SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended December 31, 1995, OR
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[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from _____________ to _____________
Commission File No. 0-12870
FIRST WEST CHESTER CORPORATION
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(Exact name of Registrant as specified in its charter)
Pennsylvania 23-2288763
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
9 North High Street, West Chester, Pennsylvania 19380
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (610) 692-3000
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Securities registered pursuant to Section 12(b) of the Act:
Name of Each Exchange
Title of Each Class on Which Registered
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None None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $1.00 per share
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(Title of Class)
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 if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
The aggregate market value of the Common Stock of the Registrant held by
non-affiliates as of March 1, 1996, was approximately $42,889,000.
The number of shares outstanding of Common Stock of the Registrant as of March
1, 1996, was 1,712,491.
DOCUMENTS INCORPORATED BY REFERENCE
The Registrant's Annual Report to Shareholders for the year ended December 31,
1995, is incorporated by reference into Parts I and II hereof. The Registrant's
definitive Proxy Statement for its 1996 Annual Meeting of Shareholders is
incorporated by reference into Part III hereof.
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FIRST WEST CHESTER CORPORATION AND SUBSIDIARIES
TABLE OF CONTENTS
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PAGE
PART I: Item 1 - Business 1
Item 2 - Properties 16
Item 3 - Legal Proceedings 17
Item 4 - Submission of Matters to a Vote of Security Holders 17
PART II: Item 5 - Market for the Corporation's Common Equity and Related
Stockholder Matters 17
Item 6 - Selected Financial Data 18
Item 7 - Management's Discussion and Analysis of Financial
Condition and Results of Operation 18
Item 8 - Financial Statements and Supplementary Data 19
Item 9 - Changes In and Disagreements with Accountants on
Accounting and Financial Disclosure 19
PART III: Item 10 - Directors and Executive Officers of the Corporation 19
Item 11 - Executive Compensation 19
Item 12 - Security Ownership of Certain Beneficial Owners
and Management 19
Item 13 - Certain Relationships and Related Transactions 19
PART IV: Item 14 - Exhibits, Financial Statement Schedules and Reports on
Form 8-K 20
SIGNATURES 23
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PART I
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Item 1. Business.
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GENERAL
First West Chester Corporation (the "Corporation") is a Pennsylvania
business corporation and a bank holding company registered under the federal
Bank Holding Corporation Act of 1956, as amended (the "BHC Act"). As a bank
holding company, the Corporation's operations are confined to the ownership and
operation of banks and activities deemed by the Board of Governors of the
Federal Reserve System (the "Federal Reserve Board") to be so closely related to
banking to be a proper incident thereto. The Corporation was incorporated on
March 9, 1984, for the principal purpose of becoming a registered bank holding
company pursuant to the BHC Act and acquiring The First National Bank of West
Chester (the "Bank"), thereby enabling the Bank to operate within a bank holding
company structure. On September 13, 1984, the Corporation acquired all of the
issued and outstanding shares of common stock of the Bank in a one-for-one
exchange of common shares of the Bank for common shares of the Corporation. The
principal activities of the Corporation are the owning and supervising of the
Bank, which engages in a general banking business in Chester County,
Pennsylvania. The Corporation directs the policies and coordinates the financial
resources of the Bank. In addition, the Corporation is the sole shareholder of
323 East Gay Street Corp., a Pennsylvania corporation ("EGSC"), which holds a
62% general partnership interest in WCP Partnership, a Pennsylvania general
partnership ("WCP") that owns foreclosed real property located in West Chester,
Pennsylvania (the "West Chester Property"). At December 31, 1995, the
Corporation had consolidated total assets of approximately $389 million, total
deposits of approximately $344 million and stockholders' equity of approximately
$31 million.
BUSINESS OF THE BANK
The Bank is engaged in the business of commercial and retail banking and
was organized under the banking laws of the United States in December 1863. The
Bank currently conducts its business through six banking offices located in
Chester County, Pennsylvania, including its main office. In addition, the Bank
operates four limited service ATM facilities. The Bank is a member of the
Federal Reserve System. At December 31, 1995, the Bank had total assets of
approximately $388 million, total loans of approximately $243 million, total
deposits of approximately $344 million and employed 182 full-time equivalent
persons.
The Bank is a full service commercial bank offering a broad range of retail
banking, commercial banking and trust services to individuals and businesses.
Retail services include checking accounts, savings programs, money-market
accounts, certificates of deposit, safe deposit facilities, consumer loan
programs, residential mortgages, overdraft checking, automated tellers and
extended banking hours. Commercial services include revolving lines of credit,
commercial mortgages, equipment leasing and letter of credit services.
These retail and commercial banking activities are provided primarily to
consumers and small to mid-sized companies within the Bank's market area.
Lending services are focused on commercial, consumer and real estate lending to
local borrowers. The Bank attempts to establish a total borrowing relationship
with its customers which may typically include a commercial real estate loan, a
business line of credit for working capital needs, a mortgage loan for a
borrower's residence, a consumer loan or a revolving personal credit line.
The Bank's Financial Management Services Department (formerly, the Trust
Department) provides a broad range of personal and corporate trust services. It
administers and provides investment management services for estates, trusts,
agency accounts and employee benefit plans. At December 31, 1995, the Bank's
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Financial Management Services Department administered or provided investment
management for 698 accounts, which possessed assets with an aggregate market
value of approximately $256 million. For the year ended December 31, 1995, gross
income from the Bank's Financial Management Services Department and related
activities amounted to approximately $1.8 million and accounted for 5.7% of the
total of interest income and other income of the Bank for such period.
COMPETITION
The Bank's service area consists primarily of greater Chester County,
including West Chester and Kennett Square, as well as the fringe of Delaware
County, Pennsylvania. The core of the Bank's service area is located within a
fifteen-mile radius of the Bank's main office in West Chester, Pennsylvania. The
Bank encounters vigorous competition for market share in the communities it
serves from community banks, thrift institutions and other non-bank financial
organizations. The Bank competes with banking and financial branching systems,
some from out of state, which are substantially larger and have greater
financial resources than the Bank. There are branches of approximately 23
commercial banks, savings banks and credit unions, including the Bank, in the
general market area serviced by the Bank. The largest of these institutions had
assets of over $100 billion and the smallest had assets of less than $30
million. The Bank had total assets of approximately $388 million as of December
31, 1995.
The Bank competes for deposits with various other commercial banks, savings
banks, credit unions, brokerage firms and stock, bond and money market funds.
The Bank also faces competition from major retail-oriented firms that offer
financial services similar to traditional services available through commercial
banks without being subject to the same degree of regulation. Mortgage banking
firms, finance companies, insurance companies and leasing companies also compete
with the Bank for traditional lending services.
Management believes that the Bank is able to effectively compete with its
competitors because of its ability to provide responsive personalized services
and competitive rates. This ability is a direct result of management's knowledge
of the Bank's market area and customer base. Management believes the needs of
the small to mid-sized commercial business and retail customers are not
adequately met by larger financial institutions, therefore creating a marketing
opportunity.
BUSINESS OF EGSC
EGSC was formed in 1994 to hold the Bank's partnership interest in WCP
Partnership. WCP Partnership was formed to facilitate the acquisition, necessary
repairs, required environmental remediation and other actions necessary to sell
the West Chester property at fair market value. EGSC purchased a 62% interest in
the mortgage on the West Chester property in 1995 from the Bank at book value
and immediately contributed the interest in the mortgage to WCP Partnership as
capital. Another financial institution contributed the remaining 38% interest in
the mortgage to WCP Partnership. WCP Partnership foreclosed on West Chester
property in 1995 and is progressing towards an eventual sale.
SUPERVISION AND REGULATION
General
The Corporation is a bank holding company subject to supervision and
regulation by the Federal Reserve Board. In addition, the Bank is subject to
supervision and regulation by the Office of the Comptroller
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of the Currency ("OCC"), the Federal Deposit Insurance Corporation ("FDIC") and
the Pennsylvania Department of Banking (the "Department").
Government Regulation
The Corporation is required to file with the Federal Reserve Board an
annual report and such additional information as the Federal Reserve Board may
require pursuant to the BHC Act. Annual and other periodic reports also are
required to be filed with the Department. The Federal Reserve Board also makes
examinations of bank holding companies and their subsidiaries. The BHC Act
requires each bank holding company to obtain the prior approval of the Federal
Reserve Board before it may acquire substantially all of the assets of any bank,
or if it would acquire or control more than 5% of the voting shares of such a
bank. See "Interstate Banking."
Capital adequacy guidelines may impede a bank holding company's ability to
consummate acquisitions involving consideration with a cash component. For a
description of certain applicable guidelines, see "Capital," "Federal Deposit
Insurance Corporation Improvement Act of 1991" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Financial
Condition."
The BHC Act also restricts the types of businesses and operations in which
a bank holding company and its subsidiaries may engage. Generally, permissible
activities are limited to banking and activities found by the Federal Reserve
Board to be so closely related to banking as to be a proper incident thereto.
The business of owning a partnership interest in the West Chester Property
(through EGSC) as a result of an underlying foreclosure action is a permissible
activity, however, Federal Reserve Board approval is required to hold the West
Chester Property beyond March 1997.
The operations of the Bank are subject to requirements and restrictions
under federal and state law, including requirements to maintain reserves against
deposits, restrictions on the types and amounts of loans that may be made and
the types of services which may be offered and restrictions on the ability to
acquire deposits under certain circumstances. Various consumer laws and
regulations also affect the operations of the Bank. Approval of the OCC is
required for branching by Bank and for bank mergers in which the continuing bank
is a national bank.
Development and Regulatory Improvement
On September 23, 1994, the President signed into law the "Riegle Community
Development and Regulatory Improvement Act of 1994" (the "Development Act"). The
Development Act established a $382 million fund (the "Fund") to promote economic
development and credit availability in underserved communities by providing
financial and technical assistance to community development financial
institutions ("CDFI's").
CDFI's include banks, savings associations and bank holding companies which
have a primary mission of promoting community development. Institutions
receiving monies from the Fund will be required to provide matching funds dollar
for dollar. Under the Fund, a CDFI may receive up to $5 million over a 3-year
period, with affiliates in other states not presently served eligible to receive
up to an additional $3.75 million over 3 years.
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One-third of the Fund will be used to finance the Bank Enterprise Act, an
existing but previously unfunded incentive program designed to encourage
depository institutions to increase funding in distressed neighborhoods.
The Development Act contains provisions relating to small business capital
formation, small business loan securitization, consumer protection for "reserve
mortgages," paperwork reduction and reform of the national flood insurance
program.
The foregoing is a summary and general description of certain provisions of
the Development Act and does not purport to be complete. Many of the provisions
of the Development Act will be implemented through the adoption of regulations
by the various federal banking agencies. Moreover, many of the significant
provisions of the legislation have not yet become effective. As of the date
hereof, the Corporation is continuing to study the legislation and regulations
relating to the legislation but cannot yet assess its impact on the Corporation.
Interstate Banking
The Interstate Banking and Branching Efficiency Act of 1994 (the
"Interstate Act") authorizes interstate banking and branching. Effective
September 29, 1995, subject to approval by the Federal Reserve Board and other
restrictions set forth in the Interstate Act, bank holding companies may engage
in interstate acquisitions of banks, without geographic limitations,
notwithstanding state law to the contrary.
The Interstate Act permits (i) adequately managed bank holding companies to
engage in interstate acquisitions of banks, (ii) interstate branching through
interstate bank mergers and acquisitions beginning June 1, 1997 (subject to the
ability of states to permit or prohibit such mergers and acquisitions earlier)
and (iii) other interstate branching through the establishment of de novo
branches if authorized by state law.
Dividend Restrictions
The Corporation is a legal entity separate and distinct from the Bank.
Virtually all of the revenue of the Corporation available for payment of
dividends on its Common Stock will result from amounts paid to the Corporation
from dividends received from the Bank. All such dividends are subject to
limitations imposed by federal and state laws and by regulations and policies
adopted by federal and state regulatory agencies.
The Bank as a national bank is required by federal law to obtain the
approval of the OCC for the payment of dividends if the total of all dividends
declared by the Board of Directors of the Bank in any calendar year will exceed
the total of Bank's net income for that year and the retained net income for the
preceding two years, less any required transfers to surplus or a fund for the
retirement of any preferred stock. National banks can only pay dividends to the
extent that retained net profits (including the portion transferred to surplus)
exceed bad debts (as defined).
Payment of dividends by the Bank will be prohibited under the Federal
Deposit Insurance Corporation Improvement Act of 1991 ("FDICIA") in the event
that the Bank would become "undercapitalized" under the guidelines described
below as a result of such distribution.
Under the above-mentioned restrictions, the Bank, without affirmative
governmental approvals, could declare aggregate dividends in 1996 of
approximately $2.7 million, plus an amount approximately equal to
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the net income, if any, earned by the Bank for the period from January 1, 1996,
through the date of declaration less dividends previously paid in 1996, subject
to the limitations described elsewhere herein.
If, in the opinion of the applicable regulatory authority, a bank or bank
holding company under its jurisdiction is engaged in or is about to engage in an
unsafe or unsound practice (which, depending on the financial condition of the
bank or bank holding company, could include the payment of dividends), such
authority may require that such bank or bank holding company cease and desist
from such practice, or require the bank or bank holding company to limit
dividends in the future. The Federal Reserve Board, the OCC and the FDIC have
issued policy statements which provide that insured banks and bank holding
companies should generally only pay dividends out of current operating earnings.
Finally, as described elsewhere herein, the regulatory authorities have
established guidelines and under FDICIA have adopted regulations (and may in the
future adopt additional regulations) with respect to the maintenance of
appropriate levels of capital by a bank or bank holding company under their
jurisdiction. Compliance with the standards set forth in such policy statements,
guidelines and regulations could limit the amount of dividends which the
Corporation and the Bank may pay.
Borrowings by the Corporation
Federal law prevents the Corporation from borrowing from the Bank, unless
such borrowings are secured by specified amounts and types of collateral.
Additionally, such secured loans are generally limited to 10% of the Bank's
capital and surplus. Further, a bank holding company and its subsidiaries are
prohibited from engaging in certain tie-in arrangements in connection with any
extension of credit, lease or sale of property or furnishing of services.
Capital
The Federal Reserve Board measures capital adequacy for bank holding
companies on the basis of a risk-based capital framework and a leverage ratio.
The minimum ratio of total risk-based capital to risk-adjusted assets (including
certain off-balance sheet items, such as standby letters of credit) is 8%. At
least half of the total capital must be common equity and qualifying perpetual
preferred stock, less goodwill ("Tier I capital"). The remainder ("Tier II
capital") may consist of mandatory convertible debt securities, a designated
amount of qualifying subordinated debt, other preferred stock and a portion of
the reserve for possible credit losses.
In addition to the Risk Based Capital Standards imposed on bank holding
companies, the banking regulators also believe that every institution must
maintain an absolute minimum level of equity. The Federal Reserve Board has
established minimum leverage ratio guidelines for bank holding companies. These
guidelines currently provide for a minimum leverage ratio of Tier I capital to
adjusted total assets of 3% for bank holding companies that meet certain
criteria, including that they maintain the highest regulatory rating. All other
bank holding companies are required to maintain a leverage ratio of 3% plus an
additional cushion of at least 1 to 2 percentage points. The Federal Reserve
Board has not advised the Corporation of any specific minimum leverage ratio
under these guidelines which would be applicable to the Corporation. The
guidelines also indicate that, when appropriate, including when a bank holding
company is undertaking expansion, engaging in new activities or otherwise facing
unusual or abnormal risk, the Federal Reserve Board will consider a "tangible
Tier I leverage ratio" (deducting all intangibles) in making an overall
assessment of capital adequacy. Failure to satisfy regulators that a bank
holding company will comply fully with capital adequacy guidelines upon
consummation of an acquisition may impede the ability of a bank holding company
to consummate such acquisition, particularly if the acquisition involves payment
of consideration other than
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common stock. In many cases, the regulatory agencies will not approve
acquisitions by bank holding companies and banks unless their capital ratios are
well above regulatory minimums.
The Bank is subject to capital requirements which generally are similar to
those affecting the Corporation. As described below under "FDICIA," the federal
banking agencies have established certain minimum levels of capital which are
consistent with statutory requirements. As of December 31, 1995, 1994 and 1993,
the Corporation and the Bank had capital in excess of all regulatory minimums.
The Federal Reserve Board, the FDIC and the OCC have adopted a rule to
implement the requirement under FDICIA that risk-based capital standards take
account of interest rate risk. The rule focuses on institutions having
relatively high levels of measured interest rate risk, and considers the effect
that changing interest rates would have upon the value of an institution's
assets, liabilities, and off balance-sheet positions. It is anticipated that
this new rule will not have a significant adverse impact on the capital ratios
or operations of the Corporation or the Bank.
FEDERAL DEPOSIT INSURANCE CORPORATION IMPROVEMENT ACT OF 1991
Upon its enactment in December 1991, FDICIA substantially revised the bank
regulatory and funding provisions of the Federal Deposit Insurance Act and made
revisions to several other federal banking statutes.
FDICIA requires the federal banking agencies to take "prompt corrective
action" in respect of depository institutions that do not meet minimum capital
requirements in order to minimize losses to the FDIC. FDICIA establishes five
capital classifications: "well capitalized," "adequately capitalized,"
"undercapitalized," "significantly undercapitalized" and "critically
undercapitalized" and imposes significant restrictions on the operations of a
bank that is not at least adequately capitalized. A depository institution's
capital classification depends upon its capital levels in relation to various
relevant capital measures, which include a risk-based capital measure and a
leverage ratio capital measure.
A depository institution is considered well capitalized if it significantly
exceeds the minimum level required by regulation for each relevant capital
measure, adequately capitalized if it meets each such measure, undercapitalized
if it fails to meet any such measure, significantly undercapitalized if it is
significantly below any such measure and critically undercapitalized if it fails
to meet any critical capital level set forth in the regulations. An institution
may be placed in a lower capitalization category if it receives an
unsatisfactory examination rating, is deemed to be in an unsafe or unsound
condition, or engages in unsafe or unsound practices. Under applicable
regulations, for an institution to be well capitalized it must have a total
risk-based capital ratio of at least 10%, a Tier I risk-based capital ratio of
at least 6% and a Tier I leverage ratio of at least 5% and not be subject to any
specific capital order or directive. As of December 31, 1995, the Corporation
and the Bank were "well capitalized" as defined under FDICIA. See Part II, Item
7, "Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Financial Condition" and "-- Capital Adequacy."
FDICIA generally prohibits a depository institution from making any capital
distribution (including payment of a dividend) or paying any management fee to
its holding company if the depository institution would thereafter be
undercapitalized. Undercapitalized institutions are subject to growth
limitations and prohibitions on the payment of interest rates on deposits in
excess of 75 basis points above the average market yields for comparable
deposits. Such institutions must submit a capital restoration plan which is
acceptable to applicable federal banking agencies and which must include a
guarantee from the parent holding company that the institution will comply with
such plan.
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Significantly undercapitalized depository institutions may be subject to a
number of requirements and restrictions, including orders to sell sufficient
voting stock to become adequately capitalized, requirements to reduce total
assets or to cease accepting deposits from correspondent banks and restrictions
on senior executive compensation and on inter-affiliate transactions. Critically
undercapitalized institutions are subject to a number of additional
restrictions, including the appointment of a receiver or conservator.
Regulations promulgated under FDICIA also require that an institution
monitor its capital levels closely and notify its appropriate federal banking
regulators within 15 days of any material events that affect the capital
position of the institution. FDICIA also contains a variety of other provisions
that affect the operations of the Corporation, including certain reporting
requirements, regulatory standards and guidelines for real estate lending,
"truth in savings" provisions, the requirement that a depository institution
give 90 days prior notice to customers and regulatory authorities before closing
any branch, certain restrictions on investments and activities of
state-chartered insured banks and their subsidiaries, limitations on credit
exposure between banks, restrictions on loans to a bank's insiders, guidelines
governing regulatory examinations, and a prohibition on the acceptance or
renewal of brokered deposits by depository institutions that are not well
capitalized or are adequately capitalized and have not received a waiver from
the FDIC.
FDICIA directs that each federal banking agency prescribe standards for
depository institutions and depository institution holding companies relating to
internal controls, information systems, internal audit systems, loan
documentation, credit underwriting, interest rate exposure, asset growth and
quality, a maximum ratio of classified assets to capital, minimum earnings
sufficient to absorb losses, a minimum ratio of market value to book value for
publicly traded shares (if feasible) and such other standards as the agency
deems appropriate.
Finally, FDICIA limits the discretion of the FDIC with respect to deposit
insurance coverage by requiring that, except in very limited circumstances, the
FDIC's course of action in resolving a problem bank must constitute the "least
costly resolution" for the Bank Insurance Fund ("BIF") or the Savings
Association Insurance Fund ("SAIF"), as the case me be. The FDIC has interpreted
this standard as requiring it not to protect deposits exceeding the $100,000
insurance limit in more situations than was previously the case. FDICIA also
prohibits payments by the FDIC on uninsured deposits in foreign branches of U.S.
banks, and severely limits the "too big to fail" doctrine under which the FDIC
formerly protected deposits exceeding the $100,000 insurance limit in certain
failed banking institutions.
