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, 1999
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) 3,880,919
------------------------------ ---------
(Title of Each Class) (Number of Shares Outstanding
as of November 1, 1999)
<PAGE>
CHESTER VALLEY BANCORP INC. AND SUBSIDIARIES
INDEX
PART 1. FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
September 30, 1999 and June 30, 1999 (Unaudited)
CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Ended September 30, 1999 and 1998 (Unaudited)
STATEMENT OF OTHER COMPREHENSIVE INCOME
Three Months Ended September 30, 1999 and 1998 (Unaudited)
CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Months Ended September 30, 1999 and 1998 (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 AND USE OF PROCEEDS
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,
1999 1999
--------- ---------
<S> <C> <C>
ASSETS:
Cash in banks $ 7,806 $ 5,194
Interest-earning deposits 5,251 13,409
--------- ---------
Total cash and cash equivalents 13,057 18,603
Trading account securities 8,947 9,221
Investment securities available for sale 122,473 109,600
Investment securities (fair value - September 30,
$7,474; June 30, $7,816) 7,459 7,801
Loans receivable, less allowance for
loan losses of $3,721 and $3,651 305,115 291,388
Accrued interest receivable 3,038 2,461
Property and equipment - net 8,064 8,200
Other assets 5,096 3,884
========= =========
Total Assets $ 473,249 $ 451,158
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY:
Deposits $ 346,169 $ 359,514
Advance payments by borrowers for taxes and insurance 1,154 3,055
Federal Home Loan Bank advances 88,760 50,375
Other borrowings 711 653
Accrued interest payable 1,362 1,573
Other liabilities 1,806 2,135
--------- ---------
Total Liabilities $ 439,962 $ 417,305
--------- ---------
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;
3,898,170 and 3,707,460 shares issued at September 30,
and June 30, respectively 3,898 3,707
Additional paid-in capital 20,753 17,904
Retained earnings - partially restricted 11,720 13,794
Accumulated other comprehensive income (loss) (3,084) (1,552)
--------- ---------
Total Stockholders' Equity 33,287 33,853
--------- ---------
Total Liabilities and Stockholders' Equity $ 473,249 $ 451,158
========= =========
</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)
(Unaudited)
Three Months Ended
September 30,
--------------------------
1999 1998
----------- -----------
<S> <C> <C>
INTEREST INCOME:
Loans $ 5,900 $ 5,650
Investment securities and interest-bearing deposits 2,342 1,340
----------- -----------
Total interest income 8,242
6,990
----------- -----------
INTEREST EXPENSE:
Deposits 3,457 3,112
Securities sold under agreements to repurchase -- 3
Short-term borrowings 388 237
Long-term borrowings 526 419
----------- -----------
Total interest expense 4,371 3,771
----------- -----------
NET INTEREST INCOME 3,871 3,219
Provision for loan losses 105 45
----------- -----------
Net interest income after provision for loan losses 3,766 3,174
----------- -----------
OTHER INCOME:
Investment services income, net 812 746
Service charges and fees 399 360
(Loss) gain on trading account securities (12) 153
Gain on sale of assets available for sale 13 80
Other 46 47
----------- -----------
Total other income 1,258 1,386
----------- -----------
OPERATING EXPENSES:
Salaries and employee benefits 1,803 1,668
Occupancy and equipment 540 508
Data processing 218 190
Deposit insurance premiums 48 42
Other 713 581
----------- -----------
Total operating expenses 3,322 2,989
----------- -----------
Income before income taxes 1,702 1,571
Income tax expense 422 472
----------- -----------
NET INCOME $ 1,280 $ 1,099
=========== ===========
<PAGE>
<CAPTION>
(Unaudited)
Three Months Ended
September 30,
--------------------------
1999 1998
----------- -----------
<S> <C> <C>
EARNINGS PER SHARE (1):
Basic $ .33 $ .29
=========== ===========
Diluted $ .33 $ .28
=========== ===========
DIVIDENDS PER SHARE PAID DURING PERIOD (1) $ .09 $ .07
=========== ===========
WEIGHTED AVERAGE SHARES OUTSTANDING (1):
Basic 3,889,814 3,849,890
=========== ===========
Diluted 3,922,179 3,895,015
=========== ===========
</TABLE>
(1) Earnings per share, dividends per share and weighted average shares
outstanding have been restated to reflect the effects of the 5% stock
dividend paid in September 1999 and the three-for-two stock split effected
in the form of dividend in December 1998.
