[GRAPHIC OMITTED] WILLOW GROVE
BANCORP, INC.
ANNOUNCES A STRATEGIC
COMBINATION WITH
[GRAPHIC OMITTED] CHESTER VALLEY BANCORP INC.
JANUARY 21, 2005
DISCLAIMER
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FORWARD LOOKING STATEMENTS. A number of the matters discussed in this message
that are not historical or current facts deal with potential future
circumstances and developments, in particular, information regarding the new
company, including expected synergies resulting from the merger of Chester
Valley Bancorp and Willow Grove Bancorp, combined operating and financial data,
future banking plans, and whether and when the transactions contemplated by the
merger agreement will be consummated. The discussion of such matters is
qualified by the inherent risk and uncertainties surrounding future expectations
generally, and also may materially differ from actual future experience
involving any one or more of such matters. Such risks and uncertainties include:
the failure to realize capital, operating expense and other synergies; the
result of the review of the proposed merger by various regulatory agencies, and
any conditions imposed on the new company in connection with consummation of the
merger; approval of the merger by the shareholders of Chester Valley Bancorp and
Willow Grove Bancorp and satisfaction of various other conditions to the closing
of the merger contemplated by the merger agreement; and the risks that are
described from time to time in Chester Valley Bancorp's and Willow Grove
Bancorp's respective reports filed with the SEC, including each company's annual
report on Form 10-K for the year ended June 30, 2004 and quarterly report on
Form 10-Q for the quarter ended September 30, 2004. This message speaks only as
of its date, and Chester Valley Bancorp and Willow Grove Bancorp each disclaims
any duty to update the information herein.
ADDITIONAL INFORMATION AND WHERE TO FIND IT. In connection with the proposed
merger, a registration statement on Form S-4 will be filed with the SEC. CHESTER
VALLEY BANCORP AND WILLOW GROVE BANCORP SHAREHOLDERS ARE ENCOURAGED TO READ THE
REGISTRATION STATEMENT AND ANY OTHER RELEVANT DOCUMENTS FILED WITH THE SEC,
INCLUDING THE JOINT PROXY STATEMENT/PROSPECTUS THAT WILL BE PART OF THE
REGISTRATION STATEMENT, BECAUSE THEY WILL CONTAIN IMPORTANT INFORMATION ABOUT
THE MERGER. The final joint proxy statement/prospectus will be mailed to
shareholders of Chester Valley Bancorp and Willow Grove Bancorp. Shareholders
will be able to obtain the documents free of charge at the SEC's website,
www.sec.gov, from Chester Valley Bancorp by calling Joseph T. Crowley, or from
Willow Grove Bancorp by calling Christopher E. Bell.
PARTICIPANTS IN SOLICITATION. Chester Valley Bancorp, Willow Grove Bancorp and
their respective directors and executive officers and other members of
management and employees may be deemed to be participants in the solicitation of
proxies in respect of the merger. Information concerning persons who may be
considered participant's in the solicitation of Chester Valley Bancorp's
shareholders is set forth in the proxy statement dated September 10, 2004, for
Chester Valley Bancorp's 2004 annual meeting of shareholders as filed with the
SEC on Schedule 14A. Information concerning persons who may be considered
participant's in the solicitation of Willow Grove Bancorp's shareholders is set
forth in the proxy statement dated October 8, 2004, for Willow Grove Bancorp's
2004 annual meeting of shareholders as filed with the SEC on Schedule 14A.
Additional information regarding the interests of participants of Chester Valley
Bancorp and Willow Grove Bancorp in the solicitation of proxies in respect of
the merger will be included in the registration statement and joint proxy
statement/prospectus to be filed with the SEC.
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[GRAPHIC OMITTED] INTRODUCTION
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TRANSACTION OVERVIEW
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o Willow Grove Bancorp, Inc.'s. ("Willow Grove") and Chester Valley Bancorp,
Inc.'s ("Chester Valley") Boards of Directors have signed a definitive
agreement pursuant to which Willow Grove will acquire Chester Valley in a
strategic combination
o Chester Valley is the parent company of First Financial Bank, the second
largest commercial bank headquartered in Chester County with 13 branches
o Following the consummation of the transaction, Donna M. Coughey will become
the new CEO of the combined entity, taking the place of retiring Willow
Grove CEO, Frederick A. Marcell Jr.
