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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, 2002
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: 0-49706
Willow Grove Bancorp, Inc.
(Exact name of registrant as specified in its charter)
Pennsylvania 80-0034942
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
Welsh and Norristown Roads, Maple Glen, Pennsylvania 19002
(Address of principal executive offices)
(215) 646-5405
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
YES [ X ] NO [ ]
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act.)
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 11,285,566 shares of common stock issued and outstanding as
of November 14, 2002.
WILLOW GROVE BANCORP, INC.
INDEX
Page No.
PART I FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited)
Consolidated Statements of Financial Condition at
September 30, 2002 and June 30, 2002............................. 3
Consolidated Statements of Operations - For the Three
Months ended September 30, 2002 and 2001......................... 4
Consolidated Statements of Cash Flows - For the Three
Months ended September 30, 2002 and 2001......................... 5
Notes to Consolidated Financial Statements....................... 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operation............................... 12
Item 3. Quantitative and Qualitative Disclosures about Market Risk....... 19
Item 4. Controls and Procedures.......................................... 19
PART II OTHER INFORMATION
Item 1. Legal Proceedings................................................ 20
Item 2. Changes in Securities and Use of Proceeds........................ 20
Item 3. Defaults upon Senior Securities.................................. 20
Item 4. Submission of Matters to a Vote of Security Holders.............. 20
Item 5. Other Information................................................ 20
Item 6. Exhibits and Reports on Form 8-K................................. 21
2
Willow Grove Bancorp, Inc.
Consolidated Statements of Financial Condition
At At
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA) September 30, 2002 June 30, 2002
- ------------------------------------------------------------------------------ ------------------ -----------------
Assets
Cash and cash equivalents:
Cash on hand and non-interest-earning deposits $ 7,820 $ 5,710
Interest-earning deposits 7,677 26,276
--------------- ---------------
Total cash and cash equivalents 15,497 31,986
Securities
Available for sale (amortized cost of $276,731 and $251,651, respectively) 281,814 254,687
Held to maturity (fair value of $18,426 and $14,117, respectively) 17,924 13,973
Loans ( net of allowance for loan losses of $4,861 and $4,626, respectively) 460,631 443,855
Loans held for sale 439 1,574
Accrued income receivable 4,321 4,138
Property and equipment, net 6,396 6,515
Intangible assets 1,100 1,126
Other assets 889 1,952
--------------- ---------------
Total assets $ 789,011 $ 759,806
Liabilities and Stockholders' Equity
Deposits $ 531,867 $ 529,752
Federal Home Loan Bank advances 123,815 97,824
Advance payments from borrowers for taxes 1,422 3,605
Accrued interest payable 1,083 868
Other liabilities 3,871 3,388
--------------- ---------------
Total liabilities 662,058 635,437
--------------- ---------------
Commitments and contingencies
Stockholders' equity:
Common stock, $0.01 par value; (40,000,000 authorized; 11,285,566 and
11,284,966 issued at September 30, 2002 and June 30, 2002, respectively) 113 113
Additional paid-in capital 82,579 82,521
Retained earnings-substantially restricted 47,802 46,708
Accumulated other comprehensive income 3,151 1,881
Unallocated common stock held by
Employee Stock Ownership Plan (ESOP) (6,305) (6,420)
Recognition and Retention Plan Trust (RRP) (387) (434)
--------------- ---------------
Total stockholders' equity 126,953 124,369
--------------- ---------------
Total liabilities and stockholders' equity $ 789,011 $ 759,806
=============== ===============
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3
Willow Grove Bancorp, Inc.
Consolidated Statements of Operations
For the Three Months Ended
September 30,
---------------------------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) 2002 2001
- ------------------------------------------------------- ---- ----
Interest and dividend income:
Loans $ 8,471 $ 9,268
Securities, primarily taxable 3,782 2,250
------------ ------------
Total interest income 12,253 11,518
------------ ------------
Interest expense:
Deposits 3,572 5,082
Borrowings 1,498 948
Advance payments from borrowers for taxes 3 4
------------ ------------
Total interest expense 5,073 6,034
------------ ------------
Net interest income 7,180 5,484
Provision for loan losses 330 374
------------ ------------
Net interest income after provision for loan losses 6,850 5,110
------------ ------------
Non-interest income:
Service charges and fees 472 355
Realized gain (loss) on sale of:
Loans held for sale 89 114
Securities available for sale (23) 49
Loan servicing (loss) income, net (43) 18
------------ ------------
Total non-interest income 495 536
------------ ------------
Non-interest expense:
Compensation and employee benefits 2,842 2,140
Occupancy 340 306
Furniture and equipment 232 212
Federal insurance premium 22 22
Amortization of intangible assets 25 25
Data processing 170 153
Advertising 161 161
Community enrichment 31 38
Deposit account services 203 203
Professional fees 128 156
Other expense 438 369
------------ ------------
Total non-interest expense 4,592 3,785
------------ ------------
Income before income taxes 2,753 1,861
Income tax expense 928 621
------------ ------------
Net Income $ 1,825 $ 1,240
============ ============
Earnings per share:
Basic $ 0.17 $ 0.11
Diluted $ 0.17 $ 0.11
Cash dividends declared per share $ 0.07 $ 0.05
Weighted average basic shares outstanding 10,374,630 10,781,559
Weighted average diluted shares outstanding 10,685,171 11,020,284
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4
Willow Grove Bancorp, Inc.