FINANCIAL INSTITUTIONS REFORM, RECOVERY AND ENFORCEMENT ACT OF 1989
Under the Financial Institutions Reform, Recovery and Enforcement Act of
1989 ("FIRREA"), a depository institution insured by the FDIC can be held liable
for any loss incurred by, or reasonably expected to be incurred by, the FDIC
after August 9, 1989, in connection with (i) the default of a commonly
controlled FDIC-insured depository institution or (ii) any assistance provided
by the FDIC to commonly controlled FDIC-insured depository institution in danger
of default. The term "default" is defined generally as the appointment of a
conservator or receiver and the phrase "in danger of default" is defined
generally as the existence of certain conditions indicating that a "default" is
likely to occur in the absence of regulatory assistance. FIRREA and the Crime
Control Act of 1990 (the "Crime Control Act") expand the enforcement powers
available to federal banking regulators, including providing greater flexibility
to impose enforcement action, expanding the category of persons dealing with a
bank who are subject to enforcement action, and increasing the potential civil
and criminal penalties. In the event of a holding company insolvency, the Crime
Control Act affords a priority in respect of capital commitments made by the
holding company on behalf of its subsidiary bank.
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Annual Insurance Assessments
Under FIRREA, the Federal Savings and Loan Insurance Corporation, which
insured savings and loan associations and federal savings banks, was replaced by
the SAIF, which is administered by the FDIC. A separate fund, the BIF, which was
essentially a continuation of the FDIC's then existing fund, was established for
banks and state savings banks. The Bank is subject to deposit insurance
assessments by the BIF.
The FDIC has developed a risk-based assessment system, under which the
assessment rate for an insured depository institution varies according to its
level of risk. An institution's risk category is based upon whether the
institution is well capitalized, adequately capitalized or undercapitalized and
the institution's "supervisory subgroups": Subgroup A, B or C. Subgroup A
institutions are financially sound institutions with a few minor weaknesses;
Subgroup B institutions are institutions that demonstrate weaknesses which, if
not corrected, could result in significant deterioration; and Subgroup C
institutions are institutions for which there is a substantial probability that
the FDIC will suffer a loss in connection with the institution unless effective
action is taken to correct the areas of weakness. Based on its capital and
supervisory subgroups, each BIF or SAIF member institution is assigned an annual
FDIC assessment rate per $100 of insured deposits varying between 0.00% per
annum (for well capitalized Subgroup A institutions) and 0.27% per annum (for
undercapitalized Subgroup C institutions). Well capitalized Subgroup B and
Subgroup C institutions are assigned assessment rates per $100 of insured
deposits ranging from 0.03% per annum to 0.27% per annum. As of January 1, 1996,
well capitalized Subgroup A institutions will pay only the statutory annual
minimum of $2,000 for FDIC Insurance. These BIF assessment rates represent a
significant decrease from rates in effect in prior years.
Other Matters
The Corporation's Common Stock is registered under the Securities Exchange
Act of 1934, as amended (the "Exchange Act"). As a result, the Corporation is
subject to the regulations promulgated under the Exchange Act regarding the
filing of public reports, the solicitation of proxies, the disclosure of
beneficial ownership of certain securities, short swing profits and the conduct
of tender offers.
EFFECT OF GOVERNMENTAL POLICIES
The earnings of the Bank and, therefore, of the Corporation are affected
not only by domestic and foreign economic conditions, but also by the monetary
and fiscal policies of the United States and its agencies (particularly the
Federal Reserve Board), foreign governments and other official agencies. The
Federal Reserve Board can and does implement national monetary policy, such as
the curbing of inflation and combating of recession, by its open market
operations in United States government securities, control of the discount rate
applicable to borrowings from the Federal Reserve and the establishment of
reserve requirements against deposits and certain liabilities of depository
institutions. The actions of the Federal Reserve Board influence the level of
loans, investments and deposits and also affect interest rates charged on loans
or paid on deposits. The nature and impact of future changes in monetary and
fiscal policies are not predictable.
From time to time, various proposals are made in the United States Congress
and the Pennsylvania legislature and before various regulatory authorities which
would alter the powers of different types of banking organizations, remove
restrictions on such organizations and change the existing regulatory framework
for banks, bank holding companies and other financial institutions. It is
impossible to predict whether any of such proposals will be adopted and the
impact, if any, of such adoption on the business of the Corporation.
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ACCOUNTING CHANGES
Accounting For Income Taxes
The Corporation adopted SFAS No. 109, "Accounting for Income Taxes,"
effective January 1, 1993. See Note A-8 in Notes to Consolidated Financial
Statements, included in the Corporation's 1995 Annual Report to Shareholders,
incorporated by reference.
Accounting For Investment Securities
The Corporation adopted SFAS No. 115, "Accounting for Certain Investments
in Debt and Equity Securities" effective January 1, 1994. See Note A-3 in Notes
to Consolidated Financial Statements included in the Corporation's 1995 Annual
Report to Shareholders, incorporated by reference.
Accounting for Contributions
The Corporation adopted SFAS No. 116, "Accounting for Contributions
Received and Contributions Made" effective January 1, 1995. See Note A-7 in
Notes to Consolidated Financial Statements included in the Corporation's 1995
Annual Report to Shareholders, incorporated by reference.
Accounting for Impairment of a Loan
The Corporation adopted SFAS No. 114, "Accounting by Creditors for
Impairment of a Loan", as amended by SFAS No. 118, "Accounting by Creditors for
Impairment of a Loan - Income Recognition and Disclosures" effective January 1,
1995. See Note A-4 in Notes to Consolidated Financial Statements included in the
Corporation's 1995 Annual Report to Shareholders, incorporated by reference.
STATISTICAL DISCLOSURES
The following tables set forth certain statistical disclosures concerning
the Corporation and the Bank. These tables should be read in conjunction with
Management's Discussion and Analysis of Financial Condition and Results of
Operations contained in the Corporation's 1995 Annual Report to Shareholders,
incorporated herein by reference.
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FIRST WEST CHESTER CORPORATION AND SUBSIDIARIES
RATE VOLUME ANALYSIS
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Increase (decrease) in net interest income due to:
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Volume Rate Total Volume Rate Total
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(Dollars in thousands) 1995 Compared to 1994 1994 Compared to 1993
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INTEREST INCOME
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Federal funds sold $278 $210 $488 ($231) $36 ($195)
Investment securities
Taxable (209) 540 331 765 (592) 173
Tax-exempt (18) (41) (59) (30) 39 9
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Total investment securities (227) 499 272 735 (553) 182
Loans
Taxable 1,342 1,981 3,323 1,064 (79) 985
Tax-exempt (51) 42 (9) (99) 7 (92)
-------- ------ -------- -------- -------- --------
Total loans 1,291 2,023 3,314 965 (72) 893
-------- ------ -------- -------- -------- --------
Total interest income 1,342 2,732 4,074 1,469 (589) 880
-------- ------ -------- -------- -------- --------
INTEREST EXPENSE
- ----------------
Savings, NOW and money market deposits (431) 780 349 (301) (729) (1,030)
Certificates of deposits and other time 1,281 1,039 2,320 878 (568) 310
-------- ------ -------- -------- -------- --------
Total interest bearing deposits 850 1,819 2,669 577 (1,297) (720)
Securities sold under repurchase
agreements 39 95 134 52 (34) 18
Other borrowings 27 15 42 19 (3) 16
-------- ------ -------- -------- -------- --------
Total Interest expense 916 1,929 2,845 648 (1,334) (686)
-------- ------ -------- -------- -------- --------
Net Interest income $426 $803 $1,229 $821 $745 $1,566
====== ====== ======== ====== ====== ======
<FN>
NOTES:
- ------
(1) The indicated changes are presented on a tax equivalent basis.
(2) The changes in interest due to both rate and volume has been allocated
to volume and rate changes in proportion to the relationship of the
absolute dollar amounts of the change in each.
(3) Non-accruing loans have been used in the daily average balances to
determine changes in interest due to volume. Loan fees included in the
interest income computation are not material.
(4) The related average balance sheets can be found on page 12 of the
Corporation's 1995 Annual Report to Shareholders.
</FN>
</TABLE>
-10-
<PAGE>
FIRST WEST CHESTER CORPORATION AND SUBSIDIARIES
LOAN PORTFOLIO BY TYPE AT DECEMBER 31,
<TABLE>
<CAPTION>
(Dollars in thousands) 1995 1994 1993 1992 1991
-------------- --------------- --------------- ---------------- --------------
Amount % Amount % Amount % Amount % Amount %
------ - ------ - ------ - ------ - ------ -
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Commercial loans $86,686 36% $87,689 37% $88,632 40% $82,602 39% $80,351 40%
Real estate - construction 9,372 4% 4,607 2% 6,327 3% 3,724 2% 5,813 3%
Real estate - other 100,814 41% 101,589 42% 87,389 40% 85,555 40% 75,713 38%
Consumer loans (1) 33,836 14% 32,984 14% 27,414 12% 29,815 14% 30,513 15%
Lease financing receivables 11,879 5% 12,257 5% 11,671 5% 10,879 5% 7,929 4%
-------- -------- -------- -------- --------
Total gross loans 242,587 100% 239,126 100% 221,433 100% 212,575 100% 200,319 100%
Allowance for possible loan
losses (4,506) (3,303) (2,839) (2,300) (1,850)
---------- --------- --------- --------- ---------
Total loans $238,081 $235,823 $218,594 $210,275 $198,469
======== ======== ======== ======== ========
<FN>
NOTES:
- ------
(1) Consumer loans include open-end home equity lines of credit and credit card
receivables.
(2) At December 31, 1995 there were no concentrations of loans exceeding 10% of
total loans which is not otherwise disclosed as a category of loans in the
above table.
(3) The Corporation does not breakdown the allowance for possible loan losses
by area, industry or type of loan because the evaluation process used to
determine the adequacy of the reserve is based on the portfolio as a whole.
Management believes such an allocation would not be meaningful. See pages
16-18 of the Corporation's 1995 Annual Report to Shareholders for
additional information.
</FN>
</TABLE>
-11-
<PAGE>
FIRST WEST CHESTER CORPORATION AND SUBSIDIARIES
MATURITIES AND RATE SENSITIVITY OF LOANS DUE TO CHANGES IN
INTEREST RATES AT DECEMBER 31, 1995
<TABLE>
<CAPTION>
Maturing
Maturing After 1 Year Maturing
Within And Within After
(Dollars in thousands) 1 Year 5 Years 5 Years Total
- ---------------------- ------ ------- ------- -----
<S> <C> <C> <C> <C>
Commercial loans $67,093 $4,903 $14,690 $86,686
Real Estate - construction 9,372 -- -- 9,372
------- ------- ------- --------
Total $76,465 $4,903 $14,690 $ 96,058
======= ====== ======= =======
Loans maturing after 1 year with:
- ---------------------------------
Fixed interest rates $4,903 $14,690
Variable interest rates -- --
------ -------
Total $4,903 $14,690
====== =======
<FN>
NOTES:
- ------
(1) Demand loans and overdrafts are reported maturing "Within 1 Year".
Construction real estate loans are reported maturing "Within 1 Year"
because of their short term maturity or index to the Bank's prime rate.
An immaterial amount of loans has no stated schedule of repayments.
(2) Determination of maturities included in the above loan maturity table
are based upon contract terms. In situations where a "rollover" is
appropriate, the Corporation's policy in this regard is to evaluate the
credit for collectability consistent with the normal loan evaluation
process. This policy is used primarily in evaluating ongoing customer's
use of their lines of credit with the Bank that are at floating
interest rates.
(3) This data excludes real estate-other loans, consumer loans and lease
financing receivables.
</FN>
</TABLE>
-12-
<PAGE>
FIRST WEST CHESTER CORPORATION AND SUBSIDIARIES
INVESTMENT SECURITIES YIELD BY MATURITY AT DECEMBER 31, 1995
<TABLE>
<CAPTION>
Due over Due over
Due 1 year 5 years Due
Within Through Through Over
(Dollars in thousands) 1 year 5 years 10 years 10 years Total
------ ------- -------- -------- -----
Held-to-Maturity
- ----------------
<S> <C> <C> <C> <C> <C>
U.S. Treasury -- 1,473 -- -- 1,473
U.S. Government agency 500 1,001 -- -- 1,501
Mortgage-backed securities -- 1,384 1,132 169 2,685
State and municipal 1,055 3,289 390 25 4,759
Corporate securities 7,804 4,002 -- -- 11,806
Asset-backed -- 462 -- 362 824
----- ------ ----- ------ ------
9,359 11,611 1,522 556 23,048
----- ------ ----- ------ ------
Available-for-Sale
- ------------------
U.S. Treasury 7,525 5,495 -- -- 13,020
U.S. Government agency -- 12,011 -- -- 12,011
Mortgage-backed securities -- 5,574 7,826 21,259 34,659
State and municipal -- -- -- 254 254
Corporate securities 1,079 -- -- -- 1,079
Mutual Funds -- -- -- 8,000 8,000
Other equity securities -- -- -- 1,540 1,540
------ -------- ------- ------ ------
8,604 23,080 7,826 31,053 70,563
----- ------ ----- ------ ------
Total Investment securities $17,963 $34,691 $9,348 $31,609 $93,611
======= ======= ====== ======= =======
Percent of portfolio 19.19% 37.06% 9.99% 33.77% 100.00%
====== ====== ===== ====== =======
Weighted average yield 5.96% 6.10% 6.36% 5.37% 5.85%
===== ===== ===== ===== =====
<FN>
NOTES:
- ------
(1) The yield on tax-exempt obligations has been computed on a tax equivalent
basis using the Federal marginal rate of 34% adjusted for the 20% interest
expense disallowance.
(2) Other equity securities having no stated maturity (including the Federated
ARMs Fund) have been included in "Due over 10 years."
(3) Mortgage-backed and Asset-backed securities are included in the above table
based on their contractual maturity.
(4) As of December 31, 1995, the Corporation held securities from one issuer,
The Federated ARMs Fund, in excess of 10% of stockholders' equity. The
Corporation's investment in the Federated ARMs Fund was $8,000,000 with a
market value of $7,733,000. This fund concentrates at least 65% of its
value in adjustable and floating rate mortgage securities which are issued
or guaranteed as to payment of principal and interest by the U.S.
Government or its agencies.
</FN>
</TABLE>
-13-
<PAGE>
FIRST WEST CHESTER CORPORATION AND SUBSIDIARIES
INVESTMENT SECURITIES AT DECEMBER 31,
<TABLE>
<CAPTION>
1995 1994 1993
---------------------- ----------------------- ----------------------
Book Market Book Market Book Market
(Dollars in thousands) Value Value Value Value Value Value
----- ----- ----- ----- ----- -----
Held-to-Maturity
- ----------------
<S> <C> <C> <C> <C> <C> <C>
U.S. Treasury $1,473 $1,485 $1,464 $1,365 $11,491 $11,678
U.S. Government agency 1,501 1,496 1,500 1,416 1,499 1,534
Mortgage-backed securities 2,685 2,689 3,223 3,039 33,049 33,100
State and municipal 4,759 4,862 5,603 5,525 5,387 5,564
Corporate securities 11,806 11,867 15,455 15,130 24,903 25,674
Asset-backed 824 814 2,122 2,053 4,993 5,019
Mutual funds -- -- -- -- 9,901 9,901
Other equity securities -- -- -- -- 1,606 1,649
--------- --------- --------- --------- ------- -------
$23,048 $23,213 $29,367 $28,528 $92,829 $94,119
======= ======= ======= ======= ======= =======
Available-for-Sale
- ------------------
U.S. Treasury $13,091 $13,091 $12,761 $12,761 $ -- $ --
U.S. Government agency 12,176 12,176 -- -- -- --
Mortgage-backed securities 34,475 34,475 23,446 23,446 -- --
State and municipal 281 281 268 268 -- --
Corporate securities 1,079 1,079 3,081 3,081 -- --
Asset-backed -- -- 107 107 -- --
Mutual Funds 7,733 7,733 7,764 7,764 -- --
Other equity securities 1,628 1,628 1,595 1,595 -- --
------- ------- ------- ------- ---------- ----------
$70,463 $70,463 $49,022 $49,022 $ -- $ --
======= ======= ======= ======= ========== ==========
</TABLE>
MATURITIES OF CERTIFICATES OF DEPOSIT AND OTHER TIME DEPOSITS,
$100,000 OR MORE, AT DECEMBER 31, 1995
<TABLE>
<CAPTION>
Due Within Over 3 Months Over 6 Months Due Over
(Dollars in thousands) 3 Months Through 6 Months Through 12 Months 12 Months Total
----------- ---------------- ----------------- --------- -----
<S> <C> <C> <C> <C> <C>
Certifcates of Deposit
$100,000 or more $ 948 $ 3,332 $ 3,109 $ 4,090 $11,479
</TABLE>
-14-
<PAGE>
FIRST WEST CHESTER CORPORATION AND SUBSIDIARIES
EFFECT OF NONACCRUING LOANS ON INTEREST FOR
YEARS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
(Dollars in thousands) 1995 1994 1993 1992 1991
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Interest income which would
have been recorded $103 $432 $225 $61 $39
Interest income that was
received from customer 172 -- -- -- 16
---- ---- ---- --- ----
($69) $432 $225 $61 $23
===== ==== ==== === ===
<FN>
NOTES:
- ------
(1) Generally the Bank places a loan in nonaccrual status when principal or
interest has been in default for a period of 90 days or more unless the
loan is both well secured and in the process of collection.
</FN>
</TABLE>
-15-
<PAGE>
Item 2. Properties.
- ------- -----------
The Bank owns seven properties which are not subject to any mortgages. The
Corporation owns one property which is not subject to any mortgage, and which is
located at 124 West Cypress Street, Kennett Square, Pennsylvania. In addition,
the Corporation leases the Westtown-Thornbury and the Exton Offices. EGSC owns a
62% interest in WCP Partnership which owns the West Chester Property described
in Item 1 above. Management of the Corporation believes the Corporation's and
the Bank's facilities are suitable and adequate for their respective present
needs. Set forth below is a listing of each banking office presently operated by
the Bank and the Corporation, and other properties owned by the Bank and the
Corporation which may serve as future sites for branch offices.
<TABLE>
<CAPTION>
Current
Banking Date Acquired
Offices Address or Opened
- ------- ------- ---------
<S> <C> <C>
Main Office 9 North High Street December 1863
and Corporate West Chester, Pennsylvania
Headquarters
Walk-In Facility 17 East Market Street February 1978
West Chester, Pennsylvania
Westtown-Thornbury Route 202 and Route 926 May 1994
Westtown, Pennsylvania
Goshen 311 North Five Points Road September 1956
West Goshen, Pennsylvania
Kennett Square 126 West Cypress Street February 1987
Kennett Square, Pennsylvania
Exton Route 100 and Boot Road August 1995
West Chester, Pennsylvania
Other Date Acquired
Properties Address or Opened
- ---------- ------- ---------
Operations 202 Carter Drive July 1988
Center West Chester, Pennsylvania
Paoli Pike 1104 Paoli Pike July 1963
West Chester, Pennsylvania
Kennett Square 124 West Cypress Street July 1986
Kennett Square, Pennsylvania
Westtown 1039 Wilmington Pike February 1965
Westtown, Pennsylvania
Former Commonwealth High & Market Streets July 1995
Building West Chester, Pennsylvania
</TABLE>
-16-
<PAGE>
Item 3. Legal Proceedings.
- ------- ------------------
There are no material pending legal proceedings, other than ordinary
routine litigation incidental to the business, to which the Corporation, the
Bank or EGSC is a party or of which any of their respective property is the
subject.
Item 4. Submission of Matters to a Vote of Security Holders.
- ------- ----------------------------------------------------
None.
PART II
-------
Item 5. Market for the Corporation's Common Equity and Related Stockholder
- ------ ------------------------------------------------------------------
Matters.
-------
The Corporation's Common Stock is not listed or traded on a recognized
securities exchange. There is no established public trading market for the
Corporation's Common Stock and trading is sporadic. Information regarding high
and low bid quotations is incorporated herein by reference from the
Corporation's 1995 Annual Report to Shareholders, attached as an exhibit hereto.
As of March 1, 1996, there were approximately 830 shareholders of record of the
Corporation's Common Stock.
The Corporation instituted a stock bonus plan (the "Stock Bonus Plan")
during 1991, the purpose of which is to promote the interests of the Corporation
by encouraging and enabling its employees and the employees of the Bank to
acquire financial interests in the Corporation through the acquisition of shares
of the Corporation's Common Stock. Under the Stock Bonus Plan, the Corporation
may grant bonuses to its employees consisting of (i) shares of its Common Stock
or (ii) shares of Common Stock and cash. The shares of Common Stock constituting
the stock bonuses under the Stock Bonus Plan are purchased by the Corporation on
the open market through an independent agent specified by the Corporation's
Board of Directors. As of March 1, 1996, approximately $293,000 in cash bonuses
were granted under the Stock Bonus Plan for services rendered by the executive
officers and other employees of the Bank during 1995.
The Corporation instituted a dividend reinvestment and stock purchase plan
in 1990 ("DRIP"), the purpose of which is to provide the shareholders of the
Corporation with a convenient method of investing cash dividends and optional
cash payments in additional shares of the Corporation's Common Stock. As of
December 31, 1995, 433 shareholders of the Corporation, representing
approximately 53,000 shares of the Corporation's Common Stock, were participants
in the DRIP. The DRIP purchased approximately $336,000 worth of the
Corporation's Common Stock during the year ended December 31, 1995.
