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 September 30, 1997, 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 October
1, 1997 was 2,399,833.
<PAGE>
FIRST WEST CHESTER CORPORATION AND SUBSIDIARIES
INDEX
-----
PAGE
Part I. FINANCIAL INFORMATION
Consolidated Statements of Condition
September 30, 1997 and December 31, 1996 3
Consolidated Statements of Income
Three Months and Nine Months Ended
September 30, 1997 and 1996 4
Consolidated Statements of Stockholders' Equity 5
Consolidated Statements of Cash Flows
Nine Months Ended September 30, 1997 and 1996 6
Notes to Consolidated Financial Statements 7
Management's Discussion and Analysis of
Financial Condition and Results of Operations 8-20
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
September 30, December 31,
1997 1996
------------ -----------
<S> <C> <C>
ASSETS
Cash and due from banks $ 21,845 $ 21,956
Federal funds sold 2,900 3,800
Total cash and cash equivalents 24,745 25,756
--------- ---------
Interest bearing deposits with banks -- 1,000
Investment securities held-to-maturity (market value of $12,759
and $15,749 at September 30, 1997 and December 31, 1996, respectively) 12,626 15,667
Investment securities available-for-sale at market value 61,649 82,008
Loans 312,237 264,582
Less allowance for possible loan losses (5,900) (5,218)
--------- ---------
Net loans 306,337 259,364
Premises and equipment, net 6,511 6,752
Other assets 6,558 7,137
--------- ---------
TOTAL ASSETS $ 418,426 $ 397,684
========= =========
LIABILITIES
Deposits
Non-interest bearing $ 58,755 $ 63,591
Interest bearing 298,249 287,675
--------- ---------
Total deposits 357,004 351,266
Securities sold under repurchase agreements 8,718 7,943
Federal Home Loan Bank Advances 9,915 --
Other liabilities 7,292 5,300
--------- ---------
Total liabilities 382,929 364,509
--------- ---------
STOCKHOLDERS' EQUITY
Common stock, par value $1-authorized, 5,000,000 shares; outstanding
2,399,833 at September 30, 1997 and 1,799,941
at December 31, 1996. 2,400 1,800
Additional paid-in capital 2,715 3,305
Retained earnings 32,227 30,133
Net unrealized loss on securities available-for-sale (94) (242)
Treasury stock, at cost: 107,700 shares and 84,000 shares at
September 30, 1997 and December 31, 1996, respectively. (1,751) (1,821)
--------- ---------
Total stockholders' equity 35,497 33,175
--------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 418,426 $ 397,684
========= =========
Book Value Per Share $15.49 $14.50
===== =====
The accompanying notes are an integral part of these statements.
</TABLE>
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 Nine Months Ended
September 30, September 30,
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
INTEREST INCOME
Loans, including fees $6,897 $5,704 $19,729 $16,912
Investment securities 1,220 1,523 4,026 4,447
Federal funds sold 110 202 196 623
Deposits in banks -- 15 12 32
Total interest income 8,227 7,444 23,963 22,014
----- ----- ------ ------
INTEREST EXPENSE
Deposits 3,260 2,940 9,401 8,855
Securities sold under repurchase agreements 82 89 214 248
Other borrowings 109 -- 284 --
----- ----- ------ ------
Total interest expense 3,451 3,029 9,899 9,103
----- ----- ------ ------
Net interest income 4,776 4,415 14,064 12,911
Provision for loan losses 290 249 946 801
----- ----- ------ ------
Net interest income after provision
for possible loan losses 4,486 4,166 13,118 12,110
----- ----- ------ ------
NON-INTEREST INCOME
Financial Management Services 500 453 1,500 1,358
Service charges on deposit accounts 242 207 722 627
Other 176 229 502 663
----- ----- ------ ------
Total non-interest income 918 889 2,724 2,648
----- ----- ------ ------
NON-INTEREST EXPENSE
Salaries and employee benefits 2,119 1,942 6,173 5,793
Net occupancy and equipment 748 714 2,221 1,936
FDIC deposit insurance 11 1 32 2
Bank shares tax 85 77 255 231
Other 707 766 2,280 2,139
----- ----- ------ ------
Total non-interest expense 3,670 3,500 10,961 10,101
----- ----- ------ ------
Income before income taxes 1,734 1,555 4,881 4,657
INCOME TAXES 520 498 1,438 1,504
NET INCOME $1,214 $1,057 $ 3,443 $ 3,153
===== ===== ====== ======
PER SHARE DATA
Net income $0.53 $0.46 $1.49 $1.38
==== ==== ==== ====
Dividends declared $0.21 $0.19 $0.59 $0.53
==== ==== ==== ====
Weighted average shares outstanding 2,309,408 2,291,936 2,305,976 2,289,092
========= ========= ========= =========
The accompanying notes are an integral part of these statements.
