<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1998
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 0-23499
DELAWARE FIRST FINANCIAL CORPORATION
-----------------------------------------------------------------
(Exact name of small business issuer as specified in its charter)
Delaware 52-2063973
------------------------------- ---------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
400 Delaware Avenue
Wilmington, Delaware 19801
---------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
(302) 421-9090
------------------------------------------------
(Issuer'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 the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date: As of May 11, 1998,
there were issued and outstanding 1,157,000 shares of the Registrant's Common
Stock, par value $.01 per share.
Transitional Small Business Disclosure Format: Yes X No
--- ---
<PAGE>
DELAWARE FIRST FINANCIAL CORPORATION AND SUBSIDIARY
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Part I. Financial Information
---------------------
Item 1. Consolidated Financial Statements
Consolidated Statements of Financial Condition
(As of December 31, 1997 and March 31, 1998 (unaudited)) 1
Consolidated Statements of Operations for the three months
ended March 31, 1998 (unaudited) and 1997 (unaudited) 2
Consolidated Statements of changes in Stockholders' Equity
for the three months ended March 31, 1998 (unaudited) 3
Consolidated Statements of Cash Flows for the three
months ended March 31, 1998 (unaudited) and 1997 (unaudited) 4
Notes to Unaudited Consolidated Financial Statements 5
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 8
Part II. Other Information
-----------------
Item 1. Legal Proceedings 11
Item 2. Changes in Securities and Use of Proceeds 11
Item 3. Defaults Upon Senior Securities 11
Item 4. Submission of Matters to a Vote of Security Holders 11
Item 5. Other Information 11
Item 6. Exhibits and Reports on Form 8-K 11
Signatures
</TABLE>
<PAGE>
DELAWARE FIRST FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
------------- -------------
(Unaudited)
<S> <C> <C>
ASSETS
Cash and cash equivalents ...................................................... $ 14,084,994 $ 15,199,726
Investment securities available for sale
(amortized cost - 1998, $499,754; 1997, $2,499,753) .......................... 500,849 2,499,860
Mortgage-backed securities available for sale
(amortized cost - 1998, $3,138,139; 1997, $1,903,007) ........................ 3,141,267 1,900,986
Loans receivable - net ......................................................... 86,157,655 88,933,209
Loans held for sale ............................................................ 1,471,850
Federal Home Loan Bank stock - at cost ......................................... 975,000 975,000
Accrued interest receivable:
Loans ........................................................................ 849,140 823,266
Investments .................................................................. 51,856 81,353
Mortgage-backed securities ................................................... 15,425 6,902
Real estate owned .............................................................. 71,726
Office property and equipment, net ............................................. 1,955,437 1,956,404
Prepaid expenses and other assets .............................................. 192,608 291,613
Prepaid income taxes ........................................................... 86,331 115,316
Mortgage servicing rights ...................................................... 356,012 371,361
Deferred income taxes .......................................................... 176,581 177,429
------------- -------------
TOTAL ASSETS ................................................................... $ 110,086,731 $ 113,332,425
------------- -------------
------------- -------------
LIABILITIES AND RETAINED EARNINGS
Liabilities:
Deposits ..................................................................... $ 74,826,244 $ 76,883,201
Advances from Federal Home Loan Bank ......................................... 15,400,000 17,400,000
Advances by borrowers for taxes and insurance ................................ 1,323,529 835,417
Accrued interest payable ..................................................... 274,890 358,171
Accounts payable and accrued expenses ........................................ 2,129,143 1,757,825
------------- -------------
Total liabilities ........................................................ 93,953,806 97,234,614
Commitments and contingencies
Stockholders' Equity:
Preferred stock, $.01 par value, 500,000 shares authorized, none issued
Common stock, $.01 par value, 3,000,000 authorized; 1,157,000 issued
and outstanding ....................................................... 11,570 11,570
Additional paid in capital .................................................. 10,960,589 10,966,430
Common stock acquired by the ESOP ........................................... (833,040) (833,040)
Unrealized/(losses) gains on available for sale securities, net of tax ...... 1,539 (1,263)
Retained earnings-substantially restricted .................................. 5,992,267 5,954,114
------------- -------------
Total stockholders' equity ............................................... 16,132,925 16,097,811
------------- -------------
TOTAL LIABILITIES AND RETAINED EARNINGS ........................................ $ 110,086,731 $ 113,332,425
------------- -------------
------------- -------------
</TABLE>
See notes to consolidated financial statements.