Consolidated Statements of Cash Flows
For the Three
Months Ended
September 30,
------------------------
(Dollars in thousands) 2002 2001
- ------------------------------------------------------------------------------------ ---- -----
Net cash flows from operating activities:
Net income $ 1,825 $ 1,240
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation 232 202
Amortization of premium and accretion of discount, net 98 (1)
Amortization of intangible assets 25 25
Provision for loan losses 330 374
Gain on sale of loans held for sale (89) (114)
Loss (gain) on sale of securities available for sale 23 (49)
Increase (decrease) in deferred loan fees 176 (60)
Decrease (increase) in accrued income receivable (183) 177
Increase in other assets 289 639
Decrease in accrued interest payable 215 180
Increase in other liabilities 483 253
Expense of ESOP and RRP 218 87
Originations and purchases of loans held for sale (8,614) (20,500)
Proceeds from sale of loans held for sale 9,838 18,760
---------- ---------
Net cash provided by operating activities $ 4,866 $ 1,213
---------- ---------
Cash flows from investing activities:
Net decrease in loans (17,282) (785)
Purchase of securities available for sale (66,946) (48,771)
Proceeds from sales and calls of securities available for sale 27,101 36,110
Principal repayments of securities available for sale 10,693 6,272
Purchase of property and equipment (113) (684)
---------- ---------
Net cash used in investing activities $ (46,547) $ (7,858)
---------- ---------
Cash flows from financing activities:
Net increase in deposits 2,115 6,061
Net increase in FHLB advances with original maturity less than 90 days 1,000 -
Increase in FHLB advances with original maturity greater than 90 days 26,500 9,000
Repayment of FHLB advances with original maturity greater than 90 days (1,509) (3,470)
Net decrease in advance payments from borrowers for taxes (2,183) (2,572)
Dividends paid (731) (233)
---------- ---------
Net cash provided by financing activities $ 25,192 $ 8,786
---------- ---------
Net (decrease) increase in cash and cash equivalents $ (16,489) $ 2,141
Cash and cash equivalents:
Beginning of period 31,986 22,209
---------- ---------
End of period $ 15,497 $ 24,350
---------- ---------
Supplemental disclosures of cash and cash flow information:
Interest paid 5,073 5,854
Income taxes paid 704 21
Non-cash items:
Change in unrealized gain on securities available for sale 1,270 1,817
(net of taxes of ($779) and ($1,520) in 2002 and 2001, respectively)
Loans transferred to other real estate owned - 19
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5
WILLOW GROVE BANCORP, INC.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Description of Business
Willow Grove Bancorp, Inc. (the "Company") provides a full range of banking
services through its wholly-owned subsidiary, Willow Grove Bank (the "Bank" or
"Willow Grove") which has 13 branches in Dresher, Willow Grove, Maple Glen,
Warminster (2), Hatboro, Huntington Valley, Roslyn, Philadelphia (2 - Somerton
and Rhawnhurst), North Wales, Southampton and Holland, Pennsylvania. 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 April 3, 2002 Willow Grove Bank completed its reorganization from the
two-tier mutual holding company form of organization to the stock form of
organization (the "April 2002 Reorganization"). The former Willow Grove Bancorp,
Inc. was a federally chartered mid-tier holding company with approximately 56.9%
of its stock being held by Willow Grove Mutual Holding Company and the remaining
43.1% being held by public shareholders. As part of the April 2002
Reorganization, the former Willow Grove Bancorp, Inc., the federal corporation,
was merged into Willow Grove Bank and the current Willow Grove Bancorp Inc., a
Pennsylvania corporation, was incorporated by the Bank for the purpose of
becoming the holding company for the Bank. Willow Grove Bancorp, Inc., the new
Pennsylvania corporation through a public subscription offering sold 6,414,125
shares of stock at $10.00 per share and issued 4,869,375 to the stockholders of
Willow Grove Bancorp, Inc., the former federal corporation which represented an
exchange of 2.28019 shares of its stock for each share of the former company.
Willow Grove Bank is now the wholly-owned subsidiary of Willow Grove Bancorp,
Inc., the Pennsylvania corporation. All per share data and information prior to
April 3, 2002 refers to the former Willow Grove Bancorp, Inc., the federal
corporation and has been restated to reflect the effect of the increased shares
resulting from the share issuance and exchange resulting from the April 2002
Reorganization. For an interim period of time after the completion of the April
2002 Reorganization, our stock traded under the symbol "WGBCD", for all other
periods the stock of both the former federal corporation and the current
Pennsylvania corporation traded under the symbol "WGBC".
In September 2000, Willow Grove Investment Corporation ("WGIC"), a Delaware
corporation was formed as a wholly owned subsidiary of the Bank to conduct the
investment activities of the Bank.
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 Company for the year ended June 30, 2002, which are
included in the Company's Annual Report on Form 10-K for the year ended June 30,
2002 (File No. 000-49706). The results for the interim periods presented are not
necessarily indicative of the results that may be expected for the year ending
June 30, 2003.
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.
6
3. EARNINGS PER SHARE
Earnings per share, basic and diluted, were both $0.17 for the three months
ended September 30, 2002, compared to both $0.11 for the three months ended
September 30, 2001.
The following is a reconciliation of the numerators and denominators of the
basic and diluted earnings per share calculations:
For the
Three Months Ended
September 30, 2002
-----------------------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) Basic Diluted
------------ ------------
Net income $ 1,825 $ 1,825
Dividends on unvested common stock awards (12) (12)
------------ ------------
Income available to common stockholders $ 1,813 $ 1,813
============ ============
Weighted average shares outstanding 10,374,630 10,374,630
Effect of dilutive securities:
Options - 211,574
Unvested common stock awards - 98,967
------------ ------------
Adjusted weighted average shares used in
earnings per share computation 10,374,630 10,685,171
============ ============
Earnings per share $ 0.17 $ 0.17
============ ============
For the
Three Months Ended
September 30, 2002
-----------------------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) Basic Diluted
------------ ------------
Net income $ 1,240 $ 1,240
Dividends on unvested common stock awards (9) (9)
------------ ------------
Income available to common stockholders $ 1,231 $ 1,231
============ ============
Weighted average shares outstanding 10,781,559 10,781,559
Effect of dilutive securities:
Options - 120,696
Unvested common stock awards - 118,029
------------ ------------
Adjusted weighted average shares used in
earnings per share computation 10,781,559 11,020,284
============ ============
Earnings per share $ 0.11 $ 0.11
============ ============
All options to acquire shares of common stock of the former Willow Grove
Bancorp, Inc. outstanding as of April 3, 2002 were exchanged, as adjusted for
the exchange ratio, for options to acquire common stock of the new company.
