FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Mark One)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1996, OR
-------------
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________ to ____________.
Commission File No. 0-12870.
-------
FIRST WEST CHESTER CORPORATION
------------------------------
(Exact name of Registrant as specified in its charter)
Pennsylvania 23-2288763
------------ ----------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
9 North High Street, West Chester, Pennsylvania 19380
----------------------------------------------- -----
(Address of principal executive office) (Zip code)
(610) 692-1423
--------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the Registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
---
The number of shares outstanding of Common Stock of the Registrant as of July 1,
1996 was 1,712,941.
<PAGE>
FIRST WEST CHESTER CORPORATION AND SUBSIDIARIES
INDEX
-----
PAGE
----
Part I. FINANCIAL INFORMATION
Consolidated Statements of Condition
June 30, 1996 and December 31, 1995 3
Consolidated Statements of Income
Three Months and Six Months Ended
June 30, 1996 and 1995 4
Consolidated Statements of Stockholders' Equity 5
Consolidated Statements of Cash Flows
Six Months Ended June 30, 1996 and 1995 6
Notes to Consolidated Financial Statements 7-8
Management's Discussion and Analysis of
Financial Condition and Results of Operations 9-20
Part II. OTHER INFORMATION
Item 1 - Legal Proceedings
Item 2 - Changes in Securities
Item 3 - Defaults upon Senior Securities
Item 4 - Submission of Matters to Vote of Security Holders
Item 5 - Other Information
Item 6 - Exhibits and Reports on Form 8-K 21-22
Signatures 23
<PAGE>
FIRST WEST CHESTER CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CONDITION
<TABLE>
<CAPTION>
(Dollars in thousands)
Unaudited
June 30, December 31,
1996 1995
----------- -----------
<S> <C> <C>
ASSETS
Cash and due from banks $ 17,216 $ 19,944
Federal funds sold 14,400 24,700
------- --------
Total cash and cash equivalents 31,616 44,644
------- --------
Interest bearing deposits with banks 1,000 --
------- --------
Investment securities held-to-maturity (market value of $15,894 and $23,213
at June 30, 1996 and December 31,
1995, respectively) 15,930 23,048
------- --------
Investment securities available-for-sale at market value 82,003 70,463
------- --------
Loans 248,372 242,587
Less allowance for possible loan losses (4,831) (4,506)
------- --------
Net loans 243,541 238,081
Premises and equipment 6,195 5,521
Other assets 7,426 6,743
------- --------
TOTAL ASSETS $ 387,711 $ 388,500
======== ========
LIABILITIES
Deposits
Non-interest bearing $ 55,528 $ 63,393
Interest bearing 286,242 280,533
------- --------
Total deposits 341,770 343,926
Securities sold under repurchase agreements 8,941 8,858
Other liabilities 5,648 5,024
------- --------
Total liabilities 356,359 357,808
------- --------
STOCKHOLDERS' EQUITY
Common stock, par value $1-authorized, 5,000,000 shares; outstanding
1,712,941 at June 30, 1996 and December 31, 1995; excluding shares in
treasury 87,000 at June 30, 1996
and December 31, 1995 1,800 1,800
Additional paid-in capital 3,301 3,301
Retained earnings 28,850 27,542
Net unrealized loss on securities available-for-sale (713) (65)
Treasury stock, at cost (1,886) (1,886)
------- --------
Total stockholders' equity 31,352 30,692
------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 387,711 $ 388,500
======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
3
<PAGE>
FIRST WEST CHESTER CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
(Dollars in thousands - except per share data) Three Months Ended Six Months Ended
June 30, June 30,
------------------------ ---------------------
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
INTEREST INCOME
Loans, including fees $5,652 $5,843 $11,208 $11,421
Investment securities 1,487 1,197 2,924 2,366
Federal funds sold 202 177 422 183
Deposits in banks 15 -- 18 --
----- ----- ------- -------
Total interest income 7,356 7,217 14,572 13,970
----- ----- ------- -------
INTEREST EXPENSE
Deposits 2,957 2,780 5,916 5,201
Securities sold under repurchase agreements 78 104 160 194
Other borrowings -- -- -- 59
----- ----- ------- -------
Total interest expense 3,035 2,884 6,076 5,454
----- ----- ------- -------
Net interest income 4,321 4,333 8,496 8,516
Provision for loan losses 276 435 552 784
----- ----- ------- -------
Net interest income after provision
for possible loan losses 4,045 3,898 7,944 7,732
----- ----- ------- -------
NON-INTEREST INCOME
Financial Management Services 453 459 905 918
Service charges on deposit accounts 219 222 420 453
Other 255 140 434 277
----- ----- ------- -------
Total non-interest income 927 821 1,759 1,648
----- ----- ------- -------
NON-INTEREST EXPENSE
Salaries and employee benefits 1,950 1,797 3,852 3,525
Net occupancy and equipment 653 563 1,222 1,156
FDIC deposit insurance 1 169 1 337
Bank shares tax 77 73 154 148
Other 663 607 1,372 1,310
----- ----- ------- -------
Total non-interest expense 3,344 3,209 6,601 6,476
----- ----- ------- -------
Income before income taxes 1,628 1,510 3,102 2,904
INCOME TAXES 532 483 1,006 901
----- ----- ------- -------
NET INCOME $1,096 $1,027 $ 2,096 $ 2,003
===== ===== ======= ========
PER SHARE DATA
Net income $0.64 $0.58 $1.22 $1.12
==== ==== ==== =====
Dividends declared $0.23 $0.20 $0.46 $0.40
==== ==== ==== =====
Weighted average shares outstanding 1,717,823 1,781,373 1,715,739 1,790,492
========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of these statements.
