November 14, 2002
VIA: EDGARLINK
OFIS Filer Support
SEC Operations Center
6432 General Green Way
Alexandria, VA 22312
FIRST CHESTER COUNTY CORPORATION
Commission File Number 0-12870
Gentlemen:
Pursuant to the reporting requirements of the Securities and Exchange Act of
1934, we are filing herewith the above listed Registrant's Quarterly Report on
Form 10-Q for the period ended September 30, 2002.
Very truly yours,
J. Duncan Smith, Treasurer
(Principal Accounting
and Financial Officer)
JDS/tbm
Enclosures
cc: John A. Featherman, III, Esquire, MacElree, Harvey, Gallagher, and
Featherman, Ltd., West Chester, PA
Patricia A. Gritzan, Esquire, Saul, Ewing, Remick and Saul LLP,
Philadelphia, PA
Rick Huff, CPA, Grant Thornton LLP, Philadelphia, PA
Joseph T.McGough, VP, First Union Bank, Philadelphia, PA
James Shilling, VP, Kish Bank, Belleville, PA
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10Q
(Mark One)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2002, 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. 0-12870.
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FIRST CHESTER COUNTY CORPORATION
--------------------------------
(Exact name of Registrant as specified in its charter)
Pennsylvania 23-2288763
-------------- ------------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
9 North High Street, West Chester, Pennsylvania 19380
----------------------------------------------- -----
(Address of principal executive office) (Zip code)
(484) 881-4000
--------------
(Registrant's telephone number, including area code)
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
The number of shares outstanding of Common Stock of the Registrant as of
November 8, 2002 was 4,424,948.
FIRST CHESTER COUNTY CORPORATION AND SUBSIDIARIES
INDEX
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PAGE
----
Part I. FINANCIAL INFORMATION
Item 1 - Financial Statements
Consolidated Statements of Condition
September 30, 2002 and December 31, 2001 4
Consolidated Statements of Income
Three- and Nine-Months Ended September 30, 2002 and 2001 5
Consolidated Statements of Cash Flows
Nine-Months Ended September 30, 2002 and 2001 6
Notes to Consolidated Financial Statements 7-8
Item 2 - Management's Discussion and Analysis of
Financial Condition and Results of Operations 9-25
Item 3 - Quantitative and Qualitative Disclosures About Market Risk 26
Item 4 - Controls & Procedures 26-27
Part II. OTHER INFORMATION
Item 1 - Legal Proceedings 28
Item 2 - Changes in Securities 28
Item 3 - Defaults upon Senior Securities 28
Item 4 - Submission of Matters to a Vote of Security Holders 28
Item 5 - Other Information 28
Item 6 - Exhibits and Reports on Form 8-K 28-29
Signatures 30
FIRST CHESTER COUNTY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CONDITION
(Dollars in thousands - except per share data)
(Unaudited)
September 30, December 31,
2002 2001*
------------ ------------
ASSETS
Cash and due from banks $ 29,510 $ 25,595
Federal funds sold 4,950 12,400
Interest bearing deposits in banks 199 238
------- -------
Total cash and cash equivalents 34,659 38,233
------- -------
Investment securities held-to-maturity (market value of $543 at September
30, 2002 and $547 December 31,
2001, respectively) 538 531
-------- --------
Investment securities available-for-sale at market value 115,617 80,210
-------- --------
Loans 442,504 448,110
Less allowance for loan losses (6,375) (6,344)
-------- --------
Net loans 436,129 441,766
-------- --------
Premises and equipment, net 14,248 15,584
Other assets 7,477 8,008
-------- --------
TOTAL ASSETS $ 608,668 $ 584,332
======== ========
LIABILITIES
Deposits
Non-interest bearing $ 104,391 $ 95,107
Interest-bearing (including certificates of deposit over $100 of
$24,545 and $28,463 - September 30, 2002 and December 31, 2001,
respectively) $ 428,180 403,718
-------- --------
Total deposits 532,571 498,825
Securities sold under repurchase agreements 1,003 4,769
Federal Home Loan Bank advances and other borrowings 18,077 31,751
Guaranteed preferred beneficial interest in Corporation's
subordinated debentures 5,000 -
Other liabilities 4,540 5,148
-------- --------
Total liabilities 561,191 540,493
-------- --------
STOCKHOLDERS' EQUITY
Common stock, par value $1.00; authorized, 10,000,000 shares; 4,800 4,800
Outstanding, 4,799,666 shares at September 30, 2002 and
December 31, 2001.
Additional paid-in capital 820 773
Retained earnings 45,896 43,367
Accumulated other Comprehensive Income (Loss) 1,169 84
Treasury stock, at cost: September 30, 2002 - 375,341 and
December 31, 2001 - 377,721 (5,208) (5,185)
-------- --------
Total stockholders' equity 47,477 43,839
-------- --------
Total liabilities and stockholders' equity $ 608,668 $ 584,332
======== ========
The accompanying notes are an integral part of these statements.
* Derived from our audited, consolidated financial statements included in our
Annual Report on Form 10-K for the fiscal year ended 12/31/01.
FIRST CHESTER COUNTY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
(Dollars in thousands - except per share data) Three Months Ended Nine Months Ended
September 30, September 30,
------------------ --------------------
2002 2001 2002 2001
---- ---- ---- ----
INTEREST INCOME
Loans, including fees 7,854 8,203 24,276 25,288
Investment securities 1,315 1,280 3,526 4,028
Federal funds sold 104 30 304 181
Deposits in banks - 1 3 5
-------- -------- -------- --------
Total interest income 9,273 9,514 28,109 29,502
-------- -------- -------- --------
INTEREST EXPENSE
Deposits 2,301 3,501 7,385 11,226
Securities sold under repurchase agreements 6 22 18 80
Interest on Trust-Preferred Securities 65 - 65 -
Federal Home Loan Bank advances and other borrowings 262 259 878 961
-------- -------- -------- --------
Total interest expense 2,634 3,782 8,346 12,267
-------- -------- -------- --------
Net interest income 6,639 5,732 19,763 17,235
Provision for loan losses 875 1,400 1,655 1,770
-------- -------- -------- --------
Net interest income after provision
for possible loan losses 5,764 4,332 18,108 15,465
-------- -------- -------- --------
NON-INTEREST INCOME
Financial Management Services 799 735 2,361 2,213
Service charges on deposit accounts 489 422 1,358 991
Investment securities gains, net - 16 121 81
Rental income on operating leases 212 48 867 177
Gains on Sale of Fixed Assets 140 4 140 4
Gains on Sale of Loans 279 6 469 110
Other 449 338 1,331 1,053
-------- -------- -------- --------
Total non-interest income 2,368 1,569 6,647 4,629
-------- -------- -------- --------
NON-INTEREST EXPENSE
Salaries and employee benefits 3,398 3,013 10,273 8,971
Net occupancy, equipment, and data processing 777 727 2,373 2,051
Depreciation expense on operating leases 624 393 1,788 1,142
FDIC deposit insurance 22 21 65 64
Bank shares tax 126 119 354 363
Professional Services 289 231 978 736
Other 925 1,165 2,981 2,892
-------- -------- -------- --------
Total non-interest expense 6,161 5,669 18,812 16,219
-------- -------- -------- --------
Income before income taxes 1,971 232 5,943 3,875
INCOME TAXES 569 130 1,719 1,123
-------- -------- -------- --------
NET INCOME $ 1,402 $ 102 $ 4,224 $ 2,752
======== ======== ======== ========
PER SHARE DATA
Basic earnings per common share $ 0.32 $ 0.02 $ 0.96 $ 0.62
========= ========= ========= =========
Diluted earnings per common share $ 0.32 $ 0.02 $ 0.95 $ 0.61
========= ========= ========= =========
Dividends declared $ 0.13 $ 0.13 $ 0.39 $ 0.39
========= ========= ========= =========
Basic weighted average shares outstanding 4,442,544 4,416,814 4,422,813 4,444,229
========= ========= ========= =========
Diluted weighted average shares outstanding 4,436,555 4,468,294 4,448,101 4,495,091
========= ========= ========= =========
The accompanying notes are an integral part of these statements.