7
4. LOAN PORTFOLIO
Information about the Bank's loan portfolio is presented below as of and
for the periods indicated:
At At
September 30, 2002 June 30, 2002
--------------------------- --------------------------
Percentage of Percentage of
(DOLLARS IN THOUSANDS) Amount Total Amount Total
----------------------------------------------------- ----------- -------- ----------- --------
Mortgage loans:
Single-family residential $ 193,728 41.57 % $ 181,454 40.40 %
Commercial real estate and multi-family residential 140,202 30.08 134,294 29.90
Construction 26,565 5.70 29,306 6.52
Home Equity 74,666 16.02 75,016 16.70
----------- -------- ----------- --------
Total mortgage loans 435,161 93.37 420,070 93.52
Consumer loans 10,476 2.25 10,081 2.24
Commercial business loans 20,416 4.38 19,067 4.24
----------- -------- ----------- --------
Total loans receivable $ 466,053 100.00 % $ 449,218 100.00 %
=========== ======== =========== ========
Allowance for loan losses (4,861) (4,626)
Deferred net loan origination fees (561) (737)
----------- -----------
Loans receivable, net $ 460,631 $ 443,855
=========== ===========
The following is a summary of the activity in the allowance for loan losses for
the three months ended September 30, 2002 and 2001:
For the Three Months Ended
September 30,
----------------------------
(DOLLARS IN THOUSANDS) 2002 2001
------------------------------------------- ---- ----
Balance at the beginning of period $ 4,626 $ 4,313
Plus: Provisions for loan losses 330 374
Less Charge-offs for:
Mortgage loans - 11
Consumer loans 2 137
Commercial business loans 93 -
---------- -----------
Total charge-offs 95 148
Plus: Recoveries - -
---------- -----------
Balance at the end of the period $ 4,861 $ 4,539
========== ===========
8
5. SECURITIES
The amortized cost and estimated fair value of held to maturity and
available-for-sale securities at September 30, 2002 and June 30, 2002 are as
follows:
At September 30, 2002
-------------------------------------------------------
Amortized Unrealized Unrealized Estimated
(DOLLARS IN THOUSANDS) Cost Gains Losses Fair Value
- ---------------------------------------------- ---------- ---------- ---------- ----------
HELD TO MATURITY:
Municipal securities $ 17,924 $ 502 $ - $ 18,426
---------- ---------- ---------- ----------
Total securities held to maturity $ 17,924 $ 502 $ - $ 18,426
========== ========== ========== ==========
AVAILABLE FOR SALE:
US government agency securities $ 77,987 $ 1,419 $ - $ 79,406
Mortgage backed securities:
FNMA 110,688 3,025 (9) 113,704
GNMA 34,064 679 - 34,743
FHLMC 43,163 626 556) 43,233
FHLB Stock 6,379 - - 6,379
Equity securities 4,450 - (101) 4,349
---------- ---------- ---------- ----------
Total securities available for sale 276,731 5,749 (666) 281,814
---------- ---------- ---------- ----------
Total securities $ 294,655 $ 6,251 $ (666) $ 300,240
========== ========== ========== ==========
At June 30, 2002
-------------------------------------------------------
Amortized Unrealized Unrealized Estimated
(DOLLARS IN THOUSANDS) Cost Gains Losses Fair Value
- ---------------------------------------------- ---------- ---------- ---------- ----------
Held to Maturity:
Municipal securities $ 13,973 $ 147 $ (3) $ 14,117
---------- ---------- ---------- ----------
Total securities held to maturity $ 13,973 $ 147 $ (3) $ 14,117
========== ========== ========== ==========
Available for Sale:
US government agency securities $ 75,692 $ 1,013 $ (12) $ 76,693
Mortgage backed securities:
FNMA 87,778 1,649 - 89,427
GNMA 37,847 495 (1) 38,341
FHLMC 40,820 303 (360) 40,763
FHLB Stock 5,042 - - 5,042
Equity securities 4,472 - (51) 4,421
---------- ---------- ---------- ----------
Total securities available for sale 251,651 3,460 (424) 254,687
---------- ---------- ---------- ----------
Total securities $ 265,624 $ 3,607 $ (427) $ 268,804
========== ========== ========== ==========
9
6. RECENT ACCOUNTING PRONOUNCEMENTS
GOODWILL AND OTHER INTANGIBLE ASSETS
In June 2001, the FASB issued Statement No. 142, "Goodwill and Other
Intangible Assets." The Statement addresses financial accounting and reporting
for acquired goodwill and other intangible assets and supersedes APB Opinion No.
17, "Intangible Assets." It addresses how intangible assets that are acquired
individually or with a group of other assets (but not those acquired in a
business combination) should be accounted for in financial statements upon their
acquisition. The Statement also addresses how goodwill and other intangible
assets should be accounted for after they have been initially recognized in the
financial statements.
The provisions of the Statement are required to be applied starting with
fiscal years beginning after December 15, 2001, except that goodwill and
intangible assets acquired after June 30, 2001, will be subject immediately to
the nonamortization and amortization provisions of the Statement. Early
application is permitted for entities with fiscal years beginning after March
15, 2001, provided that the first interim financial statements have not
previously been issued. The Statement is required to be applied at the beginning
of an entity's fiscal year and to be applied to all goodwill and other
intangible assets recognized in its financial statements at that date. There was
no impact on earnings, financial condition, or equity upon adoption of Statement
No. 142 on January 1, 2002.
ASSET RETIREMENT OBLIGATIONS
In June 2001, the FASB issued Statement No. 143, "Accounting for Asset
Retirement Obligations." This Statement addresses financial accounting and
reporting for obligations associated with the retirement of tangible long-lived
assets and the associated asset retirement costs. It applies to legal
obligations associated with the retirement of long-lived assets that result from
the acquisition, construction, development and (or) the normal operation of a
long-lived asset, except for certain obligations of lessees. As used in this
Statement, a legal obligation is an obligation that a party is required to
settle as a result of an existing or enacted law, statute, ordinance, or written
or oral contract or by legal construction of a contract under the doctrine of
promissory estoppel. This Statement requires that the fair value of a liability
for an asset retirement obligation be recognized in the period in which it is
incurred if a reasonable estimate of fair value can be made. The associated
asset retirement costs are capitalized as part of the carrying amount of the
long-lived asset.
This Statement amends FASB Statement No. 19, "Financial Accounting and
Reporting by Oil and Gas Producing Companies," and it applies to all entities.
It is effective for financial statements issued for fiscal years beginning after
June 15, 2002. Earlier application is encouraged. There is no expected impact on
earnings, financial condition, or equity upon adoption of Statement No. 143.
