CHESTER VALLEY BANCORP INC.
REPORTS THIRD QUARTER EARNINGS
FOR IMMEDIATE RELEASE
FRIDAY APRIL 29, 2005
CONTACT: JOSEPH T. CROWLEY
TREASURER & CHIEF FINANCIAL OFFICER
(610) 269-9700 EXT. 3085
Downingtown - Chester Valley Bancorp Inc. announces that the Company posted
earnings of $194 thousand for its third quarter ended March 31, 2005. Excluding
charges related to the prepayment of Federal Home Loan Bank borrowings of $1.6
million and approximately $439 thousand in merger and integration charges
related to the Company's previously announced acquisition by Willow Grove
Bancorp, the Company's pre-tax operating income (income before income taxes
excluding gains or losses on the sale of investment securities) increased 17.3%
to $2.1 million for the quarter ended March 31, 2005 from $1.8 million for the
quarter ended March 31, 2004. As previously disclosed in a Form 8-K filed with
the Securities and Exchange Commission, the Company prepaid approximately $21.0
million in Federal Home Loan Bank Borrowings with an average cost of 5.95%,
resulting in a prepayment penalty of approximately $1.6 million. Coincident with
the repayment of the borrowings, the Company sold approximately $10.7 million in
residential mortgage loans with an average yield of approximately 5.23%. At the
time of the repayment, a rise in market interest rates resulted in an
approximate $500 thousand reduction in the prepayment penalty and therefore the
company elected to repay the borrowings as it was contemplated as part of the
acquisition and would be beneficial to future operations on a stand alone basis.
On a diluted share basis, the Company earned $0.04 per diluted share for the
quarter ended March 31, 2005 as compared to $0.30 for the quarter ended March
31, 2004. Earnings for the nine months ended March 31, 2005 were $3.321 million
as compared to $4.718 million for same period in 2004. Diluted earnings per
share were $0.62 for the nine months ended March 31, 2005 and $0.90 for the same
period in 2004.
On January 21, 2005, the Company announced it signed a definitive agreement with
Willow Grove Bancorp, Inc. to combine their companies and their respective
subsidiary banks, Willow Grove Bank and First Financial Bank. To date, the
merger process is moving forward as scheduled, and will be voted on by each
company's shareholders at special meetings to be held on June 14, 2005. For more
information, please refer to the Company's joint proxy/prospectus filed with the
Securities and Exchange Commission on April 27, 2005.
Donna Coughey President and CEO commented, "The need for locally managed,
community-oriented banking has never been greater. Together, Willow Grove
Bancorp and Chester Valley Bancorp will serve some of the fastest -growing and
most attractive markets in Southeastern Pennsylvania. We will form the
foundation of a super-community bank that provides a broad range of consumer and
commercial banking products, have a higher legal lending limit, and an expanded
branch and ATM network to customers. We look forward to the completion of the
transaction and a new era in banking in Southeastern Pennsylvania."
While earnings were negatively impacted by the above noted charges, the Company
reported net interest income of $5.4 million and $15.7 million for the three and
nine months ended March 31, 2005, respectively. This compares to $4.7 million
and $14.2 million for the comparable periods ended March 31, 2004, respectively.
This represents a 14.1% increase for the quarter and a 10.8% increase for the
year to date results. After years of pressure and a resulting decline in the
Company's net interest margin, the Federal Reserve Bank's recent rate hikes
along with the growth experienced within the loan portfolio, have positively
impacted the Company's net interest margin. The net interest margin (computed on
a fully tax equivalent basis) increased to 3.52% during the quarter from 3.50%
for the quarter ended December 31, 2004. This represents the fourth consecutive
sequential quarter in which the Company has experienced an increase in its net
interest margin. Potential future increases in short-term interest rates as well
as the above borrowings repayment should have a positive impact on the Company's
net interest margin and earnings, as the Company continues to be asset
sensitive.
Non-interest income remained relatively flat for the quarter ended March 31,
2005 as compared to the quarter ended March 31, 2004. Reductions in gains on the
sale of securities and investment services income were off-set by increases in
service charges and fees as well as gains on the sale of loans. Loan sales
increased as a result of the above noted loan sale as well as increased sales
volume due largely to a change in the platform on which the Company originates
its residential mortgage loans held for sale. Service charges and fees increased
due to increases in deposit fees resultant from a growth in transaction type
deposit accounts (i.e. Consumer and business checking, money market and savings)
as well as a fee earned on a commercial mortgage loan.
Operating expenses increased for the quarter ended March 31, 2005 as compared to
the quarter ended March 31, 2004, due primarily to the afore-mentioned
prepayment penalty on borrowings and the merger and integration costs.