</TABLE>
4
<PAGE>
FIRST WEST CHESTER CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
(Dollars in thousands) 1997 1996
--------- ------
<S> <C> <C>
Balance at January 1, $33,175 $30,692
Net income to date 3,443 3,153
Cash dividends declared (1,348) (1,216)
Net unrealized gain (loss) on securities available-for-sale 148 (449)
Treasury stock transactions 70 35
Paid in capital from treasury stock transactions 9 --
---------- ----------
Balance at September 30, $35,497 $32,215
====== ======
The accompanying notes are an integral part of these statements.
</TABLE>
5
<PAGE>
FIRST WEST CHESTER CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
(Dollars in thousands) 1997 1996
-------- --------
<S> <C> <C>
OPERATING ACTIVITIES
Net Income $ 3,443 $ 3,153
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 750 560
Provision for loan losses 946 801
Amortization of investment security premiums
and accretion of discounts 10 132
Amortization of deferred fees on loans 14 18
Investment securities (gains) losses, net 15 3
Decrease in other assets 501 30
Increase (decrease) in other liabilities 1,992 1,070
--------- ---------
Net cash provided by operating activities 7,671 5,767
--------- ---------
INVESTING ACTIVITIES
(Increase) decrease in interest bearing deposits in banks 1,000 (1,000)
Increase in loans (47,934) (8,905)
Proceeds from sales of investment securities available-for-sale 27,564 100
Proceeds from sales of investment securities held-to-maturity -- --
Proceeds from maturities of investment securities available-for-sale 9,585 12,825
Proceeds from maturities of investment securities held-to-maturity 3,075 9,216
Purchases of investment securities available-for-sale (16,624) (27,176)
Purchases of investment securities held-to-maturity -- (1,999)
Purchase of premises and equipment, net (508) (1,538)
---------- ---------
Net cash used in investing activities (23,842) (18,477)
-------- --------
FINANCING ACTIVITIES
Increase in Federal Home Loan Bank advances 9,915 --
Increase (decrease) in deposits 5,738 (5,894)
Increase in securities sold under repurchase agreements 775 536
Cash dividends paid (1,348) (1,233)
Treasury stock transactions 80 35
----------- -----------
Net cash provided by (used in) financing activities 15,160 (6,556)
-------- ---------
NET (DECREASE) INCREASE IN CASH AND CASH
EQUIVALENTS (1,011) (19,266)
Cash and cash equivalents at beginning of period 25,756 44,644
-------- --------
Cash and cash equivalents at end of period $ 24,745 $ 25,378
======= =======
The accompanying notes are an integral part of these statements
</TABLE>
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, 1996.
2. The results of operations for the three-month and nine-month periods
ended September 30, 1997 and 1996 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. All per share data in
this report has been restated to reflect the stock split in the form
of a 331/3% stock dividend, declared on February 20, 1997 to
shareholders of record on March 21, 1997 and paid on April 21, 1997.
4. The Financial Accounting Standards Board issued a new standard, SFAS
128, "Earnings per Share", which is effective for financial
statements issued after December 15, 1997. Early adoption of the new
standard is not permitted. The new standard eliminates primary and
fully diluted earnings per share and requires presentation of basic
and diluted earnings per share together with disclosure of how the
per share amounts were computed. Basic earnings per share excludes
dilution and is computed by dividing income available to common
shareholders by the weighted-average common shares outstanding for
the period. Diluted earnings per share reflects the potential
dilution that could occur if securities or other contracts to issue
common stock were exercised and converted into common stock or
resulted in the issuance of common stock that then shared in the
earnings of the entity. The adoption of this new standard is not
expected to have a material impact on the disclosure of earnings per
share in the financial statements.
5. In June, 1997, the Financial Accounting Standards Board (FASB) has
issued SFAS 130, "Reporting Comprehensive Income," which is effective
for years beginning after December 15, 1997. This new standard
requires entities presenting a complete set of financial statements
to include details of comprehensive income. Comprehensive income
consists of net income or loss for the current period and income,
expenses, gains and losses that bypass the income statement and are
reported directly in a separate component of equity. Management has
chosen not to adopt this standard early. Adoption is not expected to
have a material impact on the disclosure of the Corporation's income.
7
<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 September 30, 1997 was $1.2
million, an increase of $157 thousand or 14.9% from $1.1 million in the three
month period ended September 30, 1996. Net income for the nine-month period
ended September 30, 1997 was $3.4 million, an increase of 9.2% from $3.2 million
in the nine-month period ended September 30, 1996. Increases in net income are
primarily the result of increases in net interest income and a reduction in the
effective tax rate, partially offset by higher loan loss provisions and
increases in operating expenses. The lower effective tax rate results from
expected tax credits relating to a community development project. For further
information see section titled "Income Taxes". Earnings per share for the three-
and nine-month periods ended September 30, 1997 were $0.53 and $1.49 per share,
respectively.
Cash dividends declared during the third quarter of 1997 increased to
$0.21 per share, a 10.5% increase compared to the third quarter of 1996. On a
year-to-date basis, cash dividends increased to $0.59 per share, an 11.3%
increase compared to the same period of 1996. Over the past ten years, the
Corporation's practice has been to pay a dividend of at least 35.0% of net
income.
