<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON DC 20549
FORM 10-QSB
/X/ Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 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.: 0-18833
CHESTER VALLEY BANCORP INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
PENNSYLVANIA 23-2598554
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
100 E. LANCASTER AVE., DOWNINGTOWN PA 19335
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (610) 269-9700
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
------ ------
Transitional Small Business Disclosure Format. YES NO X
----- -----
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
COMMON STOCK ($1.00 PAR VALUE) 1,633,885
(TITLE OF EACH CLASS) (NUMBER OF SHARES OUTSTANDING
AS OF NOVEMBER 1, 1996)
<PAGE>
CHESTER VALLEY BANCORP INC. AND SUBSIDIARY
INDEX
PAGE
NUMBER
PART 1. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
September 30, 1996, and June 30, 1996 3
CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Ended September 30, 1996 and 1995 4
CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Months Ended September 30, 1996 and 1995 5
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS 6-13
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 14-22
PART 2. OTHER INFORMATION 23
ITEM 1. LEGAL PROCEEDINGS 23
ITEM 2. CHANGES IN SECURITIES 23
ITEM 3. DEFAULTS UPON SENIOR SECURITIES 23
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 23
ITEM 5. OTHER INFORMATION 23
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 23
SIGNATURES 24
<PAGE>
CHESTER VALLEY BANCORP INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Dollars in Thousands)
<TABLE>
<CAPTION>
SEPTEMBER 30, JUNE 30,
1996 1996
------------- --------
<S> <C> <C>
ASSETS:
Cash in banks $ 1,704 $ 1,528
Interest-bearing deposits 6,867 8,784
Investment securities available for sale 5,169 6,159
Investment securities (market value - September 30,
$21,612; June 30, $22,491) 21,836 22,864
Mortgage-backed securities (market value - September 30,
$1,704; June 30, $1,755) 1,667 1,729
Accrued interest receivable 1,648 1,616
Loans held for sale 162 --
Loans receivable, less allowance for possible loan losses
of $2,752 and $2,667 238,582 223,963
Prepaid and deferred income taxes 1,054 720
Real estate owned 121 121
Property and equipment 4,368 4,323
Other assets 1,208 1,125
-------- --------
TOTAL ASSETS $284,386 $272,932
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY:
Deposit accounts $232,379 $228,206
Securities sold under agreements to repurchase 8,503 --
Advance payments by borrowers for taxes and insurance 1,188 3,015
Employee Stock Ownership Plan (ESOP) debt 467 511
Federal Home Loan Bank advances 13,537 13,972
Accrued interest payable 727 653
Accrued and deferred income taxes 87 322
Other liabilities 2,376 689
-------- --------
TOTAL LIABILITIES 259,264 247,368
-------- --------
STOCKHOLDERS' EQUITY:
Preferred stock - $1.00 par value; 5,000,000 shares -- --
authorized; none issued
Common stock - $1.00 par value; 12,500,000 shares
authorized; 1,657,895 and 1,580,164 shares issued at
September 30 and June 30, respectively 1,658 1,580
Additional paid-in capital 13,256 11,675
Common stock acquired by ESOP (467) (511)
Retained earnings - partially restricted 11,211 13,110
Net unrealized loss on securities available for sale,
net of taxes (129) (97)
-------- --------
Subtotal 25,529 25,757
Treasury stock, at cost (22,010 shares and 10,464 shares
at September 30 and June 30, respectively) (407) (193)
-------- --------
TOTAL STOCKHOLDERS' EQUITY 25,122 25,564
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $284,386 $272,932
======== ========
</TABLE>
SEE ACCOMPANYING NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS.
3
<PAGE>
CHESTER VALLEY BANCORP INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in Thousands, Except for Per Share Amounts)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
SEPTEMBER 30,
----------------------------
1996 1995
---------- ----------
<S> <C> <C>
INTEREST INCOME:
Loans $ 4,855 $ 4,563
Mortgage-backed securities 32 38
Investment securities and interest-bearing deposits 492 442
---------- ----------
TOTAL INTEREST INCOME 5,379 5,043
---------- ----------
INTEREST EXPENSE:
Deposits 2,464 2,459
Securities sold under agreements to repurchase 27 --
Short-term borrowings 72 60
Long-term borrowings 182 182
---------- ----------
TOTAL INTEREST EXPENSE 2,745 2,701
---------- ----------
NET INTEREST INCOME 2,634 2,342
Provision for possible loan losses 96 92
---------- ----------
NET INTEREST INCOME AFTER PROVISION FOR
POSSIBLE LOAN LOSSES 2,538 2,250
---------- ----------
OTHER INCOME:
Service charges and fees 272 256
Gain on sale of loans 3 7
Gain on sale of securities available for sale 48 52
Other 46 18
---------- ----------
TOTAL OTHER INCOME 369 333
---------- ----------
OPERATING EXPENSES:
Salaries and employee benefits 917 815
Occupancy and equipment 359 324
Data processing 150 124
SAIF special assessment 1,387 --
Deposit insurance premiums 130 121
Other 392 339
---------- ----------
TOTAL OPERATING EXPENSES 3,335 1,723
---------- ----------
Income (loss) before income taxes (428) 860
Income tax expense (benefit) (227) 264
---------- ----------
NET INCOME (LOSS) $ (201) $ 596
========== ==========
EARNINGS PER SHARE (1):
Primary $ (0.12) $ 0.36
========== ==========
Fully Diluted $ (0.12) $ 0.36
========== ==========
DIVIDENDS PER SHARE PAID DURING PERIOD (1) $ 0.11 $ 0.09
========== ==========
WEIGHTED AVERAGE SHARES OUTSTANDING (1):
Primary 1,650,563 1,671,235
========== ==========
Fully Diluted 1,651,629 1,671,576
========== ==========
</TABLE>
(1) EARNINGS PER SHARE, DIVIDENDS PER SHARE AND WEIGHTED AVERAGE SHARES
OUTSTANDING HAVE BEEN RESTATED TO REFLECT THE EFFECT OF THE 5% STOCK
DIVIDEND PAID IN SEPTEMBER 1996.
