SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 For the quarterly period ended September 30, 1998
Or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from __________ to __________
Commission File 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) 2,449,188
------------------------------ ---------
(Title of Each Class) (Number of Shares Outstanding
as of November 1, 1998)
<PAGE>
CHESTER VALLEY BANCORP INC. AND SUBSIDIARIES
PART 1. FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
September 30, 1998 and June 30, 1998 (Unaudited)
CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Ended September 30, 1998 and 1997 (Unaudited)
CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Months Ended September 30, 1998 and 1997 (Unaudited)
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Item 2 .MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Item 3.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK
PART 2. OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
Item 2. CHANGES IN SECURITIES
Item 3. DEFAULTS UPON SENIOR SECURITIES
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Item 5. OTHER INFORMATION
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
SIGNATURES
<PAGE>
<TABLE>
<CAPTION>
CHESTER VALLEY BANCORP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Dollars in Thousands)
September 30, June 30,
1998 1998
----------- -----------
<S> <C> <C>
ASSETS:
Cash in banks ............................................... $ 5,308 $ 4,044
Interest-bearing deposits ................................... 9,570 11,861
Trading account securities .................................. 23,205 20,352
Investment securities available for sale .................... 46,308 38,303
Investment securities (market value - September 30,
$11,658; June 30, $15,672) ............................ 11,557 15,600
Loans receivable, less allowance for
loan losses of $3,383 and $3,414 ...................... 273,553 273,128
Loans held for sale ......................................... -- 1,101
Accrued interest receivable ................................. 2,652 2,486
Property and equipment - net ................................ 7,314 7,094
Other assets ................................................ 1,661 3,043
----------- -----------
Total Assets ........................................... $ 381,128 $ 377,012
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY:
Deposits .................................................... $ 293,349 $ 298,191
Securities sold under agreements to repurchase .............. 435 144
Advance payments by borrowers for taxes and insurance ....... 962 2,963
Employee Stock Ownership Plan ("ESOP") debt ................. 97 147
Federal Home Loan Bank advances ............................. 48,319 40,936
Other borrowings ............................................ 822 708
Accrued interest payable .................................... 1,240 969
Other liabilities ........................................... 2,919 1,105
----------- -----------
Total Liabilities ...................................... 348,143 345,163
----------- -----------
Stockholders' Equity:
Preferred stock - $1.00 par value;
5,000,000 shares authorized; none issued ............... -- --
Common stock - $1.00 par value; 10,000,000 shares authorized;
2,449,188 and 2,327,478 shares issued at September 30,
and June 30, respectively .............................. 2,449 2,327
Additional paid-in capital .................................. 18,640 15,609
Common stock acquired by ESOP ............................... (97) (147)
Retained earnings - partially restricted .................... 11,583 13,768
Accumulated other comprehensive income ...................... 410 292
----------- -----------
Total Stockholders' Equity ............................. 32,985 31,849
----------- -----------
Total Liabilities and Stockholders' Equity ............. $ 381,128 $ 377,012
=========== ===========
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
CHESTER VALLEY BANCORP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in Thousands, Except for Per Share Amounts)
Three Months Ended
September 30,
----------------------------
1998 1997
----------- -----------
<S> <C> <C>
INTEREST INCOME:
Loans ..................................................... $ 5,650 $ 5,502
Securities and interest-bearing deposits .................. 1,340 808
----------- -----------
Total interest income .................................. 6,990 6,310
----------- -----------
INTEREST EXPENSE:
Deposits .................................................. 3,112 2,841
Securities sold under agreements to repurchase ............ 3 1
Short-term borrowings ..................................... 237 243
Long-term borrowings ...................................... 419 182
----------- -----------
Total interest expense ................................. 3,771 3,267
----------- -----------
NET INTEREST INCOME ......................................... 3,219 3,043
Provision for loan losses ................................. 45 120
----------- -----------
Net interest income after provision for loan losses ... 3,174 2,923
----------- -----------
OTHER INCOME:
Investment services income, net ........................... 746 680
Service charges and fees .................................. 360 302
Gain on trading account securities ....................... 153 --
Gain on sale of assets available for sale ................ 80 88
Other ..................................................... 47 45
----------- -----------
Total other income ..................................... 1,386 1,115
----------- -----------
OPERATING EXPENSES:
Salaries and employee benefits ............................ 1,668 1,439
Occupancy and equipment ................................... 508 441
Data processing ........................................... 190 166
Deposit insurance premiums ................................ 42 38
Other ..................................................... 581 590
----------- -----------
Total operating expenses ............................... 2,989 2,674
----------- -----------
Income before income taxes ................................ 1,571 1,364
Income tax expense ........................................ 472 360
----------- -----------
NET INCOME .................................................. $ 1,099 $ 1,004
=========== ===========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CHESTER VALLEY BANCORP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in Thousands, Except for Per Share Amounts)
(continued)
Three Months Ended
September 30,
----------------------------
1998 1997
----------- -----------
<S> <C> <C>
EARNINGS PER SHARE (1):
Basic ..................................................... $ 0.45 $ 0.42
=========== ===========
Diluted ................................................... $ 0.44 $ 0.41
=========== ===========
DIVIDENDS PER SHARE PAID DURING PERIOD (1) .................. $ 0.11 $ 0.10
=========== ===========
WEIGHTED AVERAGE SHARES OUTSTANDING (1):
Basic ..................................................... 2,444,843 2,411,887
=========== ===========
Diluted ................................................... 2,484,957 2,440,405
=========== ===========
OTHER COMPREHENSIVE INCOME, NET OF TAX:
Net Income ............................................... $ 1,099 $ 1,004
Net unrealized holding gains on securities
available for sale during the period .................. 106 77
Less reclassification adjustment
for gains (losses) included in net income ............ (12) (25)