The Corporation adopted a stock repurchase plan in 1995 to purchase up to
105,000 shares of the Common Stock of the Corporation through open market or
privately negotiated transactions in order to increase shareholder value in the
remaining outstanding shares of Common Stock. As of March 1, 1996, the
Corporation had repurchased 75,000 shares of Common Stock in two privately
negotiated transactions and 12,000 shares in the open market.
The Corporation instituted a stock option plan in 1995 (the "1995 Stock
Option Plan"), the purpose of which is to provide additional incentive to key
employees and directors of the Corporation and the Bank to enter into or remain
in the service or employ of the Corporation or the Bank by providing them with
an opportunity to acquire or increase their proprietary interest in the
Corporation through receipt of options to
-17-
<PAGE>
acquire the Common Stock of the Corporation. Under the 1995 Stock Option Plan,
which was ratified by the shareholders of the Corporation on March 19, 1996,
146,250 shares of Common Stock of the Corporation were reserved for issuance to
key employees of the Corporation and the Bank, and 41,250 shares of such Common
Stock were reserved for issuance to directors of the Corporation and the Bank.
On September 18, 1995, pursuant to the 1995 Stock Option Plan, options to
purchase 750 shares of Common Stock were granted to each then current Director
of the Corporation and the Bank, an option to purchase 3,000 shares of Common
Stock was granted to the President of the Corporation and options to purchase
1,500 shares of Common Stock were granted to nine executive officers of the
Corporation and the Bank. The grant of such options was subject to and
subsequently ratified by the shareholders of the Corporation on March 19, 1996.
The Corporation declared cash dividends per share on its Common Stock
during each quarter of the fiscal years ended December 31, 1995 and 1994, as set
forth in the following table (which have been adjusted for the stock split which
occurred in October, 1995):
<TABLE>
<CAPTION>
Dividends
---------
Amount Per Share
----------------
1995 1994
---- ----
<S> <C> <C>
First Quarter............................................. $0.20 $0.18
Second Quarter............................................ 0.20 0.18
Third Quarter............................................. 0.23 0.20
Fourth Quarter............................................ 0.26 0.21
------ -------
Total................................................... $0.89 $0.77
===== =====
</TABLE>
The holders of the Corporation's Common stock are entitled to receive such
dividends as may be legally declared by the Corporation's Board of Directors.
The amount, time, and payment of future dividends, however, will depend on the
earnings and financial condition of the Corporation, government policies, and
other factors. See Part I, Item 1, "Supervision and Regulation" for information
concerning limitations on the payment of dividends by the Bank and the
Corporation and on the ability of the Corporation to otherwise obtain funds from
the Bank.
Item 6. Selected Financial Data.
- ------- ------------------------
Selected financial data concerning the Corporation and the Bank is
incorporated by reference from the Corporation's 1995 Annual Report to
Shareholders, attached as an exhibit hereto. See Part II, Item 5, for data
concerning the payment of cash dividends on Common Stock.
Item 7. Management's Discussion and Analysis of Financial Condition and
- ------ ---------------------------------------------------------------
Results of Operations.
---------------------
Management's Discussion and Analysis of Financial Condition and Results of
Operations is incorporated by reference from the Corporation's 1995 Annual
Report to Shareholders, attached as an exhibit hereto.
-18-
<PAGE>
Item 8. Financial Statements and Supplementary Data.
- ------- --------------------------------------------
Consolidated financial statements of the Corporation and the Report of
Independent Certified Public Accountants thereon are incorporated by reference
from the Corporation's 1995 Annual Report to Shareholders, attached as an
exhibit hereto.
Item 9. Changes in and Disagreements with Accountants on Accounting and
- ------ ---------------------------------------------------------------
Financial Disclosure.
--------------------
None.
PART III
--------
Item 10. Directors and Executive Officers of the Corporation.
- -------- ----------------------------------------------------
The information called for by this item is incorporated herein by reference
to the Corporation's Proxy Statement dated February 28, 1996, for its 1996
Annual Meeting of Shareholders.
Item 11. Executive Compensation.
- -------- -----------------------
The information called for by this item is incorporated herein by reference
to the Corporation's Proxy Statement dated February 28, 1996, for its 1996
Annual Meeting of Shareholders.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
- -------- ---------------------------------------------------------------
The information called for by this item is incorporated herein by reference
to the Corporation's Proxy Statement dated February 28, 1996, for its 1996
Annual Meeting of Shareholders.
Item 13. Certain Relationships and Related Transactions.
- -------- -----------------------------------------------
The information called for by this item is incorporated herein by reference
to the Corporation's Proxy Statement dated February 28, 1996, for its 1996
Annual Meeting of Shareholders.
-19-
<PAGE>
PART IV
-------
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.
- -------- -----------------------------------------------------------------
(a) 1. Index to Consolidated Financial Statements:
------------------------------------------
<TABLE>
<CAPTION>
Page of Annual
Report to Shareholders
----------------------
<S> <C>
Consolidated Balance Sheets Page 21
at December 31, 1995 and
1994
Consolidated Statements of Page 22
Income for the years ended
December 31, 1995, 1994
and 1993
Consolidated Statement of Page 23
Changes In Stockholders'
Equity for the years
ended December 31, 1995,
1994 and 1993
Consolidated Statements of Page 24
Cash Flows for the years ended
December 31, 1995, 1994 and 1993
Notes to Consolidated Pages 25 to 40
Financial Statements
Report of Independent Certified
Public Accountants Page 41
</TABLE>
The Consolidated Financial Statements listed in the above index, together
with the report thereon of Grant Thornton LLP dated January 25, 1996, which are
included in the Corporation's Annual Report to Shareholders for the year ended
December 31, 1995, are hereby incorporated by reference.
(a) 2. Financial Statement Schedules:
-----------------------------
Financial Statement Schedules are not required under the related
instructions of the Securities and Exchange Commission, are inapplicable or are
included in the Consolidated Financial Statements or notes thereto.
-20-
<PAGE>
(a) 3. Exhibits:
--------
The following is a list of the exhibits filed with, or incorporated by
reference into, this Report (those exhibits marked with an asterisk are filed
herewith):
3(a). Certificate of Incorporation.
-----------------------------
(i) Copy of the Corporation's Certificate of Incorporation,
filed on March 9, 1984, is incorporated by reference to Exhibit 3(a)(iii) to the
Corporation's Annual Report on Form 10-K for the year ended December 31, 1988.
(ii) Copy of the Corporation's Certificate of Amendment to
Certificate of Incorporation filed with the Secretary of the Commonwealth of
Pennsylvania on March 23, 1984, is incorporated by reference to Exhibit 3(a)(ii)
to the Corporation's Annual Report on Form 10-K for the year ended December 31,
1988.
(iii) Copy of the Corporation's Certificate of Amendment to
Certificate of Incorporation filed with the Secretary of the Commonwealth of
Pennsylvania on April 2, 1986, is incorporated by reference to Exhibit 3(a)(i)
to the Corporation's Annual Report on Form 10-K for the year ended December 31,
1988.
3(b). Bylaws of the Corporation, as amended. Copy of the Corporation's
-----------------------------------------------------------------
Bylaws, as amended, is incorporated by reference to Exhibit 3(b) to the
Corporation's Annual Report on Form 10-K for the year ended December 31, 1988.
10. Material contracts.
-------------------
(a) Copy of Executive Deferred Compensation Plan, adopted by
the Bank on December 16, 1988, is incorporated by reference to Exhibit 10(a) to
the Corporation's Annual Report on Form 10-K for the year ended December 31,
1988.
(b) Copy of Employment Agreement among the Corporation, the
Bank and Charles E. Swope dated December 31, 1994, is incorporated by reference
to Exhibit 10(b) to the Corporation's Annual Report on Form 10-K for the year
ended December 31, 1994.
(c) Copy of the Bank's 401(k) Plan and Trust, dated July 15,
1988, is incorporated by reference to Exhibit 4 to the Corporation's
Registration Statement on Form S-8, filed with the Securities and Exchange
Commission on January 4, 1989 (Commission File No. 33-26325).
(d) Copy of the Corporation's Dividend Reinvestment Plan is
incorporated by reference to Exhibit 10(d) to the Corporation's Annual Report on
Form 10-K for the year ended December 31, 1990.
(e) Copy of the Bank's amended and restated 401(k) Plan,
effective date July 1, 1989, is incorporated by reference to Exhibit 10(e) to
the Corporation's Annual Report on Form 10-K for the year ended December 31,
1990.
(f) Copy of the Corporation's Stock Bonus Plan, adopted by the
Corporation in 1991 and ratified by the shareholders of the Corporation on March
17, 1992, is incorporated by reference to Exhibit 10(f) to the Corporation's
Annual Report on Form 10-K for the year ended December 31, 1991.
-21-
<PAGE>
(g) Copy of the Bank's Supplemental Benefit Retirement Plan,
effective date January 1, 1994, is incorporated by reference to Exhibit 10(g) to
the Corporation's Annual Report on Form 10-K for the year ended December 31,
1994.
(h) Copy of the Corporation's and the Bank's Directors
Deferred Compensation Plan, effective December 30, 1994, is incorporated by
reference to Exhibit 10(h) to the Corporation's Annual Report on Form 10-K for
the year ended December 31, 1994.
*(i) Copy of the Corporation's 1995 Stock Option Plan, adopted
by the Corporation in 1995 and ratified by the shareholders of the Corporation
on March 19, 1996.
* 13. Annual report to security holders, Form 10-Q or quarterly report to
-------------------------------------------------------------------
security holders. The Corporation's Annual Report to Shareholders for the year
- ----------------
ended December 31, 1995. With the exception of the pages listed in the Index to
Consolidated Financial Statements and the items referred to in Items 1, 5, 6, 7
and 8 hereof, the Corporation's 1995 Annual Report to Shareholders is not deemed
to be filed as part of this Report.
21. Subsidiaries of the Corporation. The First National Bank of West
--------------------------------
Chester, a banking institution organized under the banking laws of the United
States in December 1863.
* 23. Consents of experts and counsel. Consent of Grant Thornton LLP,
-------------------------------
dated March 28, 1996.
* 27. Financial Data Schedule. A Financial Data Schedule is being
-------------------------
submitted with the Corporation's 1995 Annual Report on Form 10-K in the
electronic format prescribed by the EDGAR Filer Manual and sets forth the
financial information specified by Article 9 of Regulation S-X and Securities
Act Industry Guide 3 information and Exchange Act Industry Guide 3 listed in
Appendix C to Item 601(c) of Regulation S-K.
(b) Reports on Form 8-K. No reports on Form 8-K were filed by the Corporation
-------------------
during the quarter ended December 31, 1995.
-22-
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Corporation has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
FIRST WEST CHESTER CORPORATION
/s/ Charles E. Swope
By:___________________________
Charles E. Swope,
President
Date: March 29, 1996
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, this report has been signed below by the following persons on behalf of
the Corporation and in the capacities indicated on March 29, 1996.
Signature Title
--------- -----
/s/ Charles E. Swope
President, Chief Executive
Charles E. Swope Officer and Chairman of the
Board of Directors
/s/ J. Duncan Smith
______________________________ Treasurer (Principal
J. Duncan Smith Accounting and Financial Officer)
(Signatures continued on following page)
-23-
<PAGE>
(Signatures continued from previous page)
Signature Title
--------- -----
/s/ Richard M. Armstrong
_________________________________ Director
Richard M. Armstrong
/s/ John J. Ciccarone
_________________________________ Director
John J. Ciccarone
/s/ M. Robert Clarke
_________________________________ Director
M. Robert Clarke
/s/ Edward J. Cotter
_________________________________ Secretary and Director
Edward J. Cotter
/s/ Clifford E. DeBaptiste
_________________________________ Director
Clifford E. DeBaptiste
/s/ John A. Featherman, III
_________________________________ Director
John A. Featherman, III
/s/ J. Carol Hanson
_________________________________ Director
J. Carol Hanson
/s/ John S. Halsted
_________________________________ Director
John S. Halsted
/s/ Devere Kauffman
_________________________________ Director
Devere Kauffman
/s/ David L. Peirce
_________________________________ Director
David L. Peirce
/s/ John B. Waldron
_________________________________ Director
John B. Waldron
-24-
<PAGE>
Index to Exhibits
Exhibits
- --------
10(i) Copy of the Corporation's 1995 Stock Option Plan, adopted by the
Corporation in 1995 and ratified by the shareholders of the
Corporation on March 19, 1996.
13 The Corporation's Annual Report to Shareholders for the year ended
December 31, 1995.
23 Consent of Grant Thornton LLP.
27 Financial Data Schedule.
-25-
FIRST WEST CHESTER CORPORATION
1995 STOCK OPTION PLAN
1. Purpose.
(a) Additional Incentive. The Plan is intended as an
additional incentive to key employees and members of the Board of Directors
(together, the "Optionees") to enter into or remain in the service or employ of
First West Chester Corporation, a Pennsylvania corporation (the "Company") or
its subsidiary, The First National Bank of West Chester (the "Bank"), and to
devote themselves to the Company's success by providing them with an opportunity
to acquire or increase their proprietary interest in the Company through receipt
of rights (the "Options") to acquire the Company's Common Stock, par value $1.00
per share (the "Common Stock").
(b) Two-Part Plan. The Plan shall be divided into two
sub-plans: the "Key Employee Plan" and the "Director Plan". All provisions
hereunder which refer to the "Plan" shall apply to each of the Key Employee Plan
and the Director Plan.
(c) Incentive Stock Option. Each Option granted under the Key
Employee Plan is intended to be an incentive stock option ("ISO") within the
meaning of section 422(b) of the Internal Revenue Code of 1986, as amended (the
"Code"), for federal income tax purposes, except to the extent (i) any such ISO
grant would exceed the limitation of subsection 4(a) below, or (ii) any Option
is specifically designated at the time of grant (the "Grant Date") as not being
an ISO. No Option granted to a person who is not an employee of the Company or
the Bank on the Grant Date shall be an ISO.
2. Option Shares.
(a) Aggregate Maximum Number. The aggregate maximum number of
shares of the Common Stock for which Options may be granted under the Plan is
125,000 shares (the "Option Shares"), which number is subject to adjustment as
provided in Section 7. Option Shares shall be issued from authorized and
unissued Common Stock or Common Stock held in or hereafter acquired for the
treasury of the Company. If any outstanding Option granted under the Plan
expires, lapses or is terminated for any reason, the Option Shares allocable to
the unexercised portion of such Option may again be the subject of an Option
granted pursuant to the Plan.
(b) Allocation of Option Shares. Of the 125,000 Option Shares,
97,500 Option Shares (the "Employee Option Shares") shall be reserved for
issuance to key employees of the Company and the Bank under the Key Employee
Plan and the remaining 27,500 Option Shares shall be reserved for issuance to
non-employee Directors of the Company or the Bank under the Director Plan.
(c) Key Employee Plan Options. Options granted under the Key
Employee Plan may be either ISOs or Options which are not ISOs ("Nonqualified
Options"). Under the Key Employee Plan, Options to purchase up to 42,500
Employee Option Shares (and any Employee
<PAGE>
Option Shares not required for issuance under Options granted in accordance with
the schedule set forth below) shall be granted to key employees at such times in
such amounts and on such terms and conditions as determined by the Committee (as
defined below), in accordance with the terms of the Plan. Options to purchase up
to 55,000 Employee Option Shares shall be granted to key employees in accordance
with the following schedule:
Grant Dates
<TABLE>
<CAPTION>
September September September September September
18, 30, 30, 30, 30,
Key Employee 1995 1996 1997 1998 1999
- ------------ ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
President 2,000 2,000 2,000 2,000 2,000
Option Option Option Option Option
Shares Shares Shares Shares Shares
Each of 9 Other
Executive Officers* 1,000 1,000 1,000 1,000 1,000
Option Option Option Option Option
Shares Shares Shares Shares Shares
</TABLE>
*Should the number of Executive Officers (other than the President)
increase during the Term of the Plan as of any of the foregoing Grant
Dates, the Option granted to each Executive Officer as of such Grant
Date shall cover that number of Employee Option Shares determined by
dividing 9,000 by the number of Executive Officers (not including the
President). Should the number of Executive Officers decrease during the
Term of the Plan as of any of the foregoing Grant Dates, then the
number of Option Shares to be purchased through an Option grant by each
remaining Executive Officer shall not change. Any ungranted Options
resulting from such decrease shall be granted to key employees as
Employee Option Shares at such times in such amounts and on such terms
and conditions as determined by the Committee, in accordance with the
terms of the Key Employee Plan.
(d) Director Plan Options. Options granted under the Director Plan
shall be Nonqualified Options. Under the Director Plan, each person serving as a
Director of the Company or the Bank on the Grant Date and who is not also a key
or other employee of any of such entities shall be awarded an Option to purchase
500 Option Shares at the Option Price (defined below) on September 18, 1995, and
then on September 30 of each of the following four years of the Term of the Plan
(as defined below). If a Director is serving on the Board of the Company and the
Bank at the time of the grant of any Option under the Director Plan, then such
Director shall only be eligible for a grant of Options under the Director Plan
as a Director of the Company. Should the number of Directors eligible for the
Director Plan decrease during the Term of the Plan, the number of Option Shares
granted to each remaining Director shall not change. Any ungranted Option Shares
resulting from such decrease shall be reserved for future grant under the
Director Plan should the number of Directors increase. Should the number of
Directors increase during the Term of the Plan, then the Options covering the
aggregate number of Option Shares to be distributed on an annual basis shall be
divided equally among such increased number of Directors. Options granted under
the Director Plan shall be substantially in the form of the Option attached
hereto as Exhibit "A".
<PAGE>
3. Term of Plan. The Plan shall commence on September 18, 1995, but
shall terminate unless the Plan is approved by the shareholders of the Company
within twelve months of such date as set forth in Section 422(b)(1) of the Code.
Any Options granted pursuant to the Plan prior to Plan approval by the
shareholders of the Company shall be subject to such approval and,
notwithstanding anything to the contrary herein or in any Option Document (as
defined below), shall not be exercisable until such approval is obtained. No
Option may be granted under the Plan after September 17, 2005.
4. Terms and Conditions of Options. Options granted pursuant to the
Plan shall be evidenced by written documents substantially in the forms attached
hereto as Exhibit "A" or, in the case of the Key Employee Plan, as the Committee
shall from time to time approve, subject to (a) the following terms and
conditions and (b) any other terms and conditions (including vesting schedules
for the exercisability of Options) which the Committee shall from time to time
provide which are not inconsistent with the terms of the Plan (collectively, the
"Option Documents").
(a) Number of Option Shares. Each Option Document shall state
the number of Option Shares to which it pertains. In the case of an ISO, in no
event shall the aggregate fair market value of the Option Shares (determined as
of the date the ISO is granted), and any other options granted under the
incentive stock option plans of the Company or the Bank, exceed $100,000.
(b) Option Price. Each Option Document shall state the price
at which an Option Share may be purchased (the "Option Price"), which shall be
at least 100% of the "fair market value" of a share of the Common Stock on the
date the Option is granted. If available, the "fair market value" shall be the
mean between the highest bid price and lowest asked price last quoted by the
then current market maker(s) in the Company's Common Stock (the "Market
Maker(s)"), on the Grant Date or the immediately preceding business day if the
Grant Date is not a business day. If no such bid and asked price is available,
the fair market value shall be determined by the Committee in good faith in the
case of the Key Employee Plan or shall be the mean between the most recent
highest bid price and lowest asked price last quoted by the Market Maker(s) in
the case of the Director Plan. If an ISO is granted to an Optionee who then
owns, directly or by attribution under Section 424(d) of the Code, shares
possessing more than ten percent (10%) of the total combined voting power of all
classes of stock of the Company or the Bank, then the Option Price shall be at
least One Hundred and Ten Percent (110%) of the fair market value of the Option
Shares on the date the Option is granted.
(c) Medium of Payment. An Optionee shall pay for Options
Shares (i) in cash, (ii) by bank check payable to the order of the Company or
(iii) in the case of the Key Employee Plan, by such other mode of payment as the
Committee may approve, including payment through a broker in accordance with
procedures permitted by Regulation T of the Federal Reserve Board.
<PAGE>
Furthermore, the Committee may provide in an Option Document that payment may be
made in whole or in part in shares of the Common Stock held by the Optionee for
more than one year. If payment is made in whole or in part in shares of the
Common Stock, then the Optionee shall deliver to the Company certificates
registered in the name of such Optionee representing shares of Common Stock
legally and beneficially owned by such Optionee, free of all liens, claims and
encumbrances of every kind and having a fair market value on the date of
delivery of such notice that is not less than the Option Price of the Option
Shares with respect to which such Option is to be exercised, accompanied by
stock powers duly endorsed in blank by the record holder of the shares
represented by such certificates. In the event that certificates for shares of
the Company's Common Stock delivered to the Company represent a number of shares
in excess of the number of shares required to make payment for the Option Price
of the Option Shares (or the relevant portion thereof) with respect to which
such Option is to be exercised by payment in shares of Common Stock, the stock
certificate issued to the Optionee shall represent the Option Shares in respect
of which payment is made and such excess number of shares. Notwithstanding the
foregoing, the Board of Directors, in its sole discretion, may refuse to accept
shares of Common Stock in payment of the Option Price. In that event, any
certificates representing shares of Common Stock which were delivered to the
Company shall be returned to the Optionee with notice of the refusal of the
Board of Directors to accept such shares in payment of the Option Price. The
Board of Directors may impose such limitations or prohibitions on the use of
shares of the Common Stock to exercise an Option as it deems appropriate,
subject to the provisions of the Plan.