SEE ACCOMPANYING NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS.
4
<PAGE>
CHESTER VALLEY BANCORP INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SEPTEMBER 30,
--------------------------------
1996 1995
--------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (201) $ 596
Add (deduct) items not affecting cash flows from operating activities:
Depreciation 140 134
Provision for possible losses on loans 96 92
Gain on sale of loans (3) (7)
Gain on sale of securities available for sale (48) (52)
Amortization of deferred loan fees, discounts and premiums (100) (160)
Increase in accrued interest receivable (32) (60)
Increase in other assets (83) (6)
Decrease (increase) in prepaid and deferred income taxes (334) 7
Increase (decrease) in accrued and deferred income taxes (235) 16
Increase in other liabilities 1,687 210
Increase in accrued interest payable 74 18
-------- --------
NET CASH FLOWS FROM OPERATING ACTIVITIES 961 788
-------- --------
CASH FLOWS FROM (USED IN) INVESTMENT ACTIVITIES:
Capital expenditures (185) (68)
Net (increase) decrease in loans and loans held for sale (14,749) 3,216
Principal receipts on mortgage-backed securities 62 80
Proceeds from sale of loans -- 832
Proceeds from maturities and calls of investment securities 1,043 1,790
Purchase of investment securities (19) (765)
Purchase of securities available for sale (12,147) (24,082)
Proceeds from sale of securities available for sale 13,132 24,133
Proceeds from real estate owned -- 4
-------- --------
NET CASH FLOWS FROM (USED IN) INVESTMENT ACTIVITIES (12,863) 5,140
-------- --------
CASH FLOWS FROM (USED IN) FINANCING ACTIVITIES:
Net increase in savings deposits before interest credited 2,114 2,036
Interest credited to savings accounts 2,059 2,110
Proceeds from securities sold under agreements to repurchase 8,503 --
Repayments of FHLB advances (435) (17)
Decrease in advance payments by borrowers for taxes and insurance (1,827) (1,884)
Cash dividends on common stock (172) (134)
Repayments of principal on ESOP debt (44) (45)
Sale of common stock under the dividend reinvestment plan -- 45
Payment for fractional shares (10) (11)
Stock options exercised 216 --
Reduction of common stock acquired by ESOP 44 45
Stock repurchased as treasury stock (287) --
-------- --------
NET CASH FLOWS FROM FINANCING ACTIVITIES 10,161 2,145
-------- --------
Increase (decrease) in cash and cash equivalents (1,741) 8,073
CASH AND CASH EQUIVALENTS:
Beginning of period 10,312 7,444
-------- --------
End of period $ 8,571 $ 15,517
======== ========
SUPPLEMENTAL DISCLOSURES:
Cash payments during the year for:
Taxes $ 275 $ 240
Interest $ 2,669 $ 2,686
NON-CASH ITEMS:
Acquisition of real estate in settlement of loans $ -- $ 207
Stock dividend issued $ 1,516 $ 1,423
Net unrealized loss on investment securities available for sale $ 49 $ --
Tax effect on unrealized loss on investment securities available for sale $ 17 $ --
</TABLE>
SEE ACCOMPANYING NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS.
5
<PAGE>
CHESTER VALLEY BANCORP INC.
AND SUBSIDIARY
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - BASIS OF PRESENTATION
The accompanying consolidated financial statements have been
prepared in accordance with instructions to Form 10-QSB.
Accordingly, they do not include all of the information and footnotes
required by generally accepted accounting principles ("GAAP") for
complete financial statements. However, such information reflects all
adjustments which are, in the opinion of management, necessary for a
fair presentation of results for the unaudited interim periods.
The results of operations for the three-month period ended September
30, 1996, are not necessarily indicative of the results to be
expected for the fiscal year ending June 30, 1997. The consolidated
financial statements presented herein should be read in conjunction
with the audited consolidated financial statements and the notes
thereto included in Chester Valley Bancorp Inc.'s Annual Report to
Stockholders for the fiscal year ended June 30, 1996.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the
accounts of Chester Valley Bancorp Inc. (the "Company" or "Chester
Valley"), its wholly-owned subsidiary, First Financial Savings Bank
PaSA (the "Bank" or "First Financial"), a Pennsylvania-chartered
stock savings association, and the Bank's wholly-owned subsidiary,
D & S Service Corp., which owns D & F Projects and Wildman Projects,
Inc., both of which are wholly-owned subsidiaries thereof. All
material inter-company balances and transactions have been eliminated
in consolidation. Prior period amounts are reclassified when
necessary to conform with the current period's presentation.
CASH AND CASH EQUIVALENTS
For the purpose of the consolidated statements of cash flows, cash
and cash equivalents include cash and interest-bearing deposits with
an original maturity of generally three months or less.
6
<PAGE>
INVESTMENTS AND MORTGAGE-BACKED SECURITIES
The Company divides its securities portfolio into three segments:
(a) held to maturity; (b) available for sale; and (c) trading.
Securities in the held to maturity category continue to be accounted
for at amortized cost. Trading securities, if any, would continue
to be accounted for at quoted market prices with changes in market
values being recorded as gain or loss in the income statement. All
other securities are included in the available for sale category and
are accounted for at fair value with unrealized gains or losses, net
of taxes, being reflected as adjustments to equity.
Investments and mortgage-backed securities held for investment are
carried at cost, adjusted for amortization of premiums and accretion
of discounts using a method which approximates a level yield, based
on the Company's intent and ability to hold the securities until
maturity. At the time of purchase, the Company makes a determination
on whether or not it will hold the investments and mortgage-backed
securities to maturity, based upon an evaluation of the probability
of the occurrence of future events. Investments and mortgage-backed
securities which the Company believes may be involved in interest
rate risk, liquidity, or other asset/liability management decisions
which might reasonably result in such securities not being held until
maturity, are classified as available for sale. If investments and
mortgage-backed securities available for sale are sold, any gain or
loss is determined by specific identification and reflected in the
operating results for the period.
ALLOWANCE FOR POSSIBLE LOAN LOSSES
The allowance for possible loan losses is maintained at a level that
management considers adequate to provide for potential losses based
upon an evaluation of known and inherent risks in the loan portfolio.