----------- -----------
COMPREHENSIVE INCOME ........................................ $ 1,217 $ 1,106
=========== ===========
</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 1998
See accompanying notes to unaudited consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
CHESTER VALLEY BANCORP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
Three Months Ended
September 30,
----------------------
1998 1997
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net income .................................................................. $ 1,099 $ 1,004
Add (deduct) items not affecting cash flows from operating activities:
Depreciation
Provision for loan losses ................................................ 202 161
Gain on trading account securities ....................................... 45 120
Gain on sale of loans held for sale ..................................... (153) --
Gain on sale of securities available for sale ............................ (22) (1)
Amortization of deferred loan fees, discounts and premiums ............... (58) (87)
Increase in trading account securities ................................... (171) (145)
Decrease (increase) in accrued interest receivable ....................... (2,700) (19)
Decrease (increase) in other assets ...................................... (166) 222
Increase (decrease) in other liabilities ................................. 1,382 (273)
Increase in accrued interest payable ..................................... 1,814 (53)
271 83
-------- --------
Net cash flows from operating activities .................................... 1,543 1,012
-------- --------
Cash flows from (used in) investment activities:
Capital expenditures ..................................................... (422) (341)
Net increase in loans and loans held for sale ............................ (721) (6,251)
Proceeds from sale of loans held for sale ................................ 1,457 486
Proceeds from maturities, payments and calls of investment securities .... 4,040 565
Purchase of securities available for sale ................................ (15,035) (51,634)
Proceeds from sales and calls of securities available for sale ........... 7,297 56,914
-------- --------
Net cash flows used in investment activities ................................ (3,384) (261)
-------- --------
Cash flows from (used in) financing activities:
Net decrease in deposits before interest credited ....................... (7,369) (1,090)
Interest credited to deposits ............................................ 2,527 2,389
Increase in securities sold under agreements to repurchase ............... 291 155
Proceeds from FHLB advances .............................................. 8,599 10,400
Repayments of FHLB advances .............................................. (1,216) (12,018)
Decrease in advance payments by borrowers for taxes and insurance ........ (2,001) (2,015)
Net increase in other borrowings ......................................... 114 80
Cash dividends on common stock ........................................... (256) (226)
Repayments of principal on ESOP debt ..................................... (50) (46)
Common stock issued ...................................................... 121 135
Payment for fractional shares ............................................ (11) (8)
Stock options exercised .................................................. 15 7
Reduction of common stock acquired by ESOP ............................... 50 46
Common stock repurchased ................................................. -- (35)
-------- --------
Net cash flows from (used in) financing activities ......................... 814 (2,226)
-------- --------
Net decrease in cash and cash equivalents ................................... (1,027) (1,475)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CHESTER VALLEY BANCORP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
Three Months Ended
September 30,
----------------------
1998 1997
-------- --------
<S> <C> <C>
Cash and cash equivalents:
Beginning of period ...................................................... 15,905 10,550
======== ========
End of period ............................................................ $ 14,878 $ 9,075
======== ========
Supplemental disclosures:
Cash payments during the year for:
Taxes ................................................................. $ 315 $ 250
Interest .............................................................. $ 3,500 $ 3,185
Non-cash items:
Stock dividend issued .................................................... $ 3,017 $ 2,155
Net unrealized gain on investment securities available for sale .......... $ 193 $ 165
Tax effect on unrealized gain on investment securities available for sale $ 75 $ 64
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
<PAGE>
CHESTER VALLEY BANCORP INC.
AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Business
Chester Valley Bancorp Inc. (the "Holding Company") is a
unitary thrift holding company, incorporated in the
Commonwealth of Pennsylvania in 1989. The business of Chester
Valley Bancorp Inc. and its subsidiaries (the "Company")
consists of the operations of First Financial Bank ("First
Financial" or the "Bank"), a Pennsylvania-chartered stock
savings and loan association founded in 1922, and Philadelphia
Corporation for Investment Services ("PCIS"), a full service
investment advisory and securities brokerage firm. The Bank
provides a wide range of banking services to individual and
corporate customers through its branch banks in Chester
County, Pennsylvania. All of the branches are full service and
offer commercial and retail deposit and loan products. These
products include checking accounts (non-interest and
interest-bearing), savings accounts, certificates of deposit,
commercial and installment loans, real estate mortgages, and
home equity loans. The Bank also offers ancillary services
that complement these products. The Bank is subject to
competition from other financial institutions and other
companies that provide financial services. PCIS is registered
as a broker/dealer in all 50 states and Washington, DC and it
is also registered as an investment advisor with the
Securities and Exchange Commission. PCIS provides many
additional services, including self-directed and managed
retirement accounts, safekeeping, daily sweep money market
funds, portfolio and estate valuations, life insurance and
annuities, and margin accounts, to individuals and smaller
corporate accounts. The Company is subject to the regulations
of certain federal and state agencies and undergoes periodic
examinations by those regulatory authorities.
Principles of Consolidation and Presentation
The accompanying consolidated financial statements include the
accounts of Chester Valley Bancorp Inc. and its wholly-owned
subsidiaries, the Bank and PCIS. The accounts of the Bank
include its 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.
<PAGE>
The accompanying consolidated financial statements have been
prepared in accordance with instructions to Form 10-Q.
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, 1998, are not necessarily indicative of the
results to be expected for the fiscal year ending June 30,
1999. The consolidated financial statements presented herein
should be read in conjunction with the audited consolidated
financial statements and the notes thereto included in the
Company's Annual Report to Stockholders for the fiscal year
ended June 30, 1998.
