interest margin 3.61% 3.94%
============= ==========
Ratio of average interest-earning assets
to average interest-bearing liabilities 121.67% 122.75%
------------- ----------
</TABLE>
13
<PAGE>
Interest Income - Interest income on loans increased $1.4 million or 18.3%
for the three-month period ended September 30, 2000 compared to the three-month
prior year period. The increase in average loan balances combined with increase
in average loan rates was primarily responsible for the increase in income.
Interest income on securities and other interest-earning assets increased
$580,000 or 46.7% for the three-month period ended September 30, 2000 compared
to the respective prior year period. The increase in average securities balances
and increase in average securities rates accounted for the increase during the
three-month period ended September 30, 2000 compared to the three-month period
ended September 30, 1999.
Interest Expense - Interest expense on deposit accounts increased $1.0
million or 25.7% for the three-months ended September 30, 2000 compared to the
three-month prior year period. The increase in average balances on deposits and
increase average deposit rates were primarily responsible for the increase.
Interest expense on borrowings increased $530,000 or 161.6% for the three-month
period ended September 30, 2000 compared to the respective prior year period.
The increase in borrowings was in part to provide an additional source of funds
to the Company for the purpose of originating loans in our market area as part
of our plan to diversify the loan portfolio and to replace what management
believes is the temporary loss of deposits. Management has continued its
attempts to be competitive with interest rates paid on deposits in the Company's
market area and maintains an optimistic outlook with respect to its' efforts to
acquire additional deposits in the future.
Provision for Loan Losses - The Company's provision for loan losses was
$110,000 for the three-month period ended September 30, 2000. This compares to a
provision for loan losses of $270,000 for the comparable prior year period ended
September 30, 1999. The decline in provision for loan loss was a result
primarily of fewer new loan originations in the three-month period ended
September 30, 2000 compared to the three-month period ended September 30, 1999.
The ratio of allowance for loan losses to net loans increased eight basis points
or 9.7% to .91% at September 30, 2000 compared to .83% at September 30, 1999.
The allowance coverage ratio increase is a result of continued loan growth and
the Company's desire to make appropriate provisions given the increasing
inherent risk of a diversifying loan portfolio.
For the Three
Months Ended
September 30,
--------------------
2000 1999
-------------------------------------------------------------------------------
(Dollars in Thousands)
Allowance at beginning of period $3,905 $3,138
------ ------
Provisions 110 270
Charge-offs:
Mortgage loans 4 51
Non-mortgage loans 35 13
Commercial business loans -- --
------ ------
Total charge-offs 39 64
Recoveries -- --
------ ------
Allowance for loan losses at end of period $3,976 $3,344
------ ------
Allowance for loan losses to total non-performing
loans at end of period 209.48% 206.80%
------ ------
Allowance for loan losses to loans net of deferred
fees at end of period 0.91% 0.83%
------ ------
Ratio of charge-offs to average loans 0.01% 0.02%
------ ------
Non-interest Income - Non-interest income increased $82,000 or 31.3% for
the three-month period ended September 30, 2000. Increases in service fees and
charges accounted for 61% of the increase while gains on AFS securities, gains
on AFS loans and net loan servicing income contributed to the remainder of the
increase.
14
<PAGE>
Non-interest Expense - Non-interest expense, increased $604,000 or 21.8%
for the three-month period ended September 30, 2000 compared to the similar
period in the prior year. Compensation and employee benefits expense increased
$428,000 or 27.2% due to general increases in salary levels, compensation
charges related to the ESOP, RRP and the increase in Company employees as a
result of operation of two additional banking offices and the expansion of our
lending function to support the Company's loan diversification plan. Occupancy
and furniture and fixture expensed increased $140,000 or 48.6% as a result of
management's continuing efforts to update equipment and facilities and the
operation of two additional banking offices and an operations center to better
service the Company's needs. Deposit account services expense increased $32,000
or 22.9% as a result of the growth of additional accounts associated with two
additional banking offices as well as continued efforts in acquiring core
deposit accounts. All other non-interest operating expenses, in the aggregate,
increased $4,000 or less than 1%.
Income Tax - The provision for income taxes was $697,000 for the
three-month period ended September 30, 2000. This compares to $652,000 for the
three-month period ended September 30, 1999. The increase in provisions for
taxes primarily relates to increases in pre-tax income for the corresponding
three-month period ended September 30, 2000 compared to the respective prior
year period.
Liquidity and Commitments
The Company's liquidity, represented by cash and cash equivalents, is a
product of its operating, investing, and financing activities. The Company's
primary sources of funds are deposits, amortizations, prepayments and maturities
of outstanding loans and mortgage-backed securities, maturities of investment
securities and other short-term investments and funds provided from operations.
The Company also utilizes borrowings, generally in the form of FHLB advances, as
a source of funds. While scheduled payments from the amortization of loans and
mortgage related securities and maturing investment securities and short-term
investments are relatively predictable sources of funds, deposit flows and loan
prepayments are greatly influenced by general interest rates, economic
conditions and competition. In addition, the Company invests excess funds in
short-term interest-earning assets which provide liquidity to meet lending
requirements.