Management's evaluation is based upon an analysis of the portfolio,
past loss experience, current economic conditions and other relevant
factors. While management uses the best information available to
make such evaluations, such evaluations are highly subjective, and
future adjustments to the allowance may be necessary if conditions
differ substantially from the assumptions used in making the
evaluations. In addition, various regulatory agencies, as an integral
part of their examination process, periodically review the Company's
allowance for losses on loans. Such agencies may require the
Company to recognize additions to the allowance based on their
judgments about information available to them at the time of their
examination. The allowance is increased by the provision for possible
loan losses which is charged to operations. Loan losses are charged
directly against the allowance and recoveries on previously
charged-off loans are added to the allowance.
7
<PAGE>
On July 1, 1995, the Company prospectively implemented Statement of
Financial Accounting Standards No. 114 ("SFAS No. 114"), "Accounting
by Creditors for Impairment of Loans," and SFAS No. 118, "Accounting
by Creditors for Impairment of a Loan-Income Recognition and
Disclosures," which amends SFAS No. 114 and requires certain related
disclosures. SFAS No. 114, as amended, requires certain impaired
loans to be measured based on the present value of expected future
cash flows discounted at the loan's effective interest rate, the
loan's market price or the fair value of the collateral if the loan
is collateral dependent. The implementation of these statements had
no effect on the Company's results of operations, financial
condition, or stockholders' equity.
For purposes of applying the measurement criteria for impaired
loans under SFAS No. 114, as amended, the Company excludes large
groups of smaller-balance homogeneous loans, primarily consisting
of residential real estate loans and consumer loans as well as
commercial loans with balances of less than $100,000. For
applicable loans, the Company evaluates the need for impairment
recognition when a loan becomes non-accrual or earlier if, based on
management's assessment of the relevant facts and circumstances, it
is probable that the Bank will be unable to collect all proceeds
due according to the contractual terms of the loan agreement. At
and during the three-month period ended September 30, 1996, the
recorded investment in impaired loans was not material. The
Company's policy for the recognition of interest income on impaired
loans is the same as for non-accrual loans discussed below.
Impaired loans are charged off when the Company determines that
foreclosure is probable and the fair value of the collateral is
less than the recorded investment of the impaired loan.
LOANS, LOAN ORIGINATION FEES AND UNCOLLECTED INTEREST
Loans (other than loans held for sale) are recorded at cost net of
unearned discounts, deferred fees and allowances. Discounts and
premiums on purchased loans are amortized using the interest method
over the remaining contractual life of the portfolio, adjusted for
actual prepayments. Loan origination fees and certain direct
origination costs are deferred and amortized over the life of the
related loans as an adjustment of the yield on the loans.
Uncollected interest receivable on loans is accrued to income as
earned. Non-accrual loans are loans on which the accrual of interest
has ceased because the collection of principal or interest payments
determined to be doubtful by management. It is the policy of the
Company to discontinue the accrual of interest when principal or
interest payments are delinquent 90 days or more (unless the loan
principal and interest are determined by management to be fully
secured and in the process of collection), or earlier, if the
financial condition of the borrower raises significant concern with
regard to the ability of the borrower to service the debt in
8
<PAGE>
accordance with the current loan term. Interest income on such
loans is not accrued until the financial condition and payment
record of the borrower once again demonstrate the ability to service
the debt.
LOANS HELD FOR SALE
The Company periodically identifies certain loans as held for sale
at the time of origination. These loans consist primarily of
fixed-rate single-family residential mortgage loans which meet the
underwriting characteristics of certain government-sponsored
enterprises (conforming loans). The Company regularly re-evaluates
its policy and revises it as deemed necessary. Loans held for sale
are carried at the lower of aggregate cost or fair value, with the
resulting gain or loss included in other income for the period.
REAL ESTATE OWNED ("REO")
Real estate acquired through foreclosure or by deed in lieu of
foreclosure is classified as REO. REO is carried at the lower of
cost (lesser of carrying value of the loan or fair value of the
property at date of acquisition) or fair value less selling expenses.
Costs relating to the development or improvement of the property are
capitalized; holding costs are charged to expense.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost, less accumulated
depreciation. Depreciation is computed using the straight-line
method over the estimated useful lives of the assets. When assets
are retired or otherwise disposed of, the cost and related
accumulated depreciation are removed from the accounts. The cost
of maintenance and repairs is charged to expense as incurred and
renewals and betterments are capitalized.
DEFERRED INCOME TAXES
The Company accounts for income taxes under the asset and liability
method. Deferred tax assets and liabilities are recognized for the
future tax consequences attributable to differences between the
financial statement carrying amounts of existing assets and
liabilities and their respective tax bases and operating loss and
tax credit carryforwards. Deferred tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable income
in the years in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and
liabilities of a change in tax rates is recognized in income in the
period that includes the enactment date.
9
<PAGE>
EARNINGS PER COMMON SHARE AND COMMON EQUIVALENT SHARE
Earnings per share have been calculated based on the weighted
average number of common and common equivalent shares outstanding
for the respective periods. Stock options are considered common
stock equivalents and are included in the computation of the number
of outstanding shares using the treasury stock method. Earnings per
share and weighted average shares outstanding have been adjusted to
reflect the effect of the 5% stock dividend paid in September 1996.
10
<PAGE>
NOTE 3 - LOANS RECEIVABLE
Loans receivable are summarized as follows:
AT SEPTEMBER 30, At June 30,
1996 1996
---------------- ----------
(Dollars in Thousands)
First mortgage loans:
Residential $155,960 $148,530
Construction-residential 9,824 9,494
Land acquisition and
development 4,932 5,121
Commercial 25,238 22,552
Construction-commercial 6,472 2,413
Commercial business 6,451 5,701
Consumer 43,475 41,486
-------- --------
TOTAL LOANS 252,352 235,298
-------- --------
Less:
Undisbursed loan proceeds:
Construction-residential (5,804) (6,211)
Construction-commercial (3,609) (923)
Deferred loan fees - net (1,605) (1,533)
Allowance for loan losses (2,752) (2,667)
-------- --------
NET LOANS $238,582 $223,963
======== ========
NOTE 4 - EMPLOYEE STOCK OWNERSHIP PLAN ("ESOP") DEBT
The ESOP purchased 62,500 shares of common stock in connection with
the Bank's conversion in 1987 at $7.20 per share, as adjusted for
the December 1993 five-for-four stock split effected in the form of
a dividend. In 1989 the ESOP purchased an additional 81,235 shares
of common stock at a weighted average price of $10.86 per share,
also as adjusted for the December 1993 five-for-four stock split.