The "Consolidated Average Balance Sheet" on page 9 and 10 may assist the reader
in the following discussion.
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------- -------------------
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
PERFORMANCE RATIOS
Return on Average Assets 1.16% 1.09% 1.12% 1.09%
Return on Average Equity 13.87% 13.30% 13.45% 13.43%
Earnings Retained 60.38% 59.51% 60.85% 61.43%
Dividend Payout Ratio 39.62% 40.49% 39.15% 38.57%
</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 nine-month periods ended September 30, 1997,
on a tax equivalent basis, was $4.9 million and $14.3 million, an increase of
8.3% and 9.0% compared to the same periods in 1996, respectively. Net yields on
interest earning assets, on a tax equivalent basis, were 4.95% and 4.98% for the
three- and nine-month periods ended September 30, 1997 compared to 4.96% and
4.86% for the same periods in 1996, respectively. Average interest earning
assets increased approximately $30.3 million to $391.9 million during the third
quarter of 1997 compared to $361.6 million in the same period last year. The
increase in average earnings assets is a direct result of strong loan growth in
our third party automobile loan and lease programs. These programs have shifted
assets from lower yielding investments into higher yielding loans, resulting in
increases in the earning asset yields. Although the net yield on earning assets
increased during the nine month period ended September 30, 1997 compared to
1996, the Corporation anticipates continued pressure on the net interest margin
as competition for new commercial and retail loan business remains very strong
and incremental deposit growth becomes more expensive.
8
<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 SEPTEMBER 30,
<TABLE>
<CAPTION>
(Dollars in thousands) 1997 1996
--------------------------------- ---------------------------------
Daily Daily
Average Average
Balance Interest Rate Balance Interest Rate
------- -------- ---- ------- -------- ----
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Federal funds sold $ 7,862 $ 110 5.60% $ 15,065 $ 202 5.36%
Interest bearing deposits in banks -- -- -- 1,000 15 6.00%
Investment securities
Taxable 73,371 1,193 6.50% 93,852 1,492 6.36%
Tax-exempt (1) 2,011 39 7.69% 2,480 44 7.15%
-------- ------- -------- -------
Total investment securities 75,382 1,232 6.54% 96,332 1,536 6.38%
-------- ------- -------- -------
Loans (2)
Taxable 299,708 6,753 9.01% 242,670 5,585 9.21%
Tax-exempt (1) 8,985 208 9.27% 6,565 173 10.56%
-------- ------- -------- -------
Total loans 308,693 6,961 9.02% 249,235 5,758 9.24%
-------- ------- -------- -------
Total interest earning assets 391,937 8,303 8.47% 361,632 7,511 8.31%
Non-interest earning assets
Allowance for possible loan losses (5,732) (4,917)
Cash and due from banks 19,853 18,486
Other assets 12,842 13,387
-------- --------
Total assets $ 418,900 $ 388,588
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Savings, NOWS & money market deposits $ 173,691 $ 1,362 3.14% $ 171,950 $ 1,325 3.08%
Certificates of deposits and other time 129,206 1,898 5.88% 113,040 1,615 5.71%
-------- ------- -------- -------
Total interest bearing deposits 302,897 3,260 4.31% 284,990 2,940 4.13%
Securities sold under repurchase agreements 9,957 82 3.29% 10,706 89 3.33%
Other Borrowings 6,953 109 6.27% -- -- --
-------- ------- -------- -------
Total interest bearing liabilities 319,807 3,451 4.32% 295,696 3,029 4.10%
------- -------
Non-interest bearing liabilities
Non-interest bearing demand deposits 57,538 55,433
Other liabilities 6,543 6,164
-------- --------
Total liabilities 383,888 357,293
Stockholders' equity 35,012 31,295
-------- --------
Total liabilities and stockholders' equity $ 418,900 $ 388,588
======== ========
Net interest income $ 4,852 $ 4,482
====== ======
Net yield on interest earning assets 4.95% 4.96%
==== ====
<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 TEFRA penalty for 1997 and 1996.
(2) Non-accruing loans are included in the average balance.