4
<PAGE>
FIRST WEST CHESTER CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
(Dollars in thousands) 1996 1995
--------- --------
<S> <C> <C>
Balance at January 1, $30,692 $28,299
Net income to date 2,096 2,003
Cash dividends declared (788) (720)
Net unrealized gain (loss) on securities available-for-sale (648) 1,362
Treasury stock transactions -- (1,625)
------ ------
Balance at June 30, $31,352 $29,319
====== ======
</TABLE>
The accompanying notes are an integral part of these statements.
5
<PAGE>
FIRST WEST CHESTER CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Six Months Ended
June 30,
-----------------------------
(Dollars in thousands) 1996 1995
------------ ----------
<S> <C> <C>
OPERATING ACTIVITIES
Net Income $ 2,096 $ 2,003
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 345 302
Provision for loan losses 552 784
Amortization of investment security premiums
and accretion of discounts 113 115
Amortization of deferred fees on loans 17 9
Increase in other assets (349) (174)
Increase in other liabilities 675 1,168
-------- --------
Net cash provided by operating activities 3,449 4,207
-------- --------
INVESTING ACTIVITIES
Purchase of interest bearing deposit in bank (1,000) --
Increase in loans (6,029) (5,265)
Proceeds from maturities of investment securities available-for-sale 9,103 5,538
Proceeds from maturities of investment securities held-to-maturity 8,083 2,827
Purchases of investment securities available-for-sale (21,704) (13,673)
Purchases of investment securities held-to-maturity (999) (999)
Purchase of premises and equipment, net (1,019) (181)
-------- --------
Net cash used in investing activities (13,565) (11,753)
-------- --------
FINANCING ACTIVITIES
Increase in deposits (2,156) 13,140
Increase in securities sold under repurchase agreements 83 2,870
Cash dividends (839) (744)
Treasury stock transactions -- (1,625)
-------- --------
Net cash (used in) provided by financing activities (2,912) 13,641
-------- --------
NET (DECREASE) INCREASE IN CASH AND CASH
EQUIVALENTS (13,028) 6,095
Cash and cash equivalents at beginning of period 44,644 21,981
-------- --------
Cash and cash equivalents at end of period $ 31,616 $ 28,076
======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
6
<PAGE>
FIRST WEST CHESTER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. The unaudited financial statements have been prepared in accordance
with generally accepted accounting principles for interim financial
information. In the opinion of management, all adjustments
(consisting only of normal recurring adjustments) necessary for a
fair presentation of the financial position and the results of
operations for the interim period presented have been included. For
further information, refer to the consolidated financial statements
and footnotes thereto included in First West Chester Corporation and
Subsidiaries' (the "Corporation") Annual Report on Form 10-K for the
year ended December 31, 1995.
2. The results of operations for the three-month and six-month periods
ended June 30, 1996 and 1995 are not necessarily indicative of the
results to be expected for the full year.
3. Per share data is based on the weighted average number of shares of
common stock outstanding during the period.
4. On January 1, 1995, the Corporation adopted Statement of Financial
Accounting Standards ("SFAS") No. 114, "Accounting for 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, except as a practical
expedient, a creditor may measure impairment based on a loan's
desirable market price, or the fair value of the collateral if the
loan is collateral dependent. Regardless of the measurement method, a
creditor must measure impairment based on the fair value of the
collateral when the creditor determines that foreclosure is probable.
SFAS No. 118 allows creditors to use existing methods for recognizing
interest income on impaired loans.
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 such loans and no income is recognized until all
recorded amounts of interest and principal are recovered in full.
Loan impairment is measured by estimating the expected future cash
flows and discounting them at the respective effective interest rate
or by valuing the underlying collateral. The recorded investment in
these loans and the valuation for credit losses related to loan
impairment are as follows:
1996
-----------------------------
(Dollars in thousands) January 1 June 30
--------- --------
Principal amount of impaired loans $ 590 $ 422
Less valuation allowance (433) (406)
------- -------
$ 157 $ 16
======== ========
On January 1, 1996 a valuation for credit losses related to impaired
loans was established. The activity in this allowance account for the
three- and six month periods ended June 30, 1996 and 1995 is as
follows:
7
<PAGE>
FIRST WEST CHESTER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
(UNAUDITED)
<TABLE>
<CAPTION>
4. (Continued) June 30, 1996 June 30, 1995
------------------------ -------------------
Three Six Three Six
Months Months Months Months
Ended Ended Ended Ended
----- ----- ----- -----
<S> <C> <C> <C> <C>
Valuation allowance at beginning of period $ 380 $ 433 $ 380 $ 380
Provision for loan impairment 100 100 230 230
Direct charge-offs (75) (159) (349) (349)
Recoveries 1 32 42 42
------- ------- ------- -------
Valuation allowance at end of period $ 406 $ 406 $ 303 $ 303
======= ======= ======= =======
</TABLE>
Total cash collected on impaired loans during the three- and six
month periods ended June 30, 1996 was $3 thousand and $9 thousand,
respectively, all of which was credited to the principal balance
outstanding on such loans. Interest that would have been accrued on
impaired loans during the three- and six month periods ended June 30,
1996 was $12 thousand and $22 thousand, respectively. Interest income
recognized during the three- and six month periods ended June 30,
1996 was $0.
Total cash collected on impaired loans during the three- and six
month periods ended June 30, 1995 was $22 thousand and $1,415
thousand, of which $22 thousand and $1,243 thousand was credited to
the principal balance outstanding on such loans and $0 and $172
thousand was recognized as interest income, respectively. Interest
that would have been accrued on impaired loans during the three- and
six month periods ended June 30, 1995 was $14 thousand and $58
thousand, respectively. Interest income recognized during the three-
and six month periods ended June 30, 1995 was $0 and $172 thousand,
respectively.