Funds necessary to purchase such shares were borrowed from an
independent third-party lender. Neither the Company nor the Bank has
guaranteed the debt, but the Company and the Bank have in the past,
and anticipate in the future, contributing sufficient funds to the
ESOP to enable it to meet its debt service requirements. The
outstanding loan balance has been reflected as a liability and a
reduction of
11
<PAGE>
stockholders' equity in the Company's consolidated statements of
financial condition.
Contributions by the Bank to the ESOP during the three-month periods
ended September 30, 1996 and 1995, amounted to $52,583 and $47,909,
respectively, and are included in salaries and employee benefits
expense. Interest expense paid by the ESOP during the three-month
periods ended September 30, 1996 and 1995, amounted to $9,871 and
$13,489, respectively, for the ESOP loan.
The ESOP loans were refinanced in May 1996. The interest rate on
the refinanced loan is fixed at 7.50% until maturity with interest
expense being computed on the unpaid principal balance. As principal
payments are made by the ESOP, the corresponding liability is reduced
and stockholders' equity is increased. Principal payments and cash
dividends paid on the common stock held by the ESOP during the
three-month periods ended September 30, 1996 and 1995, amounted to
$43,750 and $44,768, respectively, and remaining principal payments
are scheduled as follows:
FISCAL YEAR AMOUNT
----------- --------
1997 $133,500
1998 186,872
1999 146,618
TOTAL $466,990
At September 30, 1996, the ESOP had pledged 88,597 shares of
unallocated common stock held by it as collateral for the loan.
NOTE 5 - COMMITMENTS
Commitments to potential mortgagors of the Bank amounted to $6.66
million as of September 30, 1996, of which $3.41 million was for
variable-rate loans. The balance of the commitments represents $3.25
million of fixed-rate loans bearing interest rates of 7.25% to 9.75%.
At September 30, 1996, the Company had $9.41 million of undisbursed
construction loan funds as well as $13.13 million of undisbursed
remaining credit line balances. In addition, the Company has issued
$101,000 of commercial letters of credit fully secured by deposit
accounts or real estate.
12
<PAGE>
NOTE 6 - REGULATORY CAPITAL
The Bank is required by regulations of the Office of Thrift
Supervision ("OTS") to maintain minimum levels of capital as
measured by three ratios. Savings institutions are currently
required to maintain a minimum regulatory tangible capital equal
to 1.5% of total assets, minimum core capital of 3% of total assets,
and risk-based capital equal to 8% of risk-weighted assets. At
September 30 and June 30, 1996, the Bank exceeded all regulatory
capital requirements. The following sets forth the reconciliation
of the Bank's compliance with each of the regulatory capital
requirements (in thousands):
<TABLE>
<CAPTION>
SEPTEMBER 30, 1996 JUNE 30, 1996
------------------------------------ ----------------------------------
Tangible Core Risk-based Tangible Core Risk-based
Capital Capital Capital Capital Capital Capital
-------- ------- ---------- ------- ------- ----------
<S> <C> <C> <C> <C> <C> <C>
Total Regulatory Capital $25,200 $25,200 $27,348 $25,301 $25,301 $27,348
Minimum Required Regulatory Capital 4,268 8,535 13,993 4,095 8,191 13,243
------- ------- ------- ------- ------- -------
Excess Regulatory Capital $20,932 $16,665 $13,355 $21,206 $17,110 $14,105
======= ======= ======= ======= ======= =======
Regulatory Capital as a
Percentage of Assets 8.86% 8.86% 15.64% 9.27% 9.27% 16.52%
Minimum Capital Required as a
Percentage of Assets 1.50 3.00 8.00 1.50 3.00 8.00
------- ------- ------- ------- ------- -------
Excess Regulatory Capital as a
Percentage of Assets 7.36% 5.86% 7.64% 7.77% 6.27% 8.52%
======= ======= ======= ======= ======= =======
</TABLE>
The Bank is not under any agreement with the regulatory authorities, nor is
it aware of any current recommendations by the regulatory authorities which,
if they were to be implemented, would have a material effect on the
liquidity, capital resources or operations of the Company.
13
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATION
FINANCIAL CONDITION
The Company's total assets increased to $284.39 million at September 30,
1996, from $272.93 million at June 30, 1996, largely as the result of the
increase in net loans and loans held for sale collectively to $238.74 million
at September 30, 1996, from $223.96 million at June 30, 1996. The increase
in total assets was funded primarily by an increase in deposit accounts and
securities sold under agreements to repurchase to $240.88 million at
September 30, 1996, from $228.21 million at June 30, 1996.
Stockholders' equity decreased to $25.12 million at September 30, 1996, from
$25.56 million at June 30, 1996, primarily as a result of a net loss of
$201,000 incurred due to the imposition of a special assessment (discussed
below), as well as due to the payment of cash dividends of $172,000, the
recognition of net unrealized losses on securities available for sale, net of
taxes, of $32,000, and the repurchase of $287,000 of common stock, as well as
the payment of $10,000 for fractional shares in connection with the 5% stock
dividend paid during the three-month period ended September 30, 1996. The
decrease in stockholders' equity was offset, in part, by proceeds of $216,000
from stock options exercised during the period and the reduction in the
principal balance of the ESOP debt by $44,000.