See accompanying notes to unaudited consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
CHESTER VALLEY BANCORP INC. AND SUBSIDIARY
STATEMENT OF OTHER COMPREHENSIVE INCOME
(Dollars in Thousands)
(Unaudited)
Three Months Ended
September 30,
------------------
1999 1998
------- -------
<S> <C> <C>
OTHER COMPREHENSIVE INCOME (LOSS), NET OF TAX:
Net income $ 1,280 $ 1,099
Net unrealized holding gains (losses) on securities available
for sale during the period (1,531) 106
Less reclassification adjustment for gains (losses)
included in net income 1 (12)
------- -------
COMPREHENSIVE (LOSS) INCOME $ (252) $ 1,217
======= =======
</TABLE>
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)
(Unaudited)
Three Months Ended
September 30,
--------------------
1999 1998
-------- --------
<S> <C> <C>
Cash flows from (used in) operating activities:
Net income $ 1,280 $ 1,099
Add (deduct) items not affecting cash flows from operating activities:
Depreciation 226 202
Provision for loan losses 105 45
Loss (gain) on trading account securities 12 (153)
(Gain) on sale of loans held for sale -- (22)
(Gain) on sale of securities available for sale (13) (58)
Proceeds from sale of loans held for sale -- 1,457
Amortization of deferred loan fees, discounts and premiums (210) (171)
Decrease (increase) in trading account securities 262 (2,700)
(Increase) decrease in accrued interest receivable (577) (166)
(Increase) decrease in other assets (1,212) 1,382
(Decrease) increase in other liabilities (329) 1,814
(Decrease) increase in accrued interest payable (211) 271
-------- --------
Net cash flows from (used in) operating activities (667) 1,543
-------- --------
Cash flows from (used in) investment activities:
Capital expenditures (90) (422)
Net increase in loans (13,716) (721)
Purchase of investment securities (757) --
Proceeds from maturities, payments and calls of investment securities 1,096 4,040
Purchase of securities available for sale (35,821) (15,035)
Proceeds from sales and calls of securities available for sale 21,526 7,297
-------- --------
Net cash flows used in investment activities (27,762) (3,384)
-------- --------
<PAGE>
<CAPTION>
(Unaudited)
Three Months Ended
September 30,
--------------------
1999 1998
-------- --------
<S> <C> <C>
Cash flows from (used in) financing activities:
Net decrease in deposits before interest credited (17,188) (7,369)
Interest credited to deposits 3,843 2,527
Increase in securities sold under agreements to repurchase -- 291
Proceeds from FHLB advances 38,400 8,599
Repayments of FHLB advances (15) (1,216)
Decrease in advance payments by borrowers for taxes and insurance (1,901) (2,001)
Net increase in other borrowings 58 114
Cash dividends on common stock (333) (256)
Repayments of principal on ESOP debt -- (50)
Common stock issued 161 121
Payment for fractional shares (7) (11)
Stock options exercised 56 15
Reduction of common stock acquired by ESOP -- 50
Common stock repurchased as treasury stock (191) --
-------- --------
Net cash flows from financing activities 22,883 814
-------- --------
Net decrease in cash and cash equivalents (5,546) (1,027)
Cash and cash equivalents:
Beginning of period 18,603 15,905
-------- --------
End of period $ 13,057 $ 14,878
======== ========
Supplemental disclosures:
Cash payments during the year for:
Taxes $ 54 $ 315
Interest $ 4,582 $ 3,500
Non-cash items:
Stock dividend issued $ 3,014 $ 3,017
Net unrealized (loss) gain on investment securities
available for sale, net of tax $ (1,532) $ 118
</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 "Company") is a unitary thrift holding company,
incorporated in the Commonwealth of Pennsylvania in 1989. The Company is subject
to the regulations of certain federal and state banking agencies and undergoes
periodic examinations by those regulatory authorities. The business of the
Company and its subsidiaries 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 eight branch offices 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 extensive 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 small
corporate accounts.
Principles of Consolidation and Presentation
The accompanying consolidated financial statements include the accounts of the
Company 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.
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, 1999,
are not necessarily indicative of the results to be expected for the fiscal year
ending June 30, 2000. 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, 1999.