(d) Termination of Options. Each Option shall expire on the
tenth anniversary of its Grant Date. Notwithstanding the foregoing, no Option
shall be exercisable after the first to occur of the following:
(i) In the case of an ISO, five years from the date of
grant if, on such date the Optionee owns, directly or by attribution under
Section 424(d) of the Code, shares possessing more than ten percent (10%) of the
total combined voting power of all classes of stock of the Company or the Bank);
(ii) The date set by the Board of Directors of the
Company to be an accelerated expiration date after a finding by the Board of
Directors of the Company that a change in the financial accounting treatment for
Options from that in effect on the date the Plan was adopted materially
adversely affects or, in the determination of such Board of Directors, may
materially adversely affect in the foreseeable future, the Company and/or the
Bank, provided such Board of Directors may take whatever other action, including
acceleration of any exercise provisions, it deems necessary should it make the
determination referred to herein above;
(iii) Expiration of three months (or in the case of the
Key Employee Plan, such shorter period as the Committee may select) from the
date the Optionee's employment or service with the Company or the Bank
terminates for any reason other than (A) disability (within the meaning of
Section 22(e)(3) of the Code) or death or (B) circumstances described by
Subsection (d)(vi), below;
(iv) Expiration of one year from the date the Optionee's
employment or service with the Company or the Bank terminates by reason of the
Optionee's disability (within the meaning of Section 22(e)(3) of the Code) or
death;
<PAGE>
(v) In the case of an Option granted under the Key
Employee Plan, the Committee can accelerate the expiration date in the event of
a "Change in Control" (as defined in Subsection 4(e) below), provided an
Optionee who holds an Option is given written notice at least thirty (30) days
before the date so fixed; or
(vi) In the case of an Option granted under the Key
Employee Plan, a finding by the Committee, after full consideration of the facts
presented on behalf of both the Company and the Optionee, that the Optionee has
been discharged from employment with the Company or the Bank for Cause. For
purposes of this Section, "Cause" shall mean: (A) a breach by Optionee of his
employment agreement with the Company or the Bank, (B) a breach of Optionee's
duty of loyalty to the Company or the Bank, including without limitation any act
of dishonesty, embezzlement or fraud with respect to the Company or the Bank,
(C) the commission by Optionee of a felony, a crime involving moral turpitude or
other act causing material harm to the Company's or the Bank's standing and
reputation, (D) Optionee's continued failure to perform his duties to the
Company or the Bank or (E) unauthorized disclosure of trade secrets or other
confidential information belonging to the Company or the Bank. In the event of a
finding that the Optionee has been discharged for Cause, in addition to
immediate termination of the Option, the Optionee shall automatically forfeit
all Option Shares for which the Company has not yet delivered the share
certificates upon refund of the Option Price.
(e) Change of Control. In the event of a Change in Control (as
defined below), the Committee may take whatever action with respect to the
Options outstanding under the Key Employee Plan it deems necessary or desirable,
including, without limitation, accelerating the expiration or termination date
in the respective Option Documents to a date no earlier than thirty (30) days
after notice of such acceleration is given to the Optionee. A "Change of
Control" shall be deemed to have occurred upon the earliest to occur of the
following events:
(i) The date the shareholders of the Company (or the
Board of Directors, if shareholder action is not required) approve a plan or
other arrangement pursuant to which the Company will be dissolved or liquidated;
(ii) the date the shareholders of the Company (or the
Board of Directors, if shareholder action is not required) approve a definitive
agreement to sell or otherwise dispose of all or substantially all of the assets
of the Company;
(iii) the date the shareholders of the Company (or the
Board of Directors, if shareholder action is not required) and the shareholders
of the other constituent corporation (or its board of directors if shareholder
action is not required) have approved a definitive agreement to merge or
consolidate the Company with or into such other corporation, other than, in
either case, a merger or consolidation of the Company in which holders of shares
of the Common Stock immediately prior to the merger or consolidation will hold
at least a majority of the ownership of common stock of the surviving
corporation (and, if one class of common stock is not the only class of voting
securities entitled to vote on the election of directors of the surviving
corporation, a majority of the voting power of the surviving corporation's
voting securities) immediately after the merger or consolidation, which common
stock (and, if applicable, voting securities) is to be held in
<PAGE>
the same proportion as such holders' ownership of Common Stock immediately
before the merger or consolidation;
(iv) the date any entity, person or group, (within the
meaning of Section 13(d)(3) or Section 14(d)(2) of the Exchange Act), other than
(A) the Company or any of its subsidiaries or any employee benefit plan (or
related trust) sponsored or maintained by the Company or any of its subsidiaries
or (B) any person who, on the date the Plan is approved by the shareholders,
shall have been the beneficial owner of at least twenty percent (20%) of the
outstanding Common Stock, shall have become the beneficial owner of, or shall
have obtained voting control over, more than fifty percent (50%) of the
outstanding shares of the Common Stock; or
(v) the first day after the date this Plan is approved by
the shareholders when directors are elected so that a majority of the Board of
Directors shall have been members of the Board of Directors for less than
twenty-four (24) months, unless the nomination for election of each new director
who was not a director at the beginning of such twenty-four (24) month period
was approved by a vote of at least two-thirds of the directors then still in
office who were directors at the beginning of such period.
(f) Transfers. No ISO granted under the Plan may be
transferred, except by will or by the laws of descent and distribution. During
the lifetime of the person to whom an ISO is granted, such Option may be
exercised only by him. No Nonqualified Option under the Plan may be transferred,
except by will or by the laws of descent and distribution or pursuant to
qualified domestic relations order as defined by the Code or Title I of the
Employee Retirement Income Security Act, or the rules thereunder.
(g) Other Provisions. For Options granted pursuant to the Key
Employee Plan, the Option Documents shall contain such other provisions
including, without limitation, additional restrictions upon the exercise of the
Option or additional limitations upon the term of the Option, as the Committee
shall deem advisable.
(h) Amendment. With respect to Options granted under the Key
Employee Plan, and subject to the provisions of the Plan, the Committee shall
have the right to amend Option Documents issued to such Optionee, subject to the
Optionee's consent if such amendment is not favorable to the Optionee, except
that the consent of the Optionee shall not be required for any amendment made
under Subsection 4(e) above. With respect to Options granted under the Director
Plan, and subject to the provisions of the Plan, the Board of Directors of the
Company shall have the right to amend Option Documents issued to such Optionee,
subject to the Optionee's consent if such amendment is not favorable to the
Optionee, except that the consent of the Optionee shall not be required for any
amendment made under Subsection 4(e) above.
5. Administration.
(a) Director Plan. It is intended that the grant of Options
pursuant to the Director Plan be administered as provided in Rule
16b-3(c)(2)(ii) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"). Therefore, as set forth in Section 2(d) above, such Options
will be awarded pursuant to the formula as set forth therein.
<PAGE>
(b) Key Employee Plan. With respect to the Key Employee Plan,
the Board of Directors shall appoint a Stock Option Committee composed of two or
more of its disinterested members (as "disinterested" is defined under Rule
16b-3(c) of the Exchange Act) to operate and administer the Key Employee Plan in
its stead. The Stock Option Committee is referred to herein as the "Committee."
(c) Meetings. The Committee shall hold meetings at such times
and places as it may determine. Acts approved at a meeting by a majority of the
members of the Committee or acts approved in writing by the unanimous consent of
the members of the Committee shall be the valid acts of the Committee.
(d) Discretion of Committee. The Committee shall from time to
time at its discretion grant Options pursuant to the terms of the Key Employee
Plan, except as otherwise provided in Section 2(c) herein. Except as otherwise
provided in Section 2(c) herein, the Committee shall have plenary authority to
determine the Optionees to whom and the times at which Options shall be granted,
the number of Option Shares to be covered by such Options and the price and
other terms and conditions thereof, including a specification with respect to
whether an Option is intended to be an ISO, subject, however, to the express
provisions of the Key Employee Plan and compliance with Rule 16b-3(c) of the
Exchange Act. In making such determinations the Committee may take into account
the nature of the Optionee's services and responsibilities, the Optionee's
present and potential contribution to the Company's success and such other
factors as it may deem relevant. The interpretation and construction by the
Committee of any provision of the Key Employee Plan or of any Option granted
under it shall be final, binding and conclusive.
(e) No Liability. No member of the Board of Directors or the
Committee shall be personally liable for any action or determination made in
good faith with respect to the Key Employee Plan, the Director Plan or any
Option thereunder. No member of the Committee shall be liable for any act or
omission of any other member of the Committee or for any act or omission on his
own part, including but not limited to the exercise of any power and discretion
given to him under the Key Employee Plan, except those resulting from (i) any
breach of such member's duty of loyalty to the Company or its shareholders, (ii)
acts or omissions not in good faith or involving intentional misconduct or a
knowing violation of law or (iii) any transaction from which the member derived
an improper personal benefit.
(f) Indemnification. In addition to such other rights of
indemnification as he may have as a member of the Board of Directors or the
Committee, and with respect to the administration of the Plan and the granting
of Options under it, each member of the Board of Directors and of the Committee
shall be entitled without further action on his part to be indemnified by the
Company for all expenses (including but not limited to reasonable attorneys'
fees and expenses, the amount of judgment and the amount of approved settlements
made with a view to the curtailment of costs of litigation, other than amounts
paid to the Company itself) reasonably incurred by him in connection with or
arising out of any action, suit or proceeding with respect to the administration
of the Plan or the granting of Options under it in which he may be involved by
reason of his being or having been a member of the Board of Directors or the
Committee, whether or not he continues to be such member of the Board of
Directors or the Committee at the time of the incurring of such expenses;
provided, however, that such indemnity shall not include any expenses
<PAGE>
incurred by such member of the Board of Directors or Committee: (i) in respect
of matters as to which he shall be finally adjudged in such action, suit or
proceeding to have been guilty of gross negligence or willful misconduct in the
performance of his duties as a member of the Board of Directors or the
Committee; or (ii) in respect of any matter in which any settlement is effected
in an amount in excess of the amount approved by the Company on the advice of
its legal counsel; and provided further that no right of indemnification under
the provisions set forth herein shall be available to or accessible by any such
member of the Committee or the Board of Directors unless within five (5) days
after institution of any such action, suit or proceeding he shall have offered
the Company in writing the opportunity to handle and defend such action, suit or
proceeding at its own expense. The foregoing right of indemnification shall
inure to the benefit of the heirs, executors or administrators of each such
member of the Board of Directors or the Committee and shall be in addition to
all other rights to which such member of the Board of Directors or the Committee
would be entitled to as a matter of law, contract or otherwise.
6. Exercise.
(a) No Exercise Within Six Months. No Option shall be
exercisable prior to the date which is at least six months after the Grant Date.
(b) Notice. No Option shall be deemed to have been exercised
prior to the receipt by the Company of written notice of such exercise and of
payment in full of the Option Price for the Option Shares to be purchased. Each
such notice shall specify the number of Option Shares to be purchased and shall
satisfy the securities law requirements set forth in this Section 6.
(c) Restricted Stock. Each exercise notice shall (unless the
Option Shares are covered by a then current registration statement or a
Notification under Regulation A under the Securities Act of 1933, as amended
(the "Securities Act")), contain the Optionee's acknowledgment in form and
substance satisfactory to the Company that (i) such Option Shares are being
purchased for investment and not for distribution or resale (other than a
distribution or resale which, in the opinion of counsel satisfactory to the
Company, may be made without violating the registration provisions of the
Securities Act) and, in the case of an ISO, the Option Shares may not be sold
within one year of exercise or two years from the Grant Date in order to
maintain the ISO status of the Option; (ii) the Optionee has been advised and
understands that (A) the Option Shares have not been registered under the
Securities Act and are "restricted securities" within the meaning of Rule 144
under the Securities Act and are subject to restrictions on transfer and (B) the
Company is under no obligation to register the Option Shares under the
Securities Act or to take any action which would make available to the Optionee
any exemption from such registration, (iii) such Option Shares may not be
transferred without compliance with all applicable federal and state securities
laws, and (iv) an appropriate legend referring to the foregoing restrictions on
transfer and any other restrictions imposed under the Option Documents may be
endorsed on the certificates. Notwithstanding the above, should the Company be
advised by counsel that the issuance of Option Shares upon the exercise of an
Option should be delayed pending (A) registration under federal or state
securities laws, (B) the receipt of an opinion that an appropriate exemption
therefrom is available, (C) the listing or inclusion of the shares on any
securities exchange or in an automated quotation system or (D) the consent or
approval of any governmental regulatory body whose consent or approval is
<PAGE>
necessary in connection with the issuance of such Option Shares, the Company may
defer the exercise of any Option granted hereunder until either such event in A,
B, C or D has occurred.
7. Adjustments on Changes in Common Stock. The aggregate number of
shares of Common Stock as to which Options may be granted under the Director
Plan and the Key Employee Plan, the number of Option Shares covered by each
outstanding Option and the Option Price per Option Share specified in each
outstanding Option shall be appropriately adjusted in the event of a stock
dividend, stock split or other increase or decrease in the number of issued and
outstanding shares of Common Stock resulting from a subdivision or consolidation
of the Common Stock or other capital adjustment (not including the issuance of
Common Stock on the conversion of other securities of the Company which are
convertible into Common Stock) effected without receipt of consideration by the
Company. The Board of Directors shall have the authority to determine the
adjustments to be made under this Section and any such determination by the
Board of Directors shall be final, binding and conclusive, provided that no
adjustment shall be made which will cause an ISO to lose its status as such.
8. Amendment of the Plan. The Board of Directors may amend the Plan
from time to time in such manner as it may deem advisable. Notwithstanding the
foregoing, (i) with respect to any amendments affecting the Director Plan, the
Plan provisions shall not be amended more than once every six months, other than
to comport with changes in the Code, the Employee Retirement Income Security
Act, or the rules thereunder, (ii) any amendment which would change the class of
individuals eligible to receive an Option, extend the expiration date of the
Plan, decrease the Option Price or increase the maximum number of shares as to
which Options may be granted or materially increase the benefits accruing to the
Optionees, will only be effective if such action is approved by a majority of
the outstanding voting stock of the Company within twelve months before or after
such action.
9. Continued Employment. The grant of an Option pursuant to the Plan
shall not be construed to imply or to constitute evidence of any agreement,
express or implied, on the part of the Company or the Bank to retain the
Optionee in the employ of the Company or the Bank, as a member of the Board of
Directors or in any other capacity, whichever the case may be.
10. Withholding of Taxes. Whenever the Company proposes or is required
to issue or transfer Option Shares, the Company shall have the right to (a)
require the recipient or transferee to remit to the Company an amount sufficient
to satisfy any federal, state and/or local withholding tax requirements prior to
the delivery or transfer of any certificate or certificates for such Option
Shares or (b) take whatever action it deems necessary to protect its interests.
11. Effective Date. This Stock Option Plan shall be effective as of
the date specified in Section 3 above.
<PAGE>
EXHIBIT "A"
Option Documents
FORM OF STOCK OPTION AGREEMENT - DIRECTOR PLAN
Mr./Ms.
Director Stock Option Agreement
Dear :
In view of your substantial contributions toward the achievement of the
business goals and objectives of First West Chester Corporation (the "Company")
and The First National Bank of West Chester (the "Bank") and the expectation of
your future contributions, the Board of Directors of the Company is pleased to
award you an option to purchase shares of the Common Stock of the Company
pursuant to the First West Chester Corporation 1995 Stock Option Plan (the
"Plan"). A copy of the Plan is attached to this letter agreement as Exhibit "A"
and should be read in conjunction with this letter agreement. [Please be advised
that the Plan and any options granted thereunder will not be effective until a
majority of the shareholders of the Company approve the Plan. The Company
intends to present the Plan for approval at its 1996 Annual Meeting.] This
letter will serve as a stock option agreement between you and the Company. The
Option awarded to you is subject to the following terms.
1. APPROVAL BY SHAREHOLDERS:
The Option granted hereunder has been granted prior to Plan
approval by the shareholders of the Company and therefore, shall be subject to
such approval. Notwithstanding anything to the contrary herein or in the Plan,
this Option shall not be exercisable until such approval is obtained.]
2. NUMBER OF SHARES:
You are awarded an option ("Option") to purchase a total of
500 shares of the Common Stock of the Company (the "Option Shares").
3. TYPE OF OPTIONS:
The Option awarded to you is a "Nonqualified Option" as that
term is defined in the Plan.
<PAGE>
4. EXERCISE PRICE:
The shares may be purchased upon your exercise of this Option
for the price of $___.__ per share (the "Option Price").
5. DATE OF GRANT OF AWARD:
The grant date of the award of this Option is [Date] (the
"Grant Date").
6. EXERCISE:
Your Option may not be exercised for six months following the
Grant Date. Your Option expires on the tenth anniversary of the Grant Date (with
respect to any number of shares subject to this option not previously
exercised), but may expire earlier upon the first to occur of the following:
(a) The date set by the Board of Directors of the Company
to be an accelerated expiration date after a finding by the Board of Directors
of the Company that a change in the financial accounting treatment for Options
from that in effect on the date the Plan was adopted materially adversely
affects or, in the determination of such Board of Directors, may materially
adversely affect in the foreseeable future, the Company and/or the Bank;
(b) Expiration of three months from the date your
employment with the Company or the Bank terminates for any reason other than
disability, death or for Cause (as defined in the Plan); or
(c) Expiration of one year from the date the your
employment with the Company or the Bank terminates by reason of the your
disability or death.
7. NOTICE OF EXERCISE AND PAYMENT:
To exercise your Option, you must provide written notice of
the exercise marked for the attention of the Secretary of the Company specifying
the number of Option Shares to be purchased and satisfying the securities law
requirements set forth below. You shall also include payment of the Option Price
with such written notice in cash or bank check, payable to the order of the
Company. Upon receipt of such notice and payment, the Company will issue you a
certificate for the number of Option Shares with respect to which you have
exercised the Option.
8. SECURITIES LAW REQUIREMENTS:
Each exercise notice shall contain your acknowledgment in a
form and substance satisfactory to the Company that (a) such Option Shares are
being purchased for investment and not for distribution or resale, (b) you have
been advised and understand that (i) the Option Shares have not been registered
under the Securities Act and are "restricted securities" within the meaning of
Rule 144 under the Securities Act and are subject to restrictions on transfer
and (ii) the Company is under no obligation to register the Option Shares under
the Securities Act or to take any action which
<PAGE>
would make available to the Optionee any exemption from such registration, (c)
such Option Shares may not be transferred without compliance with all applicable
federal and state securities laws, and (d) an appropriate legend referring to
the foregoing restrictions on transfer and any other restrictions imposed under
the Option Documents may be endorsed on the certificates. Notwithstanding the
above, should the Company be advised by counsel that the issuance of Option
Shares upon the exercise of your Option should be delayed pending (A)
registration under federal or state securities laws, (B) the receipt of an
opinion that an appropriate exemption therefrom is available, (C) the listing or
inclusion of the shares on any securities exchange or in an automated quotation
system or (D) the consent or approval of any governmental regulatory body whose
consent or approval is necessary in connection with the issuance of such Option
Shares, the Company may defer the exercise of your Option until either such
event in A, B, C or D has occurred.
9. EXERCISE DATE:
The date on which the Company receives the documents specified
above in complete and otherwise acceptable form and the payments specified above
will be treated as the Exercise Date with respect to your exercise of the stock
option.
10. WITHHOLDING OF TAXES:
Upon exercise of your Option, the Company shall have the
right to (a) require you to remit to the Company an amount sufficient to satisfy
any federal, state and/or local withholding tax requirements prior to the
delivery or transfer of any certificate or certificates for such Option Shares
or (b) take whatever action it deems necessary to protect its interests.
11. NON-ASSIGNABILITY OF OPTION:
Except as provided by the Plan, the Option awarded to you is
exercisable only by you. The Option may not be transferred, assigned, pledged as
security or hypothecated in any way and is not subject to execution, attachment
or similar process. Upon any attempt by you to transfer, assign, pledge,
hypothecated or otherwise dispose of this Option or of any portion thereof or
upon the levy of any execution, attachment or similar process on this Option or
on any portion thereof, the Option awarded to you will immediately expire with
respect to the number of shares not exercised prior to such event.
12. RIGHTS IN SHARES SUBJECT TO OPTION:
You will not be treated as a holder of any of the shares
subject to this Option or of any rights of a holder of such shares unless and
until the shares are issued to you as evidenced by stock certificates.
13. AFFECT ON EMPLOYMENT RELATIONSHIP:
This letter is not an employment agreement or service
contract. Therefore, none of the rights awarded to you by this letter affect, in
any way, your employment or service relationship with the Company or the Bank.
<PAGE>
14. OPTION AWARDED SUBJECT TO PLAN PROVISIONS:
The Plan provisions take precedence over the provisions of
this letter agreement. Therefore, in the case of any inconsistency between any
provision of this letter agreement and any provision of the Plan in effect on
the Grant Date, the provision of the Plan will control.
15. COUNTERPARTS:
This letter agreement may be executed in one or more
counterparts each of which shall be deemed an original and all of which shall be
deemed one and the same agreement.