RESULTS OF OPERATIONS
Net interest income, on a fully tax equivalent basis, increased 12.0% to
$2.70 million for the three-month period ended September 30, 1996, compared
to $2.41 million for the same period in fiscal 1996. Total interest income,
on a fully tax equivalent basis, increased to $5.44 million for the
three-month period ended September 30, 1996, compared to $5.11 million for
the same period in fiscal 1996, primarily as a result of an increase in the
average balance of interest-earning assets to $269.22 million or 6.5% for the
three-month period ended September 30, 1996, compared to $252.71 million for
the same period in 1995. Loan originations in excess of $26 million during
the three months ended September 30, 1996, contributed to the increase in the
average balance of interest-earning assets. The Bank has been focusing its
efforts on commercial real estate and commercial construction loans which
accounted for 27% of the loan originations for the three months ended
September 30, 1996. The average yield on interest-earning assets remained
relatively unchanged at 8.08% compared to 8.09% for the three months ended
September 30, 1996 and 1995, respectively. Total interest expense increased
to $2.75 million from $2.70 million during the three-month periods ended
September 30, 1996 and 1995, respectively, largely as the result of the
increase in the average balance on interest-bearing liabilities to $231.43
million or 4.6% for the three-month period ended September 30, 1996, compared
to $221.26 million for the same period in 1995. Partially offsetting the
effect of the increase in the average balance on
14
<PAGE>
interest-bearing liabilities was the decrease in the average rate paid on
those liabilities to 4.74% from 4.88% for the three months ended September
30, 1996 and 1995, respectively, in part due to the Bank lowering the rates
paid on its interest-bearing checking accounts.
The tax equivalent interest rate spread increased to 3.34% from 3.21%, and
the average net yield on interest-earning assets increased to 4.01% from
3.81% for the three-month periods ended September 30, 1996 and 1995,
respectively, primarily due to the reasons previously set forth.
PROVISION FOR POSSIBLE LOAN LOSSES
The Company provided $96,000 and $92,000 during the three-month periods ended
September 30, 1996 and 1995, respectively, for possible loan losses. These
provisions have been added to the Company's allowance for possible loan
losses due to the current economic conditions and management's assessment of
the inherent risk of loss existing in the loan portfolio. At September 30,
1996, the allowance for possible loan losses totaled $2.75 million or 1.14%
of net loans, compared to $2.67 million or 1.18% of net loans and $2.47
million or 1.12% of net loans at June 30, 1996, and September 30, 1995,
respectively. As a percentage of non-performing loans, the allowance for
possible loan losses was 134.8% at September 30, 1996, compared to 120.3% at
June 30, 1996, and further compared to 93.7% at September 30, 1995.
Provisions for possible loan losses which are added to the allowance for
possible loan losses are based upon, among other things, delinquency trends,
the volume of non-performing loans, prior loss experience of the portfolio,
current economic conditions, and other relevant factors. Although management
believes it has used the best information available to it in making such
determinations and that the present allowance for possible loan losses is
adequate, future adjustments to the allowance may be necessary, and net
income may be adversely affected if circumstances differ substantially from
the assumptions used in determining the level of the allowance. In addition,
various regulatory agencies, as an integral part of their examination
process, periodically review the Company's allowance for possible losses on
loans. Such agencies may require the Company to recognize additions to the
allowance based on their judgments about information available to them at the
time of their examination.
OTHER INCOME
Total other income increased 10.8% to $369,000 during the three-month period
ended September 30, 1996, as compared to $333,000 during the same period in
1995. Service charges and fees increased to $272,000 from $256,000 at
September 30, 1996 and 1995, respectively, as the result of an increase in
fees charged on safe deposit box rentals, an increase in the number of safe
deposit boxes rented and an increase in commissions earned on the sale of
medical and life insurance to the Bank's loan customers.
15
<PAGE>
OPERATING EXPENSES
Total operating expenses for the three-month period ended September 30, 1996,
increased to $3.34 million from $1.72 million for the same period in 1995.
The increase was mainly due to the one-time Savings Institutions Insurance
Fund ("SAIF") special assessment of $1.39 million. The one-time assessment,
which requires a payment of 65.7 basis points on SAIF-insured deposits that
were held at March 31, 1995, was part of the Economic Growth and Regulatory
Paperwork Reduction Act of 1996 ("Deposit Insurance Legislation") passed by
Congress and signed by the President on September 30, 1996. The assessment
will bring the SAIF's reserve ratios to a comparable level of the Bank
Insurance Fund portion of the Federal Deposit Insurance Corporation ("FDIC"),
at 1.25 per cent of total insured deposits. In addition, the board of the
FDIC will be lowering the SAIF premium charged to certain well-capitalized
institutions from 23 cents per $100 of deposits to an estimated six and
one-half cents per $100 of deposits beginning in January 1997, which will
result in an annual estimated pretax savings of $383,000 per year for the
Company. Before posting the one-time SAIF assessment, operating expenses
increased to $1.95 million from $1.72 million for the three-month periods
ended September 30, 1996 and 1995, respectively. These increases were due to
(i) normal salary increases combined with increases in benefits costs, as
well as the cost of additional staff for the Bank's Brandywine Square branch
which opened during the first quarter of fiscal 1997, (ii) and increase in
office rental expense, furniture, fixture and equipment expense, and
advertising expense in connection with the opening of the Bank's newest
branch, Brandywine Square, in the first quarter of fiscal 1997, and (iii) an
increase in data processing expenses related to an increased number of
accounts and usage.
INCOME TAX EXPENSE (BENEFIT)
The income tax benefit for the three-month period ended September 30, 1996,
was $227,000 due to the loss of $428,000 before income taxes as compared to
income tax expense of $264,000 for the same period in 1995.
NET INCOME (LOSS)
The Company earned net income of $631,000 or $.38 per share, for the three
months ended September 30, 1996, before posting the one-time SAIF special
assessment, compared to $596,000 or $.36 per share for the same period in
1995. The pre-tax effect of the one-time special assessment was $1.39
million resulting in an after-tax charge to earnings of approximately
$832,000 or 50 cents per share, which charge was accrued in accordance with
generally accepted accounting practices as of September 30, 1996. After
recognition of this assessment the Company had a loss of $201,000 or $.12 per
share, for the three months ended September 30, 1996.