During the six months ended June 30, 1995, two impaired loans
totaling $699 thousand were transferred to Other Real Estate Owned
and one impaired loan for $500 thousand was transferred to the
Corporation's real estate subsidiary, 323 East Gay Street Corp
("EGSC"), as an equity investment. The $500 thousand impaired loan
that was transferred to EGSC in 1995 was liquidated in May 1996. The
proceeds from the liquidation were in excess of $600 thousand
resulting in a gain of $135 thousand included in other non-interest
income.
5. The Financial Accounting Standards Board issued a new standard, SFAS
No. 123, "Accounting for Stock- Based Compensation," which contains a
fair-value based method for valuing stock-based compensation that
entities may use, which measures compensation cost at the grant date
based on the fair value of the award. Compensation is then recognized
over the service period, which is usually the vesting period.
Alternatively, the standard permits entities to continue accounting
for employees stock options and similar equity instruments under
Accounting Principles Board ("APB") Opinion 25, "Accounting for Stock
Issued to Employees." Entities that continue to account for stock
options using APB Opinion 25 are required to make pro forma
disclosures of net income and earnings per share, as if the fair
value-based method of accounting defined in SFAS No. 123 had been
applied. The Corporation will continue to use APB Opinion 25 while
complying with the disclosure requirements of SFAS No. 123.
8
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
---------------------
EARNINGS SUMMARY AND HIGHLIGHTS
Net income for the three-month period ended June 30, 1996 was $1,096
thousand, an increase of $69 thousand or 6.7% from $1,027 thousand in the
three-month period ended June 30, 1995. Net income for the six-month period
ended June 30, 1996 was $2,096 thousand, an increase of $93 thousand or 4.6%
from $2,003 thousand in the six-month period ended June 30, 1995. Increases in
net income are primarily the result of an industry wide reduction in Federal
Deposit Insurance Corporation ("FDIC') insurance premiums, gain from the sale of
property owned by the Corporation's subsidiary, 323 East Gay Street Corp, and a
lower provision for loan losses, partially offset by tighter net interest
margins and increased operating expenses. Earnings per share for the three and
six month periods ended June 30, 1996 were $0.64 and $1.22 per share,
respectively, increases of $0.06 and $0.10 per share compared to the same
periods in 1995, respectively.
Performance ratios for the three- and six-month periods ended June 30, 1996
remained relatively constant compared to the same period in 1995 as shown below.
Cash dividends declared during the second quarter of 1996 increased to $0.23 per
share, a 15.0% increase compared to $0.20 per share in the second quarter of
1995. On a year-to-date basis, cash dividends increased to $0.46 per share, a
15.0% increase compared to $0.40 per share in the same period of 1995. Over the
past ten years, the Corporation's practice has been to pay a dividend of at
least 35.0% of net income.
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
---------------------- ---------------------
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
PERFORMANCE RATIOS
Return on Average Assets 1.14% 1.14% 1.09% 1.13%
Return on Average Equity 14.08% 13.93% 13.53% 13.77%
Earnings Retained 64.05% 64.95% 62.40% 64.05%
Dividend Payout Ratio 35.95% 35.05% 37.60% 35.95%
Book Value Per Share $18.30 $16.99 $18.30 $16.99
</TABLE>
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
for the three- and six-month periods ended June 30, 1996, on a tax equivalent
basis, was $4,377 thousand and $8,610 thousand, compared to $4,392 thousand and
$8,636 thousand for the same periods in 1995, respectively. Net yields on
interest earning assets, on a tax equivalent basis, were 4.86% and 4.80% for the
three- and six-month periods ended June 30, 1996 compared to 5.21% and 5.22% for
the same periods in 1995, respectively. Average interest earning assets
increased approximately $23.2 million to $360.5 million during the second
quarter of 1996 compared to $337.3 million in the same period last year. The
increase in average earnings assets was a direct result of certificate of
deposit growth during the twelve month period ended June 30, 1996. This inflow
of funds was directed into investments and federal funds sold rather than higher
yielding loans. As a result, the overall net yield on interest earning assets
declined. The Corporation anticipates continued pressure on net yield on
interest earning assets as competition for new loan business remains very strong
and incremental deposit growth becomes more rate sensitive.