FIRST CHESTER COUNTY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Nine Months Ended
September 30,
-------------------------------
(Dollars in thousands) 2002 2001
---- ----
OPERATING ACTIVITIES
Net Income $ 4,224 $ 2,752
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 1,962 1,323
Provision for loan losses 1,655 1,770
Amortization of investment security premiums
and accretion of discounts 367 252
Amortization of deferred fees on loans (260) 278
Investment securities gains, net (121) (81)
Decrease (Increase) in other assets 531 (214)
(Decrease) in other liabilities (608) (1,595)
-------- --------
Net cash provided by operating activities 7,750 4,486
-------- --------
INVESTING ACTIVITIES
Decrease (Increase) in loans 4,837 (30,035)
Proceeds from sales of investment securities available-for-sale 20,066 15,187
Proceeds from maturities of investment securities available-for-sale 8,578 26,101
Purchases of investment securities available-for-sale (63,783) (30,177)
Purchase of premises and equipment, net (626) (4,823)
-------- --------
Net cash used in investing activities (30,928) (23,747)
-------- --------
FINANCING ACTIVITIES
(Decrease) Increase in securities sold under repurchase agreements (13,674) 1,059
Increase in deposits 33,746 4,821
(Decrease) Increase in Federal Home Loan Bank advances and other borrowings (3,766) 3,629
Cash dividends (1,726) (1,744)
Proceeds from issuance of Guaranteed preferred beneficial interest in
Corporation's
Subordinated debentures 5,000 --
Treasury stock transactions 24 (944)
-------- --------
Net cash provided by financing activities 19,604 6,821
-------- --------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS (3,574) (12,440)
Cash and cash equivalents at beginning of period 38,233 37,973
-------- --------
Cash and cash equivalents at end of period $ 34,659 $ 25,533
======== ========
The accompanying notes are an integral part of these statements.
FIRST CHESTER COUNTY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. The unaudited financial statements have been prepared in accordance with
generally accepted accounting principles for interim financial information.
In the opinion of Management, all adjustments (consisting only of normal
recurring adjustments) necessary for a fair presentation of the financial
position and the results of operations for the interim period presented
have been included. These interim financial statements should be read in
conjunction with the consolidated financial statements and footnotes
thereto included in our Annual Report on Form 10-K for the fiscal year
ended December 31, 2001.
2. The results of operations for the three- and nine-month periods ended
September 30, 2002 are not necessarily indicative of the results to be
expected for the full year.
3. Earnings per share is based on the weighted average number of shares of
common stock outstanding during the period. Diluted net income per share
includes the effect of options granted.
4. Other comprehensive income (loss) net of taxes for the three- and
nine-month periods ended September 30, 2002 was $435 thousand and $1.1
million, compared to $1.4 million and $1.7 million in the same period last
year. Total comprehensive income (which is the sum of net income and other
comprehensive income described in the preceding sentence) for the three-
and nine-month periods ended September 30, 2002 was $1.8 million and $5.3
million, compared to $1.5 million and $4.5 million in the same period last
year.
5. On July 20, 2001, FASB issued SFAS 141, and SFAS 142. SFAS 141 is effective
for all business combinations completed after June 30, 2001. SFAS 142 is
effective for fiscal years beginning after December 15, 2001; however,
certain provisions of this Statement apply to goodwill and other intangible
assets acquired between July 1, 2001 and the effective date of SFAS 142.
Major provisions of these Statements and their effective dates for the
Company are as follows: All business combinations initiated after June 30,
2001 must use the purchase method of accounting. The pooling of interest
method of accounting is prohibited except for transactions initiated before
July 1, 2001. Intangible assets acquired in a business combination must be
recorded separately from goodwill if they arise from contractual or other
legal rights or are separable from the acquired entity and can be sold,
transferred, licensed, rented or exchanged, either individually or as part
of a related contract, asset or liability. Goodwill, as well as intangible
assets with indefinite lives, acquired after June 30, 2001, will not be
amortized. Effective January 1, 2002, all previously recognized goodwill
and intangible assets with indefinite lives will be tested for impairment.
The Corporation has no goodwill or intangible assets that would be affected
by this provision.
FIRST CHESTER COUNTY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
(UNAUDITED)
6. In August 2001, the FASB issued SFAS 144, "Accounting for the Impairment or
Disposal of Long-lived Assets". SFAS No. 144 retains the existing
requirements to recognize and measure the impairment of long-lived assets
to be held and used or to be disposed of by sale. However, SFAS 144 makes
changes to the scope and certain measurement requirements of existing
accounting guidance. SFAS 144 also changes the requirements relating to
reporting the effects of a disposal or discontinuation of a segment of a
business. SFAS 144 is effective for financial statements issued for fiscal
years beginning after December 15, 2001 and interim periods within those
fiscal years. The adoption of this statement is not expected to have a
significant impact on the financial condition or results of operations of
the Company.
7. On January 1, 2002, the Company adopted Statement of Position (SOP) 01-6,
Accounting by Certain Entities That Lend to or Finance the Activities of
Others, which reconciles and conforms existing differences in the
accounting and financial reporting guidance in the AICPA Audit and
Accounting Guides, Banks and Savings Institutions, Audits of Credit Unions,
and Audits of Finance Companies. It also carries forward accounting
guidance for practices deemed to be unique to certain financial
institutions. The adoption of this SOP had no impact on the Company's
financial position or results of operations.
8. On July 11, 2002, the Corporation issued $5.0 million (net proceeds of
$4.82 million) of preferred capital securities for the purpose of raising
additional capital for general corporate purposes. These securities were
issued through First Chester County Capital Trust I (the "Trust"), a
special-purpose statutory trust created expressly for the issuance of these
securities and investing the proceeds in junior subordinated debentures of
the Corporation. The securities provide for quarterly cash distributions
calculated at a rate based on the three-month London Inter-bank Offering
Rate ("LIBOR") plus 3.65%. As of September 30, 2002, the effective interest
rate was 5.75%. The capital securities will be redeemed on October 7, 2032;
however the Corporation does have the option to shorten the maturity date
to a date not earlier than October 7, 2007. These securities have been
structured so that they qualify as Tier 1 Capital of the Corporation. 1.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
This discussion is intended to further your understanding of the
consolidated financial condition and results of operations of First Chester
County Corporation (the "Corporation") and its wholly-owned subsidiaries, First
National Bank of Chester County (the "Bank"), FNB Property Management, LLC,
First National Insurance Services, LLC, and Turks Head Properties, Inc, and
First Chester County Capital Trust I. It should be read in conjunction with the
consolidated financial statements included in this report.
In addition to historical information, this discussion and analysis
contains statements relating to future results of the Corporation that are
considered "forward-looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995. These statements can often be
identified by the use of forward-looking terminology such as "believes",
"expects", "intends", "may", "will", "should" or "anticipates" or similar
terminology. These statements involve risks and uncertainties and are based on
various assumptions. Investors and prospective investors are cautioned that such
statements are only projections. The risks and uncertainties noted below, among
others, could cause the Corporation's actual future results to differ materially
from those described in forward looking statements made in this report or
presented elsewhere by Management from time to time.
These risks and uncertainties include, but are not limited to, the
following: (a) loan growth and/or interest rate margins may be less than
expected due to competitive pressures in the banking industry and/or changes in
the interest rate environment; (b) general economic conditions in the
Corporation's market area may be less favorable than expected resulting in,
among other things, a deterioration in credit quality causing increased loan
losses; (c) costs of the Corporation's planned training initiatives, product
development, branch expansion, new technology and operating systems may exceed
expectations; (d) competition among financial and non-financial institutions in
the Corporation's market area that may result in customer turnover and lower
interest rate margins; (e) changes in the regulatory environment, securities
markets, general business conditions and inflation may adversely affect loan
demand, credit quality, consumer spending and saving habits, and interest rate
margins; (f) impact of changes in interest rates on customer behavior; (g) the
impact of changes in demographics on branch locations; (h) technological
changes; (i) changes in the value of securities and investments managed for
others may affect the growth and level of the Corporation's non-interest income;
(j) changes in the credit of our borrowers, the collateral securing our assets
or other aspects of credit quality; and (k) our ability to manage the risks
involved in the foregoing. These risks and uncertainties are all difficult to
predict and most are beyond the control of the Corporation's Management.
Although the Corporation believes that its expectations are based on
reasonable assumptions, readers are cautioned that such forward-looking
statements are only projections. The Corporation undertakes no obligation to
publicly release any revisions to the forward-looking statements to reflect
events or circumstances after the date of this report.
EARNINGS AND DIVIDEND SUMMARY
Net income for the three-month period ended September 30, 2002 was $1.4
million, an increase of $1.3 million as compared to $102 thousand earned during
the same period in 2001. Net income for the nine-month period ended September
30, 2002 was $4.2 million, an increase of $1.5 million or 53.49% as compared to
$2.8 million earned during the same period in 2001. Earnings for both periods
benefited from increases in net interest income as the volume of
interest-earning assets and the net yield earned on those assets increased.