16
<PAGE>
ASSET QUALITY
Non-performing assets are comprised of non-performing loans and REO and
totaled $2.16 million at September 30, 1996. Non-accrual loans are loans on
which the accrual of interest has ceased because the collection of principal
or interest payments is determined to be doubtful by management. It is the
policy of the Company to discontinue the accrual of interest when principal
or interest payments are delinquent 90 days or more (unless the loan
principal and interest are determined by management to be fully secured and
in the process of collection), or earlier, if the financial condition of the
borrower raises significant concern with regard to the ability of the
borrower to service the debt in accordance with the current loan term.
Interest income is not accrued until the financial condition and payment
record of the borrower once again demonstrate the ability to service the
debt. At September 30, 1996, the Company did not have any loans greater than
90 days delinquent which were accruing interest. Non-performing assets to
total assets and non-performing loans to total assets were .76% and .72%,
respectively, at September 30, 1996, compared to .86% and .81%, respectively,
at June 30, 1996, and to 1.13% and .99%, respectively, at September 30, 1995.
Non-performing loans of $2.04 million at September 30, 1996, consisted of
nine residential mortgage loans aggregating $907,000, three construction and
land development loans aggregating $737,000, and $398,000 in consumer and
commercial loans.
At September 30, 1996, the Company's classified assets, which consisted of
assets classified as substandard, doubtful, loss, and REO, totaled $2.46
million compared to $2.97 million at June 30, 1996, and further compared to
$3.62 million at September 30, 1995. Included in the assets classified
substandard at September 30, 1996 and 1995, and June 30, 1996, were all loans
90 days past due and loans which are less than 90 days delinquent but
inadequately protected by the current paying capacity of the borrower or of
the collateral pledged, as well as a well-defined weakness which may
jeopardize the liquidation of the debt.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary sources of funds have historically consisted of
deposits, regular principal payments and prepayments of outstanding loans,
and borrowings from the Federal Home Loan Bank of Pittsburgh and other
sources. During the first three months of fiscal 1997, the Company used its
capital resources primarily to meet its ongoing commitments to fund maturing
savings certificates and savings withdrawals, fund existing and continuing
loan commitments, and maintain its liquidity. At September 30, 1996, the
total of approved mortgage loan commitments amounted to $6.66 million. In
addition, at such date the Company had $9.41 million of undisbursed
construction loan funds as well as $13.13 million of undisbursed remaining
credit line balances, and $101,000 of commercial letters of credit fully
secured by deposit accounts or real estate. In addition, $49.00 million of
certificates of deposit at the Company are scheduled to mature during the
nine months remaining in fiscal 1997, the majority of which the Company
believes, on the basis of prior experience, will be reinvested with the
Company.
17
<PAGE>
The Company's current dividend policy is to declare a regular quarterly
dividend with the intent that the level of the dividend per share be reviewed
on a quarterly basis. Dividends will be in the form of cash and/or stock
after giving consideration to all aspects of the Company's performance for
the quarter. On August 21, 1996, the Board of Directors declared a 5% stock
dividend and a quarterly cash dividend of $.11 per share, both of which were
paid on September 18, 1996, to stockholders of record as of September 4,
1996. The Bank, which is the Company's wholly-owned subsidiary, is required,
under applicable federal regulations, to maintain specified levels of liquid
investments and qualifying types of United States Treasury, federal agency
and other investments having maturities of five years or less. Regulations
currently in effect require the Bank to maintain a liquid asset ratio of not
less than 5% of its net withdrawable accounts plus short-term borrowings, of
which short-term liquid assets must consist of not less than 1%. These levels
are changed from time to time by the OTS to reflect economic conditions.
First Financial's average regulatory liquidity ratio for the month ended
September 30, 1996 was 8.13%.
ASSET AND LIABILITY MANAGEMENT
The principal objective of the Company's asset and liability management
function is to maximize the Company's net interest margin while maintaining
an appropriate level of risk given the Company's business focus, operating
environment, capital and liquidity requirements and performance objectives.
Through such management, the Company seeks to reduce the vulnerability of its
operations to changes in interest rates and to manage the ratio of interest
rate-sensitive assets to interest rate-sensitive liabilities within specified
maturities or repricing dates. The Company's actions in this regard are
taken under the guidance of the Asset-Liability Management Committee.
Interest rate risk is derived from timing differences in the repricing of
assets and liabilities, loan prepayments, deposit withdrawals, and
differences in lending and funding rates. One measure of interest rate risk
is the GAP ratio, which is defined as the difference between the dollar
volume of interest-earning assets and interest-bearing liabilities maturing
or repricing within the same specified period of time as a percentage of
total assets.
The Company's asset and liability management strategy currently is to
emphasize the origination of adjustable-rate mortgages, short-term consumer
and business loans, and floating-rate construction loans and commercial real
estate loans. This strategy has greatly reduced the Company's vulnerability
to changes in interest rates. As of September 30, 1996, adjustable-rate
mortgages represented 60.3% of the Company's mortgage loan portfolio. At the
same date, $125.51 million, or 45.1% of the Company's interest-sensitive
assets were scheduled to reprice within a one-year period, and the Company's
cumulative one-year interest rate gap was negative 2.9%. The table on page
22 summarizes the appropriate contractual maturities or replacement periods
of the Company's interest-earning assets and interest-bearing liabilities as
of September 30, 1996. Adjustable- and floating-rate assets are included in
the period in which interest rates are next scheduled to adjust, rather than
in the period for which they are contractually due. Fixed-rate loans
18
<PAGE>
are included in the periods in which they are anticipated to be repaid. The
analysis on page 22 takes into consideration the timing of the repricing but
does not take into consideration any restrictions on the magnitude of the
repricing interest-sensitive assets.
Rates of interest paid on deposits are priced to be sufficiently competitive
in the Company's primary market area to meet its asset and liability
management objectives and requirements. In the past, the Company has
generally maintained a pricing program for its certificate accounts which
entails paying higher rates of interest on longer-term certificates to
encourage customers to invest in certificates of deposit for longer
maturities. This strategy has assisted the Company in controlling its cost
of funds and supported its goal of extending the maturity of its liabilities.