<PAGE>
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 effects of the 5% stock dividend paid in
September 1999 and the three-for-two stock split effected in the form of a
dividend in December 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,
Except Per Share Amounts)
1999 1998
---------- ----------
<S> <C> <C>
Numerator:
Net income $ 1,280 $ 1,099
========== ==========
Denominator:
Denominator for basic per share-
weighted average
shares 3,889,814 3,849,890
Effect of dilutive securities:
Stock options 32,365 45,125
---------- ----------
Denominator for diluted earnings
per share-adjusted weighted
average shares and assumed
exercise 3,922,179 3,895,015
========== ==========
Basic earnings per share $ .33 $ 0.29
========== ==========
Diluted earnings per share $ .33 $ 0.28
========== ==========
</TABLE>
<PAGE>
NOTE 2 - LOANS RECEIVABLE
Loans receivable are summarized as follows:
<TABLE>
<CAPTION>
At September 30, At June 30,
1999 1999
--------- ---------
(Dollars in Thousands)
<S> <C> <C>
First mortgage loans:
Residential $ 162,369 $ 157,342
Construction-residential 14,257 14,469
Land acquisition and
development 4,166 5,075
Commercial 59,470 55,198
Construction-commercial 11,089 9,794
Commercial business 17,801 14,708
Consumer 55,801 51,416
--------- ---------
Total loans 324,953 308,002
--------- ---------
Less:
Undisbursed loan proceeds:
Construction-residential (8,590) (8,712)
Construction-commercial (5,922) (2,681)
Deferred loan fees - net (1,605) (1,570)
Allowance for loan losses (3,721) (3,651)
--------- ---------
Net loans $ 305,115 $ 291,388
========= =========
</TABLE>
<PAGE>
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 principal 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, 1999, the
recorded investment in impaired loans was not material.
NOTE 3 - COMMITMENTS
Commitments to potential mortgagors of the Bank amounted to $5.69 million as of
September 30, 1999, of which $4.49 million was for variable-rate loans. The
balance of the commitments represents $1.20 million of fixed-rate loans
(primarily consisting of single-family residential mortgages) bearing interest
rates of between 7.38% and 9.00%. At September 30, 1999, the Company had $14.51
million of undisbursed construction loan funds as well as $16.77 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
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, 1999 and June 30, 1999 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, 1999 that management believes have changed the institution's
category.
<PAGE>
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 Purposes Action Provisions
------------------------- ------------------------ ----------------------
Amount Ratio Amount Ratio Amount Ratio
------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C>
As of September 30, 1999:
Total Capital
(to Risk Weighted Assets) $35,376 12.95% $21,853 8.00% $27,316 10.00%
Tier 1 Capital
(to Risk Weighted Assets) $31,958 11.70% $10,927 4.00% $16,390 6.00%
Tier 1 Capital
(to Average Assets) $31,958 6.77% $18,868 4.00% $23,585 5.00%
As of June 30, 1999:
Total Capital
(to Risk Weighted Assets) $34,005 13.05% $20,848 8.00% $26,060 10.00%
Tier 1 Capital
(to Risk Weighted Assets) $30,768 11.81% $10,424 4.00% $15,636 6.00%
Tier 1 Capital
(to Average Assets) $30,768 6.86% $17,934 4.00% $22,418 5.00%
</TABLE>
NOTE 5 - SEGMENT REPORTING
The Company has two reportable segments: First Financial Bank ("FFB") and
Philadelphia Corporation for Investment Services ("PCIS"). FFB operates a branch
bank network with eight full-service banking offices and provides deposit and
loan services to customers. Additionally, FFB offers trust services at its
Downingtown headquarters. PCIS operates a full service investment advisory and
securities brokerage firm through two offices. Both segments operate in
southeastern Pennsylvania.
The Company evaluates performance based on profit or loss from operations before
income taxes not including nonrecurring gains and losses. There are no material
intersegment sales or transfers.
The Company's reportable segments have traditionally been two independent
financial services institutions. PCIS was acquired by the Company on May 29,
1998. The two segments are managed separately. All senior officers from PCIS
prior to the acquisition have been retained to manage the segment.
<PAGE>
The following table highlights income statement and balance sheet information
for each of the segments at or for September 30, 1999 and 1998:
<TABLE>
<CAPTION>
At and during the three months ended September 30,
(Dollars in Thousands)
-----------------------------------------------------------------------------------
1999 1998
---------------------------------------- ----------------------------------------
FFB PCIS Total FFB PCIS Total
----------- --------- ------------ ------------ --------- -----------
<S> <C> <C> <C> <C> <C> <C>
Net interest
income $3,848 $23 $3,871 $3,195 $24 $3,219
Other income 498 760 1,258 644 742 1,386
Total Net income 1,209 71 1,280 1,005 94 1,099
Total assets 470,718 2,531 473,249 378,898 2,230 381,128
Total trading
securities 8,483 464 8,947 22,680 525 23,205
</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, but are not limited to, 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 $473.25 million at September 30, 1999,
from $451.16 million at June 30, 1999, principally due to a $13.73 million
increase in the loan portfolio followed by a $12.26 million aggregate increase
in trading account securities, investment securities available for sale and
investment securities to $138.88 million from $126.62 million at June 30, 1999.
Such increases were funded in large part by increases Federal Home Loan Bank
("FHLB") advances from $50.38 million at June 30, 1999, to $88.76 million at
September 30, 1999.