9
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
CONSOLIDATED AVERAGE BALANCE SHEET
AND TAXABLE EQUIVALENT INCOME/EXPENSE AND RATES FOR THE
THREE MONTHS ENDED JUNE 30,
<TABLE>
<CAPTION>
(Dollars in thousands) 1996 1995
---------------------------------- ---------------------------------
Daily Daily
Average Average
Balance Interest Rate Balance Interest Rate
------- -------- ---- ------- -------- ----
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Federal funds sold $ 14,954 $ 200 5.35% $ 11,722 $ 177 6.04%
Interest bearing deposits in banks 1,000 15 6.00% -- -- --
Investment securities
Taxable 94,023 1,455 6.19% 75,469 1,148 6.08%
Tax-exempt (1) 2,471 43 6.96% 3,785 67 7.08%
------- ----- ------- -----
Total investment securities 96,494 1,498 6.21% 79,254 1,215 6.13%
------- ----- ------- -----
Loans (2)
Taxable 241,388 5,531 9.17% 239,611 5,727 9.56%
Tax-exempt (1) 6,666 166 9.96% 6,675 159 9.53%
------- ----- ------- -----
Total loans 248,054 5,697 9.19% 246,286 5,886 9.56%
------- ----- ------- -----
Total interest earning assets 360,502 7,410 8.22% 337,262 7,278 8.63%
Non-interest earning assets
Allowance for possible loan losses (4,745) (3,719)
Cash and due from banks 16,688 15,670
Other assets 12,922 12,017
------- -------
Total assets $385,367 $361,230
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Savings, NOWS & money market deposits $168,013 $ 1,292 3.08% $160,994 $1,352 3.36%
Certificates of deposits and other time 117,232 1,664 5.68% 101,010 1,430 5.66%
------- ----- ------- -----
Total interest bearing deposits 285,245 2,956 4.15% 262,004 2,782 4.25%
Securities sold under repurchase agreements 9,507 77 3.24% 12,807 104 3.25%
------- ----- ------- -----
Total interest bearing liabilities 294,752 3,033 4.12% 274,811 2,886 4.20%
----- -----
Non-interest bearing liabilities
Non-interest bearing demand deposits 54,247 51,310
Other liabilities 5,232 5,621
------- -------
Total liabilities 354,231 331,742
Stockholders' equity 31,136 29,488
------- -------
Total liabilities and stockholders' equity $385,367 $361,230
======= =======
Net interest income $ 4,377 $ 4,392
======= =======
Net yield on interest earning assets 4.86% 5.21%
==== ====
<FN>
(1) The indicated income and annual rate are presented on a taxable equivalent
basis using the Federal marginal rate of 34% adjusted for the 20% interest
expense disallowance for 1996 and 1995.
(2) Non-accruing loans are included in the average balance.
</FN>
</TABLE>
10
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
CONSOLIDATED AVERAGE BALANCE SHEET
AND TAXABLE EQUIVALENT INCOME/EXPENSE AND RATES FOR THE
SIX MONTHS ENDED JUNE 30,
<TABLE>
<CAPTION>
(Dollars in thousands) 1996 1995
-------------------------------- ---------------------------------
Daily Daily
Average Average
Balance Interest Rate Balance Interest Rate
------- -------- ---- ------- -------- ----
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Federal funds sold $ 15,613 $ 421 5.39% $ 6,082 $ 183 6.02%
Interest bearing deposits in banks 593 18 6.07% -- -- --
Investment securities
Taxable 93,294 2,860 6.13% 75,179 2,269 6.04%
Tax-exempt (1) 2,554 88 6.89% 3,795 133 7.01%
------- ------ ------- ------
Total investment securities 95,848 2,948 6.15% 78,974 2,402 6.08%
Loans (2)
Taxable 239,699 10,964 9.15% 238,831 11,188 9.37%
Tax-exempt (1) 6,697 335 10.00% 6,750 320 9.48%
------- ------ ------- ------
Total loans 246,396 11,299 9.17% 245,581 11,508 9.37%
------- ------ ------- ------
Total Interest Earning Assets 358,450 14,686 8.19% 330,637 14,093 8.52%
Non-interest earning assets
Allowance for possible loan losses (4,676) (3,551)
Cash and due from banks 16,421 15,829
Other assets 12,645 12,042
------- -------
Total assets $382,840 $354,957
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Savings, NOWS & money market deposits $165,862 $ 2,570 3.10% $162,617 $ 2,709 3.33%
Certificates of deposits and other time 117,381 3,346 5.70% 92,857 2,494 5.37%
------- ------ ------- ------
Total interest bearing deposits 283,243 5,916 4.18% 255,474 5,203 4.07%
Securities sold under repurchase agreements 9,782 160 3.27% 12,039 195 3.24%
Other borrowings -- -- -- 1,913 59 6.17%
------- ------ ------- ------
Total interest bearing liabilities 293,025 6,076 4.15% 269,426 5,457 4.05%
------ ------
Non-interest bearing liabilities
Non-interest bearing demand deposits 53,683 51,472
Other liabilities 5,144 4,967
------- -------
Total liabilities 351,852 325,865
Stockholders' equity 30,988 29,092
------- -------
Total liabilities and stockholders' equity $382,840 $354,957
======= =======
Net interest income $ 8,610 $ 8,636
======= =======
Net yield on interest earning assets 4.80% 5.22%
===== ====
<FN>
(1) The indicated income and annual rate are presented on a taxable equivalent
basis using the Federal marginal rate of 34% adjusted for the 20% interest
expense disallowance for 1996 and 1995.
(2) Non-accruing loans are included in the average balance.
</FN>
</TABLE>
11
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
AVERAGE INTEREST RATES (ON A TAX EQUIVALENT BASIS)
<TABLE>
<CAPTION>
Three-Months Six-Months
Yield On: Ended June 30, Ended June 30,
--------- -------------- --------------
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Interest Earning Assets 8.22% 8.63% 8.19% 8.52%
Interest Bearing Liabilities 4.12% 4.20% 4.15% 4.05%
---- ---- ---- ----
Net Interest Spread 4.10% 4.43% 4.04% 4.47%
Contribution of Interest Free Funds 0.76% 0.78% 0.76% 0.75%
---- ---- ---- ----
Net Yield on Interest Earning Assets 4.86% 5.21% 4.80% 5.22%
==== ==== ==== ====
</TABLE>
INTEREST INCOME ON FEDERAL FUNDS
Interest income on federal funds sold for the three- and six-month periods
ended June 30, 1996, increased $23 thousand and $238 thousand to $200 thousand
and $421 thousand, respectively, when compared to the same periods in 1995. The
increase in federal funds interest income for the three- and six month periods
ended June 30, 1996 is due to a $3.2 million and $9.5 million increase in
average balances, partially offset by a 69 basis point and 63 basis point
decrease in rates compared to the same periods in 1995, respectively.