Contributing to the increase in 2002 net income was a $99 thousand and $274
thousand non-recurring after tax gain on the sale of real estate assets for the
three- and nine-month period ended September 30, 2002, respectively, compared to
$2 thousand and $44 thousand for the three- and nine-month periods ended
September 30, 2001, respectively. Also contributing to the increase in 2002 net
income is an after tax gain of $198
thousand and $333 thousand on the sale of residential mortgage assets for the
three- and nine-month period ended September 30, 2002, respectively, compared to
$3 thousand and $78 thousand for the three- and nine-month periods ended
September 30, 2001, respectively. The large percentage increase in net income
for the three- and nine-month periods compared to the same periods last year is
primarily attributed to the fact that 2001 earnings were affected by a series of
interest rate decreases and by large increases in the provision for loan loss
expense. Net income for the balance of 2002 and for future time periods may be
adversely impacted by the recent (November 7, 2002) 50 basis point reduction
(one basis point is equal to 1/100 of a percent) in the federal funds rate and
by credit quality issues.
Basic earnings per share were $0.32 and $0.96 for the three- and nine-month
periods ended September 30, 2002, respectively compared to $0.02 and $0.62 per
share for the same periods in 2001. Over the past ten years, the Corporation's
practice has been to pay a dividend of at least 35.0% of net income.
During the first half of the year, the Corporation performed a review of
its lending structure, resulting in the creation of two new divisions, the
Personal Banking Division which will focus its effort on the branch system,
consumer lending, residential mortgage, credit cards, and small business lending
and the Business Banking Division which will focus its attention on commercial
mortgage, commercial lending, leasing, loan administration, and credit
administration. Management believes this will enhance asset quality,
underwriting practices and productivity. Improvement in credit quality and
credit administration remains a high priority leading to improved performance
and reduced risk.
AVERAGE INTEREST RATES (ON A TAX EQUIVALENT BASIS)
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------- --------------------------
2002 2001 2002 2001
---- ---- ---- ----
SELECTED RATIOS
Return on Average Assets 0.92% 0.07% 0.95% 0.67%
Return on Average Equity 11.86% 0.90% 12.26% 8.19%
Net interest margin 4.71% 4.47% 4.76% 4.53%
Earnings Retained 58.92% -464.71% 59.14% 36.66%
Dividend Payout Ratio 41.08% 564.71% 40.86% 63.34%
Book Value Per Share $ 10.73 $ 10.12 $ 10.73 $ 10.12
The "Consolidated Average Balance Sheet" on pages 16 and 17 may assist the
reader in following this discussion.
NET INTEREST INCOME
Net interest income is the difference between interest income on
interest-earning assets and interest expense on interest-bearing liabilities.
Net interest income for the three- and nine-month periods ended September 30,
2002, on a tax equivalent basis, was $6.6 million and $19.8 million, compared to
$5.7 million and $17.3 million for the same periods in 2001, an increase of
15.7% and 14.6%, respectively. The increase in tax equivalent net interest
income for both periods was the result of an increase in average
interest-earning assets and lower yields paid on interest-earning liabilities,
partially offset by a decrease in the average yield earned on average
interest-earning assets. The Corporation anticipates the continued, strong
pricing competition
for new high quality loan business will keep pressure on the net yield earned on
interest-earning assets in future time periods.
Average interest-earning assets for the third quarter of 2002 were $565.7
million an increase of 9.7% compared to $515.5 million of average interest
earning assets in the same period last year. For the nine months ended September
30, 2002, average interest-earning assets increased to $554.4 or 9.0% as
compared to $508.6 million of average interest-earning assets in the same period
last year. The increase in average interest-earning assets for both the three
and nine month periods was the direct result of increases in average loans
outstanding, funds invested in Federal funds and other overnight investments,
and investment securities. The recent (November 7, 2002) 50 basis point rate
decrease may adversely impact this portion of net income for the remainder of
2002 and 2003.
Net yields on interest-earning assets, on a tax equivalent basis, were
4.71% and 4.76% for the three- and nine-month periods ended September 30, 2002,
respectively, compared to 4.47% and 4.53% for the same periods in 2001, an
increase of 24 and 23 basis points or 5.37% and 5.08%, respectively. The
increase in the average net-yield on interest-earning assets for the three- and
nine-month periods in 2002 was primarily the result of a rapid decrease in the
average yield on interest-bearing liabilities that outpaced the decrease in the
yield on interest-earning assets. Additionally, the yields on interest-earning
assets in 2001 were affected by the reversal of interest and fee income
associated with a large loan balances that was placed on non-accrual during the
third quarter of 2001. The average yield earned on interest earning assets
decreased 2.5% or 82 basis points to 6.58% and 4.7% or 97 basis points to 6.77%
for the three- and nine-month periods ended September 30, 2002 compared to the
same periods in 2001. The average yield paid on interest-bearing liabilities
decreased 30.4% or 121 basis points to 2.32% and 32.0% or 152 basis points to
2.48% for the three- and nine-month periods ended September 30, 2002 compared to
the same periods in 2001.
AVERAGE INTEREST RATES (ON A TAX EQUIVALENT BASIS)
Three Months Nine Months
Yield On: Ended September 30, Ended September 30,
- --------- ------------------- -------------------
2002 2001 2002 2001
---- ---- ---- ----
Interest Earning Assets 6.58% 7.40% 6.77% 7.74%
Interest Bearing Liabilities 2.30% 3.53% 2.47% 4.00%
---- ---- ---- ----
Net Interest Spread 4.28% 3.87% 4.30% 3.74%
Contribution of Interest Free Funds 0.43% 0.60% 0.46% 0.79%
---- ---- ---- ----
Net Yield on Interest Earning Assets 4.71% 4.47% 4.76% 4.53%
==== ==== ==== ====
INTEREST INCOME ON FEDERAL FUNDS SOLD
Interest income on Federal funds sold and other overnight investments for
the three- and nine-month periods ended September 30, 2002, increased 246.7% and
67.4% to $104 thousand and $304 thousand, respectively, when compared to the
same periods in 2001. The increase in interest income on Federal funds sold and
other overnight investments is the direct result of increases in the average
balance of federal funds sold and other overnight investments $19.1 million, or
538.2%, and a $15.9, million or 290.5%, for the three- and nine-month periods
ended September 30, 2002, respectively, when compared to the same period last
year. The average balance of federal funds sold and other overnight investments
increased more due to deposit growth from our three new branches and existing
branches, while loan growth this year has increased more slowly due to the
general slowdown in demand through the third quarter and competition for new
loans. The increase in interest income earned on federal funds sold was
partially offset by a 154 and 253 basis point decrease in rates earned on such
investments for the three- and nine-month periods ended September 30, 2002,
respectively.
INTEREST INCOME ON INVESTMENT SECURITIES
On a tax equivalent basis, interest income on investment securities for the
three-month period ended September 30, 2002 increased 2.7% to $1.3 million, and
decreased 12.4% to $3.6 million for the nine-month period ended September 30,
2002, when compared to the same periods in 2001. The increase in interest income
on investment securities for the three-month period is primarily the result of
an increase in the average investment security balance of $17.3 million or 19.8%
partially offset by an 84 basis point, or 14.2%, decrease in the yield earned on
investment securities compared to the same period last year. For the nine-month
period, the decrease in interest income on investment securities was due to a 91
basis point, or 15.0%, decrease in the yield earned, partially offset by an
increase in the average balance of 3.0% when compared to the same period last
year.
INTEREST INCOME ON LOANS
Interest income on loans, on a tax equivalent basis, generated by the
Corporation's loan portfolio decreased 4.3% and 4.0% to $7.9 million and $24.3
million for the three- and nine-month periods ending September 30, 2002,
respectively, compared to the same periods last year. The decrease for both
periods is the direct result of 57 and 81 basis point decrease in the yield
earned on the portfolio partially offset by an increase in average balances of
$13.7 million or 3.2% and $27.1 million or 6.6% as compared to the same periods
in 2001. In addition, a large recovery of past due accrued interest and late
charges related to the restructuring of one large commercial loan relationship
in 2002 partially offset the decrease in the interest income earned on loans for
both periods.
INTEREST EXPENSE ON DEPOSIT ACCOUNTS
Interest expense on deposit accounts for the three- and nine-month period
ended September 30, 2002 decreased 34.3% and 34.2% to $2.3 million and $7.4
million, respectively, when compared to the same periods in 2001. The decrease
in both periods is a result of 133 and 158 basis point, or 38.6% and 40.5%,
decreases in rates paid on interest-bearing deposits partially offset by 7.0%
and 10.3% increases in the average interest-bearing deposit balance to $434.0
million and $423.6 million for the three- and nine-month period ended September
30, 2002, respectively, compared to the same periods last year.