Stockholders' equity decreased to $33.29 million at September 30, 1999 from
$33.85 million at June 30, 1999, as a result of the recognition of an increase
in net unrealized losses on securities available for sale, net of taxes, of
$1.53 million and the payment during the period of cash dividends totaling
$333,000. The decrease in stockholders' equity was offset by net income of $1.28
million, the sale of $161,000 of common stock in connection with the Company's
dividend reinvestment plan, and $56,000 received as a result of the exercise of
stock options.
<PAGE>
RESULTS OF OPERATIONS
Net interest income, on a fully tax equivalent basis, increased 22.7% to $4.11
million for the three-month period ended September 30, 1999, compared to $3.35
million for the same period in 1998. Total interest income, on a fully tax
equivalent basis, increased to $8.48 million for the three-month period ended
September 30, 1999, from $7.12 million for the same period in 1998, 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 $442.99 million for
the three-month period ended September 30, 1999, from $367.13 million for the
same period in 1998. The increase was primarily due to a $61.09 million increase
in the average balance of all investment securities during the same period.
Partially offsetting the effect on interest income of the increases in the
average balances was the 10 basis-point decrease in the yield to 7.66% on
interest-earning assets for the three-month period ended September 30, 1999, as
the result of declining general market rates of interest.
Total interest expense increased 15.9% to $4.37 million for the three-month
period ended September 30, 1999, compared to $3.77 million for same period in
1998. This was largely the result of the increase in the average balance of
interest-bearing liabilities to $390.31 million for the three-month period ended
September 30, 1999, as compared to $314.68 million for the same period in 1998.
This increase was principally due to a $54.71 million increase in the average
balance of deposits during the same period. Partially offsetting the increase in
interest expense was a decrease in the average rate paid on such liabilities to
4.48% for the three-month period ended September 30, 1999, from 4.79% for the
same period in 1998. This was primarily the result of declining general market
rates of interest and management's continued effort to focus its growth in the
areas of low-costing or no-cost deposits.
The tax equivalent interest rate spread increased to 3.18% from 2.97%, and the
average tax equivalent net yield on interest-earning assets increased to 3.71%
from 3.65% for the three-month period ended September 30, 1999 and 1998,
respectively, due to the reasons discussed above.
Provision for Loan Losses
The Company provided $105,000 for loan losses during the three-month period
ended September 30, 1999, as compared to $45,000 for the same period in 1998.
The increase is the result of the growth in the loan portfolio of $31.56 million
between September 30, 1998 and September 30, 1999. These provisions have been
added to the Company's allowance for loan losses due to current economic
conditions and management's assessment of the known and inherent risk of loss
existing in the loan portfolio. At September 30, 1999, the allowance for loan
losses totaled $3.72 million or 1.20% of net loans (before allowance), compared
to $3.65 million or 1.24% of net loans at June 30, 1999. As a percentage of
non-performing assets, the allowance for loan losses was 384% at September 30,
1999 compared to 391% at June 30, 1999, and further compared to 284% at
September 30, 1998.
<PAGE>
Other Income
Total other income decreased to $1.26 million during the three-month period
ended September 30, 1999 as compared to $1.39 million during the same period in
1998. Investment services income increased 8.84% during the three-month period
ended September 30, 1999, compared to the same period in 1998 as the result of
PCIS' increased commission income due to an increase in customer trading
activity and an increase in money market fund fees resulting from an increase in
customer balances. In addition, PCIS' advisory fee income increased due to the
continued implementation of 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
("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 individual retirement accounts. 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 $39,000
in service charges and fees during the three-month period ended September 30,
1999. The Company recognized gains on trading account securities and sales of
assets available for sale of $1,000 during the three-month period ended
September 30, 1999 compared to $233,000 during the same period in 1998.
Operating Expenses
Total operating expenses increased $333,000 or 11.1% to $3.32 million for the
three-month period ended September 30, 1999 as compared to the same time period
in 1998. The increase in operating expenses for the three-month period in fiscal
2000 was due to (i) normal salary increases combined with benefits expense; (ii)
the increased number of staff associated with the addition of the Bank's Trust
Division combined with the expansion of the Bank's Commercial Loan Department;
(iii) an increase in occupancy and equipment expenses related to renovations
required to provide accommodations for the Bank's new Trust Division; and (iv)
an increase in occupancy and equipment expenses related to the Company's
conversion of its data service processing system and its computer hardware and
software upgrades as the result of the Company's strategic technology plan and
the Year 2000 issues (see " Year 2000 Issues" herein).
Income Tax Expense
Income tax expense was $422,000 for the three-month period ended September 30,
1999, compared to $472,000 for the same period in 1998. The decrease in income
tax expense for the three-month period ended September 30, 1999 is due to a
higher portion of the Company's pre-tax earnings comprised of tax-free interest
income as compared to the same period in 1998.