IMPAIRMENT OR DISPOSAL OF LONG-LIVED ASSETS
In August 2001, the FASB issued Statement No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets." This Statement addresses financial
accounting and reporting for the impairment or disposal of long-lived assets and
supersedes Statement No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of." However, the Statement
retains the fundamental provisions of Statement No. 121 for (a) recognition and
measurement of the impairment of long-lived assets to be held and used and (b)
measurement of long-lived assets to be disposed of by sale.
This Statement supersedes the accounting and reporting provisions of APB
Opinion No. 30, "Reporting the Results of Operations-Reporting the Effects of
Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently
Occurring Events and Transactions," for the disposal of a segment of a business.
However, this Statement retains the requirement of Opinion No. 30 to report
discontinued operations separately from continuing operations and extends that
reporting to a component of an entity that either has been disposed of (by sale,
by abandonment, or in distribution to owners) or is classified as held for sale.
This Statement also amends ARB No. 51, "Consolidated Financial Statements," to
eliminate the exception to consolidation for a temporarily controlled
subsidiary.
The provisions of this Statement are effective for financial statements
issued for fiscal years beginning after December 15, 2001 and interim periods
within those fiscal years, with earlier application encouraged. The provisions
of this Statement generally are to be applied prospectively. There was no impact
on earnings, financial condition, or equity upon adoption of Statement No. 144
on January 1, 2002.
10
RESCISSION OF FASB STATEMENTS NO. 4, 44, AND 64
In April 2002, the FASB issued SFAS No. 145 "Rescission of FASB Statements
No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical
Corrections." This Statement rescinds FASB Statement No. 4, Reporting Gains and
Losses from Extinguishment of Debt, and an amendment of that Statement, FASB
Statement No. 64, Extinguishments of Debt Made to Satisfy Sinking-Fund
Requirements, along with rescinding FASB Statement No. 44, Accounting for
Intangible Assets of Motor Carriers and amending FASB Statement No. 13,
Accounting for Leases. This Statement (1) eliminates an inconsistency between
the required accounting for sale-leaseback transactions and the required
accounting for certain lease modifications that have economic effects that are
similar to sale-leaseback transactions, (2) eliminates the extraordinary item
treatment of reporting gains and losses from extinguishment of debt, and (3)
makes certain other technical corrections.
The provisions of this Statement related to the rescission of Statement 4
shall be applied in fiscal years beginning after May 15, 2002. The provisions of
this Statement related to Statement 13 shall be effective for transactions
occurring after May 15, 2002. All other provisions of this Statement shall be
effective for financial statements issued on or after May 15, 2002. Early
application of this Statement is encouraged. There is no expected impact on
earnings, financial condition, or equity upon adoption of Statement No. 145.
ACCOUNTING FOR COSTS ASSOCIATED WITH EXIT OR DISPOSAL ACTIVITIES
In June 2002, the FASB issued SFAS No. 146 "Accounting for Costs Associated
with Exit or Disposal Activities." This Statement addresses financial accounting
and reporting for costs associated with exit or disposal activities and
nullifies Emerging Issues Task Force (EITF) Issue No. 94-3, "Liability
Recognition for Certain Employee Termination Benefits and Other Costs to Exit an
Activity (including Certain Costs Incurred in a Restructuring)."
The provisions of this Statement are effective for exit or disposal
activities that are initiated after December 31, 2002, with early application
encouraged. There is no expected impact on earnings, financial condition, or
equity upon adoption of Statement No. 146.
ACQUISITIONS OF CERTAIN FINANCIAL INSTITUTIONS -
In October 2002, the FASB issued Statement No. 147, Acquisitions of Certain
Financial Institutions, which amends SFAS No. 72, Accounting for Certain
Acquisitions of Banking or Thrift Institutions, SFAS No.144, Accounting for the
Impairment or Disposal of Long-Lived Assets, and FASB Interpretation No. 9.
Except for transactions between two or more mutual enterprises, this Statement
removes acquisitions of financial institutions from the scope of both Statement
No. 72 and Interpretation 9 and requires that those transactions be accounted
for in accordance with FASB Statements No. 141, Business Combinations, and No.
142, Goodwill and Other Intangible Assets. Thus, the requirement in paragraph 5
of Statement No. 72 to recognize any excess of the fair value of liabilities
assumed over the fair value of tangible and identifiable intangible assets
acquired as an unidentifiable intangible asset no longer applies to acquisitions
within the scope of this Statement. In addition, this Statement amends Statement
No. 144 to include in its scope long-term customer-relationship intangible
assets of financial institutions such as depositor- and borrower-relationship
intangible assets and credit cardholder intangible assets. Consequently, those
intangible assets are subject to the same undiscounted cash flow recoverability
test and impairment loss recognition and measurement provisions that Statement
No. 144 requires for other long-lived assets that are held and used.
Effective September 30, 2002 the Company adopted Statement No. 147 with
retroactive application effective June 30, 2001. With the adoption of Statement
No. 147 an adjustment to fiscal 2002 statements is included to eliminate the
accumulated amortization associated with the retroactive adjustment. The results
of this adjustment is an increase in income, for an average of $23,000, net of
taxes, for each quarter and $92,000, net of taxes, for fiscal year ended June
30, 2002. At September 30, 2002 the Company had goodwill of $848,000, which is
being assessed for impairment. The Company anticipates completing its initial
assessment of impairment by December 31, 2002. Should an indication of
impairment exist, the Company will perform the second test under Statement No.
142 to
11
measure and record the amount of impairment, if any.
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.
For The
Three Months Ended
September 30,
------------------------
(Dollars in thousands) 2002 2001
- --------------------------------------------------- ---- ----
Net income $ 1,825 $ 1,240
Other comprehensive income, net of tax
Unrealized gains on securities available
for sale, net of tax
Unrealized holding gain during the period 1,293 1,671
Reclassification adjustment for (losses) gains
included in net income (23) 72
--------- ---------
Total other comprehensive income 1,270 1,743
--------- ---------
Comprehensive income $ 3,095 $ 2,983
========= =========
8. DIVIDENDS
On July 22, 2002, the Company declared a cash dividend on its common stock
of $0.07 per share, payable on August 16, 2002, to owners of record on August 2,
2002. Additionally, on October 22, 2002, the Company's Board of Directors
declared a $0.07 per share cash dividend payable November 20, 2002 to
shareholders of record on November 8, 2002.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
This Form 10-Q contains certain forward-looking statements and information
based upon our beliefs as well as assumptions we have made. In addition, to
those and other portions of this document, the words "anticipate," "believe,"
"estimate," "expect," "intend," "should," and similar expressions, or the
negative thereof, as they relate to us are intended to identify forward-looking
statements. Such statements reflect our current view with respect to future
events and are subject to certain risks, uncertainties, and assumptions. Factors
that could cause future results to vary from current management expectations
include, but are not limited to, general economic conditions, legislative and
regulatory changes, monetary and fiscal policies of the federal government,
changes in 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.