Competition for deposits from local community banks as well as non-banking
institutions such as credit union and mutual fund companies continues to be
strong. Despite this competition, the Corporation's deposit base continues to
grow and is expected to grow as we continue to open new branches and attract new
customers with new services. Total deposits continue to grow in our new branches
as well as at our existing sites. The Corporation continually explores for new
branch sites to expand its core deposit base.
INTEREST EXPENSE ON SECURITIES SOLD UNDER REPURCHASE AGREEMENTS
Interest expense on securities sold under repurchase agreements for the
three-month period ended September 30, 2002 decreased 72.7% to $6 thousand from
$22 thousand in 2001. This decrease is primarily the result of an 80.0% decrease
in the average balance on securities sold under repurchase agreements partially
offset by an increase of 108 basis point or 36.2% on rates paid on such
contracts, compared to the rates paid in September 30, 2001. For the nine-month
period ending September 30, 2002, interest expense on securities sold under
repurchase agreements decreased 77.5% from $80 thousand to $18 thousand compared
to the same period in 2001. Decreases for this period are the result of a 70.0%
decrease in the average balance and a 96 basis point or 25.1% decrease on
interest paid on such contracts. The decrease is also attributable to the
popularity of our overnight cash sweep and tri-party repo program which totaled
$82.8 million at September 30, 2002 and $47.8 million at September 30, 2001.
These programs represent funds of our customers invested overnight with third
parties and therefore do not appear on our balance sheet. The Corporation earns
a fee of approximately 25 basis points on these balances.
INTEREST EXPENSE ON FEDERAL HOME LOAN BANK ADVANCES AND OTHER BORROWINGS
Interest expense on Federal Home Loan Bank (FHLB) advances and other
borrowings for the three-month period ended September 30, 2002 increased 1.2% to
$262 thousand from $259 thousand compared to the same period in 2001. This
increase is primarily the result of a 62 basis point or 12.1% increase in rates
paid on such borrowings partially offset by a 9.7% or $2.0 million decrease in
the average balance of such borrowings. The interest expense on FHLB advances
and other borrowings for the nine-month period ended September 30, 2002
decreased $83 thousand or 8.6%. The decrease can be attributed to an 85 basis
point or 14.5% decrease in the rates paid partially offset by a $1.5 million or
70.6% increase in the average balance of such borrowings. The need for
borrowings has decreased during 2002 as a result of slower loan growth,
increased deposits, and funds obtained from sales of investment securities.
Borrowings at any time may consist of one or more of the following: FHLB
Overnight or Term Advances and advances under agreements with our correspondent
banks.
PROVISION FOR LOAN LOSSES
The Corporation recorded a provision for loan losses for the three- and
nine-month period ended September 30, 2002 of $875 thousand and a $1.7 million,
respectively, compared to $1.4 million and $1.8 million for the same periods in
2001. The increased provision for loan losses taken in 2002 is the result of
amounts included for loan write-downs in the third quarter of 2002. The
provisions for loan losses taken during 2001 included amounts for loan
write-downs and charge-offs of several commercial loans to borrowers who had
some operating difficulties and/or had been impacted by changes in the economy.
Additionally, the provision was increased in both years to provide for increased
levels of delinquent loans and for normal loan growth. The allowance for loan
losses as a percentage of total loans was 1.44% at September 30, 2002, 1.45% at
September 30, 2001 and 1.42% at December 31, 2001, respectively. Management
believes that the allowance for loan losses is adequate based on its current
assessment of probable and estimated losses. See the section titled "Allowance
for Loan Losses" and "Non-Performing Loans and Assets" for additional
discussion.
NON-INTEREST INCOME
Total non-interest income increased 50.9% to $2.4 million for the
three-month period ended September 30, 2002 when compared to the same period in
2001. For the nine-month period ended September 30, 2002, total non-interest
income increased 43.6% to $6.6 million when compared to the same period in 2001.
The primary component of non-interest income is Financial Management
Services ("FMS") revenue, which increased 8.7% and 6.7% to $799 thousand and
$2.4 million for the three- and nine-month periods ending September 30, 2002,
respectively, compared to September 30, 2001. The market value of FMS assets
under management custody grew $26.2 million, or 5.6%, from $469.4 million at
September 30, 2001 to $495.6 million at September 30, 2001. The increase in
Financial Management Services revenue and growth in assets under management and
custody can be attributed to strong business development efforts focusing on
local individuals, businesses, and political and governmental units, which
generated new asset management accounts, partially offset by declines in equity
values due to stock market fluctuations.
Service charges on deposit accounts increased approximately 15.9% to $489
thousand for the three-months ended September 30, 2002 compared to $422 thousand
for the same period in 2001. For the nine-month period ended September 30, 2002,
service charges on deposit accounts increased 37.0% to $1.4 million compared to
$991 thousand for the same period in 2001. This increase can be attributed to
the growth in the number and volume of deposit accounts and the introduction of
"Bounce Protection" a deposit-related service, which was introduced in July
2001. Management expects this component of non-interest income to continue to
grow as deposits grow.
Gains on the sale of investment securities also contributed to the increase
in non-interest income. For the three-month period ended September 30, 2002,
gains on the sale of investment securities were less than one thousand dollars.
For the nine-month period ended September 30, 2002, gains on sale of investment
securities increased 49.4% from $81 thousand to $121 thousand, when compared to
the same period in 2001. These gains were realized as a result of normal
portfolio management and to take advantage of the current rate environment.
The Corporation has an operating lease agreement with one of its customers,
its income is classified as "Rental Income". Rental income on operating lease
agreements for the three-month period ended September 30, 2002 increased $164
thousand from $48 thousand to $212 thousand when compared to the same period in
2001. For the nine-month period, rental income increased $690 thousand from $177
thousand to $867 thousand when compared to the same period in 2001.
Gains on the sale of fixed assets for the three- and nine-month period
ended September 30, 2002 increased $136 thousand from $4 thousand to $140
thousand when compared to the same periods last year. The increase was due to
the sale of a piece real property adjacent to its Lionville branch and is
non-recurring.
Gains and fee income generated in the sale of Residential Mortgage loans
for the three-month period ended September 30, 2002 increased $273 thousand from
$6 thousand to $279 thousand compared to the same period in 2001. For the
nine-month period, gains on sale of loans increased $359 thousand from $110
thousand to $469 thousand when compared to the same period last year. Increases
in both periods are primarily the result of a high volume of residential
mortgage sales due to higher originations of residential mortgage resulting of
record low mortgage interest rates.
Other non-interest income increased $111 thousand and $278 thousand for the
three- and nine-month periods ended September 30, 2002 when compared to the same
periods in 2001. The primary component of the increase in the nine-month period
can be attributable to gains on the sale of Other Real Estate Owned (`OREO').
Gains on the sale of OREO for the nine-month period ended September 30, 2002
increased $187 thousand from $58 thousand to $245 thousand when compared to the
same periods last year. The gain was the result of the sale of a piece of
foreclosed property that occurred in the first quarter of this year. The
increases in other non-interest income can also be attributed to revenue
increases in ATM, MAC debit card, merchant income, safe deposit box income,
wealth advisory, and other miscellaneous income.
NON-INTEREST EXPENSE
Total non-interest expense for the three- and nine-month periods ended
September 30, 2002 increased 8.7% to $6.2 million and $16.0% to $18.8 million,
compared to the same periods in 2001. The various components of non-interest
expense changes are discussed below.
Employee salaries and benefits increased 12.8% to $3.4 million and 14.5% to
$10.3 million for the three-month and nine-month periods ended September 30,
2002 compared to the same periods in 2001. Increased staff, annual employee
raises, promotions and a proportional increase in employee benefits are
primarily responsible for the increases. At September 30, 2002, the Corporation
employed 235 full time and 49 part time employees compared to 208 full time and
53 part-time in September 30, 2001.
Net occupancy, equipment, and data processing expense increased 6.9% to
$777 thousand and 15.7% to $2.4 million for the three- and nine-month periods
ended September 30, 2002, respectively, compared to the same periods last year.
The increase is the direct result of the opening of three full service branches
during 2001. A 31.6% and 40.5% increase in building depreciation for the three-
and nine-month periods ended September 30, 2002 as well as increased computer
and related equipment costs associated with the expansion, upgrading and
maintenance of personnal computers and our networking infrastructure contributed
to the increase.
Depreciation on operating leases increased 58.8% to $624 thousand and 56.6%
to $1.8 million for the three- and nine-month periods ended September 30, 2002,
respectively, compared to the same periods in 2001. This depreciation expense is
the result of an operating lease agreement the Corporation has with one of its
customers. The income associated with this operating lease is classified as
Rental Income.