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.
Securities
The Company divides its securities portfolio into three
segments: (a) held to maturity; (b) available for sale; and
(c) trading. At the time of purchase, the Company makes a
determination on whether or not it will hold the investments
to maturity, based upon an evaluation of the probability of
the occurrence of future events. Securities in the held to
maturity category are accounted for at amortized 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. Trading securities are accounted for at quoted
market prices with changes in market values being recorded as
gain or loss in the income statement. All other securities,
including investment 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
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. If investment
securities are sold, any gain or loss is determined by
specific identification and reflected in the operating results
for the period.
<PAGE>
Allowance for Loan Losses
The allowance for loan losses is maintained at a level that
management considers adequate to provide for estimated losses
based upon an evaluation of known and inherent risks in the
loan portfolio. Management's evaluation is 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 allowance
for loan losses at September 30, 1998 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 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
loan losses which is charged to operations. Loan losses, other
than those incurred on loans held for sale, are charged
directly against the allowance and recoveries on previously
charged-off loans are generally added to the allowance.
For purposes of applying the measurement criteria for impaired
loans, the Company excludes large groups of smaller balance
homogeneous loans, primarily consisting of residential real
estate loans and consumer loans as well as commercial business
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 Company will be unable
to collect all proceeds under the contractual terms of the
loan agreement. At and during the three-month period ended
September 30, 1998, 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.
<PAGE>
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 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 terms. 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 their 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). Loans
held for sale are carried at the lower of aggregate cost or
fair value, with any resulting gain or loss included in other
income for the period. Realized gains or losses are 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.
<PAGE>
Deferred tax assets and liabilities are measured using the
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.
Earnings Per Share
In February 1997, the Financial Accounting Standards Board
("FASB") issued Statement of Financial Accounting Standards
("SFAS") No. 128. "Earnings per Share," which was required to
be adopted in both interim and annual financial statements for
periods ending after December 15, 1997. Accordingly, the
Company has changed its methodology for computing earnings per
share and restated all prior period amounts. SFAS 128 replaced
"primary" and "fully" diluted earnings per share with
"basic" and "diluted" earnings per share. Under the new
requirements for calculating earnings per share, the dilutive
effect of stock options is excluded from basic earnings per
share but included in the computation of diluted earnings per
share. Earnings per share and weighted average shares
outstanding for the periods presented herein have been
adjusted to reflect the effect of the 5% stock dividend paid
in September 1998.
The following table sets forth the computation of basic and
diluted earnings per share:
<TABLE>
<CAPTION>
Three Months Ended
September 30,
----------------------------
(Dollars in Thousands)
1998 1997
--------- ----------
<S> <C> <C>
Numerator:
Net income ............................. $ 1,099 $ 1,004
========= ==========
Denominator:
Denominator for basic earnings per
share-weighted average
shares ................................. 2,444,843 2,411,887
Effect of dilutive securities:
Employee stock options ................. 40,114 28,518
--------- ----------
Denominator for diluted earnings
per share-adjusted weighted
average shares and assumed
exercise ............................... 2,484,957 2,440,405
========= ==========
Basic earnings per share .................. $ 0.45 $ 0.42
========= ==========
Diluted earnings per share ................ $ 0.44 $ 0.41
========= ==========
</TABLE>
<PAGE>
NOTE 2 - LOANS RECEIVABLE
Loans receivable are summarized as follows:
<TABLE>
<CAPTION>
At September 30, At June 30,
1998 1998
--------- ---------
(Dollars in Thousands)
<S> <C> <C>
First mortgage loans:
Residential ........................... $ 155,915 $ 155,628
Construction-residential .............. 15,190 13,502
Land acquisition and
development ........................ 6,731 6,529
Commercial ............................ 42,357 41,002
Construction-commercial ............... 11,032 10,614
Commercial business ...................... 12,037 11,437
Consumer ................................. 51,494 51,829
--------- ---------
Total loans .............................. 294,756 290,541
--------- ---------
Less:
Undisbursed loan proceeds:
Construction-residential ........... (11,540) (7,915)
Construction-commercial ............ (4,673) (4,464)
Deferred loan fees - net .............. (1,607) (1,620)
Allowance for loan losses ............. (3,383) (3,414)
--------- ---------
Net loans ................................ $ 273,553 $ 273,128
========= =========
</TABLE>
NOTE 3 - COMMITMENTS
Commitments to potential mortgagors of the Bank amounted to
$5.75 million as of September 30, 1998, of which $685,400 was
for variable-rate loans. The balance of the commitments
represents $5.06 million of fixed-rate loans (primarily
consisting of single-family residential mortgages) bearing
interest rates of between 5.75% and 7.25%. At September 30,
1998, the Company had $16.21 million undisbursed construction
loan funds as well as $16.21 million of undisbursed remaining
consumer and commercial line balances.
NOTE 4 - REGULATORY CAPITAL
The Bank is subject to various regulatory capital requirements administered by
the federal banking agencies. Failure to meet minimum capital requirements can
initiate certain mandatory and possibly additional discretionary actions by
regulators that, if undertaken, could have a direct material effect on the
Company's and the Bank's financial statements. Under capital adequacy guidelines
<PAGE>
and the regulatory framework for prompt corrective action the Bank must meet
specific capital guidelines that involve quantitative measures of the Bank's
assets, liabilities, and certain off balance sheet items as calculated under
regulatory accounting practices. The Bank's capital amounts and classification
are also subject to qualitative judgments by the regulators about components,
risk weightings, and other factors.
