CVAL Chester Valley Bancorp (MM)

Chester Valley Bancorp Inc. Reports Earnings of $1.5 Million For Its First Quarter DOWNINGTOWN, Pa., Oct. 25 /PRNewswire-FirstCall/ -- Chester Valley Bancorp Inc. (NASDAQ:CVAL) announces that the Company posted earnings of $1.522 million or $0.29 per diluted share for its first quarter ended September 30, 2004. This compared to earnings of $1.514 million or $0.29 per diluted share for the quarter ended September 30, 2003. While earnings were relatively stable from period to period, the Company reported net interest income of $5.114 million for the quarter ended September 30, 2004, an 8.6% increase over the comparable quarter in the prior year. After years of pressure and a resulting decline in the Company's net interest margin, the Federal Reserve Bank's recent rate hikes totaling .75%, have positively impacted the Company's net interest margin. The net interest margin (computed on a fully tax equivalent basis) increased to 3.47% during the quarter from 3.41% for the fourth quarter ended June 30, 2004. Future increases in short-term interest rates should have a positive impact on the Company's earnings, as the Company continues to be asset sensitive. Non-interest income increased to $2.089 million for the quarter ended September 30, 2004, a 3.7% increase over the quarter ended September 30, 2003. The increases occurred primarily in investment services income, including trust fees along with an increase in deposit fees resultant from a growth in transaction type deposit accounts (i.e. Consumer and business checking, money market and savings). The above noted increases were largely offset by an increase in operating expenses, primarily in compensation and benefits. In addition to normal salary increases for the year, the Company has made a significant investment in its future. The Company expanded its retail brokerage business personnel in September 2004. Additionally, on a yearly comparison, the Bank hired seven lending and private-banking relationship managers who became available as a result of the recent consolidation within the local community banking market. In addition the Bank expanded its branch network through the Coatesville branch acquisition from PNC National Bank in March 2004 and the purchase of the Firstrust deposits in Exton. Additionally, 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 to better serve the complex needs of affluent clients and the professionals who handle their business affairs. At September 30, 2004, total assets increased to $644.7 million as compared to total assets of $642.1 million at June 30, 2004. At September 30, 2004, loans receivable, net increased by 1.3% to $400.1 million as compared to $395.1 million at June 30, 2004. Excluding residential mortgage loans, which continued to decline, the loan portfolio grew $9.4 million or 2.9% from June 30, 2004. Additionally, in anticipation of a rising interest rate environment, the Company focused its retail sales personnel on variable rate home equity lines, rather than lock the Bank into longer-term fixed rate assets. The asset growth was funded with both deposits and Federal Home Loan Bank advance borrowings. Although the outstanding loan balances increased by just 1.3%, the Company closed $22.3 million in construction and commercial loans, of which $20.1 million are lines of credit, much of which is expected to fund during the next quarter. Undrawn commercial and construction loans increased by $11.2 million between June 30, 2004 and September 30, 2004. Additionally, at September 30, 2004, the Company had a pipeline of commercial and construction loans of approximately $40.0 million, which were 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. In October 2004, the Company received a $750 thousand principal pay-down on an approximate $2.9 non-performing commercial mortgage. Additionally, the borrower prepaid interest as a condition to the Bank's extension of the maturity date on the remaining balance of the loan. Donna Coughey, President and CEO stated, "While loan demand has increased, the competition within our market is intense. Despite this competition, our loan closings were strong and the future funding of lines of credit closed during the quarter, as well as the restructuring of the loan portfolio achieved through June 30, 2004 will positively impact future earnings. Additionally, our successful acquisition of the Exton deposits from Firstrust bank, the recent announcement of our pending acquisition of the Avondale branch from PNC National Bank and the opening of a de novo branch in Oxford illustrate our commitment and ability to enhance our existing branch networks through both external acquisitions as well as internal growth. We are excited about the recent opening of our Plymouth Meeting loan production office which we believe will provide us with a stronger presence in a market that has been impacted by the recent consolidation within the local community banking industry." 