Professional Services increased 25.1% to $289 thousand and 32.9% to $978
thousand for the three- and nine-month period ended September 30, 2002,
respectively, compared to the same periods in 2001. The increase is the result
increased audit, accounting, consultant fees, and legal fees related to work-out
activities involving one large loan relationship.
Total other non-interest expense decreased 20.6% to $925 thousand for the
three month period ended September 30, 2002 compared to the same period last
year. For the nine-month period ended September 30, 2002, total other
non-interest expense increased 3.1% to $3.0 million compared to the same period
in 2001. The increase for the nine-month period is the result of an increases in
loan related costs, deposit costs, purchased services, marketing and general
operating expenses related to the opening of our three new branches.
As discussed above, the Corporation has established a Credit Administration
department. The Corporation believes that the establishment of this Credit
Administration area as well as other procedural and policy changes will allow
the Corporation to improve its performance and productivity and reduce risk.
These changes are anticipated to have an impact on this component of the
Corporations Income Statement. Management believes that over time the
efficiencies created by this department should reduce the overhead cost of loan
underwriting.
Planning for additional branch sites continues. The Corporation believes
that the costs associated with the opening of new branch sites will have a
direct impact on all the components of non-interest expense. It is anticipated
that the increase in costs will be offset, over time, by an increase in net
interest and fee income generated by business in the new marketing areas.
CONSOLIDATED AVERAGE BALANCE SHEET
AND TAXABLE EQUIVALENT INCOME/EXPENSE AND RATES FOR THE
THREE MONTHS ENDED SEPTEMBER 30,
(Dollars in thousands) 2002 2001
-------------------------------------- ----------------------------------
Daily Daily
Average Average
Balance Interest Rate Balance Interest Rate
------- -------- ---- ------- -------- ----
ASSETS
Federal funds sold $ 22,651 $ 104 1.84% $ 3,549 $ 30 3.38%
Interest bearing deposits in banks 224 1 1.79% 141 1 2.84%
Investment securities
Taxable 102,782 1,293 5.03% 85,491 1,258 5.89%
Tax-exempt (1) 1,796 32 7.18% 1,822 32 6.96%
-------- -------- -------- --------
Total investment securities 104,578 1,325 5.07% 87,313 1,290 5.91%
-------- -------- -------- --------
Loans (2)
Taxable 435,956 7,822 7.18% 422,143 8,164 7.74%
Tax-exempt (1) 2,254 47 8.39% 2,391 57 9.52%
-------- -------- -------- --------
Total loans 438,210 7,869 7.18% 424,534 8,221 7.75%
-------- -------- -------- --------
Total interest earning assets 565,663 9,300 6.58% 515,537 9,542 7.40%
Non-interest earning assets
Allowance for possible loan losses (6,565) (6,724)
Cash and due from banks 25,606 21,574
Other assets 22,882 21,159
-------- --------
Total assets $ 607,586 $ 551,546
========= ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Savings, NOWS & money market deposits $ 301,854 $ 1,033 1.37% $ 242,516 $ 1,437 2.37%
Certificates of deposits and other time 132,108 1,268 3.84% 162,892 2,064 5.07%
-------- -------- -------- --------
Total interest bearing deposits 433,962 2,301 2.12% 405,408 3,501 3.45%
Securities sold under repurchase agreements $ 591 $ 6 4.06% $ 2,957 $ 22 2.98%
Guaranteed Preferred beneficial interest in
Corporation's subordinated debentures 4,457 65 5.75% -- -- --
Federal Home Loan Bank advances and
other borrowings 18,262 262 5.74% 20,228 259 5.12%
-------- -------- -------- --------
Total interest bearing liabilities 453,195 2,634 2.30% 428,593 3,782 3.53%
-------- --------- -------- --------
Non-interest bearing liabilities
Non-interest bearing demand deposits 97,647 72,259
Other liabilities 9,478 5,492
-------- --------
Total liabilities 560,320 506,344
Stockholders' equity 47,266 45,202
-------- --------
Total liabilities and stockholders' equity $ 607,586 $ 551,546
========= =========
Net interest income $6,666 $5,760
===== =====
Net yield on interest earning assets 4.71% 4.47%
===== =====
(1) The indicated income and annual rate are presented on a taxable equivalent
basis using the Federal marginal rate of 34% adjusted for the TEFRA 20%
interest expense disallowance for 2002 and 2001.
(2) Non-accruing loans are included in the average balance.
CONSOLIDATED AVERAGE BALANCE SHEET
AND TAXABLE EQUIVALENT INCOME/EXPENSE AND RATES FOR THE
NINE MONTHS ENDED SEPTEMBER 30,
(Dollars in thousands) 2002 2001
-------------------------------------- -----------------------------------
Daily Daily
Average Average
Balance Interest Rate Balance Interest Rate
------- -------- ---- ------- -------- ----
ASSETS
Federal funds sold $ 21,320 $ 303 1.89% $ 5,460 $ 181 4.42%
Interest bearing deposits in banks 210 3 1.90% 129 5 5.17%
Investment securities
Taxable 90,182 3,460 5.12% 87,453 3,961 6.04%
Tax-exempt (1) 1,787 100 7.44% 1,815 101 7.42%
-------- -------- -------- --------
Total investment securities 91,969 3,560 5.16% 89,268 4,062 6.07%
-------- -------- -------- --------
Loans (2)
Taxable 438,541 24,135 7.34% 410,821 25,068 8.14%
Tax-exempt (1) 2,347 141 7.98% 2,961 220 9.92%
-------- -------- -------- --------
Total loans 440,888 24,276 7.34% 413,782 25,288 8.15%
-------- -------- -------- --------
Total Interest Earning Assets 554,387 28,142 6.77% 508,639 29,536 7.74%
Non-interest earning assets
Allowance for possible loan losses (6,605) (6,661)
Cash and due from banks 23,963 23,504
Other assets 23,987 19,736
-------- --------
Total assets $ 594,732 $545,218
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Savings, NOWS & money market deposits $ 286,529 $3,012 1.40% $237,167 $4,820 2.71%
Certificates of deposits and other time 137,111 4,373 4.25% 147,010 6,406 5.81%
-------- -------- -------- --------
Total interest bearing deposits 423,640 7,385 2.32% 384,177 11,226 3.90%
Securities sold under repurchase agreements 835 18 2.87% 2,782 80 3.83%
Guaranteed Preferred beneficial interest in
Corporation's subordinated debentures 2,384 65 5.75% -- -- --
Federal Home Loan Bank advances and
other borrowings 23,338 878 5.02% 21,815 961 5.87%
-------- -------- -------- --------
Total interest bearing liabilities 447,941 8,346 2.47% 408,774 12,267 4.00%
-------- -------- -------- --------
Non-interest bearing liabilities
Non-interest bearing demand deposits 94,251 86,010
Other liabilities 6,600 5,843
-------- --------
Total liabilities 548,792 500,627
Stockholders' equity 45,940 44,791
-------- --------
Total liabilities and stockholders' equity $ 594,732 $ 545,218
======== ========
Net interest income $19,796 $17,269
====== ======
Net yield on interest earning assets 4.76% 4.53%
===== =====
(1) The indicated income and annual rate are presented on a taxable equivalent
basis using the Federal marginal rate of 34% adjusted for the TEFRA 20%
interest expense disallowance for 2002 and 2001.
(2) Non-accruing loans are included in the average balance.
INCOME TAXES
Income tax expense for the three- and nine-month periods ended September
30, 2002 was $569 thousand and $1.7 million, compared to $130 thousand and $1.1
million in the same periods last year. This represents effective tax rates of
28.8% and 28.9% for the three- and nine-month periods ended September 30, 2002,
respectively. The effective tax rate for the three- and nine-month periods ended
September 30, 2001 was 56.0% and 28.9%, respectively.