1
<PAGE>
DELAWARE FIRST FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Three months ended
March 31,
-------------------------------
1998 1997
---------- ----------
(Unaudited)
<S> <C> <C>
INTEREST INCOME:
Interest on Loans $1,728,744 $1,869,757
Interest on mortgage-backed securities 39,651 3,461
Interest and dividends on investments 220,191 131,377
---------- ----------
Total interest income 1,988,586 2,004,595
---------- ----------
INTEREST EXPENSE:
Deposits 1,057,582 1,088,875
Federal Home Loan Bank advances 261,344 387,024
---------- ----------
Total interest expense 1,318,926 1,475,899
---------- ----------
NET INTEREST INCOME 669,660 528,696
PROVISION FOR LOAN LOSSES 15,000
---------- ----------
NET INTEREST INCOME AFTER PROVISION
FOR LOAN LOSSES 654,660 528,696
---------- ----------
OTHER INCOME:
Service Fees 15,537 27,829
Gain on sale of loans 7,491 6,917
Realized market adjustment on loans 3,348 15,983
Other 12,475 (1,392)
---------- ----------
Total other income 38,851 49,337
---------- ----------
OTHER EXPENSES:
Salaries and employee benefits 200,607 177,154
Advertising 85,530 50,743
Federal insurance premiums 18,331 2,483
SAIF Special Assessment
Occupancy expense 51,371 50,344
Data processing expense 48,310 36,472
Directors fees 29,823 25,941
Other general and administrative expenses 193,686 121,097
---------- ----------
Total other expenses 627,658 464,234
---------- ----------
INCOME BEFORE PROVISION FOR INCOME TAXES 65,853 113,799
---------- ----------
PROVISION FOR INCOME TAXES (27,700) (48,000)
---------- ----------
NET INCOME 38,153 65,799
---------- ----------
---------- ----------
BASIC EARNINGS PER SHARE .03 N/A
</TABLE>
See notes to consolidated financial statements.
2
<PAGE>
DELAWARE FIRST FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Common
Stock
Acquired Unrealized
Additional by Stock Gains/(Losses) on Total
Common Paid-in Benefit Retained Available for Stockholders'
Stock Capital Plans Earnings Sale Securities Equity
------- ----------- --------- --------- ----------------- -------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1998 $11,570 $10,966,430 ($833,040) 5,954,114 (1,263) 16,097,811
Net Income for the three months ended
March 31, 1998 (unaudited) 38,153 38,153
Additional stock conversion costs (unaudited) (5,841) (5,841)
Change in unrealized Gains/(Losses) on
available for sale securities, net of
tax (unaudited) 2,802 2,802
------- ----------- --------- --------- ------ ----------
BALANCE, MARCH 31, 1998 (unaudited) $11,570 $10,960,589 ($833,040) $5,992,267 $1,539 $16,132,925
------- ----------- --------- --------- ------ ----------
------- ----------- --------- --------- ------ ----------
</TABLE>
3
<PAGE>
DELAWARE FIRST FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Three-Month Period Ended
March 31,
----------------------------
1998 1997
----------- -----------
(Unaudited)
<S> <C> <C>
OPERATING ACTIVITIES:
Net income .......................................................... $ 38,153 $ 65,799
Adjustments to reconcile net income to net cash (used
in) provided by operating activities:
Depreciation ...................................................... 24,544 28,753
Provision for loan losses ......................................... 15,000
Gain on sale of loans ............................................. (7,491) (6,917)
Loss on disposal of premises and equipment ........................ 7,067
Realized market adjustment on loans ............................... (3,348) (15,983)
Charge-off of loans receivable ..................................... (41,468)
Amortization of:
Deferred loan fees .............................................. (39,081) (10,928)
Discount on investment and
mortgage-backed securities 2,570 (1,843)
Changes in assets and liabilities which
provided (used) cash:
Accrued interest receivable ..................................... (4,900) 19,753
Mortgage servicing rights ....................................... 15,349 1,787
Prepaid expenses and other assets ............................... 99,005 (26,148)
Accrued interest payable ........................................ (83,281) (21,649)
Accounts payable and accrued expenses ........................... 371,318 (584,177)
Income taxes .................................................... 28,985 47,980
Deferral of loan fees ........................................... 30,549 27,904
----------- -----------
Net cash provided by (used in) operating activities ........ 452,971 (475,669)