Additionally, legal expenses increased by approximately $115 thousand in
connection with services provided in relation to the Company's complying with
the subpoena from the Securities and Exchange Commission as previously disclosed
in the Form 8-K filed on March 16, 2005 with the Securities and Exchange
Commission. Additionally, compensation and benefits increased as a result of
normal salary increases for the year as well as the Company's significant
investment in its future. The Company expanded its retail brokerage business
personnel in September 2004. Additionally, on a yearly comparison, the Bank
hired six lending and private-banking relationship managers who became available
as a result of the consolidation within the local community banking market
experienced over the last twelve months. In addition the Bank expanded its
branch network through the Coatesville and Avondale branch acquisitions from PNC
National Bank in March 2004 and December 2004, respectively. Additionally, in
August 2004, the Bank opened a loan production office in Plymouth Meeting,
Montgomery County, Pennsylvania, an area that was largely impacted by the
afore-mentioned consolidation; and a Private Client office in West Chester
Borough in June 2004 to better serve the complex needs of affluent clients and
the professionals who handle their business affairs. As with other institutions,
the Company has incurred increased costs related to the implementation of the
final rules of Section 404 of the Sarbanes-Oxley Act of 2002.
At March 31, 2005, total assets increased to $674.4 million as compared to total
assets of $642.1 million at June 30, 2004, or 5.0%. At March 31, 2005, net loans
receivable increased by $34.7 million or 8.8% to $429.8 million as compared to
$395.1 million at June 30, 2004. For the quarter ended March 31, 2005, the loan
portfolio (excluding the afore-mentioned sale of single family mortgages)
increased $16.9 million or 4.0% as compared to net loans receivable at December
31, 2004. The growth continues to be concentrated in construction and commercial
loans.
The loan growth was funded primarily through a reduction in interest-bearing
deposits as well as deposit growth, both internally and as a result of the
Avondale branch acquisition. As in the prior quarter, the Company continues to
have a large amount in undisbursed closed construction and commercial loans
available for future funding, which aggregate $72.5 million at March 31, 2005.
Additionally, at March 31, 2005, the pipeline remains strong at approximately
$44.8 million, mostly in commercial and construction loans. The loans are at
various stages of the commitment and customer acceptance process. The ultimate
closing of these loans is dependent upon a number of factors including but not
limited to; (a) competition within the marketplace, (b) changes in interest
rates during the process and (c) other factors impacting the customer. At March
31, 2005, the Company's non-performing assets to total assets declined to 0.52%
from 0.54% at December 31, 2004. Additionally, the allowance for loan losses to
non-performing loans increased to 200.0% at March 31, 2005 from 190.5% at
December 31, 2004. The improved credit quality measurements were attributed
primarily to improvement in the balance of classified loans.
Donna Coughey, President and CEO added, "While loan demand remains strong, the
competition within our market is intense for both loans and deposits. The
anticipated continued rising interest rate environment could, however, pose a
challenge in maintaining the type of deposit growth experienced in the more
recent years as the competition becomes aggressive in its pricing strategies to
maintain and/or increase market share. However, the successful acquisition of
the Avondale and Coatesville branches from PNC National Bank and the future
opening of a de novo branch in Oxford provide us with growth opportunities not
available to the Bank in past years. We will continue to seek opportunities to
enhance our existing branch networks through both external acquisitions as well
as internal growth."
Chester Valley Bancorp Inc. is the parent company of both First Financial Bank
and Philadelphia Corporation for Investment Services. First Financial's
executive offices are located in Downingtown, Pennsylvania with branches in
Exton, Frazer, Thorndale, Westtown, Airport Village, Brandywine Square, Devon,
Kennett Square, Eagle Square, Coatesville, Avondale and West Chester.
Philadelphia Corporation has offices in Wayne and Philadelphia. Additionally,
the Company will open a thirteenth branch in the future in Oxford, Chester
County, Pennsylvania.
Chester Valley Bancorp stock is traded on the NASDAQ market under the symbol
"CVAL".
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
combined company, including expected synergies resulting from the merger of
Willow Grove Bancorp and Chester Valley Bancorp, 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 risks
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 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 Willow Grove Bancorp and Chester Valley
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 Willow Grove Bancorp's and Chester Valley 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 December 31, 2004. This message speaks only as of its date,
and Willow Grove Bancorp and Chester Valley 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 was filed with the SEC on March 28,
2005. WILLOW GROVE BANCORP AND CHESTER VALLEY 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 ARE A
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 Willow Grove Bancorp and Chester Valley Bancorp.
Shareholders will be able to obtain the documents free of charge at the SEC's
website, www.sec.gov, from Willow Grove Bancorp by calling Christopher E. Bell
or from Chester Valley Bancorp by calling Joseph Crowley.