</FN>
</TABLE>
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
NINE MONTHS ENDED SEPTEMBER 30,
<TABLE>
<CAPTION>
(Dollars in thousands) 1997 1996
- ---------------------- ------------------------------- --------------------------------
Daily Daily
Average Average
Balance Interest Rate Balance Interest Rate
------- -------- ---- ------- -------- ----
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Federal funds sold $ 4,271 $ 196 6.12% $ 15,429 $ 623 5.38%
Interest bearing deposits in banks 264 12 6.06% 730 32 5.84%
Investment securities
Taxable 80,652 3,937 6.51% 93,481 4,352 6.21%
Tax-exempt (1) 2,294 127 7.40% 2,529 136 7.16%
------- ------- ------- -------
Total investment securities 82,946 4,064 6.53% 96,010 4,488 6.23%
Loans (2)
Taxable 286,511 19,307 8.98% 240,696 16,549 9.17%
Tax-exempt (1) 8,603 613 9.50% 6,653 529 10.60%
------- ------- ------- -------
Total loans 295,114 19,920 9.00% 247,349 17,078 9.21%
------- ------- ------- -------
Total Interest Earning Assets 382,595 24,192 8.43% 359,518 22,221 8.24%
Non-interest earning assets
Allowance for possible loan losses (5,483) (4,757)
Cash and due from banks 18,647 17,115
Other assets 13,711 12,912
------- -------
Total assets $409,508 $384,788
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Savings, NOWS & money market deposits $173,286 $ 4,048 3.11% $167,905 $ 3,894 3.09%
Certificates of deposits and other time 124,296 5,353 5.74% 115,924 4,961 5.71%
------- ------- ------- -------
Total interest bearing deposits 297,582 9,401 4.21% 283,829 8,855 4.16%
Securities sold under repurchase agreements 8,734 214 3.27% 10,092 248 3.28%
Other borrowings 6,202 284 6.11% -- -- --
------- ------- ------- -------
Total interest bearing liabilities 312,518 9,899 4.22% 293,921 9,103 4.13%
------- -------
Non-interest bearing liabilities
Non-interest bearing demand deposits 56,741 54,270
Other liabilities 6,117 5,302
-------- --------
Total liabilities 375,376 353,493
Stockholders' equity 34,132 31,295
-------- --------
Total liabilities and stockholders' equity $ 409,508 $ 384,788
======== ========
Net interest income $14,293 $13,118
====== ======
Net yield on interest earning assets 4.98% 4.86%
==== ====
<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 TEFRA penalty for 1997 and 1996.
(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
AVERAGE INTEREST RATES (ON A TAX EQUIVALENT BASIS)
<TABLE>
<CAPTION>
Three-Months Nine-Months
Yield On: Ended September 30, Ended September 30,
--------- ------------------- -------------------
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Interest Earning Assets 8.47% 8.31% 8.43% 8.24%
Interest Bearing Liabilities 4.32% 4.10% 4.22% 4.13%
---- ---- ---- ----
Net Interest Spread 4.15% 4.21% 4.21% 4.11%
Contribution of Interest Free Funds 0.80% 0.75% 0.77% 0.75%
---- ---- ---- ----
Net Yield on Interest Earning Assets 4.95% 4.96% 4.98% 4.86%
==== ==== ==== ====
</TABLE>
INTEREST INCOME ON FEDERAL FUNDS
Interest income on federal funds sold for the three- and nine-month
periods ended September 30, 1997 decreased 45.3% and 68.5% to $110 thousand and
$196 thousand, respectively, when compared to the same periods in 1996. The
decrease in federal funds sold interest income for the three- and nine-month
periods ended September 30, 1997 is primarily the result of a $7.2 million and
$11.2 million decrease in average balances, partially offset by a 24 and 74
basis point (a basis point equals one hundredth of one percent) increase in
rates compared to the same periods in 1996, respectively.
INTEREST INCOME ON INVESTMENT SECURITIES
On a tax equivalent basis, interest income on investment securities
decreased 19.9% and 9.4% for the three- and nine-month periods ended September
30, 1997 to $1.2 million and $4.1 million, respectively, when compared to the
same periods in 1996. The decrease for the three- and nine-month period is
primarily due to a decrease in average balances of $21.0 million and $13.1
million partially offset by 16 and 30 basis point increases in the yield earned
on securities when compared to the same periods last year, respectively.
Proceeds from net investment securities sales and maturities have been used to
fund continued loan growth over the nine month period.
INTEREST INCOME ON LOANS
On a tax equivalent basis, interest income on loans generated by the
Corporation's loan portfolio increased 20.9% and 16.6% to $7.0 million and $19.9
million for the three- and nine-month periods ended September 30, 1997, compared
to the same periods in 1996, respectively. The increase in interest income on
loans for the three- and nine-month period ended September 30,1997 is
attributable to a $59.5 million and $47.8 million increase in average loans
outstanding, a majority of which are third party automobile loans and leases,
partially offset by a 22 and 21 basis point decrease in rates earned compared to
the same time periods in 1996, respectively. The decrease in the loan portfolio
yield is a direct result of increased competition for new and existing loan
relationships and volume increases in lower yielding automobile related loans
and leases. There has been a noticeable increase in pricing and fee competition
on large (over $500,000) loans (new and renewals) during the past 24 months. It
is anticipated that this pricing pressure will continue to reduce overall loan
yields and net interest margins.
11
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
INTEREST EXPENSE ON DEPOSIT ACCOUNTS
Interest expense on deposit accounts increased 10.9% and 6.2% for the
three- and nine-month periods ended September 30, 1997 to $3.3 million and $9.4
million, compared to the same periods in 1996. The increase for the three month
period ended September 30, 1997 is the result of increases in average
interest-bearing deposits of $17.9 million, and an 18 basis point increase in
the rates paid on interest-bearing deposits. The increase for the nine month
period ended September 30, 1997 is the result of a 5 basis point increase in
rates paid on interest-bearing deposits and increases in average
interest-bearing deposits of $13.8 million.