<PAGE>
ASSET QUALITY
Non-performing assets are comprised of non-accrual loans and REO and totaled
$969,000 and $933,000 at September 30, 1999 and June 30, 1999 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 borrower's ability to service the
debt. At September 30, 1999, 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 .20% at September 30, 1999
compared to .21% at June 30, 1999, and .31% at September 30, 1998.
Non-performing loans, which totaled $969,000 at September 30, 1999 consisted of
8 single-family residential mortgage loans aggregating $690,000 and
non-performing consumer and commercial business loans totaling $279,000.
At September 30, 1999 the Company's classified assets, which consisted of assets
classified as substandard, doubtful or loss, as well as REO, totaled $1.14
million compared to $1.24 million at June 30, 1999, and further compared to
$1.48 million at September 30, 1998. Included in assets classified substandard
at September 30, 1999 and 1998, and at June 30, 1999, 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. The Company maintains a $4.21 million
investment in a long-term tax-free revenue bond which it has classified as
special mention as a result of a deterioration in cash flow for debt service.
The investment has been performing since its origination. Company management has
met with the debtor and a plan was presented to management to improve these
deficiencies. The Company has underwritten and is reporting $2 million of this
investment as a loan in connection with its due diligence since the bonds are
not rated. This project is being closely monitored by management on a monthly
basis.
<PAGE>
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, 1999, the Company
had $5.69 million in commitments to fund loan originations. In addition, at such
date the Company had undisbursed loans in process for construction loans of
$14.51 million and $16.77 million in undisbursed lines of credit. 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 18, 1999, the Board of Directors declared
a 5% stock dividend and a quarterly cash dividend of $.09 per share, both of
which were paid on September 17, 1999, to stockholders of record as of September
3, 1999.
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, 1999 was 16.06%.
<PAGE>
YEAR 2000 ISSUES
Year 2000 issues result from the inability of many computer programs or
computerized equipment to accurately calculate, store or use data as the year
2000 approaches. Banking, by its nature, is a very data processing intensive
industry. These potential shortcomings could result in a system failure or
miscalculations causing disruptions of operation, including among other things,
a temporary inability to process transactions, track important customer
information, provide convenient access to this information, or engage in normal
business operations. In order to be ready for the year 2000, the Company has
developed a Year 2000 Action Plan (the "Action Plan") which was presented and
approved by the Company's Board of Directors in December 1998. The Action Plan
was developed using both the guidelines outlined in the Federal Financial
Institutions Examination Council's ("FFIEC") "The Effect of 2000 on Computer
Systems" as well as guidance provided by the Securities and Exchange Commission
(the "SEC"). The Company's Board of Directors assigned responsibility for the
Action Plan to the Year 2000 Project Team chaired by the Company's President and
Chief Operating Officer who reports to the Board of Directors with respect to
the status of the implementation of the Action Plan on a monthly basis. The
Action Plan recognizes that the Company's operating, processing and accounting
operations are computer reliant and could be significantly affected by the Year
2000 Issue. The Company is primarily reliant on third party vendors for its
computer output and processing, as well as other significant functions and
services (i.e., securities transactional and safekeeping services, securities
pricing information, etc.). The Year 2000 Project Team is currently working with
these third party vendors to assess their Year 2000 readiness and are performing
Year 2000 testing as required. Based on an ongoing assessment management
presently believes that with the recent conversions and modifications to the
Company's software and hardware, including a conversion by the Bank to a new
core data processing system in October 1998, the Company and its third party
vendors are taking the appropriate steps to ensure critical systems will
function properly.
Please be advised that this portion of the quarterly report is designated as a
Year 2000 readiness disclosure pursuant to the Year 2000 information and
readiness disclosure act (Public Law 105-271, October 19, 1998). It is intended
for informational purposes only and is not intended to be a representation or
warranty.
<PAGE>
Company's State of Readiness
The Bank has identified five mission critical systems (without which the Bank
cannot operate) and critical applications (necessary applications but the
Company can function for a moderate amount of time without such applications
being Year 2000 compliant) operated or supported by third party vendors. These
five mission critical systems include: 1) the core data service processing
system for deposit, loan and general ledger account processing; 2) the
Electronic Network which controls the Bank's ATMs and telephone voice response
units, as well as processes its ATM cards and debit cards; 3) the equipment and
software that processes the Bank's item processing and check inclearing; 4) the
Wide Area Network ("WAN") which facilitates electronic communications between
the Bank's branches and its core processor; and 5) the software that processes
the backroom statement operations for the Bank's Trust Division. Of such mission
critical systems and critical applications, the Company has been informed by a
substantial majority of its vendors that they are either Year 2000 compliant or
that they will be compliant and are in the process of revising and testing their
systems for Year 2000 compliance. The most critical system for the Bank is its
core data processing service which is provided by a third party vendor ("DPS
Provider"). The DPS Provider services over 1,000 banks nationally. In May 1998,
the Bank entered into an agreement with the DPS Provider whereby the DPS
Provider warranted certain conditions regarding Year 2000 compliance. The DPS
Provider has informed the Bank that it has completed the testing of its systems.