PARTICIPANTS IN SOLICITATION. Willow Grove Bancorp, Chester Valley 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 participants 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. Information concerning persons who may be considered
participants 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. Additional information regarding the interests of participants of Willow
Grove Bancorp and Chester Valley Bancorp in the solicitation of proxies in
respect of the merger is included in the registration statement and joint proxy
statement/prospectus filed with the SEC.
CHESTER VALLEY BANCORP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Dollars in Thousands)
MARCH 31, JUNE 30,
2005 2004
---------- ----------
ASSETS
Cash in banks $ 14,003 $ 12,844
Interest-bearing deposits 2,541 15,352
---------- ----------
TOTAL CASH AND CASH EQUIVALENTS 16,544 28,196
---------- ----------
Trading account securities 13 8
Investment securities available for sale 130,698 130,089
Investment securities held to maturity (fair value -
March 31, 2005, $60,341
June 30, 2004, $57,779) 61,352 59,384
Loans held for sale 747 538
Loans receivable 436,984 401,965
Deferred fees (420) (508)
Allowance for loan losses (6,793) (6,331)
---------- ----------
Loans receivable, net 429,771 395,126
---------- ----------
Accrued interest receivable 3,236 2,652
Property and equipment - net 14,083 13,009
Bank owned life insurance 5,579 5,414
Real estate owned 54 54
Goodwill 2,416 1,171
Intangible assets 806 384
Other assets 9,102 6,083
---------- ----------
TOTAL ASSETS $ 674,401 $ 642,108
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits $ 456,936 $ 427,103
Securities sold under agreements to repurchase 21,875 27,216
Advance payments by borrowers for taxes and insurance 977 1,433
Federal Home Loan Bank advances 127,086 120,963
Trust preferred securities 10,310 10,310
Accrued interest payable 736 679
Other liabilities 2,249 2,147
---------- ----------
TOTAL LIABILITIES 620,169 589,851
---------- ----------
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;
5,161,911 and 4,876,484 shares issued and outstanding
at March 31, 2005 and June 30, 2004, respectively 5,162 4,876
Additional paid-in capital 41,527 36,247
Retained earnings - partially restricted 10,149 13,303
Treasury stock (612 and 583 shares at March 31, 2005 and June 30,
2004, respectively, at cost) (13) (13)
Accumulated other comprehensive income (loss) (2,593) (2,156)
---------- ----------
TOTAL STOCKHOLDERS' EQUITY 54,232 52,257
---------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 674,401 $ 642,108
========== ==========
CHESTER VALLEY BANCORP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in Thousands, Except for Per Share Amounts)
THREE MONTHS ENDED MARCH 31,
----------------------------
2005 2004
------------ ------------
INTEREST INCOME:
Loans $ 6,378 $ 5,690
Mortgage-backed securities 431 396
Interest-bearing deposits 39 16
Investment securities:
Taxable 1,300 844
Non-taxable 339 423
---------- ----------
TOTAL INTEREST INCOME 8,487 7,369
---------- ----------
INTEREST EXPENSE:
Deposits 1,419 1,258
Securities sold under agreements to repurchase 87 21
Short-term borrowings 65 70
Long-term borrowings 1,501 1,275
---------- ----------
TOTAL INTEREST EXPENSE 3,072 2,624
---------- ----------
NET INTEREST INCOME 5,415 4,745
Provision for loan losses 112 180
---------- ----------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 5,303 4,565
---------- ----------
OTHER INCOME:
Investment services income 1,014 1,096
Service charges and fees 1,037 716
Gain on the sale of:
Loans 129 15
Available for sale 32 378
Other 110 108
---------- ----------
TOTAL OTHER INCOME 2,322 2,313
---------- ----------
OPERATING EXPENSES:
Salaries and employee benefits 3,092 2,825
Occupancy and equipment 867 752
Data processing 272 278
Advertising 114 89
Deposit insurance premiums 15 15
Merger and integration charges 439 --
Debt prepayment fees 1,608 --
Other 1,173 785
---------- ----------
TOTAL OPERATING EXPENSES 7,580 4,744
---------- ----------
Income before income taxes 45 2,134
Income tax (benefit) Expense (149) 528
---------- ----------
NET INCOME $ 194 $ 1,606
========== ==========
EARNINGS PER SHARE (1)
Basic $ 0.04 $ 0.32
========== ==========
Diluted $ 0.04 $ 0.30
========== ==========
DIVIDENDS PER SHARE PAID DURING PERIOD (1) $ 0.11 $ 0.10
========== ==========
WEIGHTED AVERAGE SHARES OUTSTANDING (1)
Basic 5,154,885 5,096,848
========== ==========
Diluted 5,399,024 5,292,764
========== ==========
(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 2004