Liquidity management is both a daily and long term function of business
management. Excess liquidity is generally invested in short-term investments
such as U.S. Treasury securities. The Company uses its sources of funds
primarily to meet its ongoing commitments, to pay maturing certificates of
deposit and savings withdrawals, fund loan commitments and maintain a portfolio
of mortgage backed and mortgage related securities and investment securities. At
September 30, 2000, the total approved investment and loan origination
commitments outstanding amounted to $21.7 million. Certificates of deposit
scheduled to mature in one year or less at September 30, 2000 totaled $216.0
million. Based on historical experience, management believes that a significant
portion of maturing deposits will remain with the Company. The Company has the
ability to utilize borrowings, typically in the form of FHLB advances as an
additional source of funds. The maximum borrowing capacity available to the
Company from the Federal Home Loan Bank was $242.4 million, based on qualifying
collateral. The Company is required to maintain a minimum of 4% of its assets in
regulatory eligible liquid investments. As of September 30, 2000, the Company
had 25.4% in eligible liquid investments. The Company anticipates that it will
continue to have sufficient funds, together with borrowings, to meet its current
commitments.
Capital
At September 30, 2000 and June 30, 2000, the Bank had regulatory capital
which was well in excess of regulatory limits set by the Office of Thrift
Supervision. The current requirements and the Bank's actual capital levels are
detailed below:
15
<PAGE>
<TABLE>
<CAPTION>
To be Well
For Capital Capitalized Under
Adequacy Prompt Corrective
Actual Capital Purposes Action Provisions
--------------------- --------------------- ---------------------
Amount Ratio Amount Ratio Amount Ratio
--------------------- --------------------- ---------------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
As of September 30, 2000
Tangible capital $ 51,989 8.9% $ 8,719 1.5% $ 11,625 2.0%
(to tangible assets)
Core capital 51,989 8.9% 23,261 4.0% 29,076 5.0%
(to adjusted tangible assets)
Tier I capital 51,989 15.2% N/A N/A 20,526 6.0%
(to risk-weighted assets)
55,965 16.4% 27,368 8.0% 34,211 10.0%
(to risk-weighted assets)
Risk-based capital
As of June 30, 2000
Tangible capital $ 50,611 9.0% $ 8,399 1.5% $ 11,199 2.0%
(to tangible assets)
Core capital 50,611 9.0% 22,431 4.0% 28,039 5.0%
(to adjusted tangible assets)
Tier I capital 50,611 14.6% N/A N/A 20,815 6.0%
(to risk-weighted assets)
Risk-based capital 54,516 15.7% 27,753 8.0% 34,692 10.0%
(to risk-weighted assets)
</TABLE>
Item 3. Quantitative and Qualitative Disclosure About Market Risk
For a discussion of the Company's asset and liability management policies
as well as the potential impact of interest rate changes upon the market value
of the Company's portfolio equity, see "Management's Discussion and Analysis of
Financial Condition and Results of Operations in the Company's Annual Report for
the year ended June 30, 2000. Management, as part of its regular practices,
performs periodic reviews of the impact of interest rate changes upon net
interest income and the market value of the Company's portfolio equity.
Management closely monitors interest rate risk and takes appropriate short-term
actions to maintain this risk at acceptable levels while focusing on a
longer-term loan diversification plan, which concentrates on the acquisition of
shorter maturity or repricing assets.
During the quarter ended September 30, 2000, the Company sold
approximately $35 million in fixed-rate single-family mortgage loans and
reinvested the proceeds of this sale into adjustable-rate mortgage-backed
securities. The Company expects the results of this transaction to reduce its
interest rate sensitivity as measured by the OTS Net Portfolio Model.
Part II. OTHER INFORMATION
Item 1. Legal Proceedings
The Company is involved in routine legal proceedings in the normal course
of business which, in the aggregate, are believed by management to be immaterial
to the financial condition of the Company.
16
<PAGE>
Item 2. Changes in Securities and Use of Proceeds
Not applicable.
Item 3. Defaults Upon Senior Securities
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable.
Item 5. Other Information
Not applicable.
Item 6. Exhibits and Reports on Form 8-K
(a) List of Exhibits (filed herewith unless otherwise noted)
2.1 Plan of Reorganization*
2.2 Plan of Stock Issuance*
3.1 Federal Stock Charter of Willow Grove Bancorp, Inc.*
3.2 Bylaws of Willow Grove Bancorp, Inc.*
4.0 Form of Stock Certificate of Willow Grove Bancorp, Inc.*
10.1 Form of Employment Agreement entered into between Willow Grove Bank
and Frederick A. Marcell, Jr.*
10.2 Form of Employment Agreement entered into between Willow Grove Bank
and each of Thomas M. Fewer and John T. Powers*
10.3 Supplemental Executive Retirement Agreement*
10.4 Non-Employee Director's Retirement Plan*
10.5 1999 Stock Option Plan**
10.6 1999 Recognition and Retention Plan and Trust Agreement**
27.0 Financial Data Schedule
----------
* Incorporated by reference from the Company's Registration Statement on
Form S-1 as filed on September 18, 1999, as amended, and declared
effective on November 12, 1999 (File No. 333-63737)
** Incorporated by reference from the Company's Proxy Statement on Schedule
14A as filed on June 23, 1999 (File No. 000-25191).
(b) Not applicable.
17
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Exchange Act of 1934, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
WILLOW GROVE BANCORP, INC.
Date: November 14, 2000 By: /s/ Frederick A. Marcell Jr.
------------------------------------------
Frederick A. Marcell Jr.
President and Chief Executive Officer
Date: November 14, 2000 By: /s/ Christopher E. Bell
------------------------------------------
Christopher E. Bell
Senior Vice President and Chief Financial
Officer
18