12
Results of Operations
GENERAL. Net income for the three-month period ended September 30, 2002 was
$1.8 million. This compares to net income of $1.2 million for the comparable
quarter in the prior year. The Company reported net interest income of $7.2
million for the three months ended September 30, 2002. This compared to net
interest income of $5.5 million for the three months ended September 30, 2001.
The Company's net interest margin increased 29 basis points to 3.82% for the
three months ended September 30, 2002 from 3.53% for the three months ended
September 30, 2001. The returns on average assets for the three-month periods
ended September 30, 2002 and 2001 were 0.93% and 0.78%, respectively. The
returns on average equity for the same periods were 5.92% and 8.04%,
respectively.
NET INTEREST INCOME. Net interest income is determined by our average
interest rate spread (i.e. the difference between the average yields on
interest-earning assets and the average rates paid on interest-bearing
liabilities) and also the average amount of interest-earning assets relative to
interest-bearing and non-interest-bearing deposit liabilities.
Net interest income for the three-month period ended September 30, 2002 was
$7.2 million, respectively. This compares favorably to $5.5 million for the
respective prior year period. For the three-month period ended September 30,
2002, net interest income increased $1.7 million or 30.9%, over the prior
comparable three-month period. This increase was primarily a result of the
combination of increased balances on average interest-earning assets and a
reduction in average interest rates paid on interest-bearing liabilities which
more than offset a reduction in average interest rates earned on
interest-earning assets. For the three-month period ended September 30, 2002 the
Company's interest rate spread increased 23 basis points to 3.04% compared to
2.81% at September 30, 2001.
Average interest-earning assets increased $151.7 million or 24.5% for the
three-month period ended September 30, 2002 compared to the respective prior
year period. Average interest-bearing liabilities for the three-month period
ended September 30, 2002 increased $85.0 million or 16.4% over the comparable
prior period. The primary reason for the increase in interest-earning assets
during the 2002 period was the deployment of net proceeds from the April 2002
Reorganization. The ratio of average interest-earning assets to average
interest-bearing liabilities increased to 127.52% at September 30, 2002 compared
to an average 119.18% for the three-month period ended September 30, 2001. The
Company's net interest margin increased 29 basis points to 3.82% for the three
months ended September 30, 2002 from 3.53% for the three months ended September
30, 2001. The increase in net interest margin was primarily a result of the
increase in the ratio of average interest-earning assets to average
interest-bearing liabilities as a result of the April 2002 Reorganization.
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 periods ended September 30, 2002 and
2001. The Company maintained average balances of tax-exempt securities of $16.1
million and $3.6 million for the three-month periods ending September 30, 2002
and 2001, respectively, for which the tax-exempt yield has been adjusted to a
taxable equivalent yield. Loans receivable include non-accrual loans.
13
For The Three Months Ended
---------------------------------------------------------------------------
(DOLLARS IN THOUSANDS) September 30, 2002 September 30, 2001
- --------------------------------------- ----------------------------------- ----------------------------------
Average Average Average Average
Balance Interest Yield/Cost Balance Interest Yield/Cost
--------- -------- ---------- --------- -------- ----------
Interest-earning assets:
Loans receivable:
Mortgage loans $ 426,171 $ 8,002 7.48 % $ 435,720 $ 8,688 7.94 %
Consumer loans 10,223 121 4.70 9,966 136 5.41
Commercial business loans 19,523 348 7.07 19,904 444 8.85
--------- ------- --------- -------
Total loans 455,917 8,471 7.40 465,590 9,268 7.92
Securities - taxable 274,865 3,520 5.08 131,762 2,101 6.33
Securities - nontaxable - adjusted to a 16,123 247 6.08 3,572 59 6.55
taxable equivalent yield
Other interest-earning assets 22,807 91 1.58 17,085 108 2.51
--------- ------- --------- -------
Total interest-earning assets 769,712 12,329 6.37 618,009 11,536 7.43
Non-interest-earning assets 17,084 15,469
--------- ---------
Total assets $ 786,796 $ 633,478
========= =========
Interest-bearing liabilities:
Deposits:
NOW and money market accounts $ 95,814 $ 365 1.51 % $ 70,242 $ 360 2.03 %
Savings accounts 74,717 267 1.42 59,670 309 2.05
Certificates of deposit 307,876 2,940 3.79 321,088 4,413 5.45
--------- ------- --------- -------
Total deposits 478,407 3,572 2.96 451,000 5,082 4.47
Total borrowings 122,618 1,498 4.85 64,656 948 5.82
Total escrows 2,557 3 0.47 2,889 4 0.55
--------- ------- --------- -------
Total interest-bearing liabilities 603,582 5,073 3.33 518,545 6,034 4.62
Non-interest-bearing liabilities 59,826 53,258
--------- ---------
Total liabilities 663,408 571,803
Total stockholders' equity 123,388 61,675
--------- ---------
Total liabilities and stockholders'
equity $ 786,796 $ 633,478
========= =========
Net interest-earning assets $ 166,130 $ 99,464
========= =========
Net interest income $ 7,256 $ 5,502
======= =======
Net interest rate spread 3.04% 2.81%
===== =====
Net interest margin 3.82% 3.53%
===== =====
Ratio of average interest-earning assets
to average interest-bearing liabilities 127.52% 119.18%
======= =======
INTEREST INCOME. Interest income on loans decreased $797,000, or 8.6% for
the three-month period ended September 30, 2002 compared to the three-month
period ended September 30, 2001. The overall decrease in average balance of
loans combined with an overall decrease in average yields earned for the
three-month period ended September 30, 2002 accounted for the decline in
interest income compared to the similar prior year period. Interest income on
securities increased $1.5 million, or 68.1% (adjusting our tax-exempt securities
to 6.08% on a tax equivalent basis) for the three-month period ended September
30, 2002 compared to the three-month period ended September 30, 2001. Overall
increases in the average balance of securities more than offset the overall
decrease in
14
average yields earned for the three-month period ended September 30, 2002
compared to the three-month period ended September 30, 2001.