----------- -----------
INVESTING ACTIVITIES:
Proceeds from maturity of investments ............................... 2,000,000
Principal collected on long-term loans
and mortgage-backed securities .................................... 5,236,675 2,725,318
Long-term loans originated .......................................... (4,334,775) (4,566,830)
Proceeds from sale of loans ......................................... 544,200 412,700
Redemption of Federal Home Loan Bank stock .......................... 277,300
Purchase of Federal Home Loan Bank stock ............................ (2,300)
Purchase of investments ............................................. (1,336,747)
Additions to real estate acquired through foreclosure ............... (71,726)
Purchases of premises and equipment ................................. (30,644) (3,711)
----------- -----------
Net cash provided by (used in) investing activities ........ 2,006,983 (1,157,523)
----------- -----------
FINANCING ACTIVITIES:
Net decrease in deposits ............................................ (2,056,957) 1,951,717
Increase in advances by borrowers for taxes
and insurance ..................................................... 488,112 529,347
Proceeds from Federal Home Loan Bank advances ....................... 14,884,326
Repayments of Federal Home Loan Bank advances ........................ (2,000,000) (16,284,326)
Payment of additional conversion costs ............................... (5,841)
----------- ------------
Net cash provided by (used in) financing activities ........ (3,574,686) 1,081,064
----------- ------------
NET DECREASE IN CASH AND CASH EQUIVALENTS ............................. (1,114,732) (552,128)
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD ................................................. 15,199,726 2,643,452
----------- ------------
CASH AND CASH EQUIVALENTS,
END OF PERIOD ....................................................... $14,084,994 $2,091,324
----------- ------------
----------- ------------
SUPPLEMENTAL DISCLOSURES OF
CASH FLOW INFORMATION:
Cash paid during the period for:
Interest .......................................................... $ 1,402,207 $ 1,497,548
----------- -----------
----------- -----------
Income taxes ...................................................... $ 0 $ 0
----------- -----------
----------- -----------
Transfers of loans receivable into real estate owned .................. $ 71,726 $
----------- -----------
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</TABLE>
See notes to consolidated financial statements.
4
<PAGE>
DELAWARE FIRST FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE
THREE-MONTH PERIODS ENDED MARCH 31, 1998 AND 1997 (UNAUDITED)
- -------------------------------------------------------------------------------
1. BASIS OF PRESENTATION
The accompanying consolidated financial statements have been prepared in
accordance with instructions to Form 10-QSB. Accordingly, they do not
include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. However,
such information reflects all adjustments (consisting solely of normal
recurring adjustments) which are, in the opinion of management, necessary
for a fair presentation of results for the unaudited interim periods.
The results of operations for the three month periods ended March 31,
1998 are not necessarily indicative of the results to be expected for
the fiscal year ending December 31, 1998. The consolidated financial
statements presented herein should be read in conjunction with the audited
consolidated financial statements and related notes thereto included in
the Company's Form 10-KSB dated April 15, 1998.
Delaware First Financial Corporation (the "Company") is not an operating
company and has not engaged in any significant business to date. It was
formed in September 1997, as a Delaware corporation to be the holding
company for Delaware First Bank, FSB (the "Bank"). The holding company
structure will facilitate: (i) diversification into non-banking
activities, (ii) acquisitions of other financial institutions, such as
savings institutions, (iii) expansion within existing and into new market
areas, and (iv) stock repurchases without adverse tax consequences. The
Bank is evaluating sites for additional branch locations. No formal
agreements have been made in this regard, and there are no plans for other
forms of diversification or acquisition.