The Bank has received and will continue to receive and review carefully the
results of the DPS Provider testing. Phase I and Phase II of testing of the DPS
Provider system was completed in July 1998 and December 1998, respectively, with
substantially all such systems evidencing Year 2000 compliance.
All of the Company's vendors of its mission critical systems and critical
applications have provided written assurances that their products and services
will be Year 2000 compliant. As of September 30, 1999, the Company successfully
completed its mission critical modifications and conversions and related testing
of all mission critical and non-mission critical systems.
The Year 2000 issues also affect certain of the Bank's customers, particularly
in the areas of access to funds and additional expenditures to achieve
compliance. As of September 30, 1998, Bank personnel had contacted all
commercial credit customers regarding the customers' awareness of the Year 2000
Issue. At that time the Bank adopted the FFIEC Millennium Risk Evaluation
Package ("FFIEC Package") as the standard for evaluating the Bank risk in
relation to Year 2000 issues. From the customer responses, the Bank identified
42 potential risk customers whose operations were considered to be heavy users
of computer based systems or considered a risk either by virtue of their
business complexity or the complexity of their borrowings. The officer of record
was given the responsibility of determining the risk level that each client
posed using the FFIEC Package. The risk level was considered to be low on all
but three of these clients and these three were considered to have medium risk.
Those identified to be anything but low risk will be monitored quarterly by the
officer of record. While no assurance can be given that its customers will be
Year 2000 compliant, management believes, based on representations of such
customers and reviews of their operations (including assessments of the
borrowers' level of sophistication and data and record keeping requirements),
that the customers are either addressing the appropriate issues to insure
compliance or that they are not faced with material Year 2000 issues. The
respondents stated that they were, at the very least, sufficiently compliant to
avoid disruption of the cash flow stream necessary to service debt. In addition,
in substantially all cases the credit extended to such borrowers is
collateralized by real estate or business assets which inherently minimizes the
Bank's exposure in the event that such borrowers do experience problems or
delays becoming Year 2000 compliant.
<PAGE>
PCIS, pursuant to Section 240.17a-5(e)(5)(iii) of the Securities Exchange Act of
1934, filed Part I and Part II of Form BD-Y2K with the SEC which applies to
brokers with minimum net capital of $100,000 or more. Part I and Part II of Form
BD-Y2K was filed in August 1998 and included PCIS's Year 2000 Action Plan,
including contingency planning and timeline. Part I and Part II of Form BD-Y2K
were also required to be filed with the SEC by April 30, 1999 and included an
update for PCIS's Year 2000 planning as of March 15, 1999. PCIS has identified
three mission critical systems within its operations. These three mission
critical systems include: 1) clearing brokerage service, client account
statement production and client account maintenance; 2) investment market
services including stock and bond quote information as well as newswire
informational service; and 3) the internal personal computer Local Area Network
("LAN") system. The two vendors which provide the clearing brokerage services
and the investment market services have upgraded to Year 2000 certified software
which PCIS installed during the first quarter of calendar 1999. The contracts
signed with both vendors include Year 2000 compliance assurances. Installation
and testing of this software has been completed by PCIS. The LAN networks are
also being replaced with software that is assured to be Year 2000 compliant.
Virtually all the personal computer equipment was replaced as a result of the
new specification requirements dictated by the clearing brokerage and investment
market service vendors, and is Year 2000 compliant certified. PCIS is a member
of the National Association of Securities Dealers, Inc. (the "NASD") and as such
is required to report to the NASD on a regular basis. This reporting process is
done electronically through software that the NASD provides. PCIS has been
informed by the NASD that the software is Year 2000 compliant.
Risks of Year 2000
While the Company has received assurances from such vendors as to compliance,
such assurances are not guarantees and may not be enforceable, or often limit
the warrantor's liability or excluded liability for consequential damages. The
Company's existing older contracts with such vendors do not include Year 2000
certifications or warranties. Thus, in the event such vendors' products and/or
services are not Year 2000 compliant, the Company's recourse in the event of
such failure may be limited. If the required modifications and conversions are
not made, or are not completed on a timely basis, the Year 2000 Issue could have
a material impact on the operations of the Company. There can be no assurance
that potential systems interruptions or unanticipated additional expense
incurred to obtain Year 2000 compliance would not have a material adverse effect
on the Company's business, financial condition, results of operations and
business prospects. Nevertheless, the Company does not believe that the cost of
addressing the Year 2000 issues will be a material event or uncertainty that
would cause reported financial information not to be necessarily indicative of
future operating results or financial conditions, nor does it believe that the
costs or the consequences of incomplete or untimely resolution of its Year 2000
issues represent a known material event or uncertainty that is reasonably likely
to affect its future financial results, or cause its reported financial
information not to be necessarily indicative of future operating results or
future financial condition.