If you accept the Option award evidenced by this letter agreement,
subject to the terms stated above, you should date and sign the enclosed copy of
this letter in the spaces indicated and return it to the Company marked for the
attention of the Secretary.
First West Chester Corporation
By:___________________________
Chairman of the Board
I acknowledge that I have read this letter agreement and agree to accept the
stock option award evidenced by it according to the terms set forth in such
letter agreement.
[ Name of Grantee ]
- -------------------------------- ------------------
Signature Date
<PAGE>
FORM OF STOCK OPTION AGREEMENT - KEY EMPLOYEE PLAN
Mr./Ms.
Key Employee Stock Option Agreement
Dear :
In view of your substantial contributions toward the achievement of
the business goals and objectives of First West Chester Corporation (the
"Company") and The First National Bank of West Chester (the "Bank") and the
expectation of your future contributions, the Board of Directors of the Company
is pleased to award you an option to purchase shares of the Common Stock of the
Company pursuant to the First West Chester Corporation 1995 Stock Option Plan
(the "Plan"). A copy of the Plan is attached to this letter agreement as Exhibit
"A" and should be read in conjunction with this letter agreement. [Please be
advised that the Plan and any options granted thereunder will not be effective
until a majority of the shareholders of the Company approve the Plan. The
Company intends to present the Plan for approval at its 1996 Annual Meeting.]
This letter will serve as a stock option agreement between you and the Company.
The Option awarded to you is subject to the following terms.
[1. APPROVAL BY SHAREHOLDERS:
The Option granted hereunder has been granted prior to Plan
approval by the shareholders of the Company and therefore, shall be subject to
such approval. Notwithstanding anything to the contrary herein or in the Plan,
this Option shall not be exercisable until such approval is obtained.]
2. NUMBER OF SHARES:
You are awarded an option ("Option") to purchase a total of
____ shares of the Common Stock of the Company (the "Option Shares").
3. TYPE OF OPTIONS:
The Option awarded to you is an Incentive Stock Option or ISO
as such terms are defined in the Plan.
4. EXERCISE PRICE:
The shares may be purchased upon your exercise of this Option
for the price of $___.__ per share (the "Option Price").
5. DATE OF GRANT OF AWARD:
The grant date of the award of this Option is [Date] (the
"Grant Date").
6. EXERCISE:
Your Option may not be exercised for six months following the
Grant Date. Your Option expires on the tenth anniversary of the Grant Date (with
respect to any number of shares subject to this option not previously
exercised), but may expire earlier upon the first to occur of the following:
<PAGE>
(a) Five years from the Grant Date if, on such date the
you own, directly or by attribution, shares possessing more than ten percent
(10%) of the total combined voting power of all classes of stock of the Company
or the Bank);
(b) The date set by the Board of Directors of the Company
to be an accelerated expiration date after a finding by the Board of Directors
of the Company that a change in the financial accounting treatment for Options
from that in effect on the date the Plan was adopted materially adversely
affects or, in the determination of such Board of Directors, may materially
adversely affect in the foreseeable future, the Company and/or the Bank;
(c) Expiration of three months from the date your
employment with the Company or the Bank terminates for any reason other than
disability, death or for Cause (as defined in the Plan).
(d) Expiration of one year from the date the your
employment with the Company or the Bank terminates by reason of the your
disability or death;
(e) A finding by the Committee, after full consideration
of the facts presented on behalf of both the Company and you, that you have been
discharged from employment with the Company or the Bank for Cause (as defined in
the Plan). In the event of a finding that you have been discharged for Cause, in
addition to immediate termination of the Option, you shall automatically forfeit
all Option Shares for which the Company has not yet delivered the share
certificates upon refund of the Option Price; or
(f) The Committee can accelerate the expiration date in
the event of a "Change in Control" (as defined in the Plan), provided an the
Committee gives you written notice at least thirty (30) days before the date so
fixed.
7. NOTICE OF EXERCISE AND PAYMENT:
To exercise your Option, you must provide written
notice of the exercise marked for the attention of the Secretary of the Company
specifying the number of Option Shares to be purchased and satisfying the
securities law requirements set forth below. You shall also include payment of
the Option Price with such written notice in cash or bank check, payable to the
order of the Company. Upon receipt of such notice and payment, the Company will
issue you a certificate for the number of Option Shares with respect to which
you have exercised the Option.
8. SECURITIES LAW REQUIREMENTS:
Each exercise notice shall contain your
acknowledgment in a form and substance satisfactory to the Company that (a) such
Option Shares are being purchased for
<PAGE>
investment and not for distribution or resale, (b) you have been advised and
understand that (i) the Option Shares have not been registered under the
Securities Act and are "restricted securities" within the meaning of Rule 144
under the Securities Act and are subject to restrictions on transfer and (ii)
the Company is under no obligation to register the Option Shares under the
Securities Act or to take any action which would make available to the Optionee
any exemption from such registration, (c) such Option Shares may not be
transferred without compliance with all applicable federal and state securities
laws, and (d) an appropriate legend referring to the foregoing restrictions on
transfer and any other restrictions imposed under the Option Documents may be
endorsed on the certificates. Notwithstanding the above, should the Company be
advised by counsel that the issuance of Option Shares upon the exercise of your
Option should be delayed pending (A) registration under federal or state
securities laws, (B) the receipt of an opinion that an appropriate exemption
therefrom is available, (C) the listing or inclusion of the shares on any
securities exchange or in an automated quotation system or (D) the consent or
approval of any governmental regulatory body whose consent or approval is
necessary in connection with the issuance of such Option Shares, the Company may
defer the exercise of your Option until either such event in A, B, C or D has
occurred.
9. EXERCISE DATE:
The date on which the Company receives the documents specified
above in complete and otherwise acceptable form and the payments specified above
will be treated as the Exercise Date with respect to your exercise of the stock
option.
10. WITHHOLDING OF TAXES:
Upon exercise of your Option, the Company shall have the right
to (a) require you to remit to the Company an amount sufficient to satisfy any
federal, state and/or local withholding tax requirements prior to the delivery
or transfer of any certificate or certificates for such Option Shares or (b)
take whatever action it deems necessary to protect its interests.
11. NON-ASSIGNABILITY OF OPTION:
Except as provided by the Plan, the Option awarded to you is
exercisable only by you. The Option may not be transferred, assigned, pledged as
security or hypothecated in any way and is not subject to execution, attachment
or similar process. Upon any attempt by you to transfer, assign, pledge,
hypothecated or otherwise dispose of this Option or of any portion thereof or
upon the levy of any execution, attachment or similar process on this Option or
on any portion thereof, the Option awarded to you will immediately expire with
respect to the number of shares not exercised prior to such event.
<PAGE>
12. RIGHTS IN SHARES SUBJECT TO OPTION:
You will not be treated as a holder of any of the shares
subject to this Option or of any rights of a holder of such shares unless and
until the shares are issued to you as evidenced by stock certificates.
13. AFFECT ON EMPLOYMENT RELATIONSHIP:
This letter is not an employment agreement or service
contract. Therefore, none of the rights awarded to you by this letter affect, in
any way, your employment or service relationship with the Company or the Bank.
14. OPTION AWARDED SUBJECT TO PLAN PROVISIONS:
The Plan provisions take precedence over the provisions of
this letter agreement. Therefore, in the case of any inconsistency between any
provision of this letter agreement and any provision of the Plan in effect on
the Grant Date, the provision of the Plan will control.
15. COUNTERPARTS:
This letter agreement may be executed in one or more
counterparts each of which shall be deemed an original and all of which shall be
deemed one and the same agreement.
If you accept the Option award evidenced by this letter agreement,
subject to the terms stated above, you should date and sign the enclosed copy of
this letter in the spaces indicated and return it to the Company marked for the
attention of the Secretary.
First West Chester Corporation
By:___________________________
Chairman of the Board
I acknowledge that I have read this letter agreement and agree to accept the
stock option award evidenced by it according to the terms set forth in such
letter agreement.
[ Name of Grantee ]
- -------------------------------- -----------------
Signature Date
FIRST WEST CHESTER CORPORATION AND SUBSIDIARIES
FIVE-YEAR STATISTICAL SUMMARY
<TABLE>
(Dollars in thousands, except per share)
<CAPTION>
December 31,
--------------------------------------------------------------
STATEMENTS OF CONDITION 1995 1994 1993 1992 1991
- ----------------------- -------- -------- -------- -------- ------
<S> <C> <C> <C> <C> <C>
Assets $388,500 $348,099 $351,073 $315,543 $298,167
Loans 242,587 239,126 221,433 212,575 200,319
Investment securities 93,511 78,389 92,829 66,817 54,227
Deposits 343,926 305,465 307,355 274,446 262,938
Stockholders' equity 30,692 28,299 27,767 25,546 23,426
Financial Management Services
assets, at market value 255,992 256,998 240,189 229,109 206,623
Year ended December 31,
---------------------------------------------------------------
STATEMENTS OF INCOME 1995 1994 1993 1992 1991
- -------------------- --------- -------- -------- -------- ------
Interest income $ 28,466 $ 24,374 $ 23,471 $ 24,293 $ 24,825
Interest expense 11,564 8,719 9,405 10,985 13,297
-------- --------- --------- -------- --------
Net interest income 16,902 15,655 14,066 13,308 11,528
Provision for possible loan losses 1,666 1,790 1,524 1,435 501
--------- --------- --------- --------- ----------
Net interest income after
provision for possible loan
losses 15,236 13,865 12,542 11,873 11,027
Non-interest income 3,497 3,514 2,929 2,709 2,527
Non-interest expense 12,768 12,216 11,329 10,075 9,459
-------- -------- -------- -------- ---------
Income before income taxes and
cumulative effect of accounting
method change 5,965 5,163 4,142 4,507 4,095
Income taxes 1,865 1,556 1,201 1,253 1,154
--------- --------- --------- --------- ---------
Income before cumulative effect of
accounting method change 4,100 3,607 2,941 3,254 2,941
Cumulative effect of accounting
method change - - 489 - -
--------- --------- --------- --------- ---------
Net income $ 4,100 $ 3,607 $ 3,430 $ 3,254 $ 2,941
========= ========= ========= ========= =========
PER SHARE (1)
Income before cumulative effect of
accounting method change $ 2.34 $ 2.01 $ 1.64 $ 1.81 $ 1.63
Cumulative effect of accounting
method change - - 0.27 - -
--------- --------- ---------- ---------- ---------
Net income $ 2.34 $ 2.01 $ 1.91 $ 1.81 $ 1.63
========= ========= ========= ========= ==========
Cash dividends declared $ 0.89 $ 0.77 $ 0.69 $ 0.64 $ 0.57
Book value 17.92 15.72 15.43 14.25 13.07
Weighted average shares outstanding 1,752,413 1,799,784 1,799,352 1,796,268 1,800,000
<FN>
(1) Adjusted for 1995 3-for-2 stock split. See Note A11 - Earnings per Share
and Stockholders' Equity in the accompanying financial statements for
additional information.
</FN>
</TABLE>
<PAGE>
FIRST WEST CHESTER CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
This discussion is intended to further your understanding of the
consolidated financial condition and results of operations of First West Chester
Corporation (the "Corporation") and its wholly-owned subsidiaries, The First
National Bank of West Chester (the "Bank") and 323 East Gay Street Corp
("EGSC"). It should be read in conjunction with the consolidated financial
statements included in this report.
EARNINGS AND DIVIDEND SUMMARY
1995 was an outstanding year for the Corporation as net income was
$4,100,000, an increase of $493,000 or 13.7% from $3,607,000 for 1994, primarily
a result of improved net interest margins, partially offset by increases in
other non-interest expenses. Net income for 1994 increased $177,000 or 5.2% from
$3,430,000 in 1993. Net earnings in 1993 include a $489,000 benefit related to
the cumulative effect of a change in the accounting for income taxes. On a per
share basis, 1995 earnings were $2.34, an increase of 16.4% over 1994 earnings
of $2.01. On a per share basis, 1994 earnings were 5.0% higher than 1993
earnings of $1.91, which included a $0.27 benefit related to the accounting
change. Cash dividends per share in 1995 were $0.89, a 15.6% increase over the
1994 dividend of $0.77. Cash dividends per share in 1994 were 11.6% higher than
the 1993 dividend of $0.69. Over the past ten years, the Corporation's practice
has been to pay a dividend of at least 35.0% of net income. As shown below,
performance ratios for 1995 compared with 1994 were improved due to better net
interest margins, partially offset by increases in non-interest expenses.
Performance ratios for 1994 compared to 1993 were relatively unchanged.
PERFORMANCE RATIOS 1995 1994 1993
- ------------------ -------- -------- ------
Return on Average Assets 1.14% 1.05% 1.04%
Return on Average Equity 13.68% 12.83% 12.84%
Earnings Retained 62.05% 61.74% 63.97%
Dividend Payout Ratio 37.95% 38.26% 36.03%
NET INTEREST INCOME
Net interest income is the difference between interest income on
earning assets and interest expense on interest bearing liabilities. Net
interest income, on a tax equivalent basis, increased 7.7% or $1,229,000, from
$15,926,000 in 1994 to $17,155,000 in 1995, compared to a 10.9% increase of
$1,567,000 from 1993 to 1994. The net yield on interest earning assets, on a tax
equivalent basis, was 5.06% for the year ended 1995, compared to 4.96% in 1994
and 4.70% in 1993. The increase in net yield on interest earning assets from
1994 to 1995 is attributable to strong loan growth and lower funding costs
during the first six months of 1995. The increase in net yield on interest
earning assets from 1993 to 1994 reflects a faster increase in earning asset
yields during 1994 than corresponding funding costs. The Corporation anticipates
pressure on the net yield on interest earning assets as competition for new loan
business remains very strong and incremental deposit growth is rate sensitive.
AVERAGE INTEREST RATES (ON A TAX EQUIVALENT BASIS)
YIELD ON 1995 1994 1993
-------- ------ ------ -----
Interest Earning Assets 8.46% 7.67% 7.78%
Interest Bearing Liabilities 4.18 3.33 3.73
---- ---- ----
Net Interest Spread 4.28 4.34 4.05
Contribution of Interest Free Funds 0.78 0.62 0.65
---- ---- ----
Net Yield on Interest Earning Assets 5.06% 4.96% 4.70%
==== ==== ====
<PAGE>
FIRST WEST CHESTER CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
INTEREST INCOME ON FEDERAL FUNDS SOLD AND INVESTMENT SECURITIES
Interest income on federal funds increased $488,000 from $160,000 in
1994 to $648,000 in 1995, compared to a $195,000 decrease from 1993 to 1994. The
305.0% increase in 1995 is attributed to a $7.0 million increase in average
balances and a 190 basis point (a basis point equals one hundredth of one
percent) increase in rates compared to the same period in 1994. The 1995
increase in average federal fund balances of $7.0 million is the result of
strong deposit and slow loan growth. The 54.9% decrease in 1994 is attributed to
a $7.5 million decrease in average balances offset by an 89 basis point increase
in rates compared to the same period in 1993.
INTEREST INCOME ON INVESTMENT SECURITIES
On a tax equivalent basis, interest income on investment securities
increased $272,000, from $4,931,000 in 1994 to $5,203,000 in 1995, compared to a
$182,000 increase from 1993 to 1994. The 5.5% increase in investment interest
income from 1994 to 1995 is the result of a 59 basis point increase in the yield
on investment securities, partially offset by a $4.1 million decrease in average
balances. The 3.8% increase in investment interest income from 1993 to 1994 is
the result of a $12.0 million increase in average balances, partially offset by
a 63 basis point decrease in the yield on investment securities. Changes in
investment portfolio balances are related to loan demand and deposit growth
levels.
INTEREST INCOME ON LOANS
Loan interest income, on a tax equivalent basis, generated by the
Corporation's loan portfolio increased $3,314,000, from $19,554,000 in 1994 to
$22,868,000 in 1995. The 17.0% increase in interest income during 1995 is
attributable to a $15.2 million increase in average loans outstanding and an 83
basis point increase in rates earned. Loan interest income, on a tax equivalent
basis, increased $893,000, from $18,661,000 in 1993 to $19,554,000 in 1994. The
4.8% increase in interest income during 1994 is attributable to an $11.4 million
increase in average loans outstanding offset by a 4 basis point decline in rates
earned. Competition for new and existing loan relationships has been very strong
throughout 1993, 1994 and 1995. Effective January 16, 1996, William E. Hughes,
Sr. was promoted to Executive Vice President in charge of lending. Mr. Hughes
has over 38 years of lending experience, including the past 12 years with the
Bank.
INTEREST EXPENSE ON DEPOSIT ACCOUNTS
Interest expense on deposits was $11,102,000 for 1995 compared to
$8,433,000 and $9,153,000 in 1994 and 1993, respectively. The 31.6% increase in
interest expense on deposits from 1994 to 1995 is the result of an 85 basis
point increase in rates paid on interest bearing deposits and a $12.9 million
increase in average interest bearing deposits. The 7.9% decrease in interest
expense from 1993 to 1994 is the result of a 40 basis point decrease in rates
paid, partially offset by a $7.2 million increase in average interest bearing
deposits during 1994.
<PAGE>
FIRST WEST CHESTER CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
CONSOLIDATED AVERAGE BALANCE SHEET AND TAX EQUIVALENT INCOME/EXPENSES
AND RATES FOR THE YEAR ENDED DECEMBER 31,
<TABLE>
<CAPTION>
1995 1994 1993
---------------------- ----------------------- ----------------------
(Dollars in thousands) Daily Daily Daily
Average Average Average
Balance Interest Rate Balance Interest Rate Balance Interest Rate
------- -------- ---- ------- -------- ---- ------- -------- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Federal funds sold $ 11,001 $ 648 5.88% $ 4,024 $ 160 3.98% $ 11,501 $ 355 3.09%
Investment securities
Taxable 81,098 4,956 6.11 84,927 4,625 5.45 72,468 4,452 6.14
Tax-exempt (1) 3,576 247 6.91 3,801 306 8.06 4,222 297 7.03
------- ------ ------- ------ -------- ------
Total investment securities 84,674 5,203 6.15 88,728 4,931 5.56 76,690 4,749 6.19
------- ------ ------- ------ -------- ------
Loans (2)
Taxable 236,923 22,187 9.36 221,185 18,864 8.53 208,757 17,879 8.56
Tax-exempt (1) 6,734 681 10.12 7,271 690 9.48 8,329 782 9.38
------- ------ ------- ------ -------- ------
Total loans 243,657 22,868 9.39 228,456 19,554 8.56 217,086 18,661 8.60
------- ------ ------- ------ ------- ------
Total interest earning assets 339,332 28,719 8.46 321,208 24,645 7.67 305,277 23,765 7.78
------ ------ ------
Non-interest earning assets
Allowance for possible loan losses (3,796) (3,164) (2,706)
Cash and due from banks 16,037 17,654 18,351
Other assets 9,329 9,176 8,650
------- ------- -------
Total assets $360,902 $344,874 $329,572
======= ======= =======
LIABILITIES AND STOCKHOLDERS'
EQUITY
Savings, NOW and money market
deposits $162,332 5,431 3.35 $177,414 5,082 2.86 $186,628$ 6,112 3.27
Certificates of deposit and other
time 101,197 5,671 5.60 73,238 3,351 4.58 56,823 3,041 5.35
------- ------ ------- ------ ------- -----
Total interest bearing deposits 263,529 11,102 4.21 250,652 8,433 3.36 243,451 9,153 3.76
Securities sold under repurchase
agreements 12,313 403 3.27 10,762 269 2.50 8,914 251 2.82
Other borrowings 949 59 6.22 367 17 4.63 18 1 15.56
------- ------ ------- ------ -------- ------
Total interest bearing
liabilities 276,79 111,564 4.18 261,781 8,719 3.33 252,383 9,405 3.73
------- ------ ------
Non-interest bearing liabilities
Non-interest bearing demand deposits 52,177 50,872 45,084
Other liabilities 1,973 4,116 5,396
------- ------- -------
Total liabilities 330,941 316,769 302,863
Stockholders' equity 29,961 28,105 26,709
-------- -------- --------
Total liabilities and
stockholders'equity $360,902 $344,874 $329,572
======= ======= =======
Net interest income $17,155 $15,926 $14,360
====== ====== ======
Net yield on interest earning assets 5.06% 4.96% 4.70%
==== ==== ====
<FN>
(1)The indicated income and annual rate are presented on a tax equivalent
basis using the Federal marginal rate of 34%, adjusted for the 20%
interest expense disallowance for 1995, 1994 and 1993.
(2)Non-accruing loans are included in the average balance.
</FN>
</TABLE>
<PAGE>
FIRST WEST CHESTER CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
While total average interest bearing deposits have grown 5.1% and 3.0%
in 1995 and 1994, respectively, the components have not grown proportionately.
During 1995, average savings, NOW and money market deposits declined $15.1
million or 8.5%, while average certificates of deposit and other time deposits
increased $28.0 million or 38.2%. During 1994, average savings, NOW and money
market deposits declined $9.2 million or 4.9%, while average certificates of
deposit and other time deposits increased $16.4 million or 28.9%. The
Corporation's effective rate on interest bearing deposits increased from 3.13%,
3.12%, 3.42%, and 3.65% in the first, second, third and fourth quarters of 1994,
respectively, to 3.89%, 4.20%, 4.26%, and 4.34% in the first, second, third and
fourth quarters of 1995, respectively.