o For three years, each bank is expected to operate as separate divisions of
the combined bank
o The combination will dramatically increase the combined company's presence
in the southeastern Pennsylvania market, with combined assets totaling over
$1.5 billion
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TRANSACTION HIGHLIGHTS
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STRONG STRATEGIC FIT
Strong positions in southeastern PA's most attractive markets
Unique crescent-shaped footprint surrounding Philadelphia
Added senior management with commercial banking expertise
Opportunity to expand trust, asset management and cash management services
COMPLEMENTARY BUSINESSES
Similar customer-focused, community banking operating models
Product diversification, enhanced lending capabilities and improved A/L
management flexibility
Balance sheet diversification
Enhanced demographic profile
ATTRACTIVE FINANCIAL IMPLICATIONS
ccretive to GAAP and cash EPS within the first year of combined operations
Achievable and identified expected cost efficiencies
Effective use of Willow Grove's excess capital
LOW EXECUTION RISK
Shared community banking philosophy
Familiarity of senior management teams
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SUMMARY OF SIGNIFICANT TERMS
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IMPLIED PRICE PER SHARE(1): $27.90
TRANSACTION STRUCTURE: 1.482 shares of Willow Grove stock or $27.90 in
cash for each Chester Valley share, subject to
approximately 35.2% of all Chester Valley
shares to be exchanged for cash
IMPLIED CONSIDERATION MIX(1): Approximately 65% stock / 35% cash
AGGREGATE PURCHASE PRICE(2): $152.5 million
BOARD REPRESENTATION: - 10 Willow Grove / 7 Chester Valley
- Chairman of the Board and Chairman Designee to
come from Willow Grove
DOUBLE TRIGGER WALK-AWAY(3): 25% absolute / 15% versus NASDAQ Bank index
TERMINATION FEE: $6.0 million
ANTICIPATED CLOSING: Third calendar quarter 2005
DUE DILIGENCE: Completed
(1) Price per share for Chester Valley based on Willow Grove's stock price of
$18.82 as of 1/19/05.
(2) Based on approximately 5.1 million of Chester Valley shares outstanding,
and approximately 0.688 million of outstanding options, using the treasury
stock method of accounting.
(3) Based on Willow Grove's stock price of $19.45 and the NASDAQ Bank index of
3,223.9 all as of December 3, 2004.
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DEAL PRICING
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PA BANK TRANSACTIONS(1)
-----------------------
CHESTER VALLEY Median Mean
-------------------------------------------------
PREMIUM TO TRADING MARKET:
--------------------------
1-Day Premium 28.2% 36.6% 38.3%
PRICE AS A MULTIPLE TO:
-----------------------
LTM EPS: 23.4x 23.5x 25.0x
Book: 2.8x 2.6x 2.6x
Tangible Book: 2.9x 2.9x 3.0x
Source: SNL Financial and company filings.
(1) Based on 13 bank transactions announced in Pennsylvania since June 1, 2001
and valued between $50 and $450 million.
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[GRAPHIC OMITTED] STRATEGIC BENEFITS
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WILLOW GROVE BUSINESS OVERVIEW
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WILLOW GROVE BANK
FEDERALLY CHARTERED THRIFT TOTAL ASSETS: $975.6mm
14 full-service branch offices NET LOANS: $537.7mm
Primarily real estate lending TOTAL DEPOSITS: $592.8mm
Primarily serving Montgomery, NET INTEREST MARGIN: 3.29%
Bucks and Philadelphia counties RETURN ON AVG. EQUITY: 6.74%
RETURN ON AVG. ASSETS: 0.77%
3-YEAR LOAN CAGR(1): 10.18%
3-YEAR CORE DEPOSIT CAGR: 22.58%
HEADQUARTERS: Maple Glen, PA
All financial data as of 9/30/04, except CAGR which is based on FY 2001-2004.
(1) Excludes single-family real estate loans.
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CHESTER VALLEY BUSINESS OVERVIEW
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PHILADELPHIA CORP.
FIRST FINANCIAL BANK FOR INVESTMENT
SERVICES
PA CHARTERED COMMERCIAL BANK Asset management
13 full-service branch offices Securities brokerage
Real estate, commercial and Broker / Dealer and
consumer lending investment adviser
Strong deposit mix
Serving Chester County
TOTAL ASSETS: $644.7mm
NET LOANS: $400.1mm
TOTAL DEPOSITS: $429.0mm
NET INTEREST MARGIN: 3.47%
RETURN ON AVG. EQUITY: 11.49%
RETURN ON AVG. ASSETS: 0.94%
3-YEAR LOAN CAGR (1): 17.72%
3-YEAR CORE DEPOSIT CAGR: 23.64%
HEADQUARTERS: Downingtown, PA
SUCCESSFUL TRANSITION TO COMMERCIAL BANK
All financial data as of 9/30/04, except CAGR which is based on FY 2001-2004.