The Company periodically identifies certain loans as held for sale at the
time of origination. These loans consist primarily of fixed-rate,
single-family residential mortgage loans which meet the underwriting
characteristics of certain government-sponsored enterprises (conforming
loans). The Company regularly re-evaluates its policy and revises it as
deemed necessary. The majority of loans sold to date have consisted of sales
to the Federal Home Loan Mortgage Corporation ("FHLMC") of whole loans and
95% participation interests in long-term, fixed-rate residential mortgage
loans in furtherance of the Company's goal of better matching the maturities
and interest-rate sensitivity of its assets and liabilities. When selling
loans, the Company has generally retained servicing in order to increase its
non-interest income. At September 30, 1996, the Company serviced $22.44
million of mortgage loans for others. Sales of loans produce future
servicing income and provide funds for additional lending and other purposes.
In fiscal 1995 the Company entered into an agreement with a third party to
originate and sell jumbo fixed-rate mortgage loans with servicing released
upon sale of the loans. In the current fiscal year the Company had no jumbo
fixed-rate loan originations or related sales of such loans.
RECENT ACCOUNTING PRONOUNCEMENTS
In March 1995 the Financial Accounting Standards Board ("FASB") issued SFAS
No. 121, "Accounting for the Impairment of Long-lived Assets and for
Long-lived Assets to be Disposed of." This Statement requires that
long-lived assets and certain identifiable intangibles to be held and used by
the Company be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable, and that any related impairment be based on the fair value of
the asset. In addition, long-lived assets to be disposed of must be carried
at the lower of cost or fair value, less estimated disposal costs. This
statement was adopted as of July 1, 1996, and the impact was not material to
the Company's results of operations, financial condition, or stockholders'
equity.
In May 1995 the FASB issued SFAS No. 122 "Accounting for Mortgage Servicing
Rights." This Statement prospectively requires the Company, which services
mortgage loans for others in return
19
<PAGE>
for a servicing fee, to recognize these servicing assets, regardless of how
they were acquired. Additionally, the Company would be required to assess the
fair value of these assets at each reporting date to determine impairment.
This statement was adopted as of July 1, 1996, and the impact was not
material to the Company's results of operations, financial condition, or
stockholders' equity.
In October 1995 the FASB issued SFAS No. 123, "Accounting for Stock-based
Compensation." This Statement encourages the adoption of fair value
accounting for stock-based compensation issued to employees. In the event
that fair value accounting is not adopted, the statement requires pro forma
disclosure of net income and earnings per share as if fair value accounting
had been adopted. The Company does not anticipate adopting the fair value
accounting provisions of SFAS 123 and will instead provide the required pro
forma disclosures as permitted, starting with the year ending June 30, 1997.
In June 1996 the FASB issued SFAS No. 125, "Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities." This
Statement provides accounting and reporting standards for transfers and
servicing of financial assets and extinguishments of liabilities based on
consistent application of a financial-components approach that focuses on
control. It distinguishes transfers of financial assets that are sales from
transfers that are secured borrowings. Under the financial-components
approach, after a transfer of financial assets an entity recognizes all
financial and servicing assets it controls and liabilities it has incurred
and de-recognizes financial assets it no longer controls and liabilities that
have been extinguished. The approach focuses on the assets and liabilities
that exist after the transfer. If a transfer does not meet the criteria for
a sale, the transfer is accounted for as a secured borrowing with pledge of
collateral. The Company does not anticipate that the adoption of SFAS 125
will have a material impact on its financial statements and will adopt SFAS
No. 125 prospectively, effective January 1, 1997, the required date of
adoption.
See also Note 2 of the notes to unaudited consolidated financial statements
for additional discussion of certain accounting pronouncements.
DEPOSIT INSURANCE PREMIUM
The deposits of the Bank are insured by the SAIF of the FDIC. Both the SAIF
and the BIF, the federal deposit insurance fund that covers commercial bank
deposits, are required by law to attain and thereafter maintain a reserve
ratio of 1.25% of insured deposits. The BIF had achieved a fully funded
status in contrast to the SAIF, and the FDIC had recently reduced the average
deposit insurance premium paid by BIF-insured commercial banks to a level
substantially below the average premium paid by SAIF-insured institutions.
In late 1995 the FDIC approved a final rule regarding deposit insurance
premiums which, effective with the semi-annual premium assessment on January
1, 1996, reduced deposit insurance premiums for BIF member institutions to
zero (subject to an annual minimum of $2,000) for institutions in the
20
<PAGE>
lowest risk category. Deposit insurance premiums for SAIF members were
maintained at their then existing levels (23 basis points for institutions in
the lowest risk category). Accordingly, until the SAIF had attained a
reserve ratio of 1.25% of insured deposits, SAIF members such as the Bank
would have been competitively disadvantaged as compared to commercial banks
due to this premium differential.
The Deposit Insurance Legislation passed by the U.S. House of Representatives
and the Senate was signed into law by the President on September 30, 1996, to
recapitalize the SAIF. The special assessment was fully anticipated by the
Bank because legislation had been close to enactment on several occasions
over the past year. As a result of such legislation, the Bank was required
to pay a one-time assessment of 65.7 cents for every $100 of deposits, which
amounted to $1.39 million pre-tax with an $832,000 after-tax effect.
The legislation also mandated that SAIF-insured institutions' (such as the
Bank's) deposit insurance premiums decline from 23 basis points to
approximately 6.4 basis points effective January 1, 1997. The mandated
decline in the premium rate is expected to reduce the Bank's pre-tax annual
SAIF premiums by approximately $383,000 (based on current deposit levels).
The reduced future annual premiums will more than offset the negative impact
on the Company's first-quarter earnings.