PROVISION FOR POSSIBLE LOAN LOSSES
During 1995, the Corporation recorded a provision for possible loan
losses of $1,666,000 compared to $1,790,000 and $1,524,000 in 1994 and 1993,
respectively. Net charge-offs in 1995 were $463,000, down from $1,326,000 and
$985,000 in 1994 and 1993, respectively. Net charge-offs as a percentage of
average loans outstanding were 0.19%, 0.58% and 0.45% for 1995, 1994 and 1993,
respectively. The 1995 decrease in provision for loan losses and charge-offs
relates to the decline of non-performing loans and assets during 1995. See Asset
Quality and the Allowance For Possible Loan Losses for additional information.
NON-INTEREST INCOME
Total non-interest income decreased $17,000 or 0.5%, from $3,514,000 in
1994 to $3,497,000 in 1995, compared to an increase of $585,000 or 20.0% from
1993 to 1994. The primary component of non-interest income is Financial
Management Services revenue, which increased $72,000 or 4.1%, from $1,764,000 in
1994 to $1,836,000 in 1995, compared to an increase of $84,000 or 5.0% from 1993
to 1994. Market value of Financial Management Services assets under management
declined $1.0 million or 0.4%, from $257.0 million at the end of 1994 to $256.0
million at the end of 1995, and grew $16.8 million or 7.0% from 1993 to 1994.
The 1995 decline in market value of assets under management is primarily the
result of the distribution of two defined benefit pension plans, totalling $27.1
million, partially offset by increases in new business and market value
appreciation. The 1994 increase in market value of assets under management is
primarily the result of growth in the trust administration, investment
management and estate segments of the business.
Service charges on deposit accounts only grew $6,000 or 0.7% in 1995
while average deposits went up 4.7%, a result of increases in the earnings
credit paid to commercial checking customers. In 1994, service charges on
deposit accounts went up 4.2% and average deposits grew 4.7%. Gains on the
termination of the Bank's defined benefit plans of $190,000 and $311,000 are
included in other non-interest income in 1995 and 1994, respectively. Other
non-interest income, excluding the above pension gains, was $567,000, $547,000
and $532,000 in 1995, 1994 and 1993, respectively. See Note K - Employee Benefit
Plans for additional information on pension plan changes.
NON-INTEREST EXPENSE
Total non-interest expense increased $552,000 or 4.5%, from $12,216,000
in 1994 to $12,768,000 in 1995, compared to an increase of $887,000 or 7.8% from
1993 to 1994. The growth in non-interest expense reflects the increased expense
incurred to service the Bank's expanding customer base. The components of
non-interest expense changes are discussed below.
Salary and employee benefits increased $592,000 or 9.1%, from
$6,481,000 in 1994 to $7,073,000 in 1995. The increase in 1995 is a result of a
4.0% salary increase, a 7.7% staff increase, increases in life insurance
premiums and increases in bonus payments, partially offset by decreases in
pension costs. Salary and employee benefits increased $349,000 or 5.7% from 1993
to 1994, primarily the result of a 4.0% salary increase, a 6.1% staff increase,
<PAGE>
FIRST WEST CHESTER CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
health insurance premium increases and an increase in pension costs. The
Corporation's full-time equivalents were 182, 169 and 165 at the end of 1995,
1994 and 1993, respectively.
Occupancy, equipment and data processing expense increased $108,000 or
4.8%, from $2,256,000 in 1994 to $2,364,000 in 1995. Occupancy, equipment and
data processing expenses increased $250,000 or 12.5%, from 1993 to 1994. The
increases in 1995 and 1994 are primarily a result of increased personal computer
acquisition costs and MAC system transaction volume, partially offset by
decreased costs associated with maintenance contracts on Bank equipment. Several
technological programs, including teller automation, PC networking and check
imaging were in process at the end of 1995 with 1996 implementation dates.
On August 8, 1995, the Federal Deposit Insurance Corporation ("FDIC")
approved a final rule reducing Bank Insurance Fund ("BIF") deposit insurance
premiums to $0.04 from $0.23 per year per $1,000 in deposits for the best rated
banks. The new premium rate was applied retroactively to June 1, 1995. Effective
January 1, 1996, the BIF deposit insurance premium was reduced to the statutory
minimum of $500 per quarter for the best rated banks. FDIC insurance was
$349,000, $678,000 and $627,000 in 1995, 1994 and 1993, respectively. This
represents a decrease of $329,000 or 48.5% from 1994 to 1995 and an increase of
$51,000 or 8.1% from 1993 to 1994. FDIC insurance is calculated based on
quarter-end deposits and paid quarterly.
Bank shares tax was .99%, .81% and 1.15% of average shareholders'
equity for 1995, 1994 and 1993, respectively. The Pennsylvania Bank Shares Tax
is calculated on year-end Bank stockholders' equity and paid annually.
INCOME TAXES
Income tax expense was $1,865,000 in 1995 compared to $1,556,000 in
1994 and $1,201,000 in 1993. This represents an effective tax rate of 31.3%,
30.1% and 29.0%, respectively. The primary reason for the increase in the
effective tax rates each year is a decrease in tax-exempt instruments as a
percentage of total assets. Average tax-exempt assets as a percentage of total
average assets was 2.8%, 3.2% and 3.8% in 1995, 1994 and 1993, respectively.
During 1993, the Corporation adopted a new accounting standard for income taxes
that allows consideration of future projected taxable income in determining the
level of deferred tax assets that are recognizable in the Corporation's current
tax provision. The cumulative effect of this new standard was to increase 1993
net income by $489,000 or $0.27 per share.
LIQUIDITY MANAGEMENT AND INTEREST RATE SENSITIVITY
The objective of liquidity management is to ensure the availability of
sufficient cash flows to meet all financial commitments and to capitalize on
opportunities for business expansion. Liquidity management addresses the
Corporation's ability to meet deposit withdrawals either on demand or at
contractual maturity, to repay borrowings as they mature and to make new loans
and investments as opportunities arise. Liquidity is managed on a daily basis
enabling senior management to effectively monitor changes in liquidity and to
react accordingly to fluctuations in market conditions. The primary source of
liquidity for the Corporation is its available-for-sale portfolio of liquid
investment grade securities. Funding sources include NOW, money market, savings
and smaller denomination certificates of deposit accounts. The Corporation
considers funds from such sources as its "core" deposit base because of the
historical stability of such sources of funds. Additional liquidity comes from
the Corporation's non-interest bearing demand deposit accounts. Other deposit
sources include a three-tiered savings product and certificates of deposit in
excess of $100,000. Details of core deposits, non-interest bearing demand
deposit accounts and other deposit sources are highlighted in the following
table:
<PAGE>
FIRST WEST CHESTER CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
DEPOSIT ANALYSIS
<TABLE>
<CAPTION>
(Dollars in thousands)
1995 1994 1993
---------------------- ----------------------- ----------------------
Average Effective Average Effective Average Effective
DEPOSIT TYPE Balance Yield Balance Yield Balance Yield
------------ ------- --------- ------- --------- ------- ---------
<S> <C> <C> <C> <C> <C> <C>
NOW Accounts $ 42,974 2.32% $ 41,985 2.30% $ 39,417 2.63%
Money Market 29,610 3.23 32,962 2.68 32,360 2.86
Statement Savings 46,347 3.64 51,468 3.06 52,225 3.51
Other Savings 4,657 2.73 5,571 2.60 6,324 3.18
CD's Less than $100,000 89,866 5.67 64,551 4.57 60,327 5.27
-------- -------- --------
Total Core Deposits 213,454 4.15 196,537 3.31 190,653 3.76
Non-Interest Bearing
Demand Deposit Accounts 52,177 - 50,872 - 45,084 -
-------- -------- --------
Total Core and Non-
Interest Bearing
Deposits 265,631 - 247,409 - 235,737 -
Tiered Savings 38,744 4.29 45,427 3.33 44,903 3.64
CD's Greater than $100,000 11,331 5.11 8,688 4.66 7,895 4.37
-------- -------- -------
Total Deposits $315,706 - $301,524 - $288,535 -
======= ======= =======
</TABLE>
The Bank, as a member of the Federal Home Loan Bank, maintains a line
of credit secured by the Bank's mortgage-related assets. As of December 31,
1995, this line of credit was in excess of $33 million. The goal of interest
rate sensitivity management is to avoid fluctuating net interest margins, and to
enhance consistent growth of net interest income through periods of changing
interest rates. Such sensitivity is measured as the difference in the volume of
assets and liabilities in the existing portfolio that are subject to repricing
in a future time period. The Corporation's net interest rate sensitivity gap
within one year is a negative $45.6 million or 11.7% of total assets at December
31, 1995 compared with a negative $72.6 million or 20.9% of total assets at the
end of 1994. Management is aware of this negative gap position and is taking
steps to maintain net interest margins at acceptable levels.
<PAGE>
FIRST WEST CHESTER CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
INTEREST SENSITIVITY ANALYSIS AS OF DECEMBER 31, 1995
<TABLE>
<CAPTION>
(Dollars in thousands) One Over
Within Through Five Non-Rate
One Year Five Years Years Sensitive Total
-------- ---------- ----- --------- -----
<S> <C> <C> <C> <C> <C>
ASSETS
Federal funds sold $ 24,700 $ - $ - $ - $ 24,700
Investment securities 49,260 30,192 14,059 - 93,511
Loans and leases 121,793 97,847 22,947 (4,506) 238,081
Cash and cash equivalents - - - 19,944 19,944
Other assets - - - 12,264 12,264
------- ------- ------- -------- --------
Total assets $195,753 $128,039 $ 37,006 $ 27,702 $ 388,500
======= ======= ======= ======== ========
LIABILITIES AND CAPITAL
Non-interest bearing deposits$ - $ - $ - $ 63,393 $ 63,393
Interest bearing deposits $232,536 40,621 7,376 - 280,533
Borrowed funds 8,858 - - - 8,858
Other liabilities - - - 5,024 5,024
Capital - - - 30,692 30,692
------- ------- ------- -------- --------
Total liabilities and capital $241,394 $ 40,621 $ 7,376 $ 99,109 $ 388,500
======= ======== ======== ========= ========
Net interest rate sensitivity gap $ (45,641) $ 87,418 $ 29,630 $ (71,407) $ -
======== ======== ======= ========= ========
Cumulative interest rate
sensitivity gap $ (45,641) $ 41,777 $ 71,407 $ - $ -
======== ======== ======= ========= ========
Cumulative interest rate
sensitivity gap divided
by total assets (11.7)% 10.8% 18.4% - -
</TABLE>
ALLOWANCE FOR POSSIBLE LOAN LOSSES
The allowance for possible loan losses is an amount that management
believes will be adequate to absorb possible loan losses on existing loans that
may become uncollectible based on evaluations of the collectibility of loans.
The evaluations take into consideration such factors as changes in the nature
and volume of the loan portfolio, overall portfolio quality, adequacy of
collateral, review of specific problem loans and current economic conditions
that may affect the borrower's ability to pay. The allowance for possible loan
losses as a percentage of year-end loans outstanding shows an increase from
1.38% at December 31, 1994 to 1.86% at December 31, 1995.
<PAGE>
FIRST WEST CHESTER CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
ANALYSIS OF CHANGES IN THE ALLOWANCE FOR POSSIBLE LOAN LOSSES
AND COMPARISON OF LOANS OUTSTANDING
<TABLE>
<CAPTION>
December 31,
--------------------------------------------------------------
(Dollars in thousands) 1995 1994 1993 1992 1991
-------- -------- -------- -------- ------
<S> <C> <C> <C> <C> <C> <C>
Balance at beginning of year $ 3,303 $ 2,839 $ 2,300 $ 1,850 $ 1,630
--------- --------- --------- --------- ---------
Provision charged to operating expense 1,666 1,790 1,524 1,435 501
--------- --------- --------- --------- ---------
Recoveries of loans previously charged off
Commercial loans 4 19 69 212 22
Real estate - mortgages 46 9 2 77 -
Consumer loans 29 10 21 19 22
--------- --------- --------- --------- ---------
Total recoveries 79 38 92 308 44
--------- --------- --------- --------- ---------
Loan charge-offs
Commercial loans (348) (253) (28) (922) (98)
Real estate - mortgages (25) (1,042) (975) (192) (133)
Consumer loans (108) (69) (71) (179) (73)
Lease financing receivables (61) - (3) - (21)
--------- --------- --------- --------- ---------
Total charge-offs (542) (1,364) (1,077) (1,293) (325)
--------- --------- --------- --------- ---------
Net loan charge-offs (463) (1,326) (985) (985) (281)
--------- --------- --------- --------- ---------
Balance at end of year $ 4,506 $ 3,303 $ 2,839 $ 2,300 $ 1,850
========= ========= ========= ========= =========
Year-end loans outstanding $242,587 $239,126 $221,433 $212,575 $200,319
Allowance for possible loan losses as
a percentage of year-end loans
outstanding 1.86% 1.38% 1.28% 1.08% 0.92%
Ratio of net charge-offs to average
loans outstanding 0.19% 0.58% 0.45% 0.46% 0.14%
</TABLE>
<PAGE>
FIRST WEST CHESTER CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Non-performing loans include loans on non-accrual status and loans past
due 90 days or more and still accruing. The Bank's policy is to write down all
non-performing loans to net realizable value based on updated appraisals.
Non-performing loans are generally collateralized by real estate and are in the
process of collection. Management is not aware of any loans other than those
included in the following table that would be considered potential problem loans
and cause management to have doubts as to the borrower's ability to comply with
loan repayment terms. At December 31, 1995, there were no concentrations of
loans exceeding 10% of total loans which are not otherwise disclosed.
NON-PERFORMING LOANS AND ASSETS
<TABLE>
<CAPTION>
December 31,
-------------------------------------------------------------
(Dollars in thousands) 1995 1994 1993 1992 1991
-------- -------- -------- -------- -------
<S> <C> <C> <C> <C> <C>
Past due over 90 days and still accruing $ 419 $ 323 $ 1,074 $ 2,111 $ 336
Non-accrual loans 726 2,997 2,804 1,200 522
--------- -------- -------- -------- ---------
Total non-performing loans 1,145 3,320 3,878 3,311 858
Other real estate owned 1,447 1,565 - 90 558
-------- -------- -------- -------- ---------
Total non-performing assets $ 2,592 $ 4,885 $ 3,878 $ 3,401 $ 1,416
======== ======== ======== ======== ========
Non-performing loans as a
percentage of total loans 0.47% 1.39% 1.75% 1.56% 0.43%
Allowance for possible loan losses
as a percentage of non-performing
loans 393.5% 99.5% 73.2% 69.5% 215.6%
Non-performing assets as a percentage
of total loans and other real estate
owned 1.06% 2.03% 1.75% 1.60% 0.70%
Allowance for possible loan losses as
a percentage of non-performing
assets 173.8% 67.6% 73.2% 67.6% 130.6%
</TABLE>
<PAGE>
FIRST WEST CHESTER CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The allowance for possible loan losses as a percentage of
non-performing loans increased to 393.5% at December 31, 1995 from 99.5% at
December 31, 1994. This ratio indicates that the allowance for possible loan
losses is sufficient to cover the principal of all non-performing loans and
other potential losses that might exist in the Corporation's loan portfolio.
Other real estate owned ("OREO") represents residential and commercial real
estate written down to realizable value (net of estimated disposal costs) based
on professional appraisals. As a result of loan recoveries, sales of OREO and an
intercompany sale, the Corporation reduced non-performing assets by $2,263,000
or 46.6% to $2,592,000 at December 31, 1995 from $4,855,000 at December 31,
1994. Management intends to liquidate other real estate owned in the most
expedient and cost-effective manner. This process could take up to 24 months,
although swifter disposition is anticipated.
CAPITAL ADEQUACY
The Corporation is subject to Risk-Based Capital Guidelines adopted by
the Federal Reserve Board for bank holding companies. The Bank is also subject
to similar capital requirements adopted by the Office of the Comptroller of the
Currency. Under these requirements, the regulatory agencies have set minimum
thresholds for Tier I Capital, Total Capital and Leverage ratios. At December
31, 1995, both the Corporation's and the Bank's capital exceeded all minimum
regulatory requirements and were considered "well capitalized" as defined in the
regulations issued pursuant to the FDIC Improvement Act of 1992. The
Corporation's Risk-Based Capital Ratios, shown below, have been computed in
accordance with regulatory accounting policies.
<TABLE>
<CAPTION>
December 31,
RISK-BASED --------------------------------------- "Well Capitalized"
CAPITAL RATIOS 1995 1994 1993 Requirements
- -------------- ------------ ------------ ------------ ----------------
<S> <C> <C> <C> <C>
Leverage Ratio 8.47% 8.53% 7.99% 5.00%
Tier I Capital Ratio 11.51% 11.09% 10.64% 6.00%
Total Risk-Based Capital Ratio 12.77% 12.32% 11.73% 10.00%
</TABLE>
The Bank is not under any agreement with the regulatory authorities nor
is it aware of any current recommendations by the regulatory authorities which,
if they were to be implemented, would have a material effect on liquidity,
capital resources or operations of the Corporation. The internal capital growth
rate for the Corporation was 2.68%, 1.92% and 8.68% for the years ended December
31, 1995, 1994 and 1993, respectively.
<PAGE>
FIRST WEST CHESTER CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
DESCRIPTION OF CAPITAL STOCK AND MARKET INFORMATION
The authorized capital stock of the Corporation consists of 5,000,000
shares of common stock, par value $1 per share, of which 1,712,941 shares and
1,799,732 shares were outstanding at the end of 1995 and 1994, respectively. The
Corporation's common stock is not listed or traded on a recognized securities
exchange. There is no established public trading market for the Corporation's
common stock. Trading of the Corporation's common stock is sporadic and
information regarding trades is limited. The following table, which shows the
range of high and low bid prices for the stock, is based upon transactions
reported by the Philadelphia brokerage firm of F. J.
Morrissey & Co.
Bid Prices (1)
----------
1995 1994
---- ----
Quarter Ended High Low High Low
------------- ---- ----- ------ -----
First $21.33 $21.33 $21.33 $21.33
Second $21.33 $21.17 $21.50 $21.33
Third $23.66 $21.33 $21.59 $21.33
Fourth $28.00 $25.00 $21.33 $21.33
(1) Adjusted for 1995 3-for-2 stock split. See Note A11 - Earnings per
Share and Stockholders' Equity in the accompanying financial statements
for additional information.
Other statistical disclosures required by bank holding companies can be
found in the Corporation's 10-K filed with the Securities and Exchange
Commission on March 30, 1996. Copies of the 10-K can be obtained from the
Corporation's Shareholder Relations Representative who can be reached at P.O.
Box 523, West Chester, PA 19381 at 610-344-2686.