(1) Excludes single-family real estate loans.
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THE COMBINED FRANCHISE
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A $1.5 BILLION COMPANY WITH 27 EXISTING BRANCH
OFFICES IN MONTGOMERY, CHESTER, BUCKS AND
PHILADELPHIA COUNTIES
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STRENGTHENED MARKET PROFILE
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A COMBINED BRANCH NETWORK LOCATED AMONG THE MOST AFFLUENT AND
SOME OF THE FASTEST GROWING COUNTIES IN SOUTHEASTERN PENNSYLVANIA
Projected Projected
Population Median HH Income Estimated
Change HH Income Change Market
Southeastern PA 2004-2009 2004 2004-2009 Share(1)
----------------------------------------------------------------------------------
MOST AFFLUENT COUNTIES
----------------------
[ARROW GRAPHIC OMITTED] CHESTER 7.81% $73,162 14.46% 5.81%
[ARROW GRAPHIC OMITTED] MONTGOMERY 4.55 67,277 10.80 2.62%
[ARROW GRAPHIC OMITTED] BUCKS 4.58 66,580 11.83 0.92%
Delaware 1.10 54,909 10.34 --
FASTEST GROWING COUNTIES
------------------------
[ARROW GRAPHIC OMITTED] CHESTER 7.81% $73,162 14.46% 5.81%
Berks 4.87 48,434 9.92 --
[ARROW GRAPHIC OMITTED] BUCKS 4.58 66,580 11.83 0.92%
[ARROW GRAPHIC OMITTED] MONTGOMERY 4.55 67,277 10.80 2.62%
Source: SNL Financial, except market share data.
(1) Market share data based on FDIC estimated deposits in each county.
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ENHANCED DEPOSIT PORTFOLIO
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CORE DEPOSITS FOR THE COMBINED ENTITY
WILL AMOUNT TO 63% OF TOTAL DEPOSITS
($ in thousands) WILLOW GROVE CHESTER VALLEY PRO FORMA
------------ -------------- ---------
9/30/04 MIX 9/30/04 9/30/04 MIX
------------------------------------------------------------
DDA $128,288 21.6% $133,915 $262,203 25.7%
Savings 87,307 14.7% 32,745 120,052 11.7%
MMDA 107,762 18.2% 148,989 256,751 25.1%
CDs 269,468 45.5% 113,400 382,868 37.5%
-------- ----- -------- ---------- -----
Total $592,825 100.0% $429,049 $1,021,874 100.0%
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LOAN PORTFOLIO DIVERSIFICATION
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THE COMBINED ENTITY WILL HAVE A MORE DIVERSIFIED LOAN
PORTFOLIO WITH AN EMPHASIS ON COMMERCIAL LOANS
($ in thousands) WILLOW GROVE CHESTER VALLEY(1) PRO FORMA
------------ ---------------- ---------
9/30/04 MIX 9/30/04 9/30/04 MIX
-----------------------------------------------------------
Commerical Real Estate $190,812 35.0% $57,062 $247,874 25.3%
Construction 65,400 12.0% 52,078 117,478 12.0%
Commercial & Industrial 15,476 2.8% 139,312 154,788 15.8%
Home Equity & Consumer 96,478 17.7% 116,116 212,594 21.7%
Residential Real Estate 176,113 32.4% 69,658 245,771 25.1%
-------- ----- -------- ---------- -----
Total $544,279 100.0% $434,226 $978,505 100.0%
(1) Chester Valley's portfolio is adjusted for the split in loans made between
Commercial & Industrial Owner-occupied Real Estate and Commercial Real
Estate.
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SUMMARY BALANCE SHEET IMPACT
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($ in thousands) WILLOW GROVE CHESTER VALLEY PRO FORMA (1)
9/30/04 9/30/04 9/30/04
---------------------------------------------------
Assets $975,585 $644,693 $1,620,278
Investment Securities (2) 385,297 190,524 575,821
Net Loans 537,675 400,129 937,804
Deposits 592,825 429,049 1,021,874
Borrowings (3) 270,182 158,814 428,996
(1) Pro Forma excludes all purchase accounting adjustments and may include
assets that may be liquidated to retire borrowings or to fund the cash
consideration and upfront costs associated with this transaction.
(2) Excludes interest earning cash.
(3) Includes trust preferred securities.