INTEREST INCOME ON DEPOSITS IN BANKS
Interest income on deposits in banks for the three- and-six-month periods
ended June 30, 1996 was $15 thousand and $18 thousand, respectively, when
compared to the same periods in 1995. There were no deposits in banks in the
three- and six-month periods ended June 30, 1995 compared to $1.0 million and
$0.6 million in average deposits in banks outstanding during the three- and
six-month period ended June 30, 1996.
INTEREST INCOME ON INVESTMENT SECURITIES
On a tax equivalent basis, interest income on investment securities
increased $283 thousand and $546 thousand for the three- and six-month periods
ended June 30, 1996 to $1,498 thousand and $2,948 thousand, respectively, when
compared to the same periods in 1995. The increase for the three- and six-month
period is due to an increase in average balances of $17.2 million and $16.9
million and 8 basis point and 7 basis point increases in the yield earned on
securities when compared to the same periods last year, respectively. The
increases in average balances in investment securities is a result of
certificate of deposit growth in conjunction with reduced loan demand.
INTEREST INCOME ON LOANS
Loan interest income, on a tax equivalent basis, generated by the
Corporation's loan portfolio decreased $189 thousand and $209 thousand to $5,697
thousand and $11,299 thousand for the three- and six-month periods ended June
30, 1996, compared to the same periods in 1995, respectively. The decrease in
interest income on loans for the three- and six-month period ended June 30,1996
is attributable to 37 basis point and 20 basis point decreases in rates earned,
respectively, partially offset by a $1.8 million and $0.8 million increases in
average loans outstanding, respectively. The decrease in the loan portfolio
yield is a result of decreased new loan demand, several decreases in lending
rates, and increased competition on existing loans. Competition for new and
existing loan
12
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
relationships has been very strong throughout 1995 and 1996. There has been a
noticeable increase in pricing and fee competition on large (over $500,000)
loans (new and renewals) during the past six months. Pricing pressure is
expected to continue and will reduce the overall loan yields and net interest
yield on interest earning assets.
INTEREST EXPENSE ON DEPOSIT ACCOUNTS
Interest expense on deposit accounts increased $174 thousand and $713
thousand for the three- and six-month periods ended June 30, 1996 to $2,956
thousand and $5,916 thousand, compared to the same periods in 1995. The increase
for the three month period ended June 30, 1996 is the result of increases in
average interest-bearing deposits of $23.2 million, partially offset by a 10
basis point decrease in the rates paid on interest-bearing deposits. The
increase for the six month period ended June 30, 1996 is the result of an 11
basis point increase in rates paid on interest-bearing deposits and increases in
average interest-bearing deposits of $27.8 million.
While total average interest-bearing deposits increased 8.9% during the
three-month period ended June 30, 1996, compared to the same period in 1995, the
components did not change proportionately. During the three month period ended
June 30, 1996, average savings, NOW and money market deposits increased $8.2
million or 5.1%, while average certificates of deposit and other time deposits
increased $15.1 million or 14.9% compared to the same period in 1995.
The Corporation's effective rate on interest-bearing deposits decreased
from 4.25% in the second quarter 1995 to 4.15% in the second quarter 1996. Steps
are being taken to continue to reduce interest expense without causing deposit
run-off. Competition for deposits from non-banking institutions such as mutual
fund companies continues to grow.
INTEREST EXPENSE ON SECURITIES SOLD UNDER REPURCHASE AGREEMENTS
Interest expense on securities sold under repurchase agreements decreased
$27 thousand and $35 thousand to $77 thousand and $160 thousand for the three-
and six-month periods ended June 30, 1996 compared to $104 thousand and $195
thousand for the three- and six-month periods ended June 30, 1995, respectively.
The decreases are primarily attributable to $3.3 million and $2.3 million
decreases in average securities sold under repurchase agreements outstanding
compared to the three- and six-month periods ended June 30, 1995, respectively.
Average balances decreased due to a new cash sweep product recently introduced
by the Bank. The Bank sweeps excess customer demand deposit account balances
overnight outside the Bank through a program with Federated Investors. Cash
sweep balances amounted to approximately $4.5 million as of June, 30, 1996. This
product provides fee-based income to the Bank while earning our customers a
higher yield than our current repurchase agreement product.
INTEREST EXPENSE ON OTHER BORROWINGS
There were no other borrowings in the six months ended June 30, 1996
compared to $1.9 million in average other borrowings outstanding during the six
month period ended June 30, 1995. The Corporation met its short-term funding
requirements through the increase in deposits during the six month period ended
June 30, 1996.
13
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
PROVISION FOR POSSIBLE LOAN LOSSES
During the three- and six-month periods ended June 30, 1996, the
Corporation recorded a $276 thousand and a $552 thousand provision for possible
loan losses compared to $435 thousand and $784 thousand for the same periods in
1995. The allowance for possible loan losses as a percentage of total loans was
1.95% as of June 30, 1996 compared to 1.52% as of June 30, 1995. The Corporation
continues to deal with non-performing loans by building up the allowance for
possible loan losses and aggressively charging-off loans deemed uncollectible.
See the section titled "Allowance For Possible Loan Losses" for additional
discussion.
NON-INTEREST INCOME
Total non-interest income increased $106 thousand and $111 thousand to $927
thousand and $1,759 thousand for the three- and six-month periods ended June 30,
1996, compared to $821 thousand and $1,648 thousand for the same periods in
1995. The primary component of non-interest income is Financial Management
Services revenue, which decreased $6 thousand and $13 thousand to $453 thousand
and $905 thousand for the three- and six-month periods ended June 30, 1996 from
$459 thousand and $918 thousand for the three- and six-month periods ended June
30, 1995. Market value of Financial Management Services' assets declined $4.9
million to $261.4 million at June 30, 1996 from $266.3 million at June 30, 1995.