<PAGE>
FIRST WEST CHESTER CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
(Dollars in thousands) December 31,
-----------------------------
1995 1994
----------- ------------
<S> <C> <C>
ASSETS
Cash and due from banks $ 19,944 $ 19,981
Federal funds sold 24,700 2,000
----------- -----------
Total cash and cash equivalents 44,644 21,981
----------- -----------
Investment securities held-to-maturity (market value of
$23,213 and $28,528 in 1995 and 1994, respectively) 23,048 29,367
----------- -----------
Investment securities available-for-sale at fair value 70,463 49,022
----------- -----------
Loans 242,587 239,126
Less: Allowance for possible loan losses (4,506) (3,303)
----------- -----------
Net loans 238,081 235,823
Premises and equipment 5,521 4,826
Other assets 6,743 7,080
----------- -----------
Total assets $ 388,500 $ 348,099
========== ==========
LIABILITIES
Deposits
Non-interest bearing $ 63,393 $ 57,827
Interest bearing (including certificates of deposit over $100 of
$11,479 and $10,116 - 1995 and 1994, respectively) 280,533 247,638
---------- ----------
Total deposits 343,926 305,465
Securities sold under repurchase agreements 8,858 10,499
Other liabilities 5,024 3,836
---------- -----------
Total liabilities 357,808 319,800
---------- ----------
STOCKHOLDERS' EQUITY
Common stock, par value $1; authorized, 5,000,000 shares, outstanding, 1995
- 1,712,941 and 1994 - 1,800,000; excluding
shares in treasury, 1995 - 87,000 and 1994 - 0 1,800 1,200
Additional paid-in capital 3,301 3,900
Retained earnings 27,542 24,998
Net unrealized loss on securities available-for-sale (65) (1,799)
Treasury stock at cost (1,886) -
---------- -----------
Total stockholders' equity 30,692 28,299
----------- -----------
Total liabilities and stockholders' equity $ 388,500 $ 348,099
========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE>
FIRST WEST CHESTER CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
(Dollars in thousands, except per share) December 31,
-------------------------------------
1995 1994 1993
----------- ----------- ----------
<S> <C> <C> <C>
INTEREST INCOME
Loans, including fees $ 22,682 $ 19,366 $ 18,448
Investment securities 5,136 4,848 4,668
Federal funds sold 648 160 355
-------- -------- ---------
Total interest income 28,466 24,374 23,471
-------- -------- ---------
INTEREST EXPENSE
Deposits 11,102 8,433 9,153
Securities sold under repurchase agreements 462 286 252
-------- -------- ---------
Total interest expense 11,564 8,719 9,405
-------- -------- ---------
Net interest income 16,902 15,655 14,066
Provision for possible loan losses 1,666 1,790 1,524
-------- -------- ---------
Net interest income after provision for possible loan losses 15,236 13,865 12,542
-------- -------- ---------
NON-INTEREST INCOME
Financial Management Services 1,836 1,764 1,680
Service charges on deposit accounts 895 889 853
Investment securities gains (losses), net 9 3 (136)
Other 757 858 532
-------- -------- ---------
Total non-interest income 3,497 3,514 2,929
-------- -------- ---------
NON-INTEREST EXPENSE
Salaries and employee benefits 7,073 6,481 6,132
Occupancy, equipment and data processing 2,364 2,256 2,006
FDIC insurance 349 678 627
Bank shares tax 297 228 308
Other operating 2,685 2,573 2,256
-------- -------- ---------
Total non-interest expense 12,768 12,216 11,329
-------- -------- ---------
Income before income taxes and cumulative effect
of accounting method change 5,965 5,163 4,142
INCOME TAXES 1,865 1,556 1,201
-------- -------- ---------
Income before cumulative effect of accounting method change 4,100 3,607 2,941
CUMULATIVE EFFECT OF ACCOUNTING METHOD CHANGE - - 489
-------- -------- ---------
NET INCOME $ 4,100 $ 3,607 $ 3,430
========= ========= ==========
PER SHARE
Income before cumulative effect of accounting method change $ 2.34 $ 2.01 $ 1.64
Cumulative effect of accounting method change - - 0.27
-------- -------- ---------
Net income $ 2.34 $ 2.01 $ 1.91
========= ========== ==========
Cash dividends declared $ 0.89 $ 0.77 $ 0.69
========= ========== ==========
Weighted average shares outstanding 1,752,413 1,799,784 1,799,352
========= ========= =========
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE>
FIRST WEST CHESTER CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Additional
Common stock paid-in Retained Treasury
(Dollars in thousands) Shares Par value capital earnings Other stock
----------- ------------- ----------- ---------- -------- ------------
<S> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1993 1,195,429 $ 1,200 $ 3,900 $ 20,577$ - $ (131)
Net income - - - 3,430 - -
Cash dividends declared - - - (1,236) - -
Net unrealized loss on equity
securities - - - - (99) -
Treasury stock transactions 4,392 - - - - 126
---------- -------- ---------- ----------- ---------- --------
Balance at December 31, 1993 1,199,821 1,200 3,900 22,771 (99) (5)
Change in accounting for
investments on January 1, 1994 - - - - 236 -
Net income - - - 3,607 - -
Cash dividends declared - - - (1,380) - -
Net unrealized loss on
securities available-for-sale - - - - (1,936) -
Treasury stock transactions 179 - - - - 5
---------- -------- ---------- ----------- ---------- --------
Balance at December 31, 1994 1,200,000 1,200 3,900 24,998 (1,799) -
Net income - - - 4,100 - -
Cash dividends declared - - - (1,556) - -
Net unrealized gain on equity
securities available-for-sale - - - - 1,734 -
3-for-2 stock split 599,941 600 (600) - - -
Treasury stock transactions ( 87,000) - 1 - - (1,886)
---------- -------- ---------- ----------- ---------- --------
Balance at December 31, 1995 1,712,941 $ 1,800 $ 3,301 $ 27,542 $ (65) $ (1,886)
========== ======= ======= ======= =========== ========
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE>
FIRST WEST CHESTER CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
(Dollars in thousands) December 31,
---------------------------------------
1995 1994 1993
------------ ------------ ----------
OPERATING ACTIVITIES
<S> <C> <C> <C>
Net income $ 4,100 $ 3,607 $ 3,430
Adjustments to reconcile net income to net
cash provided by operating activities
Depreciation 614 618 600
Provision for loan losses 1,666 1,790 1,524
Amortization of investment security
premiums and accretion of discounts 217 392 243
Amortization of deferred fees on loans (5) 46 (42)
Provision for deferred income taxes - (165) (324)
Investment securities (gains) losses, net (9) (3) 136
Increase in other assets (557) (3,414) (14)
Increase (decrease) in other liabilities 1,127 (1,283) 96
-------- --------- ---------
Net cash provided by operating activities 7,153 1,588 5,649
-------- --------- ---------
INVESTING ACTIVITIES
Increase in loans (3,919) (19,064) (9,801)
Proceeds from sales of investment securities available-for-sale 301 1,875 -
Proceeds from sales of investment securities held-to-maturity - - 1,979
Proceeds from maturities of investment securities available-for-sale 13,367 19,529 -
Proceeds from maturities of investment securities held-to-maturity 7,244 8,042 19,524
Purchase of investment securities available-for-sale (32,615) (17,098) -
Purchase of investment securities held-to-maturity (999) - (47,894)
Purchase of premises and equipment, net (1,309) (830) (318)
Other - - (99)
-------- --------- ---------
Net cash used in investing activities (17,930) (7,546) (36,609)
-------- --------- --------
FINANCING ACTIVITIES
Increase (decrease) in deposits 38,461 (1,890) 32,909
(Decrease) increase in securities sold under repurchase agreements (1,641) (119) 361
Cash dividends (1,495) (1,321) (1,293)
Treasury stock transactions (1,885) 5 126
--------- --------- --------
Net cash provided by (used in) financing activities 33,440 (3,325) 32,103
--------- --------- --------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS 22,663 (9,283) 1,143
Cash and cash equivalents at beginning of year 21,981 31,264 30,121
-------- -------- --------
Cash and cash equivalents at end of year $ 44,644 $ 21,981 $ 31,264
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE>
FIRST WEST CHESTER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1995 and 1994
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
First West Chester Corporation (the "Corporation") through its wholly-owned
subsidiary, The First National Bank of West Chester (the "Bank"), has been
serving the residents and businesses of Chester County, Pennsylvania since
1863. The Bank is a locally managed community bank providing loan, deposit
and trust services from its five branch locations. The Bank encounters
vigorous competition for market share in the communities it serves from bank
holding companies, other community banks, thrift institutions and other
non-bank financial organizations such as mutual fund companies, insurance
companies and brokerage companies.
The Corporation and the Bank are subject to regulations of certain state and
federal agencies. These regulatory agencies periodically examine the
Corporation and the Bank for adherence to laws and regulations. As a
consequence, the cost of doing business may be affected.
1. Basis of Financial Statement Presentation
-----------------------------------------
The accounting policies followed by the Corporation and its wholly-owned
subsidiaries, the Bank and 323 East Gay Street Corp ("EGSC"), conform to
generally accepted accounting principles and predominant practice within the
banking industry. The accompanying financial statements include the accounts
of the Corporation, the Bank and EGSC. All significant intercompany
transactions have been eliminated.
2. Financial Instruments
---------------------
The Financial Accounting Standards Board ("FASB") issued Statement of
Financial Accounting Standards ("SFAS") No. 107, "Disclosures about Fair
Value of Financial Instruments," which requires all entities to disclose the
estimated fair value of their assets and liabilities considered to be
financial instruments. Financial instruments requiring disclosure consist
primarily of investment securities, loans and deposits.
3. Investment Securities
---------------------
The Corporation adopted SFAS No. 115, "Accounting for Certain Investments in
Debt and Equity Securities," on January 1, 1994. This new standard requires
investments in securities to be classified in one of three categories:
held-to-maturity, trading or available-for-sale. Debt securities that the
Corporation has the positive intent and ability to hold to maturity are
classified as held-to-maturity and are reported at amortized cost. As the
Corporation does not engage in security trading, the balance of its debt
securities and any equity securities are classified as available-for-sale.
Net unrealized gains and losses for such securities, net of tax effect, are
required to be recognized as a separate component of stockholders' equity
and excluded from the determination of net income.
Prior to the adoption of SFAS No. 115, investment securities that were
principally debt securities were stated at cost and adjusted for
amortization of premiums and accretion of discounts computed by the interest
method. Gains or losses on disposition were based on the net proceeds and
the adjusted carrying amount of the securities sold using the specific
identification method.
4. Loans and Allowance for Loan Losses
-----------------------------------
Loans are stated at the amount of unpaid principal, reduced by unearned
discount and an allowance for loan losses. Interest on loans is accrued and
credited to operations based upon the principal amount outstanding.
<PAGE>
FIRST WEST CHESTER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
December 31, 1995 and 1994
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
Accrual of interest is discontinued on a loan when management believes that
the borrower's financial condition is such that collection of interest and
principal is doubtful. Upon such discontinuance, all unpaid accrued interest
is reversed. The determination of the allowance for loan losses is based
upon the character of the loan portfolio, current economic conditions, loss
experience and other relevant factors which, in management's judgment,
deserve recognition in estimating possible losses.
On January 1, 1995, the Corporation adopted SFAS No. 114, "Accounting by
Creditors for Impairment of a Loan," as amended by SFAS No. 118, "Accounting
by Creditors for Impairment of a Loan - Income Recognition and Disclosures."
SFAS No. 114 requires loan impairment to be measured based on the present
value of expected future cash flows discounted at the loan's effective
interest rate, its observable market price, or the fair value of the
collateral if the loan is collateral-dependent. If it is probable that a
creditor will foreclose on a property, the creditor must measure impairment
based on the fair value of the collateral. SFAS No. 118 allows creditors to
use existing methods for recognizing interest income on impaired loans.
5. Loan Fees and Related Costs
---------------------------
Certain origination and commitment fees and related direct loan origination
costs are deferred and amortized over the contractual life of the related
loans, resulting in an adjustment of the related loan's yield.
6. Premises and Equipment
----------------------
Premises and equipment are stated at cost, less accumulated depreciation.
Assets are depreciated over their estimated useful lives principally by the
straight-line method.
7. Contributions
-------------
The Corporation adopted, effective January 1, 1995, SFAS No. 116,
"Accounting for Contributions Received and Contributions Made." SFAS No. 116
specifies that contributions made by the Corporation be recognized as
expenses in the period made and as decreases of assets or increases of
liabilities depending on the form of the benefits given. In accordance with
SFAS No. 116, the Corporation accrued contribution expenses of $136,000
relating to long-term commitments to local not-for-profit organizations
during 1995. Financial statements prior to 1995 were not restated. Prior to
1995, the Corporation accounted for contributions made on a cash basis.
8. Income Taxes
------------
The Corporation adopted SFAS No. 109, "Accounting for Income Taxes,"
effective January 1, 1993. Under the liability method specified by SFAS No.
109, deferred tax assets and liabilities are determined based on the
difference between the financial statement and tax bases of assets and
liabilities as measured by the enacted tax rates which will be in effect
when these differences reverse. Deferred tax expense is the result of
changes in deferred tax assets and liabilities.
<PAGE>
FIRST WEST CHESTER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
December 31, 1995 and 1994
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
9. Employee Benefit Plans
----------------------
The Bank has certain employee benefit plans covering eligible employees. The
Bank accrues such costs as earned.
10. Financial Management Services Assets and Income
-----------------------------------------------
Assets held by the Bank in fiduciary or agency capacities for its customers
are not included in the accompanying consolidated balance sheets since such
items are not assets of the Bank. Operating income and expenses of Financial
Management Services are included under their respective captions in the
accompanying consolidated statements of income and are recorded on the
accrual basis.
11. Earnings per Share and Stockholders' Equity
-------------------------------------------
Earnings per share are calculated using the weighted average shares
outstanding during the year. On September 18, 1995, the Board of Directors
declared a 3-for-2 stock split, payable October 16, 1995, in the form of a
50% stock dividend to stockholders of record on October 3, 1995. Par value
remained at $1 per share. The stock split resulted in the issuance of
599,941 additional shares of common stock from authorized but unissued
shares. The issuance of authorized but unissued shares resulted in the
transfer of $600,000 from additional paid-in capital to common stock,
representing the par value of the shares issued. Accordingly, earnings per
share, cash dividends per share and weighted average shares of common stock
outstanding have been restated to reflect the stock split.
12. Cash Flow Information
---------------------
For purposes of reporting cash flows, cash and cash equivalents include cash
on hand, amounts due from banks and federal funds sold. Generally, federal
funds are purchased and sold for one-day periods. Cash paid during the years
ended December 31, 1995, 1994 and 1993 for interest was $10,901,000,
$10,268,000 and $9,760,000, respectively. Cash paid during the years ended
December 31, 1995, 1994 and 1993 for income taxes was $2,144,000, $1,891,000
and $1,642,000, respectively.
13. Reclassifications
-----------------
Certain prior year amounts have been reclassified to conform to the current
year presentation.
NOTE B - INVESTMENT SECURITIES
On January 1, 1994, the Corporation changed its method of accounting for
certain debt and equity securities and recorded an unrealized holding gain,
net of taxes, of $236,000 as a separate component of stockholders' equity.
At December 31, 1995 and 1994, unrealized holding losses on securities
available-for-sale, net of taxes, were $65,000 and $1,799,000, respectively.
The amortized cost, gross unrealized gains and losses, and fair market value
of the Corporation's available-for-sale and held-to-maturity securities are
summarized as follows:
<PAGE>
FIRST WEST CHESTER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
December 31, 1995 and 1994
NOTE B - INVESTMENT SECURITIES - Continued
<TABLE>
<CAPTION>
Held-to-Maturity Available-for-Sale
----------------------------------------- ---------------------------------------
(Dollars in thousands) Gross Gross Fair Gross Gross Fair
1995 Amortized Unrealized Unrealized Market Amortized Unrealized Unrealized Market
---- Cost Gains Losses Value Cost Gains Losses Value
---------- --------- --------- ------- ---------- ---------- -------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Treasury $ 1,473 $ 12 $ - $ 1,485 $ 13,020 $ 89 $ (18) $ 13,091
U.S. Government agency 1,501 4 (9) 1,496 12,011 165 - 12,176
Mortgage-backed securities 2,685 26 (22) 2,689 34,659 141 (325) 34,475
State and municipal 4,759 108 (5) 4,862 254 27 - 281
Corporate securities 11,806 62 (1) 11,867 1,079 - - 1,079
Asset-backed securities 824 2 (12) 814 - - - -
Mutual funds - - - - 8,000 - (267) 7,733
Other equity securities - - - - 1,540 224 (136) 1,628
------- ------ ------ ------ -------- ------ ------ -------
$ 23,048 $ 214 $ (49) $23,213 $ 70,563 $ 646 $ (746) $ 70,463
======= ===== ====== ====== ======== ===== ====== =======
</TABLE>
<TABLE>
<CAPTION>
Held-to-Maturity Available-for-Sale
------------------------------------------ ---------------------------------------
(Dollars in thousands) Gross Gross Fair Gross Gross Fair
1994 Amortized Unrealized Unrealized Market Amortized Unrealized Unrealized Market
---- Cost Gains Losses Value Cost Gains Losses Value
---------- ----------- ---------- ------- --------- ---------- ---------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Treasury $ 1,464 $ - $ (99) $ 1,365 $13,078 $ 11 $ (328) $ 12,761
U.S. Government agency 1,500 2 (86) 1,416 - - - -
Mortgage-backed securities 3,223 1 (185) 3,039 25,381 - (1,935) 23,446
State and municipal 5,603 6 (84) 5,525 253 15 - 268
Corporate securities 15,455 3 (328) 15,130 3,084 6 (9) 3,081
Asset-backed securities 2,122 - (69) 2,053 109 - (2) 107
Mutual funds - - - - 8,254 - (490) 7,764
Other equity securities - - - - 1,588 7 - 1,595
------- ------- ------- -------- ------ ------- ------- -------
$ 29,367 $ 12 $ (851) $28,528 $51,747 $ 39 $(2,764) $ 49,022
====== ====== ======= ====== ======= ====== ====== =======
</TABLE>
The amortized cost and estimated fair value of debt securities classified as
available-for-sale and held-to-maturity at December 31, 1995, by contractual
maturity, are shown in the following table. Expected maturities will differ
from contractual maturities because borrowers may have the right to call or
prepay obligations with or without call or prepayment penalties.
<PAGE>
FIRST WEST CHESTER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
December 31, 1995 and 1994
NOTE B - INVESTMENT SECURITIES - Continued
<TABLE>
<CAPTION>
Held-to-Maturity Available-for-Sale
------------------------ ----------------------------
Estimated Estimated
Amortized Fair Amortized Fair
(Dollars in thousands) Cost Value Cost Value
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Due in one year or less $ 9,359 $ 9,377 $ 8,604 $ 8,617
Due after one year through five years 9,765 9,886 17,506 17,729
Due after five years through ten years 390 420 - -
Due after ten years 25 27 254 281
-------- -------- --------- --------
19,539 19,710 26,364 26,627
Mortgage-backed securities 2,685 2,689 34,659 34,475
Asset-backed securities 824 814 - -
-------- -------- --------- --------
$ 23,048 $ 23,213 $ 61,023 $ 61,102
======== ======== ======== =======
</TABLE>
Proceeds on sales of securities classified as available-for-sale were
$301,000 and $1,875,000 during 1995 and 1994, respectively. Gains of
$17,000, $94,000 and $0, and losses of $8,000, $91,000 and $136,000 were
realized on sales of securities in 1995, 1994 and 1993, respectively. The
Corporation uses the specific identification method to determine the cost of
the securities sold. The principal amount of investment securities pledged
to secure public deposits and for other purposes required or permitted by
law was $28,170,000 and $27,872,000 at December 31, 1995 and 1994,
respectively. There were no securities held from a single issuer that
represented more than 10% of stockholders' equity.
NOTE C - LOANS
Major classifications of loans are as follows:
(Dollars in thousands) 1995 1994
--------- --------
Commercial loans $ 86,686 $ 87,689
Real estate - construction 9,372 4,607
Real estate - other 100,814 101,589
Consumer loans 33,836 32,984
Lease financing receivables 11,879 12,257
-------- ---------
242,587 239,126
Less: Allowance for loan losses (4,506) (3,303)
-------- ---------
$ 238,081 $ 235,823
======== ========
<PAGE>
FIRST WEST CHESTER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
December 31, 1995 and 1994
NOTE C - LOANS - Continued
Loan balances on which the accrual of interest has been discontinued
amounted to approximately $726,000 and $2,997,000 at December 31, 1995 and
1994, respectively. Interest on these non-accrual loans would have been
approximately $125,000 in 1995 and $432,000 in 1994. Loan balances past due
90 days or more which are not on a non-accrual status, but which management
expects will eventually be paid in full, amounted to $419,000 and $323,000
at December 31, 1995 and 1994, respectively. Changes in the allowance for
loan losses are summarized as follows:
<TABLE>
<CAPTION>
(Dollars in thousands) 1995 1994 1993
---------- ---------- ----------
<S> <C> <C> <C>
Balance at beginning of year $ 3,303 $ 2,839 $ 2,300
Provision charged to operating expenses 1,666 1,790 1,524
Recoveries of charged-off loans 79 38 92
Loans charged off (542) (1,364) (1,077)
---------- --------- ---------
Balance at end of year $ 4,506 $ 3,303 $ 2,839
========== ========= =========
</TABLE>
The Bank identifies a loan as impaired when it is probable that interest and
principal will not be collected according to the contractual terms of the
loan agreement. The accrual of interest is discontinued on impaired loans
and no income is recognized until all recorded amounts of interest and
principal are recovered in full. Retail loans and residential mortgages have
been excluded from these calculations.
The balance of impaired loans was $590,000 and $2,819,000 at December 31 and
January 1, 1995, respectively. The associated allowance for loan losses for
impaired loans was $433,000 and $380,000 at December 31 and January 1, 1995,
respectively. During 1995, activity in the allowance for impaired loan
losses included a provision of $380,000, write-offs of $369,000 and
recoveries of $42,000. Interest income of $172,000 was recorded in 1995
while contractual interest in the same period amounted to $103,000. Cash
collected on impaired loans in 1995 was $1,448,000, of which $1,276,000 was
applied to principal and $172,000 was applied to interest. During the year
ended December 31, 1995, three impaired loans totaling $891,000 were
transferred to other real estate owned, and one impaired loan for $500,000
was transferred to EGSC as an equity investment.
In the normal course of business, the Bank has made loans to certain
officers, directors and their related interests. All loan transactions
entered into between the Bank and such related parties were made on the same
terms and conditions as transactions with all other parties. In management's
opinion, such loans are consistent with sound banking practices and are
within applicable regulatory lending limitations. The balance of these loans
outstanding at December 31, 1995 and 1994 was approximately $8,600,000 and
$7,500,000, respectively. In 1995, new loans and payments amounted to
approximately $2,900,000 and $1,800,000, respectively.
<PAGE>
FIRST WEST CHESTER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
December 31, 1995 and 1994
NOTE D - PREMISES AND EQUIPMENT
Premises and equipment are summarized as follows:
(Dollars in thousands) 1995 1994
---------- ---------
Premises $ 7,111 $ 6,418
Equipment 4,394 3,778
--------- ---------
11,505 10,196
Less accumulated depreciation (5,984) (5,370)
--------- ---------
$ 5,521 $ 4,826
========= =========
The FASB issued a new standard, SFAS No. 121, "Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to be Disposed of." This
statement provides guidance on when assets should be reviewed for
impairment, how to determine whether an asset or group of assets is
impaired, how to measure an impairment loss, and the accounting for long
lived-lived assets that a company plans to dispose of. The adoption of this
new statement is not expected to have a material impact on the Corporation's
consolidated financial position or results of operations. The Corporation is
required to adopt this new standard for the year ended December 31, 1996.