2. INVESTMENT SECURITIES
Investment securities are summarized as follows:
<TABLE>
<CAPTION>
March 31, 1998
-----------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Approximate
Cost Gain Loss Fair Value
-------- ------- ------- ----------
<S> <C> <C> <C> <C>
Available for sale:
Debt securities:
Obligations of U.S. Government agencies
Due in one year or less $499,754 $ 1,095 $ $500,849
-------- ------- ------- --------
Total $499,754 $ 1,095 $ $500,849
-------- ------- ------- --------
-------- ------- ------- --------
</TABLE>
<TABLE>
<CAPTION>
December 31, 1997
---------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Approximate
Cost Gain Loss Fair Value
----------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Available for sale:
Debt securities:
Obligations of U.S. Government agencies:
Due in one year or less $ 2,499,753 $ 1,967 $ (1,860) $2,499,860
----------- ---------- ---------- ----------
Total $ 2,499,753 $ 1,967 $ (1,860) $2,499,860
----------- ---------- ---------- ----------
----------- ---------- ---------- ----------
</TABLE>
5
<PAGE>
3. MORTGAGE-BACKED SECURITIES
Mortgage-backed securities are summarized as follows:
<TABLE>
<CAPTION>
March 31, 1998 December 31, 1997
----------------------------------------- ----------------------------------------
Gross Gross
Amortized Unrealized Approximate Amortized Unrealized Approximate
Cost Gain Fair Value Cost Gain/Loss Fair Value
----------- ---------- ---------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Available for sale:
FHLMC pass-through certificates $ 447,086 $ 799 $ 447,885 $ 168,757 $ 1,687 $ 170,444
Collateralized Mortgage Obligations 2,691,053 2,329 2,693,382 1,734,250 (3,708) 1,730,542
----------- --------- ----------- ------------ --------- ------------
Total $ 3,138,139 $ 3,128 $ 3,141,267 $ 1,903,007 $ (2,021) $ 1,900,986
----------- --------- ----------- ------------ --------- ------------
----------- --------- ----------- ------------ --------- ------------
</TABLE>
4. LOANS RECEIVABLE
Loans receivable consist of the following:
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
----------- ------------
<S> <C> <C>
First mortgage loans (primarily one-
to four-family residential) $76,726,473 $79,244,982
Loans on savings accounts 666,266 749,969
Home equity loans-fixed rate 7,403,816 7,413,485
Equity lines of credit-variable rate 2,744,793 2,946,938
---------- ----------
Total 87,541,348 90,355,374
Less:
Allowance for loan losses (436,347) (462,815)
Deferred loan fees (947,346) (959,350)
---------- ----------
Total $86,157,655 $88,933,209
---------- ----------
---------- ----------
</TABLE>
The following is an analysis of the allowance for loan losses:
<TABLE>
<CAPTION>
Three Months Ended
March 31,
--------------------------
1998 1997
------- -------
<S> <C> <C>
Balance, beginning of period 462,815 247,000
Provisions charged to operations 15,000 0
Charge-offs (41,468) 0
------- -------
Balance, end of period 436,347 247,000
------- -------
------- -------
</TABLE>
6
<PAGE>
Loans delinquent more than 90 days are placed on nonaccrual status.
Interest reserved from these loans amounted to $14,634 and $18,459 at
March 31, 1998 and December 31, 1997, respectively.
5. DEPOSITS
Deposits by stated type are summarized as follows:
<TABLE>
<CAPTION>
March 31, 1998 December 31, 1997
-------------------- ----------------------
Amount Percent Amount Percent
<S> <C> <C> <C> <C>
Demand deposit accounts $ 1,197,962 1.6% $ 1,063,720 1.4%
Passbook accounts 2,479,746 3.3 2,494,272 3.2
Money market deposit accounts: 8,102,791 10.8 8,532,239 11.1
91-day to five-year money market
certificates: 63,045,745 84.3 64,792,970 84.3
----------- ----- ----------- -----
Total $74,826,244 100.0% $76,883,201 100.0%
----------- ----- ----------- -----
----------- ----- ----------- -----
</TABLE>
5. COMPREHENSIVE INCOME
The Company adopted Statement of Financial Accounting Standards
No. 130, Reporting Comprehensive Income, effective January 1, 1998.
The statement requires disclosure of amounts from transactions and
other events which are currently excluded from the statements of
operations and are recorded directly to stockholders' equity. Total
comprehensive income for the three months period ended March 31, 1998
and 1997 amounted to $40,955 and $62,954, respectively.