The decline in Financial Management Services' assets and revenues is primarily
the result of the loss of one account relationship partially offset by business
development efforts.
Service charges on deposit accounts decreased $3 thousand and $33 thousand
to $219 thousand and $420 thousand for the three- and six-month period ended
June 30, 1996 from $222 thousand and $453 thousand for the same periods in 1995.
The decreases relate to increases in the earnings credits offered to business
customers, partially offset by an internal review of unprofitable accounts and
changes in service charges.
Other non-interest income increased $115 thousand and $157 thousand to $255
thousand and $434 thousand for the three- and six-month periods ended June 30,
1996 compared to $140 thousand and $277 thousand for the same periods in 1995.
These increases relate to a $135 thousand net gain from the sale of property
owned by the Corporation's subsidiary, 323 East Gay Street Corp, and increases
in revenue from the sale of residential mortgage loans, partially offset by
decreases in credit card income.
NON-INTEREST EXPENSE
Total non-interest expense for the three- and six-month periods ended June
30, 1996 was $3,344 thousand and $6,601 thousand, increases of $135 thousand and
$125 thousand from $3,209 thousand and $6,476 thousand for the same periods in
1995. The various components of non-interest expense changes are discussed
below.
Salaries and employee benefits increased $153 thousand and $327 thousand
for the three- and six-month periods ended June 30, 1996 to $1,950 thousand and
$3,852 compared to $1,797 thousand and $3,525 thousand for the same periods in
1995. Annual employee raises and a staff increase from 172 full-time equivalents
(FTE's) employees in the second quarter of 1995 to 182 FTE's in the second
quarter of 1996 are responsible for the increase. These staffing increases
reflect the Corporation's need for additional sales and marketing personnel. The
Corporation also experienced proportionate increases in employee benefits.
Net occupancy, equipment, and data processing expense was $653 thousand and
$1,222 thousand for the three- and six-month periods ended June 30, 1996,
14
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
increases of $90 thousand and $66 thousand over the same periods last year. The
increase in the first half of 1996 is primarily a result of increased costs
associated with building improvements and new technology projects, such as
teller on-line system and check imaging system.
Effective January 1, 1996, the Federal Deposit Insurance Corporation
("FDIC") reduced the Bank Insurance Fund ("BIF") deposit insurance premiums to
the statutory minimum of $500 per quarter for the best rated banks. FDIC
insurance for the best rated banks, was calculated based on quarter-end deposits
at a rate of $0.23 per year per $1,000 in deposits from January 1, 1995 to May
31, 1995 and $0.04 per year per $1,000 in deposits from June 1, 1995 to December
31, 1995. It is anticipated that the premium for 1997 will be above the
statutory minimum.
Bank shares tax was $77 thousand and $154 thousand for the three- and
six-month period ended June 30, 1996, increases of $4 thousand and $6 thousand
over the same periods last year. The Pennsylvania Bank Shares Tax is calculated
on quarter-end Bank stockholders' equity and paid annually.
Other non-interest expense increased $56 thousand, or 9.2%, to $663
thousand for the three- month period ended June 30, 1996 compared to $607
thousand for the same period in 1995. This increase is primarily the result of
increases in the cost of employee training, increases in operating supplies, and
by an insurance refund received in the first quarter of 1995, partially offset
by decreases in professional fees.
Other non-interest expense increased $62 thousand, or 4.7%, to $1,372
thousand for the six-month period ended June 30, 1996 compared to $1,310
thousand for the same period in 1995. The increase in non-interest expenses is
due to increases in the cost of employee training, increases in professional
fees, and increases in operating supplies, partially offset by a sales tax
refund received from the Commonwealth of Pennsylvania of approximately $40
thousand in the first quarter of 1995. The increase is also partially offset by
the adoption of SFAS No. 116, "Accounting for Contributions Received and
Contributions Made" on January 1, 1995. The adoption of SFAS No. 116 required
the Corporation to recognize conditional promises to give when the promises
became unconditional. This had an impact of $117 thousand on other non-interest
expenses during the first six months of 1995.
INCOME TAXES
Income tax expense for the three- and six-month periods ended June 30, 1996
was $532 thousand and $1,006 thousand, compared to $483 thousand and $901
thousand in the same periods last year. This represents effective tax rates of
32.7% and 32.4% for the three- and six-month periods ended June 30, 1996,
compared with 32.0% and 31.0% for the same periods in 1995, respectively. The
primary reason for the increases in effective tax rates is decreases in
tax-exempt instruments as a percentage of total assets. Average tax-exempt
assets as a percentage of total average assets were 2.41% and 2.97% at June 30,
1996 and 1995, respectively.