INTEREST EXPENSE. Interest expense on deposit accounts decreased $1.5
million, or 29.7% for the three-month period ended September 30, 2002 compared
to the similar prior year period. The increase in average balances on deposits
was more than offset by the decrease in average rates paid on deposits. The
decrease in average rates paid was primarily responsible for the overall
decrease in interest expense. Interest expense on borrowings increased $550,000,
or 58.0% for the three-month period ended September 30, 2002 compared to the
similar prior year period. The increase in average balances on borrowings,
primarily related to revenue enhancement strategies, more than offset the
decrease in average borrowing rates.
PROVISION FOR LOAN LOSSES. The Company's provision for loan losses for the
three months ended September 30, 2002 was $330,000 compared to $374,000 for the
three months ended September 30, 2001. The Company's allowance for loan losses
as a percentage of its loan portfolio increased to 1.04% at September 30, 2002
compared to 1.03% at June 30, 2002. The provisions for loan losses are based
primarily upon the Company's regular review of credit quality and is based upon,
but not limited to, the following factors: an evaluation of the portfolio, loss
experience, current economic conditions, volume, growth and composition of the
portfolio. Management believes, to the best of its knowledge, that the Company's
allowance represents all known and inherent losses in the portfolio that are
both probable and reasonably estimable at September 30, 2002, however, no
assurance can be given as to the amount or timing of additional provisions for
loan losses in the future as a result of potential increases in the amount of
the Company's non-performing loans in the remainder of the Company's loan
portfolio.
NON-INTEREST INCOME. Non-interest income decreased $41,000, or 7.6% to
$495,000 for the three-month period ended September 30, 2002 compared to
$536,000 for the similar prior year period. This decrease was primarily related
to a $97,000 net decrease in the aggregate gain on sales of loans and securities
and a $61,000 decrease in loan servicing income due primarily to a $49,000
increase in the capitalized loan servicing rights in the quarter ended September
30, 2002, compared to the similar period in 2001, which primarily reflects
accelerated mortgage loan prepayments as a result of record single-family
residential loan re-financings. These decreases were partially offset by an
$117,000 increase in service charges and fees.
NON-INTEREST EXPENSE. Non-interest expense increased $807,000, or 21.3% to
$4.6 million for the three-month period ended September 30, 2002 compared to
$3.8 million for the similar prior year period. The increase wase primarily a
result of general increases in compensation and benefits, the operation of our
thirteenth banking office opened in April 2002 in Holland, Bucks County, and
increased Employee Stock Ownership Plan ("ESOP") expense. ESOP expense increased
$131,000, or 284.8% to $177,000 for the three months ended September 30, 2002
compared to $46,000 for the three months ended September 30, 2001. The increase
in ESOP expense was primarily the result of stock price appreciation and the
expense associated with the additional 513,100 shares acquired by the ESOP
during the recent Conversion and Reorganization. Occupancy costs increased due
to the operation of an additional banking office. Additionally, other expenses
increased due to general increases in back office operations and the additional
costs associated with being a public company since the April 2002
Reorganization.
INCOME TAX EXPENSE. The provision for income taxes for the three-month
period ended September 30, 2002 was $928,000 compared to $621,000 for the
similar prior year three-month period. The increase in provision for taxes for
the three-month period ended September 30, 2002 primarily related to an increase
in pre-tax income. The effective tax rate for the three-month periods ended
September 30, 2002 and 2001 was 33.7% and 33.4%, respectively.
15
CHANGES IN FINANCIAL CONDITION
GENERAL. Total assets of the Company increased by $29.2 million, or 3.8% to
$789.0 million at September 30, 2002 compared to $759.8 million at June 30,
2002. The increase in assets resulted from securities available for sale and
held to maturity increasing a combined $31.1 million, or 11.6% primarily as a
result of the investment of the net proceeds received in the Company's
Conversion and Reorganization in April 2002 and certain leverage strategies
funded by Federal Home Loan Bank advances. Net loans increased $16.8 million, or
3.8% from $443.9 million at June 30, 2002 to $460.6 million at September 30,
2002 due primarily to an increase in the single-family residential mortgage and
commercial real estate loan portfolios. Total liabilities amounted to $662.1
million at September 30, 2002, an increase of $26.6 million, or 4.2% from June
30, 2002. Deposits increased $2.1 million, or 4.0% to $531.9 million, with core
deposits increasing $1.2 million to $225.1 million, while borrowings increased
$26.0 million, or 26.6% from June 30, 2002. Total stockholders' equity increased
$2.6 million to $127.0 million at September 30, 2002. The change in
stockholders' equity was primarily the result of the combination of $1.8 million
in net income and accumulated other comprehensive income of $1.3 million,
partially offset by the aggregate cash dividend payment of $731,000 during the
three months ended September 30, 2002.
CASH AND CASH EQUIVALENTS. Cash and cash equivalents amounted to $15.5
million and $32.0 million at September 30, 2002 and June 30, 2002, respectively.
Cash and cash equivalents decreased during the period as funds were utilized to
purchase additional securities and for originating of new loans.
ASSETS AVAILABLE OR HELD-FOR-SALE. At September 30, 2002, securities
classified available-for-sale and loans classified held-for-sale amounted to
$281.8 million and $439,000, respectively. This compares to $254.7 million in
available-for-sale securities and $1.6 million in held-for-sale loans at June
30, 2002. The increase of $27.1 million, or 10.7%, in available-for-sale
securities was part of the Company's investment strategy to increase its
securities portfolio in its continuing efforts to increase net profits without
exposing the Company to unnecessary risk. At September 30, 2002, the Company had
unrealized gains on available- for- sale securities of $3.1 million, net of
unrealized losses, compared to unrealized gains on available- for -sale
securities of $1.9 million at June 30, 2002. The increase in unrealized gains
was a result of a decrease in the general level of interest rates.