7
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Financial Condition
Total assets decreased $3.2 million or 2.9% to $110.1 million at March
31, 1998 compared to $113.3 million at December 31, 1997. Such decrease was
primarily due to a decrease in investment securities available for sale and a
decrease in cash and cash equivalents. Total liabilities decreased $3.3 million
or 3.4% to $94.0 million at March 31, 1998. Such decrease was primarily due to a
decrease in both deposits and advances from the Federal Home Loan Bank ("FHLB")
of Pittsburgh. Stockholders' equity amounted to $16.1 million at both March 31,
1998 and December 31, 1997.
Results of Operations for the Three Months Ended March 31, 1998 and 1997.
General. Net income amounted to $38,000 and $66,000 for the three months
ended March 31, 1998 and 1997, respectively. The decrease of $28,000 or 42.0%
was primarily due to an increase in other expenses partially offset by an
increase in net interest income.
Net Interest Income. Net interest income is determined by the
Company's interest rate spread (i.e., the difference between the yields
earned on its interest-earning assets and the rates paid on its
interest-bearing liabilities) and the relative amounts of interest-earning
assets and interest-bearing liabilities. Net interest income increased
$141,000 or 26.7% to $670,000 for the three months ended March 31, 1998
compared to $529,000 for the same period in 1997. The significant increase in
net interest income was due to actions taken by the Bank to reduce its
interest rate risk exposure. Such actions included originating fewer loans
and repaying FHLB advances as they became due. Additionally, interest-earning
deposits increased due to net proceeds received in the Bank's stock
conversion and concurrent formation of the Company (the "Conversion"), which
resulted in additional interest earned. These actions caused the interest
rate spread to slightly decrease from 1.69% at March 31, 1997 to 1.67% at
March 31, 1998.
Interest Income. Interest income decreased $16,000 or .8% to $2.0
million for the three months ended March 31, 1998 compared to the same period in
1997. The decrease in interest income on loans, due to a decrease in the average
balance of such assets, was substantially offset by an increase in interest and
dividends on investments as a result of an increase in the average balance of
such assets. The balance of loans receivable decreased due to fewer loan
originations and an increase in loan prepayments. The increase in interest
income on investments was due to the investment in such assets of a portion of
the proceeds received in the Conversion. These proceeds are currently earning
interest and have not yet been fully utilized in the Bank's expansion efforts.
Interest Expense. Interest expense decreased $157,000 or 10.6% to $1.3
million for the three months ended March 31, 1998 compared to $1.5 million for
the comparable period
8
<PAGE>
in 1997. Such decrease was primarily due to a decrease in
interest expense on advances from the FHLB of Pittsburgh as a result of a
decrease in the average balance of such liabilities. Proceeds from mortgage loan
prepayments and excess funds have been used to repay FHLB advances as they
became due.
Provision for Loan Losses. The allowance for loan losses is increased by
charges to income and decreased by charge-offs (net of recoveries). Management's
periodic evaluation of the adequacy of the allowance is based on the Bank's past
loan loss experience, known and inherent risks in the portfolio, adverse
situations that may affect the borrower's ability to repay, the estimated value
of any underlying collateral, and current economic conditions.
The provision for loan losses amounted to $15,000 for the three months
ended March 31, 1998. No provisions were made during the comparable period in
1997.
Other Income. Other income decreased $10,000 or 21.3% to $39,000 for the
three months ended March 31, 1998 compared to the same period in 1997 due to a
decrease in service fees and a decrease in realized market adjustment on loans
previously classified as available for sale. The decrease in service fees was
due to an increase in the amortization of mortgage servicing rights. Other
income was adjusted to reflect a loss on the sale of investment securities.
Other Expenses. Other expenses increased $163,000 or 35.2% to $628,000
for the three months ended March 31, 1998 compared to the same period in 1997.
Such increase was primarily due to increases in salaries and employee benefits,
advertising and other general and administrative expenses. The increase in
salaries and benefits was due to the allocation of shares committed to be
released in connection with the formation of an Employee Stock Ownership Plan.
The increase in advertising expense was due primarily to the change of the
Bank's name from Ninth Ward Savings Bank, FSB to Delaware First Bank, FSB. The
increase in other general and administrative costs was primarily due to the
increase in professional fees in connection with being a publicly held company.
Income Taxes. The provision for income taxes amounted to $28,000 and
$48,000 for the three months ended March 31, 1998 and 1997, respectively,
resulting in effective tax rates of 42.1% and 42.2%, respectively.