<PAGE>
Contingency Plans
The Company's Year 2000 Action Plan included a company-wide Year 2000
contingency plan. Individual contingency plans concerning specific software and
hardware issues and operational plans for continuing operations were completed
for a substantial majority of its mission critical hardware and software
applications as of December 31, 1998, with the remainder completed by March 31,
1999. The Year 2000 Project Team is reviewing substantially all mission critical
test plans and contingency plans to ensure the reasonableness of the plans. The
Company's contingency plans also include plans which address operational
policies and procedures in the event of data processing, electric power supply
and/or telephone service failures associated with the Year 2000. Such
contingency plans provide, to the best of the Company's ability, documented
actions to allow the Company to maintain and/or resume normal operations in the
event of the failure of mission critical and critical applications. Such plans
identify participants, processes and equipment that will be necessary to permit
the Company to continue operations on a limited basis. Such plans may include
providing off-line system processing, back-up electrical and telephone systems
and other methods to ensure the Company's ability to continue to operate.
Pursuant to FFIEC guidelines, the Bank has adopted a liquidity contingency plan
to address the potential liquidity issues that federal banking regulators have
raised. This plan includes ordering extra currency, utilizing lines of credit
and holding more liquid investments in order to provide the Bank with the
ability to maintain smooth operations in the event of abnormally large
withdrawals of funds by consumers concerned with the effect of the advent of the
Year 2000.
Costs of Year 2000
The Company did not incur any costs associated with the Year 2000 project during
the first quarter and does not anticipate incurring any additional costs for the
Year 2000 project.
<PAGE>
RECENT ACCOUNTING ANNOUNCEMENTS
In June 1998 the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." This statement (as amended by SFAS No. 137
in June, 1999) 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. SFAS No. 133, as amended, is effective for all
fiscal quarters of fiscal years beginning after June 15, 2000. 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 the
Company's 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.
<PAGE>
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
estimates, based on historical trends of the Bank's deposit accounts, that 52%
of its money market and NOW accounts are sensitive to interest rate changes and
that 7% of its savings deposits are sensitive to interest rate changes.
Accordingly, these interest sensitive portions of such liabilities are
classified in the less than one year categories with the remainder placed 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. Although interest rate sensitivity gap
is a useful measurement and contributes towards effective asset/liability
management, it is difficult to predict the effect of changing interest rates
solely on that measure. An alternative methodology is to estimate the changes in
the Company's portfolio equity over a range of interest rate scenarios.
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, 1999, the Company serviced $16.70
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, 1999
(Dollars in thousands)
More Than More Than More Than More Than
Three Months Six Months One Year Three Years
Three Months Through Through Through Through
or Less Six Months One Year Three Years Five Years
------------ ------------ ---------- ----------- ----------
<S> <C> <C> <C> <C> <C>
INTEREST-EARNING ASSETS:
Loans: (1)
Real estate (2) $ 20,271 $ 15,573 $ 35,097 $ 81,881 $ 44,501
Commercial 9,852 1,541 2,046 3,401 700
Consumer 8,093 1,996 4,262 13,982 9,144
Securities and interest-bearing deposits 42,603 1,184 5,215 14,833 21,961
--------- --------- --------- --------- ---------
Total interest-earning assets $ 80,819 $ 20,294 $ 46,620 $ 114,097 $ 76,306
--------- --------- --------- --------- ---------
INTEREST-BEARING LIABILITIES:
Savings accounts $ 501 $ 500 $ 999 $ -- $ --
NOW accounts 450 450 900 -- --
Money market accounts 45,931 -- -- -- --
Certificate accounts 68,974 22,726 34,852 67,630 8,937
Borrowings 57,442 18 4,114 8,324 13,055
--------- --------- --------- --------- ---------
Total interest-bearing liabilities $ 173,298 $ 23,694 $ 40,865 $ 75,954 $ 21,992
--------- --------- --------- --------- ---------
Cumulative excess of interest-earning assets
to interest-bearing liabilities ($ 92,479) ($ 95,879) ($ 90,124) ($ 51,981) $ 2,333
========= ========= ========= ========= =========
Cumulative ratio of interest rate-sensitive
assets to interest rate-sensitive liabilities 46.6% 51.3% 62.1% 83.4% 100.7%
========= ========= ========= ========= =========
Cumulative difference as a percentage of
total assets (19.5%) (20.3%) (19.0%) (11.0%) 0.5%
========= ========= ========= ========= =========
<PAGE>
<CAPTION>
More Than
Five Years Total
---------- ----------
<S> <C> <C>
INTEREST-EARNING ASSETS:
Loans: (1)
Real estate (2) $ 38,762 $ 236,085
Commercial 40 17,580
Consumer 14,730 52,207
Securities and interest-bearing deposits 63,290 149,086
--------- ---------
Total interest-earning assets $ 116,822 $ 454,958
--------- ---------
INTEREST-BEARING LIABILITIES:
Savings accounts $ 25,002 $ 27,002
NOW accounts 34,726 36,526
Money market accounts -- 45,931
Certificate accounts 2,484 205,603
Borrowings 13,477 96,430
--------- ---------
Total interest-bearing liabilities $ 75,689 $ 411,492
--------- ---------
Cumulative excess of interest-earning assets
to interest-bearing liabilities $ 43,466 $ 43,466
========= =========
Cumulative ratio of interest rate-sensitive
assets to interest rate-sensitive liabilities 110.6% 110.6%
========= =========
Cumulative difference as a percentage of
total assets 9.2% 9.2%
========= =========
</TABLE>
(1) Net of undisbursed loan proceeds.