Quantitative measures established by regulation to ensure capital adequacy
require the Bank to maintain minimum amounts and ratios (set forth in the table
below) of total and Tier 1 capital (as defined in the regulations) to
risk-weighted assets (as defined), and of Tier 1 capital (as defined) to average
assets (as defined). At September 30, 1998 and June 30, 1998 the Bank was in
compliance with all such requirements and is deemed a "well-capitalized"
institution for regulatory purposes. There are no conditions or events since
September 30, 1998 that management believes have changed the institution's
category.
The Bank's regulatory capital amounts and ratios are presented in the table as
follows (dollars in thousands):
<TABLE>
<CAPTION>
To Be Well
Capitalized
Required Under Prompt
For Capital Corrective
Actual Adequacy Porposes Action Provisions
--------------------- -------------------- --------------------
Amount Ratio Amount Ratio Amount Ratio
------- ----- ------- ---- ------- -----
<S> <C> <C> <C> <C> <C> <C>
As of September 30, 1998:
Total Capital
(to Risk Weighted Assets) $31,350 14.26% $17,592 8.00% $21,990 10.00%
Tier 1 Capital
(to Risk Weighted Assets) $28,593 13.00% $ 8,796 4.00% $13,194 6.00%
Tier 1 Capital
(to Average Assets) $28,593 7.59% $15,063 4.00% $18,829 5.00%
As of June 30, 1998:
Total Capital
(to Risk Weighted Assets) $31,328 14.18% $ 17,678 8.00% $22,098 10.00%
Tier 1 Capital
(to Risk Weighted Assets) $28,560 12.92% $ 8,839 4.00% $13,259 6.00%
Tier 1 Capital
(to Average Assets) $28,560 7.64% $14,945 4.00% $18,682 5.00%
</TABLE>
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATION
In this Report, the Company has included certain "forward looking statements"
concerning the future operations of the Company. It is management's desire to
take advantage of the "safe harbor" provisions of the Private Securities
Litigation Reform Act of 1995. This statement is for the express purpose of
availing the Company of the protections of such safe harbor with respect to all
"forward looking statements" contained in this Report. The Company has used
"forward looking statements" to describe the future plans and strategies
including management's expectations of the Company's Year 2000 readiness and
future financial results. Management's ability to predict the results or the
effect of future plans and strategy is inherently uncertain. Factors that could
affect results include interest rate trends, competition, the general economic
climate in Chester County, the mid-Atlantic region and the United States as a
whole, loan delinquency rates, changes in federal and state regulation, Year
2000 uncertainties and other uncertainties described in the Company's filings
with the Securities and Exchange Commission. These factors should be considered
in evaluating the "forward looking statements", and undue reliance should not be
placed on such statements.
FINANCIAL CONDITION
The Company's total assets increased to $381.13 million at September 30, 1998,
from $377.01 million at June 30, 1998, principally due to a $6.82 million
aggregate increase in trading account securities, investment securities
available for sale and investment securities to $81.07 million from $74.25
million at June 30, 1998. Such increases were funded in large part by an
increase in Federal Home Loan Bank ("FHLB") advances from $40.94 million at June
30, 1998, to $48.32 million at September 30, 1998.
Stockholders' equity increased to $32.99 million at September 30, 1998 from
$31.85 million at June 30, 1998, as a result of net income of $1.10 million, the
recognition of an increase in net unrealized gains on securities available for
sale, net of taxes, of $118,000, the sale of $121,000 of common stock in
connection with the Company's dividend reinvestment plan, $15,000 received as a
result of the exercise of stock options, and the reduction in the principal
balance of the ESOP debt by $50,000. The increase in stockholders' equity was
partially offset by the payment during the period of cash dividends totaling
$256,000.
RESULTS OF OPERATIONS
Net interest income, on a fully tax equivalent basis, increased 6.7% to $3.35
million for the three-month period ended September 30, 1998 compared to $3.14
million for the same period in 1997. Total interest income, on a fully tax
equivalent basis, increased to $7.12 million during the three-month period ended
September 30, 1998, a $710,000 or 11.1% increase over the comparable prior
period, primarily as a result of the effect of an increase in the average
balance of interest-earning assets.
The average balance of interest-earning assets increased to $367.13 million for
the three month period ended September 30, 1998, from $312.75 million for the
same period in 1997. Partially offsetting the effect of the increase for the
<PAGE>
three-month period ended September 30, 1998 in the average balance on interest
income was the 44 basis-point decrease in the yield, to 7.76% on the
interest-earning assets as the result of declining general market rates of
interest during fiscal 1998 which resulted in customers refinancing their loans
to lower interest rates.
Total interest expense increased to $3.77 million from $3.27 million for the
respective three-month periods in 1998 and 1997, largely as a result of the
increase in the average balance of interest-bearing liabilities to $314.68
million for the three months ended September 30, 1998, as compared to $270.10
million for the same period in 1997. Partially offsetting the increase in
interest expense was a decrease in the average rate paid on such liabilities to
4.79% for the three-month period ended September 30, 1998, from 4.84% for the
same period in 1997, respectively, as the result of management's continued
efforts to focus its growth in the areas of low-costing or no-cost deposits.
The tax equivalent interest rate spread decreased to 2.97% from 3.36%, and the
average net yield on interest-earning assets decreased to 3.65% from 4.02% for
the three-month periods ended September, 1998 and 1997, respectively, due to the
reasons discussed above.