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
15
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
investment grade securities. Funding sources include NOW, money-market, savings,
and smaller denomination certificates of deposit accounts. The Corporation
considers funds from such sources to comprise 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:
DEPOSIT ANALYSIS
<TABLE>
<CAPTION>
(Dollars in thousands) June 30, 1996 December 31, 1995 Average Balance
------------------------ ----------------------- -------------------------
Average Effective Average Effective Dollar Percentage
Deposit Type Balance Yield Balance Yield Variance Variance
- ------------ ------- ---------- ------- ---------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
NOW Accounts $ 46,165 2.20% $ 42,974 2.32% $ 3,191 7.43%
Money Market 28,618 3.09 29,610 3.23 (992) (3.35)
Statement Savings 48,478 3.21 46,347 3.64 2,131 4.60
Other Savings 4,380 2.74 4,657 2.73 (277) (5.95)
CD's Less than $100,000 104,759 5.74 89,866 5.67 14,893 16.57
------- ------- ------
Total Core Deposits 232,400 4.13 213,454 4.15 18,946 8.88
Non-Interest Bearing
Demand Deposit Accounts 53,683 -- 52,177 -- 1,506 2.89
------- ------- ------
Total Core and Non-Interest
Bearing Deposits 286,083 -- 265,631 -- 20,452 7.70
Tiered Savings 38,221 4.09 38,744 4.29 (523) (1.35)
CD's Greater than $100,000 12,622 5.39 11,331 5.11 1,291 11.39
------- ------- ------
Total Deposits $336,926 -- $315,706 -- $21,220 6.72
======= ======= ======
</TABLE>
The Bank, as a member of the Federal Home Loan Bank ("FHLB"), maintains a
line of credit secured by the Bank's mortgage related assets. As of June 30,
1996, this line of credit was approximately $8 million. The line of credit at
the FHLB at December 31, 1995 was approximately $34 million. The reduction in
the line of credit available is the result of a system wide policy change by the
FHLB. However, the Bank's overall borrowing capacity at the FHLB remains
unchanged at approximately $84 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 $76.3 million or 19.7% of total assets at June 30, 1996,
compared with negative $61.3 million and negative 16.7% at June 30, 1995,
respectively. Management is aware of this negative gap position and is taking
steps to maintain net interest margins at acceptable levels.
16
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
INTEREST SENSITIVITY ANALYSIS
AS OF JUNE 30, 1996
<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 14,400 $ -- $ -- $ -- $ 14,400
Investment securities 30,901 47,655 19,377 -- 97,933
Interest bearing deposits in banks 1,000 -- -- -- 1,000
Loans and leases 125,274 $ 110,363 12,735 (4,831) 243,541
Cash and cash equivalents -- -- -- 17,216 17,216
Other assets -- -- -- 13,621 13,621
------- ------- ------ ------ -------
Total assets $ 171,575 $ 158,018 32,112 $ 26,006 $ 387,711
======= ======= ====== ====== =======
LIABILITIES AND CAPITAL
Non-interest bearing deposit $ -- -- $ -- $ 55,528 $ 55,528
Interest bearing deposits 238,975 $ 47,267 -- -- 286,242
Borrowed funds 8,941 -- -- -- 8,941
Other liabilities -- -- -- 5,648 5,648
Capital -- -- -- 31,352 31,352
--------- --------- -------- --------- ---------
Total liabilities & capital $ 247,916 $ 47,267 $ -- $ 92,528 $ 387,711
========= ========= ======== ========= =========
Net interest rate
sensitivity rate $ (76,341) $ 110,751 $ 32,112 $ 66,522 $ --
========= ========= ======== ========= =========
Cumulative interest rate
sensitivity gap $ (76,341) $ 34,410 $ 66,522 $ -- $ --
========= ========= ========= ========= =========
Cumulative interest rate
sensitivity gap divided (19.7%) 8.9% 17.2%
========= ========= ========
by total assets
</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.
17
<PAGE>
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>
Three Months Six Months
Ended Ended
June 30, June 30,
----------------------- -------------------------
(Dollars in thousands) 1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Balance at beginning of period $ 4,667 $ 3,611 $ 4,506 $ 3,303
------- ------ ------ ------
Provision charged to operating expense 276 435 552 784
------- ------ ------ ------
Recoveries of loans previously charged-off 5 48 38 52
Loans charged-off (117) (382) (265) (427)
------- ------ ------ ------
Net loans charged-off (112) (334) (227) (375)
------- ------ ------ ------
Balance at end of period $ 4,831 $ 3,712 $ 4,831 $ 3,712
======= ====== ====== ======
Period-end loans outstanding $248,372 $244,007 $248,372 $244,007
Average loans outstanding $248,054 $246,286 $246,396 $245,581
Allowance for possible loan losses as a
percentage of period-end loans outstanding 1.95% 1.52% 1.95% 1.52%
Ratio of net charge-offs to average loans
outstanding 0.05% 0.14% 0.05% 0.15%
</TABLE>
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.
18
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
NON-PERFORMING LOANS AND ASSETS
<TABLE>
<CAPTION>
June 30, December 31,
------------------------ ---------------
(Dollars in thousands) 1996 1995 1995
----- ---- ----
<S> <C> <C> <C>
Past due over 90 days and still accruing $ 621 $ 410 $ 419
Non-accrual loans 681 703 726
----- ----- -----
Total non-performing loans 1,302 1,113 1,145
Other real estate owned 1,447 1,422 1,447
----- ----- -----
Total non-performing assets $2,749 $2,535 $2,592
===== ===== =====
Non-performing loans as a percentage
of total loans 0.52% 0.46% 0.47%
Allowance for possible loan losses as a
percentage of non-performing loans 371.04% 333.51% 393.54%
Non-performing assets as a percentage of
total loans and other real estate owned 1.10% 1.03% 1.06%
Allowance for possible loan losses as a
percentage of non-performing assets 175.74% 146.43% 173.84%
</TABLE>
The allowance for possible loan losses as a percentage of non-performing
loans ratio indicates that the allowance for possible loan losses is sufficient
to cover the principal of all non-performing loans. Other Real Estate Owned
("OREO") represents residential and commercial real estate that has been written
down to realizable value (net of estimated disposal costs) based on professional
appraisals. Management intends to liquidate OREO in the most expedient and
cost-effective manner. This process could take up to twenty-four months,
although swifter disposition is anticipated.
CHANGES IN EXECUTIVE MANAGEMENT
Effective January 16, 1996, William E. Hughes Sr., Executive Vice
President, assumed all the duties and responsibilities of Richard C. Cloud,
Executive Vice President, who retired on June 30, 1996. Mr. Hughes has over 30
years experience in commercial lending and has been with the Bank since 1984.