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 and West Chester. Philadelphia Corporation has offices in Wayne and Philadelphia. Chester Valley Bancorp stock is traded on the NASDAQ market under the symbol "CVAL". This press release contains certain "forward-looking statements", either express or implied, which concern anticipated future operations of the Company. While these statements represent management's current judgment on what the future may hold and management believe these judgments are reasonable, actual results may differ materially due to numerous important factors that are described in the Company's filing on the Form-10-K for the year ended June 30, 2004. The Company assumes no duty to update these statements should actual events differ from expectations. CHESTER VALLEY BANCORP INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (Dollars in Thousands) Unaudited September 30, June 30, 2004 2004 Assets Cash in banks Interest-bearing deposits $ 9,977 $ 12,410 12,844 15,352 Total cash and cash equivalents 22,387 28,196 Trading account securities 7 8 Investment securities available for sale 132,777 130,089 Investment securities held to maturity (fair value - September 30, 2004, $57,938 June 30, 2004, $57,779) 57,740 59,384 Loans held for sale 963 538 Loans receivable 406,991 401,965 Deferred fees (476) (508) Allowance for loan losses (6,386) (6,331) Loans receivable, net 400,129 395,126 Accrued interest receivable 3,026 2,652 Property and equipment - net 13,041 13,009 Bank owned life insurance 5,472 5,414 Real estate owned 54 54 Goodwill 1,171 1,171 Other intangible assets 645 384 Other assets 7,281 6,083 Total Assets $ 644,693 $ 642,108 Liabilities and Stockholders' Equity Liabilities: Deposits $ 429,049 $ 427,103 Securities sold under agreements to repurchase 18,265 27,216 Advance payments by borrowers for taxes and insurance 479 1,433 Federal Home Loan Bank advances 130,239 120,963 Trust preferred securities 10,310 10,310 Accrued interest payable 668 679 Other liabilities 1,609 2,147 Total Liabilities 590,619 589,851 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; 5,139,165 and 4,876,484 shares issued and outstanding at September 30, 2004 and June 30, 2004, respectively 5,139 4,876 Additional paid-in capital 41,166 36,247 Retained earnings - partially restricted 9,433 13,303 Treasury stock (612 and 583 shares at September 30, 2004 and June 30, 2004, respectively, at cost) (13) (13) Accumulated other comprehensive income (loss) (1,651) (2,156) Total Stockholders' Equity 54,074 52,257 Total Liabilities and Stockholders' Equity $ 644,693 $ 642,108 CHESTER VALLEY BANCORP INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (Dollars in Thousands, Except for Per Share Amounts) Unaudited Three Months Ended September 30, 2004 2003 INTEREST INCOME: Loans $5,851 $6,094 Mortgage-backed securities 413 342 Interest-bearing deposits 19 8 Investment securities: Taxable 1,288 546 Non-taxable 320 437 Total interest income 7,891 7,427 INTEREST EXPENSE: Deposits 1,317 1,430 Securities sold under agreements to repurchase 46 32 Short-term borrowings 86 27 Long-term borrowings 1,328 1,230 Total interest expense 2,777 2,719 NET INTEREST INCOME 5,114 4,708 Provision for loan losses 102 380 Net interest income after provision for loan losses 5,012 4,328 OTHER INCOME: Investment services income 1,031 984 Service charges and fees 794 771 Gain on the sale of: Loans 71 72 Available for sale 77 75 Other 116 112 Total other income 2,089 2,014 OPERATING EXPENSES: Salaries and employee benefits 2,931 2,440 Occupancy and equipment 736 709 Data processing 254 233 Advertising 81 29 Deposit insurance premiums 16 15 Other 1,041 961 Total operating expenses 5,059 4,387 Income before income taxes 2,042 1,955 Income tax expense 520 441 NET INCOME $1,522 $1,514 EARNINGS PER SHARE (1) Basic $0.30 $0.30 Diluted $0.29 $0.29 DIVIDENDS PER SHARE PAID DURING PERIOD (1) $0.11 $0.10 WEIGHTED AVERAGE SHARES OUTSTANDING (1) Basic 5,122,108 5,044,667 Diluted 5,276,146 5,209,283 (1) Earnings per share, dividends per share and weighted average shares outstanding have been restated to reflect the effects of the 5% stock dividends paid in September 2004 and 2003. CHESTER VALLEY BANCORP INC. AND SUBSIDIARIES FINANCIAL HIGHLIGHTS Three Months Ended September 30, 2004 2003 Average interest rate spread (2) 3.42% 3.47% Net yield on average interest-earning assets (2) 3.47% 3.51% Ratio of average interest-earning assets to average interest-bearing liabilities 1.04 x 1.04 x Non-performing assets to total assets 0.64% 0.79% Allowance for loan loss to total loans 1.60% 1.46% Return on equity 11.49% 12.25% Return on assets 0.94% 1.02% Book value per common share (1) $10.52 $9.84 Closing price of common stock at end of period (1) $19.78 $20.82 Number of full-service offices at end of period 12 10 (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 September 30, 2004 2003 Interest Tax Adjusted Interest Tax Adjusted Income Adjustment Income Income Adjustment Income (Dollars in thousands) Loans $5,851 $19 $5,870 $6,094 $14 $6,108 Investments 2,040 120 2,160 1,333 163 1,496 Total $7,891 $ 139 $8,030 $7,427 $ 177 $7,604 DATASOURCE: Chester Valley Bancorp Inc. CONTACT: Joseph T. Crowley, Treasurer & Chief Financial Officer, Chester Valley Bancorp, +1-610-269-9700 ext. 3085

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