Provision for Loan Losses
The Company provided $45,000 and $120,000 for loan losses during the three-
month periods ended September 30, 1998 and 1997, respectively. These provisions
have been added to the Company's allowance for loan losses due to current
economic conditions and management's assessment of the inherent risk of loss
existing in the loan portfolio. At September 30, 1998, the allowance for loan
losses totaled $3.38 million or 1.22% of net loans (before allowance), compared
to $3.41 million or 1.23% of net loans and $2.98 million or 1.13% of net loans
at June 30, 1998, and September 30, 1997, respectively. As a percentage of
non-performing assets, the allowance for loan losses was 284% at September 30,
1998, compared to 274% at June 30, 1998, and further compared to 173% at
September 30, 1997.
Other Income
Total other income increased $270,000 or 24.1% to $1.39 million for the
three-month period ended September 30, 1998, as compared to the same period in
1997. Investment services income increased $66,000 or 9.7% to $746,000 as the
result of PCIS' increased commission income due to an increase in trading
activity and an increase in money market fund fees due to an increase in
customer balances. In addition, PCIS' advisory fee income increased due to the
strategic plan of PCIS to focus on advisory services as it provides a more
stable revenue stream for PCIS and stabilizes expenses for the customer.
Investment services income also increased as the result of the opening of the
Bank's Investment Services and Trust Division in the second quarter of fiscal
1998. The Trust Division offers both individual and corporate clients an array
of money management, trust and investment services including portfolio
management, estate and retirement planning, and self directed IRA's. An increase
in checking account fees, as the result of an increased number of accounts, and
an increase in the fees earned on the Bank's debit card, due to increased usage
and also an increased number of cardholders, contributed to the increase of
$58,000 in service charges and fees during the three-month period ended
September 30, 1998. The Company recognized gains on trading account securities
and sales of asset available for sale of $233,000 during the three-month period
ended September 30, 1998 compared to $88,000 during the same period in 1997.
<PAGE>
Operating Expenses
Total operating expenses increased $320,000 or 12.0% to $2.99 million for the
three-month period ended September 30, 1998 as compared to the same time period
in 1997. The increase in operating expenses was primarily due to a $229,000 or
15.9% increase in salaries and employee benefits related to general salary
increases and increased number of staff associated with the addition of the
Bank's Investment Services and Trust Division established in the Fall of 1997
combined with the expansion of the Bank's Commercial Loan Department. In
addition, occupancy and equipment expenses increased $67,000 or 15.2% to
$508,000 for the three-month period ended September 30, 1998 from the comparable
prior period in large part due to the renovations required to provide
accommodations for the Bank's new Trust Division and to the installation of the
Bank's Wide Area Computer Network.
Income Tax Expense
Income tax expense was $472,000 and $360,000 for the three-month periods ended
September 30, 1998 and 1997, respectively, reflecting the increased
profitability of the Company in the 1998 period. The increase in income tax
expense for the three-month period ended September 30, 1998 was also due to the
fact that for periods ending prior to May 29, 1998, no provision has been made
for income taxes for PCIS since PCIS had elected to be taxed under the
provisions of Subchapter S of the Internal Revenue Code and similar state
provisions. Under these provisions, PCIS does not pay income taxes on its
taxable income. Instead the former stockholders of PCIS are liable for
individual income taxes based on their respective shares of PCIS's taxable
income. As a result of all of PCIS's stock being purchased by Chester Valley
Bancorp Inc. on May 29, 1998, PCIS is no longer eligible to be taxed under the
provisions of Subchapter S of the Internal Revenue Code.
ASSET QUALITY
Non-performing assets are comprised of non-accrual loans and REO and totaled
$1.19 million and $1.25 million at September 30, 1998 and June 30, 1998
respectively. 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 terms.
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, 1998, 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 .31% at September 30, 1998,
compared to .33% at June 30, 1998, and .53% at September 30, 1997.
Non-performing loans, which totaled $1.19 million at September 30, 1998.
consisted of ten single-family residential mortgage loans aggregating $790,000,
one construction loan totaling $55,000, two commercial mortgage loans
aggregating $136,000 and $211,000 in consumer loans.
<PAGE>
At September 30, 1998, the Company's classified assets, which consisted of
assets classified as substandard, doubtful or loss, as well as REO, totaled
$1.48 million compared to $1.47 million at June 30, 1998, and further compared
to $1.56 million at September 30, 1997. Included in the assets classified
substandard at September 30, 1998 and 1997, and at June 30, 1998, were all loans
90 days past due and loans which were less than 90 days delinquent but
inadequately protected by the current paying capacity of the borrower or of the
collateral pledged, or which were subject to one or more well-defined weaknesses
which may jeopardize the satisfaction of the debt.
LIQUIDITY AND CAPITAL RESOURCES
Management monitors liquidity daily and maintains funding sources to meet
unforseen changes in cash requirements. The Company's primary sources of funds
are deposits, borrowings, repayments, prepayments and maturities of outstanding
loans and mortgage-backed securities, sales of assets available for sale,
maturities of investment securities and other short-term investments, and funds
provided from operations. While scheduled loan and mortgage-backed securities
repayments and maturing investment securities and short-term investments are
relatively predictable sources of funds, deposit flows and loan prepayments are
greatly influenced by the movement of interest rates in general, economic
conditions and competition. The Company manages the pricing of its deposits to
maintain a deposit balance deemed appropriate and desirable. Although the
Company's deposits represent the majority of its total liabilities, the Company
has also utilized other borrowing sources, namely FHLB advances.
Liquidity management is both a daily and long-term function. Excess liquidity is
generally invested in short-term investments such as FHLB overnight deposits. On
a longer term basis, the Company maintains a strategy of investing in various
lending and investment securities products. The Company uses its sources of
funds to primarily fund loan commitments and maintain a substantial portfolio of
investment securities, and to meet its ongoing commitments to pay maturing
savings certificates and savings withdrawals. At September 30, 1998, the Company
had $5.75 million in commitments to fund loan originations. In addition, at such
date, the Company had undisbursed loans in process for construction loans of
$16.21 million and $16.21 million in undisbursed lines of credit. The management
of the Company believes that the Company has adequate resources, including
principal prepayments and repayments of loans and investment securities and
borrowing capacity, to fund all of its commitments to the extent required.