The Corporation's effective rate on interest-bearing deposits increased
from 4.13% in the third quarter of 1996 to 4.31% in the third quarter of 1997.
Competition for deposits from non-banking institutions such as credit unions and
mutual fund companies continues to grow. The slow growth rates for interest
bearing and non-interest bearing deposits are expected to continue for future
time periods. The Bank is going forward with its plans to expand its deposit
base by adding additional Branch sites, one of which is scheduled to open during
1998.
INTEREST EXPENSE ON SECURITIES SOLD UNDER REPURCHASE AGREEMENTS
Interest expense on securities sold under repurchase agreements
decreased 7.9% and 13.7% to $82 thousand and $214 thousand for the three- and
nine-month periods ended September 30, 1997 compared to the same time periods in
1996. The decreases are primarily attributable to $749 thousand and $1.4 million
decreases in average securities sold under repurchase agreements outstanding
compared to the three- and nine-month periods ended September 30, 1996,
respectively.
INTEREST EXPENSE ON OTHER BORROWINGS
Interest expense on other borrowings were $109 thousand and $284
thousand for the three- and nine-month periods ended September 30, 1997,
respectively. There were no other borrowings outstanding during the nine month
period ended September 30, 1996. The need for borrowings continues as a result
of loan demand out pacing deposit growth. Other borrowings consists of overnight
Fed Funds purchased, FHLB (Federal Home Loan Bank) Flexline, FHLB Term Advances,
FHLB Open Repo and Repo Plus Advances.
PROVISION FOR POSSIBLE LOAN LOSSES
During the three- and nine-month periods ended September 30, 1997, the
Corporation recorded a $290 thousand and a $946 thousand provision for possible
loan losses, increases of 16.5% and 18.1% over the same periods in 1996. The
increased provisions in 1997 are a direct result of increased loan activity. The
allowance for possible loan losses as a percentage of total loans was 1.89% as
of September 30, 1997 compared to 1.97% as of December 31, 1996. See the section
titled "Allowance For Possible Loan Losses" for additional discussion.
NON-INTEREST INCOME
Total non-interest income increased 3.3% and 2.9% to $918 thousand and
$2,724 thousand for the three- and nine-month periods ended September 30, 1997,
compared to the same periods in 1996. The primary component of non-interest
12
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
income is Financial Management Services revenue, which increased 10.4% and 10.5%
to $500 thousand and $1.5 million for the three- and nine-month periods ended
September 30, 1997 compared to the same periods in 1996. The market value of
Financial Management Services' assets increased $62.0 million to $324.0 million
at September 30, 1997 from $262.0 million at September 30, 1996. The increase in
Financial Management Services= assets and revenues is primarily the result of
market appreciation and new account relationships acquired through stronger
marketing efforts.
Service charges on deposit accounts increased 16.8% and 15.1% to $242
thousand and $722 thousand for the three- and nine-month period ended September
30, 1997 compared to the same periods in 1996. The increases relate to more
effective enforcement of service charge policies and an increase in fee based
products and services offered and sold.
Other non-interest income decreased 23.0% and 24.3% to $176 thousand
and $502 thousand for the three- and nine-month periods ended September 30, 1997
compared to the same periods in 1996. Third quarter and year-to-date 1996 other
non-interest income figures include a $135 thousand net gain from the sale of
property owned by the Corporation's subsidiary, 323 East Gay Street Corp.
NON-INTEREST EXPENSE
Total non-interest expense for the three- and nine-month periods ended
September 30, 1997 was $3.7 million and $11.0 million, representing increases of
4.9% and 8.5% compared to the same periods in 1996. The various components of
non-interest expense changes are discussed below.
Salaries and employee benefits increased 9.1% and 6.6% for the three-
and nine-month periods ended September 30, 1997 to $2.1 million and $6.2 million
compared to the same periods in 1996. Increases are primarily the result of
annual employee raises and increases in employee benefits. The hiring of
additional staff also contributed to the increases.
Net occupancy, equipment, and data processing expense was $748
thousand and $2.2 million for the three- and nine-month periods ended September
30, 1997, representing increases of 4.8% and 14.7% over the same periods last
year. The increase in the first nine months of 1997 is primarily a result of
increased costs associated with the opening of our new mortgage center,
renovations of the Financial Management Services building and the depreciation
associated with new technology systems.
The FDIC's Bank Insurance Fund ("BIF") insurance assessment was $0 for
the three- and nine-month periods ended September 30, 1997, compared to $1
thousand for each of the same periods last year. Effective January 1, 1997, in
accordance with the Deposit Insurance Act of 1996 an additional assessment by
the Financing Corporation ("FICO") became applicable to all insured
institutions. This assessment is not tied to the FDIC risk classification. The
BIF FICO assessment is 1.296 basis points per $100 in deposits for 1997. For the
three- and nine-month periods ended September 30, 1997, the Bank's assessments
for the BIF FICO were $11 thousand and $32 thousand, respectively.