CHESTER VALLEY BANCORP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in Thousands, Except for Per Share Amounts)
NINE MONTHS ENDED MARCH 31,
---------------------------
2005 2004
---------- ----------
INTEREST INCOME:
Loans $ 18,280 $ 17,682
Mortgage-backed securities 1,217 1,145
Interest-bearing deposits 74 47
Investment securities:
Taxable 3,905 2,040
Non-taxable 1,030 1,320
---------- ----------
TOTAL INTEREST INCOME 24,506 22,234
---------- ----------
INTEREST EXPENSE:
Deposits 4,075 3,996
Securities sold under agreements to repurchase 201 79
Short-term borrowings 270 130
Long-term borrowings 4,228 3,833
---------- ----------
TOTAL INTEREST EXPENSE 8,774 8,038
---------- ----------
NET INTEREST INCOME 15,732 14,196
Provision for loan losses 470 856
---------- ----------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 15,262 13,340
---------- ----------
OTHER INCOME:
Investment services income 3,202 3,204
Service charges and fees 2,644 2,243
Gain on the sale of:
Loans 282 100
Available for sale
290 1,012
Other 346 338
---------- ----------
TOTAL OTHER INCOME 6,764 6,897
---------- ----------
OPERATING EXPENSES:
Salaries and employee benefits 8,944 7,955
Occupancy and equipment 2,350 2,176
Data processing 796 737
Advertising 277 168
Deposit insurance premiums 47 46
Merger and integration charges 439 --
Debt prepayment fees 1,608 --
Other 3,260 2,961
---------- ----------
TOTAL OPERATING EXPENSES 17,721 14,043
---------- ----------
Income before income taxes 4,305 6,194
Income tax expense 984 1,476
---------- ----------
NET INCOME $ 3,321 $ 4,718
========== ==========
EARNINGS PER SHARE (1)
Basic $ 0.65 $ 0.93
========== ==========
Diluted $ 0.62 $ 0.90
========== ==========
DIVIDENDS PER SHARE PAID DURING PERIOD (1) $ 0.32 $ 0.30
========== ==========
WEIGHTED AVERAGE SHARES OUTSTANDING (1)
Basic 5,141,423 5,074,308
========== ==========
Diluted 5,334,583 5,264,381
========== ==========
(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 2004
CHESTER VALLEY BANCORP INC. AND SUBSIDIARIES
FINANCIAL HIGHLIGHTS
THREE MONTHS ENDED NINE MONTHS ENDED
MARCH 31, MARCH 31,
----------------------------- -----------------------------
2005 2004 2005 2004
------------ ------------- ------------- -------------
Average interest rate spread (2) 3.43% 3.36% 3.44% 3.41%
Net yield on average interest-earning assets (2) 3.52% 3.48% 3.50% 3.47%
Ratio of average interest-earning
assets to average interest-bearing liabilities 1.03 X 1.05 x 1.04 X 1.05 x
Non-performing assets to total assets 0.52% 0.69% 0.52% 0.69%
Allowance for loan loss to total loans 1.58% 1.58% 1.58% 1.58%
Return on equity 1.41% 12.20% 8.17% 12.33%
Return on assets 0.12% 1.06% 0.67% 1.05%
Book value per common share (1) $10.51 $10.44 $10.51 $10.44
Closing price of common stock at end of
period (1) $25.50 $20.86 $25.50 $20.86
Number of full-service offices at end of period 13 11 13 11
(1) Per share amounts have been restated to reflect the effects of the 5% stock
dividend paid in September 2004.
(2) Percentages are presented on a taxable equivalent basis.
The following details the tax equivalent adjustments in the above table:
THREE MONTHS ENDED MARCH 31,
----------------------------------------------------------------------------------------
2005 2004
------------------------------------------ ------------------------------------------
INTEREST TAX ADJUSTED INTEREST TAX ADJUSTED
INCOME ADJUSTMENT INCOME INCOME ADJUSTMENT INCOME
------------------------------------------ ------------------------------------------
(Dollars in thousands)
Loans $ 6,378 $ 29 $ 6,407 $ 5,690 $ 15 $ 5,705
Investments 2,109 127 2,236 1,679 158 1,837
------------------------------------------ ------------------------------------------
Total $ 8,487 $ 156 $ 8,643 $ 7,369 $ 173 $ 7,542
========================================== ==========================================
NINE MONTHS ENDED MARCH 31,
----------------------------------------------------------------------------------------
2005 2004
------------------------------------------ ------------------------------------------
INTEREST TAX ADJUSTED INTEREST TAX ADJUSTED
INCOME ADJUSTMENT INCOME INCOME ADJUSTMENT INCOME
------------------------------------------ ------------------------------------------
(Dollars in thousands)
Loans $ 18,280 $ 67 $ 18,347 $ 17,682 $ 45 $ 17,727
Investments 6,226 384 6,610 4,552 494 5,046
------------------------------------------ ------------------------------------------
Total $ 24,506 $ 451 $ 24,957 $ 22,234 $ 539 $ 22,773
========================================== ==========================================