NOTE E - SHORT-TERM BORROWINGS AND CREDIT FACILITY
Securities sold under agreements to repurchase are generally overnight
transactions. These borrowings had interest rates of 3.3%, 3.0% and 2.5% and
balances of $8,858,000, $10,499,000 and $10,618,000 at December 31, 1995,
1994 and 1993, respectively. Daily average balances and weighted average
interest rates for the years ended December 31, 1995, 1994 and 1993 were
$12,313,000, $10,762,000 and $8,914,000 and 3.3%, 2.5% and 2.8%,
respectively. Maximum amounts outstanding at any month-end were
approximately $16,037,000, $13,348,000 and $10,618,000 for the years ended
December 31, 1995, 1994 and 1993, respectively.
As of December 31, 1995, the Bank had a line of credit with the FHLB of
Pittsburgh of approximately $34,500,000. Advances under this credit facility
are payable on demand, bear interest at the federal fund's rate plus 25
basis points. Daily average balance and weighted average interest rates for
the years ended December 31, 1995 and 1994 were $949,000 and $367,000 and
6.2% and 4.6%, respectively. Maximum amounts outstanding at any month-end in
1995 and 1994 were $10,000,000 and $2,000,000, respectively. There were no
advances under this line in 1993 and no amounts outstanding at December 31,
1995 and 1994. FHLB advances are collateralized by a pledge of the Bank's
entire portfolio of unencumbered investment securities, certain mortgage
loans and a lien on the Bank's FHLB stock.
<PAGE>
FIRST WEST CHESTER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
December 31, 1995 and 1994
NOTE F - OTHER NON-INTEREST EXPENSE
The components of other non-interest expense are detailed as follows:
(Dollars in thousands) 1995 1994 1993
------- ------- ------
Purchased services $ 647 $ 707 $ 727
Telephone, postage and supplies 516 515 444
Marketing and corporate communications 359 459 191
Loan and deposit supplies 200 353 291
Director costs 281 235 238
Other 682 304 365
------ ----- -----
$ 2,685 $ 2,573 $ 2,256
======= ======= =======
NOTE G - INCOME TAXES
The components of income taxes are detailed as follows:
(Dollars in thousands) 1995 1994 1993
--------- --------- ---------
Current $ 2,259 $ 1,721 $ 1,525
Deferred (394) (165) (324)
-------- -------- --------
$ 1,865 $ 1,556 $ 1,201
======= ======= =======
The income tax provision reconciled to the tax computed at the statutory
federal rate was as follows:
1995 1994 1993
------ ------ ------
Tax at statutory rate 34.0% 34.0% 34.0%
Increase (decrease) in taxes resulting from
Tax-exempt loan and investment income (3.1) (4.8) (6.4)
Other, net 0.4 0.9 1.4
----- ----- -----
Applicable income tax 31.3% 30.1% 29.0%
==== ==== ====
<PAGE>
FIRST WEST CHESTER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
December 31, 1995 and 1994
NOTE G - INCOME TAXES - Continued
The net deferred tax asset consists of the following:
<TABLE>
<CAPTION>
(Dollars in thousands) 1995 1994 1993
------ ------ ------
<S> <C> <C> <C>
Allowance for possible loan losses $ 1,243 $ 871 $ 728
Unrealized loss on securities available-for-sale 34 926 -
Deferred loan fees 231 179 179
Accrued pension and deferred compensation 262 359 354
Other 82 50 40
------ ------ ------
1,852 2,385 1,301
Valuation allowance - - -
------ ------ ------
Total deferred tax asset 1,852 2,385 1,301
------- ------ ------
Bond accretion (75) (72) (40)
Accumulated depreciation - (38) (74)
------- ------ ------
Total deferred tax liabilities (75) (110) (114)
------- ------ ------
Net deferred tax asset $ 1,777 $ 2,275 $ 1,187
======= ======= =======
</TABLE>
The Corporation's main operating subsidiary, The First National Bank of West
Chester, is not subject to Pennsylvania corporate income taxes, but is taxed
based on the value of its capital stock. Pennsylvania Bank Shares Tax
accrued by the bank amounted to $297,000, $228,000 and $306,000 in 1995,
1994 and 1993, respectively.
NOTE H - FAIR VALUE OF FINANCIAL INSTRUMENTS
SFAS No. 107 requires disclosure of the estimated fair value of an entity's
assets and liabilities considered to be financial instruments. For the
Corporation, as for most financial institutions, the majority of its assets
and liabilities are considered financial instruments as defined in SFAS No.
107. However, many such instruments lack an available trading market, as
characterized by a willing buyer and seller engaging in an exchange
transaction. Also, it is the Corporation's general practice and intent to
hold its financial instruments to maturity and not to engage in trading or
sales activities. Therefore, the Corporation had to use significant
estimations and present value calculations to prepare this disclosure.
Changes in the assumptions or methodologies used to estimate fair values may
materially affect the estimated amounts. Also, management is concerned that
there may not be reasonable comparability between institutions due to the
wide range of permitted assumptions and methodologies in the absence of
active markets. This lack of uniformity gives rise to a high degree of
subjectivity in estimating financial instrument fair values.
Fair values have been estimated using data which management considered the
best available and estimation methodologies deemed suitable for the
pertinent category of financial instrument. The estimated fair value of cash
and cash equivalents, deposits with no stated maturities, short-term
borrowings and commitments to extend credit, and outstanding letters of
credit has been estimated to equal the carrying amount. Quoted market prices
<PAGE>
FIRST WEST CHESTER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
December 31, 1995 and 1994
NOTE H - FAIR VALUE OF FINANCIAL INSTRUMENTS - Continued
were used to determine the estimated fair value of investment securities
held-to-maturity and investment securities available-for-sale. Fair values
of net loans and deposits with stated maturities were calculated using
estimated discounted cash flows based on the year-end offering rate for
instruments with similar characteristics and maturities.
The estimated fair values and carrying amounts are summarized as follows:
<TABLE>
<CAPTION>
1995 1994
----------------------- --------------------------
Estimated Estimated
(Dollars in thousands) Fair Carrying Fair Carrying
Value Amount Value Amount
--------- -------- --------- --------
Financial Assets
<S> <C> <C> <C> <C>
Cash and cash equivalents $ 44,644 $ 44,644 $ 21,981 $ 21,981
Investment securities held-to-maturity 23,213 23,048 28,528 29,367
Investment securities available-for-sale 70,463 70,463 49,022 49,022
Net loans 242,772 238,081 235,542 235,823
Financial Liabilities
Deposits with no stated maturities 229,039 229,039 226,640 226,640
Deposits with stated maturities 115,582 114,887 80,672 78,825
Short-term borrowings 8,858 8,858 10,499 10,499
Off-Balance-Sheet Investments
Commitments for extended credit
and outstanding letters of credit 78,287 78,287 75,849 75,849
</TABLE>
NOTE I - FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK AND CONCENTRATIONS OF
CREDIT RISK
The Bank is a party to financial instruments with off-balance-sheet risk to
meet the financing needs of its customers and to reduce its own exposure to
fluctuations in interest rates. These financial instruments include
commitments to extend credit and standby letters of credit. Such financial
instruments are recorded in the financial statements when they become
payable. Those instruments involve, to varying degrees, elements of credit
and interest rate risks in excess of the amount recognized in the
consolidated balance sheets. The contract or notional amounts of those
instruments reflect the extent of involvement the Bank has in particular
classes of financial instruments.
The Bank's exposure to credit loss in the event of nonperformance by the
other party to the financial instrument for commitments to extend credit and
standby letters of credit is represented by the contractual or notional
amount of those instruments. The Bank uses the same credit policies in
making commitments and conditional obligations as it does for
on-balance-sheet instruments.
Unless noted otherwise, the Bank does not require collateral or other
security to support financial instruments with credit risk. The contract
amounts are as follows:
<PAGE>
FIRST WEST CHESTER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
December 31, 1995 and 1994
NOTE I - FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK AND CONCENTRATIONS OF
CREDIT RISK - Continued
<TABLE>
<CAPTION>
(Dollars in thousands) 1995 1994
---------- ----------
<S> <C> <C>
Financial instruments whose contract amounts represent credit risk
Commitments to extend credit $ 73,087 $ 69,767
Standby letters of credit and financial guarantees written 5,200 6,082
</TABLE>
Commitments to extend credit are agreements to lend to a customer as long as
there is no violation of any condition established in the contract.
Commitments generally have fixed expiration dates or other termination
clauses and may require payment of a fee. Since many of the commitments are
expected to expire without being drawn upon, the total commitment amounts do
not necessarily represent future cash requirements. The Bank evaluates each
customer's creditworthiness on a case-by-case basis. The amount of
collateral obtained, if deemed necessary by the Bank upon extension of
credit, is based on management's credit evaluation.
Standby letters of credit are conditional commitments issued by the Bank to
guarantee the performance of a customer to a third party. Those guarantees
are primarily issued to support public and private borrowing arrangements,
including commercial paper, bond financing and similar transactions. The
credit risk involved in issuing letters of credit is essentially the same as
that involved in extending loan facilities to customers. The Bank holds
residential or commercial real estate, accounts receivable, inventory and
equipment as collateral supporting those commitments for which collateral is
deemed necessary. The extent of collateral held for those commitments at
December 31, 1995 varies up to 100%; the average amount collateralized is
80%.
All of the Bank's loans, commitments, and commercial and standby letters of
credit have been granted to customers in the Bank's primary market area,
Chester County, Pennsylvania. Investments in state and municipal securities
also involve governmental entities within the Bank's market area. The
concentrations of credit by type of loan are set forth in Note C - Loans.
Although the Bank has a diversified loan portfolio, a substantial portion of
its debtors' ability to honor their contracts is dependent upon the economic
sector. The distribution of commitments to extend credit approximates the
distribution of loans outstanding. Commercial and standby letters of credit
were granted primarily to commercial borrowers.
NOTE J - REGULATORY MATTERS
The Bank is required to maintain average reserve balances with the Federal
Reserve Bank based upon deposit levels and other factors. The average amount
of those reserve balances for the years ended December 31, 1995 and 1994 was
approximately $2,141,000 and $2,055,000, respectively.
Dividends are paid by the Corporation from its assets which are mainly
provided by dividends from the Bank. However, certain restrictions exist
regarding the ability of the Bank to transfer funds to the Corporation in
the form of cash dividends, loans or advances. The Bank, without the prior
approval of regulators, can declare dividends to the Corporation totaling
approximately $2,720,000 plus additional amounts equal to the net earnings
of the Bank for the period from January 1, 1996 through the date of
declaration, less dividends previously paid in 1996.
<PAGE>
FIRST WEST CHESTER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
December 31, 1995 and 1994
NOTE K - EMPLOYEE BENEFIT PLANS
1. Defined Contribution Plans
--------------------------
The Bank has a qualified deferred salary savings 401(k) plan (the "401(k)
Plan") under which the Bank contributes $0.75 ($0.50 prior to 1994) for each
$1.00 that the employees contribute, up to the first 5% of the employees'
salary. The Bank's expenses were $123,000, $100,000 and $63,000 in 1995,
1994 and 1993, respectively. The Bank also has a qualified defined
contribution pension plan (the "QDCP Plan") which was implemented on January
1, 1995. Under the QDCP Plan, the Bank will make annual contributions into
the 401(k) Plan on behalf of each eligible participant, in an amount equal
to 3% of salary up to $30,000 in salary, plus 6% in excess of $30,000.
Contribution expense in 1995 under the QDCP Plan was $200,000. The Bank may
make additional discretionary employer contributions subject to approval of
the Board of Directors.
2. Defined Benefit Plans
---------------------
In October 1994, the Board of Directors approved the termination of the
Bank's qualified defined benefit retirement plan (the "QDB Plan") and the
non-qualified supplemental defined benefit pension plan for executive
officers (the "NQDB Plan") effective December 31, 1994. Distributions of
participants' vested benefits in the QDB Plan took place in the fourth
quarter of 1995. Accrued benefits from the terminated NQDB Plan were rolled
over into a non-qualified defined contribution pension plan for executive
officers (the "NQDCP Plan") effective December 31, 1994. Beginning in 1995,
the Bank will make annual contributions to the NQDCP Plan equal to 3% of the
participant's salary. The contribution expense under the NQDCP Plan in 1995
was $35,000. The Bank may make additional discretionary employer
contributions subject to approval of the Board of Directors.
The Bank-sponsored plans' funded status and amounts recognized in the
consolidated financial statements for accumulated and projected benefit
obligation, plan assets at fair market value and accrued pension cost for
1994 were $5,900,000, $5,689,000 and $407,000, respectively. The weighted
average discount rate used in determining the actuarial present value of the
projected benefit obligation was 5.5% in 1994. The expected long-term rate
of return on assets used in this calculation was 8.0% and the expected
compensation rate change was 5.0% in 1994. Contributions to the QDB Plan,
which are limited by federal income tax regulations, amounted to $327,000 in
1994. There were no contributions to the QDB Plan in 1993. Contributions to
the NQDB Plan were $60,000 in 1994 and 1993. Net periodic pension cost for
both plans was $364,000 and $272,000 in 1994 and 1993, respectively.
The termination of the QDB Plan was accounted for at December 31, 1994 as a
curtailment under SFAS No. 88, "Employers' Accounting for Settlements and
Curtailments of Defined Benefit Pension Plans and for Termination Benefits."
Accordingly, a curtailment gain of approximately $311,000 was recognized in
the income statement in 1994. A settlement gain of approximately $190,000
was recorded in 1995 upon distribution of QDB Plan assets to participants.
The termination of the NQDB Plan resulted in a loss of approximately $38,000
in 1994.
<PAGE>
FIRST WEST CHESTER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
December 31, 1995 and 1994
NOTE L - CONDENSED FINANCIAL INFORMATION - PARENT CORPORATION ONLY
Condensed financial information for First West Chester Corporation (parent
corporation only) follows:
CONDENSED BALANCE SHEETS
December 31,
----------------------
(Dollars in thousands) 1995 1994
--------- --------
ASSETS
Cash and cash equivalents $ 467 $ 712
Investment securities 415 373
Investment in subsidiaries, at equity 29,935 29,367
Other assets 452 48
-------- ----------
Total assets $ 31,269 $ 30,500
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Other liabilities $ 454 $ 398
Stockholders' equity 30,815 30,102
-------- --------
Total liabilities and stockholders' equity $ 31,269 $ 30,500
======== ========
CONDENSED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Year ended December 31,
--------------------------------------
(Dollars in thousands) 1995 1994 1993
--------- -------- --------
<S> <C> <C> <C>
INCOME
Dividends from subsidiaries $ 3,609 $ 1,380 $ 1,057
Dividends from investment securities 21 24 23
Investment securities gains (losses), net 17 94 (136)
Other income 30 107 106
------- -------- --------
Total income 3,677 1,605 1,050
------- -------- --------
EXPENSES
Other expenses 145 128 120
------- --------- --------
Total expenses 145 128 120
------- --------- --------
Income before equity in undistributed
income of subsidiaries 3,532 1,477 930
EQUITY IN UNDISTRIBUTED INCOME OF
SUBSIDIARIES 568 2,130 2,500
------- -------- --------
NET INCOME $ 4,100 $ 3,607 $ 3,430
======== ======== ========
</TABLE>
<PAGE>
FIRST WEST CHESTER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
December 31, 1995 and 1994
NOTE L - CONDENSED FINANCIAL INFORMATION - PARENT CORPORATION ONLY - Continued
CONDENSED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year ended December 31,
--------------------------------------
(Dollars in thousands) 1995 1994 1993
---------- ---------- --------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income $ 4,100 $ 3,607 $ 3,430
Adjustments to reconcile net income to net cash
provided by operating activities
Equity in undistributed income of subsidiary (568) (2,130) (2,500)
Investment securities (gains) losses, net (17) (94) 136
(Increase) decrease in other assets (432) 5 3
(Decrease) increase in other liabilities (5) 13 -
-------- -------- --------
Net cash provided by operating activities 3,078 1,401 1,069
-------- -------- --------
INVESTING ACTIVITIES
Proceeds from sales and maturities of investment securities 57 219 81
-------- -------- --------
Net cash provided by investing activities 57 219 81
-------- -------- --------
FINANCING ACTIVITIES
Dividends paid (1,495) (1,321) (1,293)
Effect of treasury stock transactions (1,885) 5 126
--------- -------- --------
Net cash used in financing activities (3,380) (1,316) (1,167)
--------- -------- --------
NET (DECREASE) INCREASE IN CASH AND
CASH EQUIVALENTS (245) 304 (17)
Cash and cash equivalents at beginning of year 712 408 425
-------- -------- --------
Cash and cash equivalents at end of year $ 467 $ 712 $ 408
========= ========= =========
</TABLE>
<PAGE>
FIRST WEST CHESTER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
December 31, 1995 and 1994
NOTE M - QUARTERLY FINANCIAL DATA (UNAUDITED)
A summary of the unaudited quarterly results of operations is as follows:
<TABLE>
<CAPTION>
1995
----
(Dollars in thousands, except per share) December 31, September 30, June 30, March 31,
----------- ------------ -------- --------
<S> <C> <C> <C> <C>
Interest income $ 7,287 $ 7,211 $ 7,217 $ 6,751
Interest expense 3,075 3,036 2,884 2,569
Net interest income 4,212 4,175 4,333 4,182
Provision for loan losses 482 400 435 349
Investment securities gains, net 9 - - -
Income before income taxes 1,478 1,583 1,510 1,394
Net income 1,012 1,085 1,027 976
Per share
Net income $ 0.59 $ 0.63 $ 0.58 $ 0.54
Dividends declared 0.26 0.23 0.20 0.20
1994
----
Interest income $ 6,463 $ 6,164 $ 5,883 $ 5,864
Interest expense 2,384 2,259 2,019 2,057
Net interest income 4,080 3,905 3,864 3,806
Provision for loan losses 545 345 550 350
Investment securities gains, net 3 - - -
Income before income taxes 1,509 1,244 1,184 1,226
Net income 1,046 873 829 859
Per share
Net income $ 0.58 $ 0.49 $ 0.46 $ 0.48
Dividends declared 0.21 0.20 0.18 0.18
</TABLE>
<PAGE>
Report of Independent Certified Public Accountants
--------------------------------------------------
Board of Directors
First West Chester Corporation
We have audited the accompanying consolidated balance sheets of First
West Chester Corporation and Subsidiaries as of December 31, 1995 and 1994, and
the related consolidated statements of income, changes in stockholders' equity
and cash flows for each of the three years in the period ended December 31,
1995. These financial statements are the responsibility of the Corporation's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the consolidated financial position of First
West Chester Corporation and Subsidiaries as of December 31, 1995 and 1994, and
the consolidated results of their operations and their consolidated cash flows
for each of the three years in the period ended December 31, 1995, in conformity
with generally accepted accounting principles.
As described in note A3 to the consolidated financial statements, the
Corporation changed its method of accounting for certain investments in debt and
equity securities in 1994. As described in note A8 to consolidated financial
statements, the Corporation changed its method of accounting for income taxes in
1993.
Philadelphia, Pennsylvania
January 25, 1996
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We have issued our report dated January 25, 1996 accompanying the
consolidated financial statements included in the 1995 Annual Report to
Shareholders which is incorporated by reference in the Annual Report of First
West Chester Corporation and Subsidiary on Form 10-K for the year ended December
31, 1995. We hereby consent to the incorporation by reference of said report in
the Registration Statement of First West Chester Corporation and Subsidiary on
Form S-8 (File No.33-26325, effective January 4, 1989; and File No. 33-46575,
effective March 23, 1992).
GRANT THORNTON LLP
/S/ GRANT THORNTON LLP
- ----------------------
Philadelphia, Pennsylvania
March 28, 1996
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
This is Exhibit 27 of First West Chester Corporation's Form 10-K for the year
ended December 31, 1995.
</LEGEND>
<CIK> 0000744126
<NAME> FIRST WEST CHESTER CORP
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<CASH> 19,944
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 24,700
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 70,463
<INVESTMENTS-CARRYING> 23,048
<INVESTMENTS-MARKET> 23,213
<LOANS> 242,587
<ALLOWANCE> 4,506
<TOTAL-ASSETS> 388,500
<DEPOSITS> 343,926
<SHORT-TERM> 8,858
<LIABILITIES-OTHER> 5,024
<LONG-TERM> 0
0
0
<COMMON> 1,800
<OTHER-SE> 28,892
<TOTAL-LIABILITIES-AND-EQUITY> 388,500
<INTEREST-LOAN> 22,682
<INTEREST-INVEST> 5,136
<INTEREST-OTHER> 648
<INTEREST-TOTAL> 28,466
<INTEREST-DEPOSIT> 11,102
<INTEREST-EXPENSE> 11,564
<INTEREST-INCOME-NET> 16,902
<LOAN-LOSSES> 1,666
<SECURITIES-GAINS> 9
<EXPENSE-OTHER> 12,768
<INCOME-PRETAX> 5,965
<INCOME-PRE-EXTRAORDINARY> 5,965
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,100
<EPS-PRIMARY> 2.34
<EPS-DILUTED> 2.34
<YIELD-ACTUAL> 5.06
<LOANS-NON> 726
<LOANS-PAST> 419
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 3,303
<CHARGE-OFFS> 542
<RECOVERIES> 79
<ALLOWANCE-CLOSE> 4,506
<ALLOWANCE-DOMESTIC> 4,506
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