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 by the
Board of Directors 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 19, 1998, 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, 1998, to stockholders of record as of September
4, 1998.
The Bank 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 4% of its net withdrawable accounts plus short-term
borrowings. 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, 1998 was 17.78%.
<PAGE>
YEAR 2000 ISSUES
Year 2000 issues result from the inability of many computer programs or
computerized equipment to accurately calculate, store or use a date after
December 31, 1999. The erroneous date can be interpreted in a number of
different ways, the most common being Year 2000 represented as the year 1900.
Correctly identifying and processing Year 2000 as a leap year may also be an
issue. These misinterpretations of various dates in the Year 2000 could result
in a system failure or miscalculations causing disruptions of normal business
operations including, among other things, a temporary inability to process
transactions, track important customer account information, or provide
convenient access to this information.
The Company has completed an assessment of its financial and operational
software systems in accordance with the various regulatory agency guidance
documents. The Company is maintaining an inventory of hardware and software
systems, which ranges from mission critical software systems and personal
computers to security and video equipment, backup generators, and general office
equipment. The Company has prioritized its hardware and software systems to
focus on the most critical systems first. In connection with the Company's
assessment, a number of the less significant third party vendors advised the
Company that their software is Year 2000 compliant, and the Company intends to
fully test that software by June 30, 1999.
For most of its mission critical software systems, the Company relies on a major
data processing provider in the banking industry. First Financial has received
representations and warranties from its vendor for mission critical software
systems that the system will be compliant by December 31, 1998. The vendor is
contractually obligated to correct any Year 2000 problems or replace the system
at no cost to the Bank; however, the vendor's liability for losses is limited.
First Financial has started the process of replacing its mission critical
software systems with the testing thereof to be completed by December 31, 1998.
If testing were to present any system problems, the vendor would work to correct
the problem and the Company would test again until resolved. At the same time,
the Company is upgrading personal computers to meet both system and Year 2000
requirements. The Company is in the process of evaluating the needs and
potential technology issues, including Year 2000 issues, involving PCIS.
Over the past several years, the Company's Technology Plan has called for an
aggressive schedule for installing new systems or upgrading old systems in order
to build a technology infrastructure which will allow the Company to offer
competitive products while providing for internal efficiencies and customer
service improvement. The Technology Plan has resulted in positioning the Company
to continue its technology improvements while avoiding costly Year 2000 issues.
The Company estimates First Financial's capitalized expenditures associated with
Year 2000 at $300,000 during the fiscal year ending June 30, 1999, with
approximately $55,000 being expensed in fiscal 1999 with the remainder
recognized in subsequent fiscal years. The Company is not yet in a position to
predict Year 2000 driven expenditures for First Financial for the next fiscal
year or for PCIS for the current or next fiscal year. With assistance from its
third party vendors, the Company is utilizing internal staff to perform Year
2000 compliance work, including internal Information Systems staff.
The Year 2000 issue presents potential risks of uncertain magnitude. The risks
arise both with regard to systems purchased by the Company through third party
vendors as well as those outside the control of the Company, such as with ATM
networks or credit card processors. These failures may cause delays in the
ability of customers to access their funds through automated teller machines,
<PAGE>
point of sale terminals at retail locations, or other shared networks. The Year
2000 issue also poses the potential risk for business disruption due to a
mission critical software system failure, which could result in inaccurate
interest payment calculations, credit transactions, or record-keeping. The
Company and the OTS are closely monitoring the progress of First Financial's
major third party vendors and, to date, the Company is satisfied with their
progress. However, if the Company, its customers, or vendors are unable to
resolve Year 2000 issues in a timely manner, it could result in a material
financial risk. The Company has not yet finalized a contingency plan; however,
it intends to develop a detailed plan by December 31, 1998.
Successful and timely completion of the Year 2000 project is based on
management's best estimates derived from various assumptions of future events,
which are inherently uncertain, including the progress and results of third
party modification and testing plans and other factors.
RECENT ACCOUNTING ANNOUNCEMENTS
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive Income".
According to the statement, all items of "comprehensive income" are to be
reported in a "financial statement that is displayed with the same prominence as
other financial statements". Comprehensive income is defined as the change in
equity of a business enterprise during a period from transactions and other
events and circumstances from nonowner sources. Along with net income, examples
of comprehensive income include foreign currency translation adjustments,
unrealized holding gains and losses on available-for-sale securities, changes in
the market value of a futures contract that qualifies as a hedge of an asset
reported at fair value, and minimum pension liability adjustments. This
statement is effective for fiscal years beginning after December 15, 1997.
Accordingly all disclosures within this report are in compliance with SFAS No.
130.
In June 1997, the FASB adopted SFAS No. 131, "Disclosures About Segments of an
Enterprise and Related Information". This statement, which supersedes SFAS No.
14, requires public companies to report financial and descriptive information
about their reportable operating segments on both an annual and interim basis.
SFAS No. 131 mandates disclosure of a measure of segment profit/loss, certain
revenue and expense items and segment assets. In addition, the statement
requires reporting information on the entity's products and services, countries
in which the entity earns revenues and holds assets, and major customers. This
statement requires changes in disclosures only and would not affect the
financial condition, equity or operating results of the Company. This statement
is effective for fiscal years beginning after December 15, 1997. Accordingly all
disclosures within this report are in compliance with SFAS No. 131.