Bank shares tax was $85 thousand and $255 thousand for the three- and
nine-month period ended September 30, 1997, increases of 10.5% over the same
periods last year. The Pennsylvania Bank Shares Tax is calculated on quarter-end
Bank stockholders' equity and paid annually.
13
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Other non-interest expense decreased 7.7% to $707 thousand for the
three month period ended September 30, 1997 and increased 6.6% to 2.3 million
for the nine month period ended September 30, 1997. The increase in the
year-to-date expense is primarily the result of a $100 thousand expense to
comply with a conciliation agreement with the United States Department of
Labor's Office of Federal Contract Compliance Program. Additionally, the
increase is attributed to additional operating expenses associated with
increased premises and staff.
The Bank intends to open one branch during the Spring of 1998 and has
preliminary plans for a second early in 1999. The costs associated with the
opening of new branch sites will have a direct impact on all components of
non-interest expense. It is anticipated that this increase in costs will be
offset over time by an increase in net interest and fee income generated by new
business development.
INCOME TAXES
Income tax expense for the three- and nine-month periods ended
September 30, 1997 was $520 thousand and $1.4 million, respectively, compared to
$498 thousand and $1.5 million in the same periods last year. This represents
effective tax rates of 29.9% and 29.5% for the three- and nine-month periods
ended September 30, 1997, compared with 32.0% and 32.3% for the same periods in
1996, respectively. In 1997, effective tax rates were reduced to account for an
expected 1997 historic rehabilitation tax credit of approximately $200 thousand.
The tax credit is the result of an investment the Bank made in a local community
development project. This tax credit was not used in the first quarter=s tax
calculation due to uncertainties relating to the completion date of the project.
Although not guaranteed, the Company anticipates the credits will be realized in
1997 and should be part of the effective tax rate calculation. In the event that
the credits are deferred until 1998, the 1997 fourth quarter tax rate will be
adjusted upward to approximately 37.0% to yield an effective rate of 31.5% for
the year ended December 31, 1997. Additionally there has been an increase in
tax-exempt instruments as a percentage of total assets. Average tax-exempt
assets as a percentage of total average assets were 2.79% and 2.39% at September
30, 1997 and 1996, 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
investment grade securities. Funding sources also 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:
14
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
DEPOSIT ANALYSIS
<TABLE>
<CAPTION>
(Dollars in thousands) September 30, 1997 December 31, 1996 Average Balance
------------------------- ------------------------ ------------------------
Average Effective Average Effective Dollar Percentage
Balance Yield Balance Yield Variance Variance
------- --------- -------- --------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
NOW Accounts $ 52,461 2.19% $ 47,984 2.20% $ 4,477 9.33%
Money Market 28,590 3.14 28,974 3.09 (384) (1.33)
Statement Savings 48,924 3.30 48,834 3.24 90 0.18
Other Savings 3,220 2.77 4,222 2.75 (1,002) (23.73)
CD's Less than $100,000 107,713 5.79 102,566 5.76 5,147 5.02
------- ------- ------
Total Core Deposits 240,908 4.15 232,580 4.11 8,328 3.58
Demand Deposits 56,741 -- 55,018 -- 1,723 3.13
------- ------- -----
Total Core and Demand Deposits 297,649 -- 287,598 -- 10,051 3.49
Tiered Savings 40,091 4.12 38,514 4.11 1,577 4.09
CD's Greater than $100,000 16,582 5.43 12,677 5.36 3,905 30.80
------- ------- ------
Total Deposits $354,322 -- $338,789 -- $15,533 4.58%
======= ======= ======
</TABLE>
The Bank, as a member of the Federal Home Loan Bank ("FHLB"), maintains
a $10 million line of credit secured by the Bank=s mortgage related assets. As
of September 30, 1997, the amount outstanding on this line of credit was $0. In
addition to the line of credit, the Bank has additional borrowing capacity at
the FHLB of approximately $95 million. FHLB advances as of September 30, 1997
consisted of $7.4 million in term advances, which represent a combination of
maturities ranging from 6 months to 10 years and a $2.5 million short term
advance with a maturity of 5 days.
15
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
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
$118 million or 28.2% of total assets at September 30, 1997, compared with
negative $90 million and negative 23.3% at September 30, 1996, respectively. The
Corporation=s gap position is one factor used to evaluate interest rate risk and
the stability of net interest margins. Other factors include computer
simulations of what might happen to net interest income under various interest
rate forecasts and scenarios. Management monitors interest rate risk as a
regular part of bank operations with the intention of maintaining a stable net
interest margin.