LOANS. The net loan portfolio of the Company increased $16.8 million, or
3.8% from $443.9 million at June 30, 2002 to $460.6 million at September 30,
2002. The increase in the Company's net loan portfolio was due, in part, to an
increase in the single-family residential mortgage and commercial real estate
loan portfolio.
During the three-months ended September 30, 2002, the Company's
single-family residential mortgage loans increased $12.3 million, or 6.8%,
commercial real estate and multi-family real estate loans increased $5.9
million, or 4.4%, construction loans decreased $2.7 million, or 9.4% and home
equity loans decreased $350,000 while other consumer loans increased $395,000,
or 3.9%,and commercial business loans increased by $1.3 million, or 7.1%.
Although single-family residential mortgage loans temporarily increased as a
percentage of the loan portfolio during the quarter, recent changes in the mix
of the Company's loan portfolio reflect the Company's continuing efforts to
diversify its loan portfolio and increase its holdings in loans that generally
have higher yields and shorter terms to maturity and/or repricing than
single-family residential mortgage loans. However, commercial real estate loans,
multi-family residential mortgage loans, construction loans, home equity loans
and other consumer loans all generally are deemed to have increased credit risk
characteristics in comparison to single-family residential mortgage loans.
16
The following table sets forth information with respect to non-performing
assets identified by the Company, including non-accrual loans and other real
estate owned.
(DOLLARS IN THOUSANDS) At September 30, 2002 At June 30, 2002
--------------------------------------------------------- --------------------- ----------------
Accruing loans past due 90 days or more:
Real estate $ 165 $ -
Commercial business loans 200 200
Other - -
------------ ----------
Total 365 200
------------ ----------
Non-accrual loans:
Mortgage loans
Single-family residential 1,617 1,897
Commercial real estate and multi-family residential 943 1,179
Construction - -
Home Equity 194 55
Consumer loans 6 104
Commercial business loans 500 724
------------ ----------
Total 3,260 3,959
------------ ----------
Performing troubled debt restructurings 1,512 1,512
------------ ----------
Total non-performing loans 5,137 5,671
Other real estate owned, net 85 85
Total non-performing assets $ 5,222 $ 5,756
============ ==========
Non-performing loans to total loans, net of deferred fees 1.10% 1.28%
Non-performing assets to total assets 0.66% 0.76%
Total non-performing assets decreased $534,000, or 9.3%, to $5.2 million at
September 30, 2002 compared to $5.8 million June 30, 2002. The decrease was
primarily related to a decrease in both non-performing mortgage loans and
non-performing commercial business loans.
INTANGIBLE ASSETS. Intangible assets include a core deposit intangible and
an unidentified intangible asset, which represents the excess cost over fair
value of assets acquired over liabilities assumed in a branch acquisition. The
core deposit intangible is being amortized over a 12-year life. At September 30,
2002 the Company had goodwill of $848,000 which is periodically measured for
impairment.
DEPOSITS. The Company's total deposits increased by $2.1 million to $531.9
million at September 30, 2002 compared to $529.8 million at June 30, 2002. This
increase occurred despite the Company being located in a highly competitive
market for deposits. Savings accounts increased $1.0 million or 1.4%, checking
and money market accounts increased $142,000 and certificates of deposit
increased $959,000, all being less than 1.0%. The Company intends to continue
its marketing efforts promoting core deposits in its effort to help fund asset
growth.
FEDERAL HOME LOAN BANK ADVANCES. The Company utilizes advances from the
Federal Home Loan Bank of Pittsburgh ("FHLB") primarily as an additional source
of funds to meet loan demand. FHLB advances increased $26.0 million, or 26.6% to
$123.8 million at September 30, 2002 compared to $97.8 million at June 30, 2002.
The Company also uses FHLB advances to fund certain investment strategies
approved by our Board of Directors.
EQUITY. Total stockholders' equity of the Company amounted to $127.0
million, or 16.1% of assets at September 30, 2002 compared to $124.4 million or
16.4% of total assets at June 30, 2002, an increase of $2.6 million, or 2.1%.
Changes in stockholders' equity reflect year-to-date net income of $1.8 million,
as well as an
17
increase of $1.3 million in accumulated other comprehensive income, primarily as
a result of the increase in the value of the available-for-sale investment
securities portfolio. Total stockholders' equity of the Company included
unrealized gains, net of taxes, of $3.2 million and $1.9 million on
available-for-sale securities at September 30, 2002 and June 30, 2002,
respectively. The Company paid a cash dividend of $0.07 per share during the
quarter ended September 30, 2002. These regular dividends totaled $731,000
during the quarter. No shares were repurchased during the three-month period
ended September 30, 2002.
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, 2002, the total approved investment and loan origination
commitments outstanding amounted to $23.8 million. Certificates of deposit
scheduled to mature in one year or less at September 30, 2002 totaled $216.9
million. Based on historical experience, management believes that a significant
portion of maturing certificates of deposit 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 FHLB was $397.3 million as of June 30, 2002,
based on qualifying collateral. The Company is required to maintain sufficient
liquidity to ensure its safe and sound operation. The Company anticipates that
it will continue to have sufficient funds, together with borrowings, to meet its
current commitments.
18
CAPITAL
At September 30, 2002, the Bank had regulatory capital which was well
in excess of regulatory limits set by the Office of Thrift Supervision. The
current requirements and the Bank's actual capital levels are detailed below:
Required to Be Well
Capitalized under
Required for Capital Prompt Corrective
Actual Capital Adequacy Purposes Action Provision
--------------------- ---------------------- -----------------------
(DOLLARS IN THOUSANDS) Amount Ratio Amount Ratio Amount Ratio
-------------------------------- --------- ------- --------- ------- -------- -------
AS OF SEPTEMBER 30, 2002
--------------------------------
Tangible capital $ 82,546 10.5% $ 11,835 1.5% $ 15,780 2.0%
(to tangible assets)
Core capital 82,546 10.5% 31,389 4.0% 39,236 5.0%
(to adjusted tangible assets)
Tier I capital 82,546 19.8% N/A N/A 24,990 6.0%
(to risk-weighted assets)
Risk-based capital 87,407 21.0% 33,320 8.0% 41,650 10.0%
(to risk-weighted assets)
AS OF JUNE 30, 2002
--------------------------------
Tangible capital $ 82,668 10.9% $ 11,393 1.5% $ 15,191 2.0%
(to tangible assets)
Core capital 82,668 10.9% 30,267 4.0% 37,834 5.0%
(to adjusted tangible assets)
Tier I capital 82,668 20.4% N/A N/A 24,311 6.0%
(to risk-weighted assets)
Risk-based capital 87,293 21.5% 32,414 8.0% 40,518 10.0%
(to risk-weighted assets)
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
For the discussion of the Company's asset and liability management
policies as well as the potential impact of interest rate changes upon the
market value of the Company's portfolio equity, see "Management's Discussion and
Analysis of Financial Condition and Results of Operations" in the Company's
Annual Report to stockholders for the year ended June 30, 2002. Management, as
part of its regular practices, performs periodic reviews of the impact of
interest rate changes upon net interest income and the market value of the
Company's portfolio equity. Management closely monitors interest rate risk and
takes appropriate short-term actions to maintain this risk at acceptable levels
while focusing on a longer-term loan diversification plan, which concentrates on
the acquisition of shorter maturity or repricing assets. Based on, among other
factors, such reviews, management believes that there are no material changes in
the market risk of the Company's asset and liability position since June 30,
2002.