(2) Includes commercial mortgage loans.
Certain shortcomings are inherent in the method of analysis presented in the
table above. For example, although certain assets and liabilities may have
similar maturities or periods to repricing, they may react in different degrees
to changes in market interest rates. Also, the interest rates on certain types
of assets and liabilities may fluctuate in advance of changes in market interest
rates, while interest rates on other types may lag behind changes in market
rates. Additionally, certain assets, such as adjustable-rate loans, have
features which restrict changes in interest rates both on a short-term basis and
over the life of the asset. Further, in the event of changes in interest rates,
prepayment and early withdrawal levels would likely deviate significantly from
those assumed in calculating the table. Finally, the ability of many borrowers
to service their adjustable-rate loans may decrease in the event of an interest
rate increase.
<PAGE>
Part II. Other Information
Item 1. Legal Proceedings
None
Item 2. Changes in Securities and Use of Proceeds
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 stockholders was held on
October 27, 1999. The following matters were presented for
stockholder action at such meeting:
(1) To elect three directors for a term of three years or
until their successors have been elected and qualified:
Name Votes For Votes Withheld
---- --------- --------------
Gerard F. Griesser 3,328,179 3,352
Richard L. Radcliff 3,325,925 5,606
Emory S. Todd, Jr. 3,328,179 3,352
(2) To ratify the appointment of KPMG LLP as the Company's
independent auditors for the fiscal year ending June 30,
2000:
Votes For Votes Against Votes Abstained
--------- ------------- ---------------
3,325,246 2,003 4,278
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 11-12-99 /s/Ellen Ann Roberts
------------------------ ------------------------------------
Ellen Ann Roberts
Chairman and Chief Executive Officer
Date 11-12-99 /s/Anthony J. Biondi
------------------------ ------------------------------------
Anthony J. Biondi
President and Chief Operating Officer
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-2000
<PERIOD-START> JUL-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 7,806
<INT-BEARING-DEPOSITS> 5,251
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 8,947
<INVESTMENTS-HELD-FOR-SALE> 122,473
<INVESTMENTS-CARRYING> 7,459
<INVESTMENTS-MARKET> 7,474
<LOANS> 305,115
<ALLOWANCE> 3,721
<TOTAL-ASSETS> 473,249
<DEPOSITS> 346,169
<SHORT-TERM> 52,966
<LIABILITIES-OTHER> 4,322
<LONG-TERM> 36,506
0
0
<COMMON> 3,898
<OTHER-SE> 29,389
<TOTAL-LIABILITIES-AND-EQUITY> 473,249
<INTEREST-LOAN> 5,900
<INTEREST-INVEST> 2,342
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 8,242
<INTEREST-DEPOSIT> 3,457
<INTEREST-EXPENSE> 4,371
<INTEREST-INCOME-NET> 3,871
<LOAN-LOSSES> 105
<SECURITIES-GAINS> 1
<EXPENSE-OTHER> 3,322
<INCOME-PRETAX> 1,702
<INCOME-PRE-EXTRAORDINARY> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,280
<EPS-BASIC> .33
<EPS-DILUTED> .33
<YIELD-ACTUAL> 3.50
<LOANS-NON> 969
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 1,142
<ALLOWANCE-OPEN> 3,651
<CHARGE-OFFS> 35
<RECOVERIES> 0
<ALLOWANCE-CLOSE> 3,721
<ALLOWANCE-DOMESTIC> 3,721
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 2,050
</TABLE>