LIQUIDITY MANAGEMENT AND INTEREST RATE SENSITIVITY
The objective of liquidity management is to ensure the availability of
sufficient cash flows to meet all financial commitments and to capitalize on
opportunities for business expansion. Liquidity management addresses the
Corporation's ability to meet deposit withdrawals either on demand or at
contractual maturity, to repay borrowings as they mature and to make new loans
and investments as opportunities arise. Liquidity is managed on a daily basis
enabling Senior Management to monitor changes in liquidity and to react
accordingly to fluctuations in market conditions. The primary sources of
liquidity for the Corporation is funding available from deposit growth, FHLB,
and cash flow from the investment and loan portfolios. In addition, new deposits
to NOW, money-market, savings, and smaller denomination certificates of deposit
accounts provide additional liquidity. The Corporation considers funds from such
sources to comprise its "core" deposit base because of the historical stability
of such sources of funds. Additional liquidity comes from the Corporation's
non-interest bearing demand deposit accounts and credit facilities. Other
deposit sources include a three-tiered savings product and certificates of
deposit in excess of $100,000. Details of core deposits, non-interest bearing
demand deposit accounts and other deposit sources are highlighted in the
following table:
DEPOSIT ANALYSIS
(Annualized)
(Dollars in thousands) September 30, 2002 December 31, 2001 Average Balance
------------------------ ------------------------ -------------------------
Average Effective Average Effective Dollar Percentage
Balance Yield Balance Yield Variance Variance
------- ---------- ------- ---------- -------- -----------
NOW Accounts $ 79,063 0.41% $ 71,034 1.13% $ 8,029 11.30%
Money Market 25,216 1.45 22,490 2.37 2,726 12.12
Statement Savings 52,832 1.51 47,077 2.53 5,755 12.22
Other Savings 1,644 1.38 1,758 2.39 (114) (6.48)
CD's Less than $100,000 111,138 4.38 117,282 5.73 (6,144) (5.24)
-------- -------- --------
Total Core Deposits 269,893 2.36 259,641 3.58 10,252 3.95
Non-Interest bearing
Demand Deposit Accounts 94,251 -- 88,923 -- 5,328 5.99
-------- -------- --------
Total Core and Non-Interest
Bearing Deposits 364,144 1.75 348,564 2.67 15,580 4.47
-------- -------- --------
Tiered Savings 127,774 1.96 97,641 3.38 30,133 30.86
CD's Greater than $100,000 25,973 3.70 29,734 5.36 (3,761) (12.65)
-------- -------- --------
Total Deposits $ 517,891 1.90 $ 475,939 2.98 $ 41,952 8.81
======== ======== ========
The Bank, as a member of the FHLB, maintains several credit facilities. As
of September 30, 2002 the amount outstanding under the Bank's line of credit
with the FHLB was $ -0-. Additionally, the FHLB offers several other credit
related products which are available to the bank. The Bank currently has a
maximum borrowing capacity with the FHLB of approximately $128.4 million. During
the three- and nine-month periods ending September 30, 2002, average FHLB
advances were approximately $18.3 million and $23.3 million, respectively,
consisting of term advances representing a combination of maturities in each
period. The average interest rates on these advances were approximately 7.16%
and 5.39% during the three- and nine-month periods ending September 30, 2002,
respectively. FHLB advances are collateralized by a pledge on the Bank's
portfolio of unencumbered investment securities, certain mortgage loans and a
lien on the Bank's FHLB stock.
The goal of interest rate sensitivity management is to avoid fluctuating
net interest margins, and to enhance consistent growth of net interest income
through periods of changing interest rates. Such sensitivity is measured as the
difference in the volume of assets and liabilities in the existing portfolio
that are subject to repricing in a future time period. The Corporation's net
interest rate sensitivity gap within one year is a negative $80.8 million or
13.3% of total assets at September 30, 2002, compared with negative $190.4
million or 34.0% at September 30, 2001, respectively. The Corporation's gap
position is just one tool used to evaluate interest rate risk and the stability
of net interest margins. Another tool that Management uses to evaluate interest
rate risk is a computer simulation model that assesses the impact of changes in
interest rates on net interest income, net-income under various interest rate
forecasts and scenarios. Management has set acceptable limits of risk within its
Asset Liability Committee (`ALCO') policy and monitors the results of the
simulations against these limits quarterly. As of the most recent quarter end
all results are within policy limits and indicate an acceptable level of
interest rate risk. Management monitors interest rate risk as a regular part of
Corporate operations with the intention of maintaining a stable net interest
margin.
INTEREST SENSITIVITY ANALYSIS
AS OF SEPTEMBER 30, 2002
(Dollars in thousands)
One Over
Within through five Non-rate
one year five years years sensitive Total
------------ ------------ ------------ ------------- -----------
ASSETS
Federal funds sold $ 4,950 $ -- $ -- $ -- $ 4,950
Investment securities 36,771 42,555 36,829 -- 116,155
Interest bearing deposits in banks 199 -- -- -- 199
Loans and leases 178,950 234,922 28,632 (6,375) 436,129
Cash and cash equivalents -- -- -- 29,510 29,510
Premises & equipment -- -- -- 14,248 14,248
Other assets -- -- -- 7,477 7,477
--------- --------- --------- --------- ----------
Total assets $ 220,870 $ 277,477 $ 65,461 $ 44,860 $ 608,668
========= ========= ========= ========= ==========
LIABILITIES AND CAPITAL
Non-interest bearing deposit $ -- $ -- $ -- $ 104,391 $ 104,391
Interest bearing deposits 285,419 39,433 103,328 -- 428,180
Borrowed funds 1,003 -- -- -- 1,003
FHLB Term Advance 10,257 1,201 6,619 -- 18,077
Guaranteed Preferred Securities 5,000 -- -- -- 5,000
Other liabilities -- -- -- 4,540 4,540
Capital -- -- -- 47,477 47,477
--------- --------- --------- --------- ---------
Total liabilities & capital $ 301,679 $ 40,634 $ 109,947 $ 156,408 $ 608,668
========= ========= ========= ========= =========
Net interest rate
sensitivity gap $ (80,809) $ 236,843 $ (44,486) $ (111,548) $ --
========= ========= ========= ========= =========
Cumulative interest rate
sensitivity gap $ (80,809) $ 156,034 $ 111,548 $ -- $ --
========= ========= ========= ========= =========
Cumulative interest rate
sensitivity gap divided
by total assets (13.3%) 25.6% 18.3%
========= ========= ==========
ALLOWANCE FOR LOAN LOSSES
The allowance for possible loan losses is an amount that Management
believes will be adequate to absorb possible loan losses on existing loans that
may become uncollectible and is established based on Management's evaluations of
the collectibility of loans in the portfolio. The evaluations take into
consideration such factors as changes in the nature and volume of the loan
portfolio, overall portfolio quality, adequacy of collateral, review of specific
problem loans, and current economic conditions that may affect our borrowers
ability to pay.
ANALYSIS OF CHANGES IN THE ALLOWANCE FOR POSSIBLE LOAN LOSSES
AND COMPARISON OF LOANS OUTSTANDING
Three Months Nine Months
Ended Ended
September 30, September 30,
----------------------- -------------------------
(Dollars in thousands) 2002 2001 2002 2001
---- ---- ---- ----
Balance at beginning of period $ 6,561 $ 6,704 $ 6,344 $ 6,609
------- ------- ------- -------
Provision charged to operating expense 875 1,400 1,655 1,770
------- ------- ------- -------
Recoveries of loans previously charged-off 23 18 305 147
Loans charged-off (1,084) (1,840) (1,929) (2,244)
------- ------- ------- -------
Net loans charged-off (1,061) (1,822) (1,624) (2,097)
------- ------- ------- -------
Balance at end of period $ 6,375 $ 6,282 $ 6,375 $ 6,282
======= ======= ======= =======
Period-end loans outstanding $ 442,504 $ 434,549 $ 442,504 $ 434,549
Average loans outstanding $ 438,210 $ 424,534 $ 440,888 $413,782
Allowance for possible loan losses as a
percentage of period-end loans outstanding 1.44% 1.45% 1.44% 1.45%
Ratio of net charge-offs to average loans
outstanding (annualized) 0.24% 0.43% 0.37% 0.51%
Non-performing loans include loans on non-accrual status and loans past due
90 days or more and still accruing. The Corporation's policy is to write down
all non-performing loans to net realizable value based on updated appraisals.
Non-performing loans are generally collateralized and are in the process of
collection. Management is not aware of any loans other than those included in
the following table that would be considered potential problem loans and cause
management to have doubts as to the borrower's ability to comply with loan
repayment terms. As of September 30, 2002, the levels of non-performing loans
and assets have been reduced from the levels in 2001. However, the level of
non-performing loans has increased $2.8 million from June 30, 2002.