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[GRAPHIC OMITTED] FINANCIAL HIGHLIGHTS
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FINANCIAL HIGHLIGHTS
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THE TRANSACTION IS EXPECTED TO BE ACCRETIVE TO EARNINGS
ON A GAAP AND A CASH BASIS WITHIN THE FIRST FULL YEAR OF
COMBINED OPERATIONS
For the first full year of combined operations management expects to attain
approximately $2.2 million of net pre-tax cost savings(1)
Management estimates a core deposit intangible of approximately $10.7 million,
or 2.5% of total deposits to be amortized on an accelerated basis over a 12-year
period
Mark-to-market pre-tax earnings impact as a result of purchase accounting
adjustments estimated to be $650 thousand in the first full year of combined
operations
One-time merger charges are expected to be approximately $6.0 million on a
pre-tax basis, which include charges for transaction costs, change of control
costs, data processing and conversion costs and various other employee related
costs
(1) Does not include any potential transaction related one-time merger
charges / expenses.
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PRO FORMA FY 9/30/04 LTM EARNINGS
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($ in millions, except per share data) PRO FORMA LTM 9/30/04
---------------------
AMOUNT PER SHARE
------ ---------
WILLOW GROVE STANDALONE NET INCOME $6.29 $0.65
CHESTER VALLEY STANDALONE NET INCOME 6.32 1.19
POST TAX ADJUSTMENTS(1):
------------------------
PLUS: COST EFFICIENCIES $1.46 $0.10
MINUS: OPPORTUNITY COST OF CAPITAL(2) (2.71) (0.18)
MINUS: CDI AMORTIZATION (1.08) (0.07)
------ -----
PRO FORMA COMBINED, POST ADJUSTMENTS $10.28 $0.69
ESTIMATED GAAP EPS ACCRETION BEFORE MARK-TO-MARK. ADJS. 6.2%
ESTIMATED GAAP EPS ACCRETION(3) 12.3%
ESTIMATED CASH EPS ACCRETION 16.9%
(1) Assumes a tax rate of 34%.
(2) Assumes (i) the capital used to fund the transaction would have yielded
4.25% and (ii) borrowings paid down in connection with the transaction
would have been invested in assets that would have earned a 125bps spread.
(3) Includes mark-to-market adjustments of $0.65 million or $0.04 per share.
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ACHIEVABLE COST SYNERGIES
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EXPECTED $2.2 MILLION OF COMBINED PRE-TAX COST SAVINGS OR APPROXIMATELY
5.5% OF THE COMBINED COMPANY'S LAST TWELVE MONTHS 9/30/04 OPERATING
EXPENSE(1)
Personnel Expense, Net $1.2
Data Processing 0.4
Other, Net 0.6
------
TOTAL PRE-TAX COST SAVINGS $2.2
(1) Cost savings are for the first twelve months of combined operations.
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CAPITAL RATIOS
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THE COMBINED COMPANY'S BALANCE SHEET WILL REMAIN WELL CAPITALIZED
PRO FORMA
9/30/04 (1)
-----------
Equity / Assets 12.83%
Tangible Equity /
Tangible Assets 7.44%
(1) Ratios assume the sale of $140 million of investment securities and
repayment of approximately $140 million in FHLB borrowings with the balance
of cash used to fund the transaction.
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SIGNIFICANT GROWTH OPPORTUNITIES
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EPS AND CASH EPS FOR THE FIRST TWELVE MONTHS OF COMBINED
OPERATIONS ARE EXPECTED TO BE IN THE RANGE OF $0.95 TO $1.00 AND
$1.07 TO $1.12, RESPECTFULLY
No revenue enhancements assumed
However, there are several potential long-term growth opportunities:
Strong demographic profile of combined communities allows for more
meaningful deposit growth
Higher legal lending limit with local lending decisions
Availability of additional lending products
Alignment of investment portfolio strategies
Cross-selling opportunities between combined branch network with Chester
Valley's Asset Management Division
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TRANSFORMATIONAL TRANSACTION
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ACCRETIVE TO GAAP EARNINGS WITHIN THE FIRST YEAR OF COMBINED OPERATIONS
COMPLEMENTARY BUSINESS MODELS
STRONG FOUNDATION FOR GROWTH IN SOUTHEASTERN PA'S MOST ATTRACTIVE MARKETS
ADDED SENIOR MANAGEMENT DEPTH AND EXPERTISE
ENHANCED PRO FORMA DEPOSIT BASE AND MIX
INCREASED LENDING CAPABILITIES
BALANCE SHEET DIVERSIFICATION
INCREASED A/L MANAGEMENT FLEXIBILITY
LIMITED EXECUTION RISK
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