ITEM 4. CONTROLS AND PROCEDURES
Under the supervision and with the participation of our management,
including our chief executive officer and chief financial officer, we have
evaluated the effectiveness of the design and operation of our disclosure
controls and procedures within 90 days of the filing date of this quarterly
report, and based on their evaluation, our chief executive officer and chief
financial officer have concluded that these controls and procedures are
effective. There were no significant changes in our internal controls or in
other factors that could significantly affect these controls subsequent to the
date of their evaluation.
19
Disclosure controls and procedures are our controls and other procedures
that are designed to ensure that information required to be disclosed by us in
the reports that we file or submit under the Exchange Act is recorded,
processed, summarized and reported, within the time periods specified in the
Securities and Exchange Commission's rules and forms. Disclosure controls and
procedures include, without limitation, controls and procedures designed to
ensure that information required to be disclosed by us in the reports that we
file under the Exchange Act is accumulated and communicated to our management,
including our chief executive officer and chief financial officer, as
appropriate to allow timely decisions regarding required disclosure.
Part II. OTHER INFORMATION
ITEM L. LEGAL PROCEEDINGS
BRENDA DICICCO V. WILLOW GROVE BANK, (United States District
Court, Eastern District of Pennsylvania). On October 11, 2002, a lawsuit was
filed against Willow Grove Bank by Ms. DiCicco in her individual capacity as
president and sole shareholder of ATS Products Corp. ("ATS") alleging eight
causes of action related to a line of credit between the Bank and ATS. The
causes of action are: breach of contract, breach of oral contract, fraud,
negligent misrepresentation, breach of fiduciary duty, unjust enrichment,
conversion and negligence. The plaintiff seeks compensatory damages in an amount
in excess of $75,000, punitive damages, attorney fees and costs. ATS previously
filed suit against Willow Grove Bank in the U.S. Bankruptcy Court averring
similar causes of action. Willow Grove Bank is vigorously defending the claims
made by the plaintiff in both suits and believes that those claims are without
merit.
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.
20
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) List of Exhibits (filed herewith unless otherwise noted)
Exhibit No. Description
2.1 Plan of Conversion and Agreement and Plan of
Reorganization*
3.1 Articles of Incorporation 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 Joseph M. Matisoff, Christopher E.
Bell, Thomas M. Fewer and John T. Powers**
10.3 Supplemental Executive Retirement Agreement**
10.4 Non-Employee Director's Retirement Plan (as amended 2002)
10.5 1999 Stock Option Plan***
10.6 1999 Recognition and Retention Plan and Trust Agreement***
10.7 Amended Incentive Compensation Plan****
99.1 Certification of President and Chief Executive Officer
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
99.2 Certification of Chief Financial Officer pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
- ------------
* Incorporated by reference from the Company's Registration
Statement on Form S-1, filed on December 14, 2001, as
amended, and declared effective on February 11, 2002.
** Incorporated by reference from the registration statement on
Form S-1, filed by the Company's predecessor, a federal
corporation also known as Willow Grove Bancorp, Inc (the
"Mid-Tier") on September 18, 1999, as amended, and declared
effective on November 12, 1998.
*** Incorporated by reference from the Company's Definitive Proxy
Statement on Schedule 14A filed by the Mid-Tier on June 23,
1999.
**** Incorporated by reference from the Company's Form 10-K for
the fiscal year ended June 30, 2002, filed with the SEC on
September 30, 2002.
(b) Reports on Form 8-K:
A Current Report on Form 8-K was filed by the Company on July 24, 2002
with respect to the Company's press release announcing earnings results
for the period ended June 30, 2002 and a declaration of a dividend.
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 24, 2002 By: /s/ Frederick A. Marcell Jr.
---------------------------------
Frederick A. Marcell Jr.
President and Chief Executive Officer
Date: November 14, 2002 By: /s/ Christopher E. Bell
---------------------------------
Christopher E. Bell
Chief Financial Officer
22
CERTIFICATION
I, Frederick A. Marcell Jr., the President and Chief Executive Officer of Willow
Grove Bancorp Inc., certify that:
1. I have reviewed this quarterly report on Form 10-Q of Willow Grove Bancorp
Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others within those entities, particularly during the
period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the effectiveness of
the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent
functions):
a) all significant deficiencies in the design or operation of internal controls
which could adversely affect the registrant's ability to record, process,
summarize and report financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: November 14, 2002 /s/ Frederick A. Marcell Jr.
-------------------------------------
Frederick A. Marcell Jr.
President and Chief Executive Officer
23
CERTIFICATION
I, Christopher E. Bell, the Senior Vice President, Chief Financial Officer and
Corporate Secretary of Willow Grove Bancorp Inc., certify that:
1. I have reviewed this quarterly report on Form 10-Q of Willow Grove Bancorp
Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others within those entities, particularly during the
period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the effectiveness of
the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent
functions):
a) all significant deficiencies in the design or operation of internal controls
which could adversely affect the registrant's ability to record, process,
summarize and report financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: November 14, 2002 /s/ Christopher E. Bell
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Christopher E. Bell
Senior Vice President, Chief Financial
Officer and Corporate Secretary
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