Non-performing loans reduce the Corporation's earnings because interest income
is not earned on such assets. Management has taken aggressive steps to correct
the downward trend and correct and control current and future credit quality
issues. The newly formed Credit Administration department is intended to assist
management to improve the components of the allowance of loans and lease losses
including the provision for loan and lease loss, recoveries, and charge-off
loans. The following chart represents detailed information regarding
non-performing loans:
NON-PERFORMING LOANS AND ASSETS
September 30, December 31,
------------- ------------
Dollars in thousands) 2002 2001 2001
---- ---- ----
Past due over 90 days and still accruing $ 270 $ 58 $ 174
Non-accrual loans 5,410 9,092 7,630
------- ------- -------
Total non-performing loans 5,680 9,150 7,804
Other real estate owned 473 727 831
------- ------- -------
Total non-performing assets $ 6,153 $ 9,877 $ 8,635
======= ======= =======
Non-performing loans as a percentage
of total loans 1.28% 2.11% 1.74%
Allowance for possible loan losses as a
percentage of non-performing loans 112.24% 68.66% 81.29%
Non-performing assets as a percentage
of total loans and other real estate owned 1.39% 2.27% 1.92%
Allowance for possible loan losses as a
percentage of non-performing assets 103.61% 63.60% 73.47%
Even though the above ratios indicate the allowance for loan losses as a
percentage of non-performing loans does not exceed the principal balances of all
non-performing loans at September 30, 2002, management feels that the allowance
for loan losses is adequate based on Management's current assessment of probable
estimated losses. Other Real Estate Owned ("OREO") represents residential and
commercial real estate owned by the Corporation following default by borrowers
and has been written down to realizable value (net of estimated disposal costs)
based on professional appraisals. The newly formed Credit Administration
department should assist in improving loans past due over 90 days and still
accruing, non-accrual loans, as well as other real estate owned.
LOAN IMPAIRMENT
The Corporation identifies a loan as impaired when it is probable that
interest and principal will not be collected according to the contractual terms
of the loan agreement. The accrual of interest is discontinued on impaired loans
and no income is recognized until all recorded amounts of interest and principal
are recovered in full.
FASB114 "Accounting by Creditors for Impairment of Loans" requires the
Corporation to examine commercial and non-residential mortgage loans on
non-accrual status for impairment. The balance of such impaired loans was $5.9
million, $7.4 million, and $8.6 million at September 30, 2002, December 31,
2001, and September 30, 2001 respectively. The associated allowance for impaired
loans was $500 thousand, $820 thousand $865 thousand at September 30, 2002,
December 31, 2001, and September 30, 2001, respectively.
For the three-month and nine-month periods ended September 30, 2002,
activity in the allowance for impaired loan losses include a provision of $233
and write off's of $103 thousand and $190 thousand, respectively, and recoveries
of $0 for both periods. For the three- and nine- month period ended September
30, 2001, activity in the allowance for impaired loan losses include a provision
of $680 thousand and write off's of $30 thousand and $57 thousand, respectively,
and recoveries of $0 for both periods. Contractual interest amounted to $95
thousand for the three-months ended September 30, 2002 and $336 thousand for the
nine-months ended September 30, 2002 compared to $99 thousand and $57 thousand
in 2001, respectively. Cash collected on loans for the three-month and
nine-month period ended September 30, 2002 was $110 and $570 thousand,
respectively, all of which $110 thousand and $345 thousand was applied to
principal and no interest income was recorded. Cash collected on loans for the
three-month and nine-month period ended September 30, 2001 was $57 thousand and
$65 thousand, respectively, all of which was applied to principal and no
interest income was recorded.
BRANCHING AND TECHNOLOGY PROJECTS
The Corporation is planning to open a new branch in the Coatesville area
during the next 12 months. The Corporation continually explores new branch
opportunities and has several additional sites under review. In June 2002, the
Corporation installed a new check imaging system that is integrated into the
core banking system that enables our customers to see images of their checks
online through the Bank's Net Teller and Net Cash Manager online banking
services. In addition, the Corporation introduced a new integrated branch
platform system in September 2002 which should streamline the account opening
process for our customers and improve back office efficiencies.
CAPITAL ADEQUACY
The Corporation is subject to Risk-Based Capital Guidelines adopted by the
Federal Reserve Board ("FRB") for bank holding companies. The Corporation is
also subject to similar capital requirements adopted by the OCC. Under these
requirements, the regulatory agencies have set minimum thresholds for Tier I
Capital, Total Capital, and Leverage ratios. At September 30, 2002, both the
Corporation's and the Bank's capital exceeded all minimum regulatory
requirements, and were considered "well capitalized" as defined in the
regulations issued pursuant to the FDIC Improvement Act of 1991. The
Corporation's Risk-Based Capital Ratios, shown below, have been computed in
accordance with regulatory accounting policies.
RISK-BASED September 30, December 31, "Well Capitalized"
------------------------- -------------
CAPITAL RATIOS 2002 2001 2001 Requirements
- -------------- ---- ---- ---- --------------------
Corporation
- -----------
Leverage Ratio 8.44% 7.74% 7.65% 5.00%
Tier I Capital Ratio 10.79% 10.06% 9.50% 6.00%
Total Risk-Based Capital Ratio 12.04% 11.33% 10.75% 10.00%
Bank
Leverage Ratio 8.22% 7.66% 7.42% 5.00%
Tier I Capital Ratio 10.51% 9.81% 9.22% 6.00%
Total Risk-Based Capital Ratio 11.76% 11.06% 10.47% 10.00%
The Bank is not under any agreement with the regulatory authorities nor is
it aware of any current recommendations by the regulatory authorities that, if
they were to be implemented, would have a material affect on liquidity, capital
resources or operations of the Corporation.
The Corporations and the Banks Risk-Based Capital ratios were positively
impacted by the July 11, 2002 issuance of preferred capital securities (see note
8 on page 8 for more detail).
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There have been no material changes in the Corporation's assessment of its
sensitivity to market risk since its presentation in the 2001 Annual Report of
the Corporation, filed as an exhibit to its Form 10-K for the fiscal year ended
December 31, 2001, with the SEC via EDGAR. Please refer to the "Management's
Discussion and Analysis" section on pages 24-38 of the Corporation's 2001 Annual
Report for additional information.
ITEM 4. CONTROLS AND PROCEDURES
Appearing immediately following the "Signatures" section of this Quarterly
Report there are four certifications, one by each of our Chief Executive
Officer, Chief Operating Officer, Chief Financial Officer, and our Controller
(the "Section 302 Certifications"). This section of the Quarterly Report which
you are currently reading contains information concerning the evaluation of the
Corporation's disclosure controls and procedures and matters regarding our
internal controls that are referred to in the Section 302 Certifications. This
information should be read in conjunction with the Section 302 Certifications
for a more complete understanding of the topics presented.
The Securities and Exchange Commission (the "SEC") requires that within 90
days prior to the filing of this Quarterly Report on Form 10-Q, the Chief
Executive Officer and the Chief Financial Officer evaluate the effectiveness of
the design and operation of the Corporation's "disclosure controls and
procedures" and report their conclusions on the effectiveness of the design and
operation of the Company's disclosure controls and procedures in this report.
"Disclosure controls and procedures" mean the controls and other procedures
that are designed with the objective of ensuring that information required to be
disclosed in our reports filed under the Securities Exchange Act of 1934 (the
"Exchange Act"), such as this Quarterly Report, is recorded, processed,
summarized and reported within the time periods specified in the rules and forms
promulgated by the Securities and Exchange Commission (the "SEC"). Our
disclosure controls and procedures are also designed with the objective of
ensuring that such information is accumulated and communicated to our
Management, including the CEO and CFO, as appropriate to allow timely decisions
regarding required disclosure.
The SEC also requires that the CEO and CFO certify certain matters
regarding the Company's "internal controls."
"Internal controls" mean our procedures which are designed with the
objective of providing reasonable assurance that (1) our transactions are
properly authorized; (2) our assets are safeguarded against unauthorized or
improper use; and (3) our transactions are properly recorded and reported, all
to permit the preparation of our financial statements in conformity with
generally accepted accounting principles. The Corporation evaluates its internal
controls annually as banking regulations dictate.
Among the matters our CEO, COO, CFO, and Controller certify in the Section
302 Certifications are whether all "significant deficiencies" or "material
weaknesses" in the Company's internal controls have been disclosed to the
Corporation's auditors and the audit committee of the Corporation's Board of
Directors. In the professional auditing literature, "significant deficiencies"
are referred to as "reportable conditions"; these are control issues that could
have a significant adverse effect on the ability to record, process, summarize
and report financial data in the financial statements. A "material weakness" is
defined in the auditing literature as a particularly serious reportable
condition where the internal control does not reduce to a relatively low level
the risk that misstatements caused by error or fraud may occur in amounts that
would be material in relation to the financial statements and not be detected
within a timely period by employees in the normal course of performing their
assigned functions.
