CVAL Chester Valley Bancorp (MM)

Chester Valley Bancorp Inc. Reports Third Quarter Earnings DOWNINGTOWN, Pa., April 29 /PRNewswire-FirstCall/ -- Chester Valley Bancorp Inc. (NASDAQ:CVAL) 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 standalone 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 offset 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 aforementioned 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 aforementioned 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 aforementioned 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, http://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 2,541 Interest-bearing deposits $12,844 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 DATASOURCE: Chester Valley Bancorp Inc. CONTACT: Joseph T. Crowley, Treasurer & Chief Financial Officer, Chester Valley Bancorp, +1-610-269-9700 ext. 3085 Web site: http://www.ffbonline.com/

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