In February 1998, the FASB issued SFAS No. 132, "Employer's Disclosures About
Pensions and Other Postretirement Benefits." This statement revises employers'
disclosures about pension and other postretirement benefit plans. It does not
change the measurement or recognition of those plans. It standardizes the
disclosure requirements for pensions and other postretirement benefits to the
extent practicable, requires additional information on changes in the benefit
obligations and fair values of plan assets that will facilitate financial
analysis, and eliminates certain disclosures that are no longer as useful as
they were when FASB Statements No. 87, "Employers' Accounting for Pensions", No.
88, "Employers' Accounting for Settlements and Curtailments of Defined Benefit
<PAGE>
Pension Plans and for Termination Benefits", and No. 106, "Employers' Accounting
for Postretirement Benefits Other Than Pensions", were issued. This statement
requires changes in disclosures and would not affect the financial condition,
equity or operating results of the Corporation. This statement is effective for
fiscal years beginning after December 15, 1997.
In June 1998 the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." This statement establishes accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts, (collectively referred to as
derivatives) and for hedging activities. It requires that an entity recognize
all derivatives as either assets or liabilities in the statement of financial
position and measure those instruments at fair value. The accounting for changes
in the fair value of a derivative depends on the intended use of the derivative
and the resulting designation. If certain conditions are met, a derivative may
be specifically designated as (a) a hedge of the exposure to changes in the fair
value of a recognized asset or liability or an unrecognized firm commitment, (b)
a hedge of the exposure to variable cash flows of a forecasted transaction, or
(c) a hedge of certain foreign currency exposures. This statement is effective
for all fiscal quarters of fiscal years beginning after June 15, 1999. Earlier
adoption is permitted. The Company has not yet decided whether to adopt the
statement early or determined the impact, if any, of this statement, including
its provisions for the potential reclassifications of investments securities, on
operations, financial condition or equity.
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK
The primary asset/liability management goal of the Company is to manage and
control its interest rate risk, thereby reducing its exposure to fluctuations in
interest rates, and achieving sustainable growth in net interest income over the
long term. Other objectives of asset/liability management include: (1) ensuring
adequate liquidity and funding, (2) maintaining a strong capital base and (3)
maximizing net interest income opportunities.
In general, interest rate risk is mitigated by closely matching the maturities
or repricing periods of interest-sensitive assets and liabilities to ensure a
favorable interest rate spread. Management regularly reviews the Company's
interest-rate sensitivity, and uses a variety of strategies as needed to adjust
that sensitivity within acceptable tolerance ranges established by management.
Changing the relative proportions of fixed-rate and adjustable-rate assets and
liabilities is one of the primary strategies utilized by the Company to
accomplish this objective.
The matching of assets and liabilities may be analyzed by examining the extent
to which such assets and liabilities are "interest-rate sensitive" and by
monitoring an institution's interest-sensitivity gap. An interest-sensitivity
gap is considered positive when the amount of interest-rate sensitive assets
exceeds the amount of interest-rate sensitive liabilities repricing within a
defined period and is considered negative when the amount of interest-rate
sensitive liabilities exceeds the amount of interest-rate sensitive assets
repricing within a defined period.
To provide a more accurate one-year gap position of the Company, certain deposit
classifications are based on the interest-rate sensitive attributes and not on
the contractual repricing characteristics of these deposits. Management
<PAGE>
estimates, based on historical trends of the Bank's deposit accounts, that 53%
of money market and NOW accounts are sensitive to interest rate changes and that
8% of savings deposits are sensitive to interest rate changes. Accordingly,
these interest-sensitive portions are classified in the less than one year
categories with the remainder in the over five years category. Deposit products
with interest rates based on a particular index are classified according to the
specific repricing characteristic of the index. Deposit rates other than time
deposit rates are variable, and changes in deposit rates are typically subject
to local market conditions and management's discretion and are not indexed to
any particular rate.
Generally, during a period of rising interest rates, a positive gap would result
in an increase in net interest income while a negative gap would adversely
affect net interest income. However, the interest-sensitivity table does not
provide a comprehensive representation of the impact of interest rate changes on
net interest income. Each category of assets or liabilities will not be affected
equally or simultaneously by changes in the general level of interest rates.
Even assets and liabilities which contractually reprice within the same period
may not, in fact, reprice at the same price or the same time or with the same
frequency. It is also important to consider that the table represents a specific
point in time. Variations can occur as the Company adjusts its
interest-sensitivity position throughout the year. For a discussion of the
potential impact of interest rate changes upon the market value of the Company's
portfolio equity, see "Market Risk" in the Company's Annual Report on Form 10-K
for the year ended June 30, 1998. There has been no material change in the
Company's market value of portfolio equity since June 30, 1998.
The Company periodically identifies certain loans as held for sale at the time
of origination, primarily consisting 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 Freddie Mac of whole loans and 95%
participation interests in long-term, fixed-rate, single-family 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, 1998, the Company serviced $29.98
million of mortgage loans for others. Sales of loans produce future servicing
income and provide funds for additional lending and other purposes.