The Corporation's management, including the CEO, COO, CFO, and Controller,
does not expect that our disclosure controls and procedures or our internal
controls will prevent all error and all fraud. A control system, no matter how
well conceived and operated, can provide only reasonable, not absolute,
assurance that the objectives of the control system are met. Further, the design
of a control system must reflect the fact that there are resource constraints,
and the benefits of controls must be considered relative to their costs. Because
of the inherent limitations in all control systems, no evaluation of controls
can provide absolute assurance that all control issues and instances of fraud,
if any, within the Corporation have been detected. These inherent limitations
include the realities that judgments in decision-making can be faulty, and that
breakdowns can occur because of simple error or mistake. Additionally, controls
can be circumvented by the individual acts of some persons, by collusion of two
or more people, or by management override of the control. The design of any
system of controls also is based in part upon certain assumptions about the
likelihood of future events, and there can be no assurance that any design will
succeed in achieving its stated goals under all potential future conditions;
over time, control may become inadequate because of changes in conditions, or
the degree of compliance with the policies or procedures may deteriorate.
Because of the inherent limitations in a cost-effective control system,
misstatements due to error or fraud may occur and not be detected.
Based upon their evaluation of the disclosure controls and procedures, our
CEO, COO, CFO, and Controller have concluded that, subject to the limitations
noted above, our disclosure controls and procedures are effective to provide
reasonable assurance that material information relating to the Corporation and
its consolidated subsidiaries is made known to management, including the CEO,
COO, CFO, and Controller, on a timely basis.
There were no significant changes to our internal controls or in other factors
that could significantly affect our internal controls, subsequent to the date of
our last evaluation of our internal controls, including any corrective actions
with regard to significant deficiencies and material weaknesses.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
Various actions and proceedings are presently pending to which
the Corporation is a party. These actions and proceedings arise
out of routine operations and, in Management's opinion, will not,
either individually or in the aggregate, have a material adverse
effect on the consolidated financial position of the Corporation
and its subsidiaries.
Item 2. Changes in Securities
None
Item 3. Defaults upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
The following is a list of exhibits to this report:
3(i). Certificate of Incorporation. Copy of the Corporation's Articles of
----------------------------
Incorporation, as amended, is incorporated herein by reference to Exhibit 3(i)
to the Corporation's Annual Report on Form 10-K for the year ended December 31,
2000.
3(ii). Bylaws of the Corporation, as amended. Copy of the Corporation's
---------------------------------------
Bylaws, as amended, is incorporated herein by reference to Exhibit 3(ii) to the
Corporation's Annual Report on Form 10-K for the year ended December 31, 2000.
27. Financial Data Schedule.
-----------------------
99.1 Certification of President and Chief Executive Officer
99.2 Certification of Chief Operating Officer
99.3 Certification of Treasurer and Principal Accounting and Financial
Officer
99.4 Certification of Assistant Treasurer/ Controller
(b) Reports on Form 8-K
A Form 8-K was filed with the SEC on July 23, 2002 pertaining to a press
release announcing second quarter earnings.
A Form 8-K was filed with the SEC on August 28, 2002 pertaining to James
McLaughlin's promotion to Senior Vice President.
A Form 8-K was filed with the SEC on September 24, 2002 pertaining to
Michelle Venema's promotion to Senior Vice President.
A Form 8-K was filed with the SEC on October 24, 2002 pertaining to a press
release announcing third quarter earnings.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 as
amended, the Registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized as amended.
FIRST CHESTER COUNTY CORPORATION
November 14, 2002 /s/ Charles E. Swope
--------------------
Charles E. Swope
President and Chief Executive
Officer
November 14, 2002 /s/ J. Duncan Smith
-------------------
J. Duncan Smith
Treasurer
(Principal Accounting
and Financial Officer)
I, Charles E. Swope, President and Chief Executive Officer of the Company,
----------------
certify that:
1. I have reviewed this quarterly report on Form 10-Q of September 30, 2002;
-------------------
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in the Report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as
of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others within those entities, particularly during the
period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the Evaluation Date); and
c) presented in this quarterly report our conclusions about the effectiveness of
the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent function):
a) all significant deficiencies in the design or operation of internal controls
which could adversely affect the registrant's ability to record, process,
summarize and report financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to date of their evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.
DATE:
/s/ Charles E. Swope
Charles E. Swope
President and Chief Executive Officer
I, Kevin Quinn, Chief Operating Officer of the Company, certify that:
------------
1. I have reviewed this quarterly report on Form 10-Q of September 30, 2002;
-------------------
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in the Report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as
of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others within those entities, particularly during the
period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the Evaluation Date); and
c) presented in this quarterly report our conclusions about the effectiveness of
the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent function):
a) all significant deficiencies in the design or operation of internal controls
which could adversely affect the registrant's ability to record, process,
summarize and report financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to date of their evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.
DATE:
/s/ Kevin Quinn
Kevin Quinn
Chief Operating Officer
I, J. Duncan Smith, Treasurer (Principal Accounting and Financial Officer) of
---------------
the Company, certify that:
1. I have reviewed this quarterly report on Form 10-Q of September 30, 2002;
-------------------
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in the Report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as
of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others within those entities, particularly during the
period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the Evaluation Date); and
c) presented in this quarterly report our conclusions about the effectiveness of
the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent function):
a) all significant deficiencies in the design or operation of internal controls
which could adversely affect the registrant's ability to record, process,
summarize and report financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to date of their evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.
DATE:
/s/ J. Duncan Smith
J. Duncan Smith
Treasurer (Principal Accounting and Financial Officer)
I, T. Benjamin Marsho, Assistant Treasurer/Controller, certify that:
----------------------
1. I have reviewed this quarterly report on Form 10-Q of September 30, 2002;
-------------------
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in the Report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as
of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others within those entities, particularly during the
period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the Evaluation Date); and
c) presented in this quarterly report our conclusions about the effectiveness of
the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent function):
a) all significant deficiencies in the design or operation of internal controls
which could adversely affect the registrant's ability to record, process,
summarize and report financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to date of their evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.
DATE:
/s/ T. Benjamin Marsho
T. Benjamin Marsho
Assistant Treasurer/Controller
EXHIBIT 99.1
FIRST CHESTER COUNTY CORPORATION
CERTIFICATION PURSUANT TO
18 U.S.C. ss. 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of First Chester County Corporation (the
"Company") on Form 10-Q for the period ending September 30, 2002 as filed with
the Securities and Exchange Commission on the date hereof (the "Report"), I,
Charles E. Swope, President and Chief Executive Officer of the Company, certify,
pursuant to 18 U.S.C. ss. 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of section 13(a) or 15(d) of
the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material
respects, the financial condition and result of operations of the Company.
Date: __________, 2002 /s/ Charles E. Swope
--------------------
Charles E. Swope
President and Chief Executive
Officer
EXHIBIT 99.2
FIRST CHESTER COUNTY CORPORATION
CERTIFICATION PURSUANT TO
18 U.S.C. ss. 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of First Chester County Corporation (the
"Company") on Form 10-Q for the period ending September 30, 2002 as filed with
the Securities and Exchange Commission on the date hereof (the "Report"), I,
Charles E. Swope, President and Chief Operating Officer of the Company, certify,
pursuant to 18 U.S.C. ss. 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of section 13(a) or 15(d) of
the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material
respects, the financial condition and result of operations of the Company.
Date: __________, 2002 /s/ Kevin Quinn
Kevin Quinn
Chief Operating Officer
EXHIBIT 99.3
FIRST CHESTER COUNTY CORPORATION
CERTIFICATION PURSUANT TO
18 U.S.C. ss. 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of First Chester County Corporation (the
"Company") on Form 10-Q for the period ending September 30, 2002 as filed with
the Securities and Exchange Commission on the date hereof (the "Report"), I, J.
Duncan Smith, Treasurer (Principal Accounting and Financial Officer) of the
Company, certify, pursuant to 18 U.S.C. ss. 1350, as adopted pursuant to Section
906 of the Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of section 13(a) or 15(d) of
the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material
respects, the financial condition and result of operations of the Company.
Date: __________, 2002 /s/ J. Duncan Smith
-------------------
J. Duncan Smith
Treasurer (Principal Accounting
and Financial Officer)
EXHIBIT 99.4
FIRST CHESTER COUNTY CORPORATION
CERTIFICATION PURSUANT TO
18 U.S.C. ss. 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of First Chester County Corporation (the
"Company") on Form 10-Q for the period ending September 30, 2002 as filed with
the Securities and Exchange Commission on the date hereof (the "Report"), I, T.
Benjamin Marsho, Assistant Treasurer/Controller of the Company, certify,
pursuant to 18 U.S.C. ss. 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of section 13(a) or 15(d) of
the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material
respects, the financial condition and result of operations of the Company.
Date: __________, 2002 /s/ T. Benjamin Marsho
----------------------
T. Benjamin Marsho
Assistant Treasurer/Controller