21
<PAGE>
INTEREST RATE SENSITIVITY ANALYSIS AT SEPTEMBER 30, 1996
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
MORE THAN MORE THAN MORE THAN MORE THAN
THREE MONTHS SIX MONTHS ONE YEAR THREE YEARS
THREE MONTHS THROUGH THROUGH THROUGH THROUGH MORE THAN
OR LESS SIX MONTHS ONE YEAR THREE YEARS FIVE YEARS FIVE YEARS TOTAL
------------ ------------ ---------- ----------- ----------- ---------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
INTEREST-EARNING ASSETS:
Loans (1)
Adjustable- and
floating-rate
mortgages (2) $ 34,475 $15,993 $33,411 $22,936 $ 9,455 $ 63 $116,333
Balloons and fixed-rate
mortgages (2) 2,158 2,093 4,018 18,312 13,166 36,933 76,680
Consumer (2) (3) 7,443 877 1,807 8,020 7,445 17,883 43,475
Securities and
interest-bearing
deposits (4) 4,333 99 191 690 583 555 6,451
9,198 5,722 3,689 11,740 2,268 2,922 35,539
-------- ------- ------- ------- ------- ------- --------
TOTAL INTEREST-EARNING
ASSETS $ 57,607 $24,784 $43,116 $61,698 $32,917 $58,356 $278,478
-------- ------- ------- ------- ------- ------- --------
INTEREST-BEARING LIABILITIES:
Savings accounts (5) $ 625 $ 627 $ 1,248 -- -- $20,991 $ 23,491
NOW accounts (5) 900 900 1,800 -- -- 19,405 23,005
Money market accounts (5) 24,576 -- -- -- -- -- 24,576
Certificate accounts 42,547 17,811 31,307 29,472 17,683 5,921 144,741
Securities sold under
agreements to repurchase 8,503 -- -- -- -- -- 8,503
Borrowings 1,044 44 1,692 5,622 3,800 1,802 14,004
-------- ------- ------- ------- ------- ------- --------
TOTAL INTEREST-BEARING
LIABILITIES $ 78,195 $19,382 $36,047 $35,094 $21,483 $48,119 $238,320
-------- ------- ------- ------- ------- ------- --------
Cumulative excess of
interest-earning assets
to interest-bearing
liabilities ($20,588) ($15,186) ($8,117) $18,487 $29,921 $40,158 $ 40,158
======== ======== ======= ======= ======= ======= ========
Cumulative ratio of interest
rate-sensitive assets to
interest rate-sensitive
liabilities 74% 84% 94% 111% 116% 117% 117%
======== ======== ======= ======= ======= ======= ========
CUMULATIVE DIFFERENCE AS A
PERCENTAGE OF TOTAL ASSETS (7.2%) (5.3%) (2.9%) 6.5% 10.5% 14.1% 14.1%
======== ======== ======= ======= ======= ======= ========
</TABLE>
(1) NET OF UNDISBURSED LOAN PROCEEDS
(2) ASSUMES MARKET PREPAYMENT RATES.
(3) INCLUDES HOME IMPROVEMENT, HOME EQUITY, AUTOMOBILE AND OTHER
CONSUMER LOANS.
(4) INCLUDES INVESTMENT SECURITIES, MORTGAGE-BACKED SECURITIES AND
INTEREST-BEARING DEPOSITS.
(5) BALANCES DISTRIBUTED AMONG THE VARIOUS REPRICING TIME INTERVALS BASED
ON HISTORICAL AND ANTICIPATED REPRICING PATTERNS.
<PAGE>
Part II. Other Information
Item 1. Legal Proceedings
None
Item 2. Changes in Securities
None
Item 3. Defaults Upon Senior Securities
Not Applicable.
Item 4. Submission of Matters to a Vote of Security Holders
The Company's annual meeting of shareholders was held on
October 23, 1996, for the following purposes:
(1) To elect three directors for a term of three years or
until their successors have been elected and qualified:
<TABLE>
<CAPTION>
Votes For Votes Withheld
--------- ---------------
<S> <C> <C>
Gerard F. Griesser 1,371,603 2,554
Richard L. Radcliff 1,371,645 2,512
Emory S. Todd 1,371,604 2,553
</TABLE>
(2) To ratify the appointment of KPMG Peat Marwick LLP as
the Company's independent auditors for the fiscal year
ending June 30, 1997:
<TABLE>
<S> <C>
For: 1,367,122
Against: 3,981
Abstain: 3,054
</TABLE>
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
None
<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.
Chester Valley Bancorp Inc.
Date 11/5/96 /S/ ELLEN ANN ROBERTS
__________________________________________
Ellen Ann Roberts
Chairman and Chief Executive Officer
Date 11/5/96 /S/ CHRISTINE N. DULLINGER
___________________________________________
Christine N. Dullinger
Treasurer and Chief Financial Officer
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<CIK> 0000854098
<NAME> CHESTER VALLEY BANCORP INC.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> JUL-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 1,704
<INT-BEARING-DEPOSITS> 6,867
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 5,169
<INVESTMENTS-CARRYING> 23,503
<INVESTMENTS-MARKET> 23,316
<LOANS> 241,496
<ALLOWANCE> 2,752
<TOTAL-ASSETS> 284,386
<DEPOSITS> 232,379
<SHORT-TERM> 1,602
<LIABILITIES-OTHER> 13,348
<LONG-TERM> 11,935
0
0
<COMMON> 1,658
<OTHER-SE> 23,464
<TOTAL-LIABILITIES-AND-EQUITY> 284,386
<INTEREST-LOAN> 4,885
<INTEREST-INVEST> 524
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 5,379
<INTEREST-DEPOSIT> 2,464
<INTEREST-EXPENSE> 2,745
<INTEREST-INCOME-NET> 2,634
<LOAN-LOSSES> 96
<SECURITIES-GAINS> 48
<EXPENSE-OTHER> 3,335
<INCOME-PRETAX> (428)
<INCOME-PRE-EXTRAORDINARY> (428)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (201)
<EPS-PRIMARY> (.12)
<EPS-DILUTED> (.12)
<YIELD-ACTUAL> 4.019
<LOANS-NON> 2,042
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 2,335
<ALLOWANCE-OPEN> 2,667
<CHARGE-OFFS> 12
<RECOVERIES> 1
<ALLOWANCE-CLOSE> 2,752
<ALLOWANCE-DOMESTIC> 1,160
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 1,592
</TABLE>