Effective March 29, 1996, Peter J. D'Angelo assumed Mr. Cloud's duties as
Cashier of the Bank and Corporation. Mr. D'Angelo has been Vice President of the
Bank since 1986. Additional personnel changes in the lending functions are
anticipated over the next 12 months. Effective December 15, 1995, J. Duncan
Smith was promoted to Senior Vice President and Comptroller of the Bank. Mr.
Smith has been Vice President and Comptroller of the Bank since 1993. Mr. Smith
also serves as Treasurer of the Corporation.
BUILDING IMPROVEMENTS AND TECHNOLOGY PROJECTS
During the second quarter 1996, the Corporation completed renovations to
the first floor of the Miller building at a cost of approximately $408 thousand.
This building includes a new customer service contact area for the Financial
Management Services Department and a complete renovation of the Market Street
Office. Renovations to the former Commonwealth Bank building, which was
purchased in 1995, are continuing with occupancy expected in the third quarter.
Improvements to the property will cost an estimated $500 thousand.
19
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The Corporation has two technology projects in process: Branch teller
automation ("BTA") and imaging of customer checking ("ICC"). The BTA project is
expected to cost $500 thousand and was scheduled for completion at the end of
the first quarter. Due to a data communications issue, the BTA project has been
delayed and is not expected to be fully operational until the third quarter. The
ICC project, with an initial cost of $450 thousand is on schedule and is
expected to be operational in the third quarter.
CAPITAL ADEQUACY
The Corporation is subject to Risk-Based Capital Guidelines adopted by the
Federal Reserve Board ("FRB") 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
June 30, 1996, 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 1991.
The Corporation's Risk-Based Capital Ratios, shown below, have been computed in
accordance with regulatory accounting policies.
<TABLE>
<CAPTION>
June 30, December 31,
RISK-BASED ------------------------- ------------ "Well Capitalized"
CAPITAL RATIOS 1996 1995 1995 Requirements
- -------------- ---- ---- ---- ---------------
<S> <C> <C> <C> <C>
Leverage Ratio 8.26% 8.17% 8.47% 5.00%
Tier I Capital Ratio 11.95% 11.13% 11.51% 6.00%
Total Risk-Based Capital Ratio 13.21% 12.38% 12.77% 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 that, if
they were to be implemented, would have a material affect on liquidity, capital
resources or operations of the Corporation. The internal capital growth rate for
the Corporation was 4.30% for the six months ended June 30, 1996.
20
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
-----------------
Various actions and proceedings are presently pending to which
the Corporation is a party. These actions and proceedings
arise out of routine operations and, in management's opinion,
will not, either individually or in the aggregate, have a
material adverse effect on the consolidated financial position
of the Corporation and its subsidiaries.
Item 2. Changes in Securities
---------------------
None
Item 3. Defaults upon Senior Securities
-------------------------------
None
Item 4. Submission of Matters to Vote of Security Holders
-------------------------------------------------
None
Item 5. Other Information
-----------------
None
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibits
--------
The following is a list of exhibits incorporated by
reference into this report:
(3)(a) Articles of Incorporation.
-------------------------
(I.) Copy of the Corporation's Articles 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 the Articles 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.
(iii.) Copy of the Corporation's
Certificate of Amendment to the Articles of
Incorporation filed with 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.
21
<PAGE>
PART II - OTHER INFORMATION
(CONTINUED)
Item 6. Exhibits and Reports on Form 8-K (Continued)
--------------------------------------------
(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.
(b) Reports on Form 8-K
-------------------
No report was filed during the six months ended June 30, 1996.
22
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
FIRST WEST CHESTER CORPORATION
Charles E. Swope
/s/ Charles E. Swope
--------------------
President
DATE: August 13, 1996
J. Duncan Smith
/s/ J. Duncan Smith
-------------------
Treasurer
(Principal Accounting
and Financial Officer)
23
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
This is Exhibit 27 of First West Chester Corporation's Form 10-Q for the quarterended June 30, 1996
</LEGEND>
<CIK> 0000744126
<NAME> FIRST WEST CHESTER CORPORATION
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> JUN-30-1996
<CASH> 17,216
<INT-BEARING-DEPOSITS> 1,000
<FED-FUNDS-SOLD> 14,400
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 82,003
<INVESTMENTS-CARRYING> 15,930
<INVESTMENTS-MARKET> 15,894
<LOANS> 248,372
<ALLOWANCE> 4,831
<TOTAL-ASSETS> 387,711
<DEPOSITS> 341,770
<SHORT-TERM> 8,941
<LIABILITIES-OTHER> 5,648
<LONG-TERM> 0
0
0
<COMMON> 1,800
<OTHER-SE> 29,552
<TOTAL-LIABILITIES-AND-EQUITY> 387,711
<INTEREST-LOAN> 11,208
<INTEREST-INVEST> 2,924
<INTEREST-OTHER> 440
<INTEREST-TOTAL> 14,572
<INTEREST-DEPOSIT> 5,916
<INTEREST-EXPENSE> 6,076
<INTEREST-INCOME-NET> 8,496
<LOAN-LOSSES> 552
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 6,601
<INCOME-PRETAX> 3,102
<INCOME-PRE-EXTRAORDINARY> 2,096
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,096
<EPS-PRIMARY> 1.22
<EPS-DILUTED> 1.22
<YIELD-ACTUAL> 4.80
<LOANS-NON> 681
<LOANS-PAST> 621
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 4,506
<CHARGE-OFFS> 265
<RECOVERIES> 38
<ALLOWANCE-CLOSE> 4,831
<ALLOWANCE-DOMESTIC> 4,831
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