Liquidity and Capital Resources
The Bank's liquidity, represented by cash and cash equivalents, is a
product of its operating, investing and financing activities. The Bank's primary
sources of funds are deposits, borrowings, amortization, prepayments and
maturities of outstanding loans, sales of loans, maturities of investment
securities and other short-term investments and funds provided from operations.
Although scheduled loan amortization 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
9
<PAGE>
conditions and competition. The Bank manages the pricing of its
deposits to maintain a steady deposit balance. In addition, the Bank invests
excess funds in overnight deposits and other short-term interest-earning assets
which provide liquidity to meet lending requirements. The Bank generally has
been able to generate enough cash through the retail deposit market, its
traditional funding source, to offset the cash utilized in investing activities.
As an additional source of funds, the Bank may borrow from the FHLB of
Pittsburgh and has access to the Federal Reserve discount window. At March 31,
1998, the Bank had $15.4 million of outstanding advances from the FHLB of
Pittsburgh.
As of March 31, 1998, the Bank's regulatory capital was in excess of all
applicable regulatory requirements. At March 31, 1998, the Bank's tangible, core
and risk-based capital ratios amounted to 12.1%, 12.1% and 22.8%, respectively,
compared to regulatory requirements of 1.5%, 3.0% and 8.0%, respectively.
Impact of Inflation and Changing Prices
The financial statements and related financial data presented herein
have been prepared in accordance with instructions to Form 10-QSB, which require
the measurement of financial position and operating results in terms of
historical dollars, without considering changes in relative purchasing power
over time due to inflation.
Unlike most industrial companies, virtually all of the Bank's assets and
liabilities are monetary in nature. As a result, interest rates generally have a
more significant impact on a financial institution's performance than does the
effect of inflation.
The Year 2000 Issue
The Company is aware of the issues associated with the programming code
in existing computer systems as the Year 2000 approaches. The Year 2000 Issue is
the result of computer programs being written using two digits rather than four
digits to define the applicable year. Computer programs that have time-sensitive
coding may recognize a date using "00" as the year 1900 rather than the year
2000. Systems that do not properly recognize such information could generate
erroneous data or cause a system to fail.
The Bank has conducted a review of its computer systems to identify
the systems that could be affected by the Year 2000 issue and has developed
an implementation plan to resolve the issue. The majority of the Bank's data
processing is provided by a third party service bureau. The service bureau is
actively involved in resolving Year 2000 issues and has provided the Bank
with frequent updates regarding their progress. The service bureau has
advised the Bank that it expects to have the majority of the Year 2000 issues
resolved before the end of 1998 to allow the Bank to test their system for
Year 2000 compliance during the third quarter of 1998. The Bank presently
believes that, based on the progress of the Bank's service bureau, the Year
2000 problem will not pose significant operational problems for the Bank's
computer system. Costs are anticipated to be immaterial at this time.
10
<PAGE>
DELAWARE FIRST FINANCIAL CORPORATION AND SUBSIDIARY
Part II
Item 1. Legal Proceedings
-----------------
Neither the Corporation nor the Bank is involved in any pending legal
proceedings other than non-material legal proceedings occurring in the
ordinary course of business.
Item 2. Changes in Securities
---------------------
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
-----------------
None.
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
None.
11
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
DELAWARE FIRST FINANCIAL CORPORATION
Date: May 12, 1998 By: /s/Jerome P. Arrison
------------------------------
Jerome P. Arrison
Vice President
(principal financial officer)
Date: May 12, 1998 By: /s/Lori N. Richards
------------------------------
Lori N. Richard
Secretary and Treasurer
(principal accounting officer)
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<CIK> 0001046001
<NAME> DELAWARE FIRST FINANCIAL CORPORATION
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 14,085
<INT-BEARING-DEPOSITS> 14,017
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 3,642
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<LONG-TERM> 10,900
0
0
<COMMON> 12
<OTHER-SE> 16,121
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<INTEREST-LOAN> 1,728
<INTEREST-INVEST> 260
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<INTEREST-TOTAL> 1,988
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<INCOME-PRETAX> 66
<INCOME-PRE-EXTRAORDINARY> 66
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<CHANGES> 0
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<EPS-PRIMARY> 0.036
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<LOANS-PAST> 0
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<RECOVERIES> 0
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<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 100
</TABLE>