INTEREST SENSITIVITY ANALYSIS
AS OF SEPTEMBER 30, 1997
<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 $ 2,900 $ -- $ -- $ -- $ 2,900
Investment securities 15,438 32,617 26,220 -- 74,275
Loans and leases 127,728 168,102 16,407 (5,900) 306,337
Cash and due from banks -- -- -- 21,845 21,845
Premises & equipment -- -- -- 6,511 6,511
Other assets -- -- -- 6,558 6,558
----------- ------------ ----------- ------------ -----------
Total assets $ 146,066 $ 200,719 $ 42,627 $ 29,014 $ 418,426
============ ============= ============ ============= ============
LIABILITIES AND CAPITAL
Non-interest bearing deposit $ -- $ -- $ -- $ 58,755 $ 58,755
Interest bearing deposits 248,769 48,865 615 -- 298,249
FHLB Term Advance 6,642 784 2,489 -- 9,915
Borrowed funds 8,718 -- -- -- 8,718
Other liabilities -- -- -- 7,292 7,292
Capital -- -- -- 35,497 35,497
----------- ------------ ----------- ------------ -----------
Total liabilities & capital $ 264,129 $ 49,649 $ 3,104 $ 101,544 $ 418,426
============ ============= ============ ============= ============
Net interest rate
sensitivity gap $ (118,063) $ 151,070 $ 39,523 $ (72,530) $ --
============ ============= ============ ============= ============
Cumulative interest rate
sensitivity gap $ (118,063) $ 33,007 $ 72,530 $ -- $ --
============ ============= ============ ============== ============
Cumulative interest rate
sensitivity gap divided
by total assets $ (28.2)% $ 7.9% $ 17.3%
============= ============ ===========
</TABLE>
16
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
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 (growth in third party loans and leases),
overall portfolio quality, adequacy of collateral, review of specific problem
loans, and current economic conditions that may affect the borrower's ability to
pay.
ANALYSIS OF CHANGES IN THE ALLOWANCE FOR POSSIBLE LOAN LOSSES
AND COMPARISON OF LOANS OUTSTANDING
<TABLE>
<CAPTION>
Three Months Nine Months
Ended Ended
September 30, September 30,
----------------------- -----------------------
(Dollars in thousands) 1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Balance at beginning of period $ 5,653 $ 4,831 $ 5,218 $ 4,506
------- ------- ------- -------
Provision charged to operating expense 290 249 946 801
------- ------- ------- -------
Recoveries of loans previously charged-off 12 3 80 41
Loans charged-off (55) (58) (344) (323)
------- ------- ------- -------
Net loans charged-off (43) (55) (264) (282)
------- ------- ------- -------
Balance at end of period $ 5,900 $ 5,025 $ 5,900 $ 5,025
======= ======= ======= =======
Period-end loans outstanding $312,237 $251,192 $312,237 $251,192
Average loans outstanding $308,693 $249,235 $295,114 $247,349
Allowance for possible loan losses as a
percentage of period-end loans outstanding 1.89% 2.00% 1.89% 1.69%
Ratio of net charge-offs to average loans
outstanding (annualized) 0.01% 0.09% 0.09% 0.15%
</TABLE>
NON-PERFORMING LOANS AND ASSETS
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. The reduction in the current levels of non-performing
assets from year end 1996 levels can primarily be attributed to two items: A
loan for $1.2 million was assumed by another borrower and brought current; and a
$600 thousand asset, classified as OREO, was sold. At September 30, 1997 there
were no concentration of loans exceeding 10% of total loans which are not
otherwise disclosed.
17
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
<TABLE>
<CAPTION>
September 30, December 31,
----------------------- ------------
(Dollars in thousands) 1997 1996 1996
---- ---- ----
<S> <C> <C> <C>
Past due over 90 days and still accruing $ 619 $ 705 $2,772
Non-accrual loans 1,258 688 713
------ ------ -----
Total non-performing loans 1,877 1,393 3,485
Other real estate owned 851 1,368 1,274
------ ------ -----
Total non-performing assets $2,728 $ 2,761 $4,759
===== ====== =====
Non-performing loans as a percentage
of total loans 0.60% 0.55% 1.32%
Allowance for possible loan losses as a
percentage of non-performing loans 314.33% 360.73% 149.7%
Non-performing assets as a percentage of
total loans and other real estate owned 0.87% 1.09% 1.79%
Allowance for possible loan losses as a
percentage of non-performing assets 216.28% 182.00% 109.6%
</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 existing 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.
LOAN IMPAIRMENT
In accordance with FAS 114, the Bank identifies certain loans 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 in such loans and no income is recognized until all
recorded amounts of interest and principal are recovered in full. These loans
are included in the non-accrual loans total in the above analysis.