<PAGE>
<TABLE>
<CAPTION>
Interest Rate Sensitivity Analysis at September 30, 1998
(Dollars in thousands)
More Than More Than More Than
Three Months Six Months One Year
Three Months Through Through Through
or Less Six Months One Year Three Years
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
INTEREST-EARNING ASSETS:
Loans(1)
Real Estate (2) ........................ $ 30,848 $ 19,048 $ 32,361 $ 57,118
Commercial ............................. 6,855 252 499 1,946
Consumer ............................... 7,598 1,246 2,569 11,369
Securities and interest-bearing deposits .... 50,436 3,922 9,121 3,388
--------- --------- --------- ---------
Total interest-earning assets ............... $ 95,737 $ 24,468 $ 44,550 $ 73,821
--------- --------- --------- ---------
INTEREST-BEARING LIABILITIES:
Savings accounts ............................ $ 501 $ 501 $ 998 --
NOW accounts ................................ 450 450 900 --
Money market accounts ....................... 31,318 -- -- --
Certificate accounts ........................ 63,762 25,940 34,765 40,269
Securities sold under agreements to
repurchase ............................... 435 -- -- --
Borrowings .................................. 6,895 71 1,849 9,019
--------- --------- --------- ---------
Total interest-bearing liabilities .......... $ 103,361 $ 26,962 $ 38,512 $ 49,288
--------- --------- --------- ---------
Cumulative excess of interest-earning assets
to interest-bearing liabilities ............. ($ 7,624) ($ 10,118) ($ 4,080) $ 20,453
========= ========= ========= =========
Cumulative ratio of interest rate-sensitive
assets to interest rate-sensitive liabilities 92.6% 92.2% 97.6% 109.4%
========= ========= ========= =========
Cumulative difference as a percentage of
total assets ................................ (2.0%) (2.7%) (1.1%) 5.4%
========= ========= ========= =========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Interest Rate Sensitivity Analysis at September 30, 1998
(Dollars in thousands)
(continued)
More Than
Three Years
Through More Than
Five Years Five Years Total
--------- --------- ---------
<S> <C> <C> <C>
INTEREST-EARNING ASSETS:
Loans(1)
Real Estate (2) ........................ $ 32,337 $ 43,300 $ 215,012
Commercial ............................. 1,867 618 12,037
Consumer ............................... 9,501 19,211 51,494
Securities and interest-bearing deposits .... 9,262 14,511 90,640
--------- --------- ---------
Total interest-earning assets ............... $ 52,967 $ 77,640 $ 369,183
--------- --------- ---------
INTEREST-BEARING LIABILITIES:
Savings accounts ............................ -- $ 24,519 $ 26,519
NOW accounts ................................ -- 29,315 31,115
Money market accounts ....................... -- -- 31,318
Certificate accounts ........................ 11,002 2,895 178,633
Securities sold under agreements to
repurchase ............................... -- -- 435
Borrowings .................................. 9,921 21,483 49,238
--------- --------- ---------
Total interest-bearing liabilities .......... $ 20,923 $ 78,212 $ 317,258
--------- --------- ---------
Cumulative excess of interest-earning assets
to interest-bearing liabilities ............. $ 52,497 $ 51,925 $ 51,925
========= ========= =========
Cumulative ratio of interest rate-sensitive
assets to interest rate-sensitive liabilities 122.0% 116.4% 116.4%
========= ========= =========
Cumulative difference as a percentage of
total assets ................................ 13.8% 13.6% 13.6%
========= ========= =========
</TABLE>
(1) Net of undisbursed loan proceeds.
(2) Includes commercial mortgage loans.
<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 22, 1998. The following
matters were presented for shareholder
action at such meeting:
(1) To elect four directors for a term of
three years or until their successors have
been elected and qualified:
Name Votes For Votes Withheld
---- --------- --------------
Anthony J. Biondi 2,038,012 2,431
John J. Cunningham, III 2,038,012 2,431
Ellen Ann Roberts 2,037,947 2,497
William M. Wright 2,038,129 2,315
(2) To ratify the appointment of KPMG Peat
Marwick LLP as the Company's independent
auditors for the fiscal year ending June 30,
1999:
Votes For Votes Against Votes Abstained
--------- ------------- ---------------
2,034,186 3,478 2,777
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
Exhibit 27 Financial Data Schedule
<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 11-12-98 /s/Ellen Ann Roberts
--------------------
Ellen Ann Roberts
Chairman and Chief Executive Officer
Date 11-12-98 /s/Christine N. Dullinger
-------------------------
Christine N. Dullinger
Treasurer and Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-END> SEP-30-1998
<CASH> 5,308
<INT-BEARING-DEPOSITS> 9,570
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 23,205
<INVESTMENTS-HELD-FOR-SALE> 46,308
<INVESTMENTS-CARRYING> 11,557
<INVESTMENTS-MARKET> 11,658
<LOANS> 276,936
<ALLOWANCE> 3,383
<TOTAL-ASSETS> 381,128
<DEPOSITS> 293,349
<SHORT-TERM> 17,621
<LIABILITIES-OTHER> 5,556
<LONG-TERM> 31,617
0
0
<COMMON> 2,449
<OTHER-SE> 30,536
<TOTAL-LIABILITIES-AND-EQUITY> 381,128
<INTEREST-LOAN> 5,650
<INTEREST-INVEST> 1,340
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 6,990
<INTEREST-DEPOSIT> 3,112
<INTEREST-EXPENSE> 3,771
<INTEREST-INCOME-NET> 3,219
<LOAN-LOSSES> 45
<SECURITIES-GAINS> 211
<EXPENSE-OTHER> 2,989
<INCOME-PRETAX> 1,571
<INCOME-PRE-EXTRAORDINARY> 1,571
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,099
<EPS-PRIMARY> .45
<EPS-DILUTED> .44
<YIELD-ACTUAL> 3.65
<LOANS-NON> 1,192
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 1,479
<ALLOWANCE-OPEN> 3,414
<CHARGE-OFFS> 80
<RECOVERIES> 4
<ALLOWANCE-CLOSE> 3,383
<ALLOWANCE-DOMESTIC> 1,401
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 1,982
</TABLE>