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:
<TABLE>
<CAPTION>
(Dollars in thousands) September 30, 1997 September 30, 1996 December 31,1996
------------------ ------------------ ----------------
<S> <C> <C> <C>
Principal amount of impaired loans $ 1,093 $ 422 $ 443
Less valuation allowance (331) (406) 419
----- ------ ----
$ 762 $ 16 $ 24
====== ====== =====
</TABLE>
The activity in the valuation allowance for the three- and nine-month periods
ended September 30, 1997 and 1996 is as follows:
18
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
<TABLE>
<CAPTION>
September 30,1997 September 30, 1996
----------------- ------------------
Three Nine Three Nine
Months Months Months Months
Ended Ended Ended Ended
----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C>
Valuation allowance at beginning of period $ 318 $ 419 $ 303 $ 380
Provision for loan impairment 50 125 50 280
Direct charge-offs (37) (213) (20) (369)
Recoveries -- -- -- 42
----- ----- ----- -----
Valuation allowance at end of period $ 331 $ 331 $ 406 $ 406
===== ===== ===== =====
</TABLE>
Total cash collected on impaired loans during the three- and nine-month
periods ended September 30, 1997 was $64 thousand and $276 thousand,
respectively, of which $63 thousand and $245 thousand was credited to the
principal balance outstanding on such loans. During the three-month period ended
September 30, 1997, $1 thousand was credited to interest. Interest that would
have been accrued on impaired loans during the three- and nine-month periods
ended September 30, 1997 was $13 thousand and $38 thousand. Interest income
recognized during the three- and nine-month periods ended September 30, 1997 was
$0 and $36 thousand, respectively.
Total cash collected on impaired loans during the three- and nine-month
periods ended September 30, 1996 was $32 thousand and $41 thousand,
respectively, of which $31 thousand and $40 thousand was credited to the
principal balance outstanding on such loans and $1 thousand and $1 thousand as
interest income, respectively. Interest that would have been accrued on impaired
loans during the three- and nine- month periods ended September 30, 1996 was $10
thousand and $32 thousand, respectively. Interest income recognized during the
three- and nine-month periods ended September 30, 1996 was $0 and $1 thousand,
respectively.
BUILDING IMPROVEMENTS AND TECHNOLOGY PROJECTS
During the third quarter, the Bank leased a shopping center pad in the
Frazer area for the purpose of constructing a new branch. Construction on the
new branch is expected to begin during the fourth quarter of this year with
completion estimated for the Spring of 1998.
Management has determined that additional office space is needed to
house banking operations. Several solutions are being explored such as the
purchase or lease of needed space.
Management is in the process of reviewing the adequacy of its mainframe
computer and software for possible replacement of some or all of its components.
Cost estimates for the project range from $.5 million to $2.5 million. A vendor
will be selected during the fourth quarter of this year and conversion is
expected to occur in 1998.
Management is aware of and is taking the appropriate steps to address
the year 2000 date change issue. Management is in the process of formulating an
action plan for the testing and implementation of system solutions to assure all
regulatory requirements are met.
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
19
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
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
September 30, 1997, 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>
September 30, December 31, "Well Capitalized"
RISK-BASED ------------------------ ------------ ------------------
CAPITAL RATIOS 1997 1996 1996 Requirements
- -------------- ---- ---- ---- ---------------
<S> <C> <C> <C>
Leverage Ratio 8.48% 8.39% 8.58% 5.00%
Tier I Capital Ratio 11.30% 12.20% 12.05% 6.00%
Total Risk-Based Capital Ratio 12.56% 13.46% 13.31% 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 9.33% for the nine months ended September 30, 1997.
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)
(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
-------------------
None
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: November 14, 1997
J. Duncan Smith
/s/ J. Duncan Smith
-------------------
Treasurer
(Principal Accounting
and Financial Officer)
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
This is Exhibit 27 of First West Chester Corporation's Form 10-Q.
</LEGEND>
<CIK> 0000744126
<NAME> First West Chester Corporation
<MULTIPLIER>1000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> Dec-31-1997
<PERIOD-END> Sep-30-1997
<CASH> 21,845
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 2,900
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 61,649
<INVESTMENTS-CARRYING> 12,626
<INVESTMENTS-MARKET> 12,759
<LOANS> 312,237
<ALLOWANCE> 5,900
<TOTAL-ASSETS> 418,426
<DEPOSITS> 357,004
<SHORT-TERM> 8,718
<LIABILITIES-OTHER> 13,934
<LONG-TERM> 3,273
0
0
<COMMON> 2,400
<OTHER-SE> 33,097
<TOTAL-LIABILITIES-AND-EQUITY> 418,426
<INTEREST-LOAN> 19,729
<INTEREST-INVEST> 4,026
<INTEREST-OTHER> 208
<INTEREST-TOTAL> 23,963
<INTEREST-DEPOSIT> 9,401
<INTEREST-EXPENSE> 9,899
<INTEREST-INCOME-NET> 14,064
<LOAN-LOSSES> 946
<SECURITIES-GAINS> (15)
<EXPENSE-OTHER> 10,961
<INCOME-PRETAX> 4,881
<INCOME-PRE-EXTRAORDINARY> 3,443
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,443
<EPS-PRIMARY> 1.49
<EPS-DILUTED> 1.49
<YIELD-ACTUAL> 4.98
<LOANS-NON> 1,258
<LOANS-PAST> 619
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 5,218
<CHARGE-OFFS> 344
<RECOVERIES> 80
<ALLOWANCE-CLOSE> 5,900
<ALLOWANCE-DOMESTIC> 5,900
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
