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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1998, 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
FIRST WEST CHESTER CORPORATION
(Exact name of Registrant as specified in its charter)
Pennsylvania 23-2288763
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
9 North High Street, West Chester, Pennsylvania 19380
-----------------------------------------------------
(Address of principal executive offices)
Registrant's telephone number, including area code (610) 692-3000
-------------
Securities registered pursuant to Section 12(b) of the Act:
Name of Each Exchange
Title of Each Class on Which Registered
------------------- -------------------
None None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $1.00 per share
---------------------------------------
(Title of Class)
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 __
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ X ]
The aggregate market value of the Common Stock of the Registrant held by
non-affiliates as of March 1, 1999, was approximately $73,687,000.
The number of shares outstanding of Common Stock of the Registrant as of March
1, 1999, was 4,605,282.
DOCUMENTS INCORPORATED BY REFERENCE
The Registrant's Annual Report to Shareholders for the year ended December 31,
1998, is incorporated by reference into Parts I and II hereof. The Registrant's
definitive Proxy Statement for its 1998 Annual Meeting of Shareholders is
incorporated by reference into Part III hereof.
FIRST WEST CHESTER CORPORATION AND SUBSIDIARIES
TABLE OF CONTENTS
PAGE
----
PART I: Item 1 - Business 1
Item 2 - Properties 13
Item 3 - Legal Proceedings 14
Item 4 - Submission of Matters to a Vote of Security Holders 14
PART II: Item 5 - Market for the Corporation's Common Equity and
Related Stockholder Matters 14
Item 6 - Selected Financial Data 14
Item 7 - Management's Discussion and Analysis of Financial
Condition and Results of Operation 15
Item 7A - Quantitative and Qualitative Disclosures About
Market Risk
Item 8 - Financial Statements and Supplementary Data 15
Item 9 - Changes In and Disagreements with Accountants on
Accounting and Financial Disclosure 15
PART III: Item 10 - Directors and Executive Officers of the Corporation 15
Item 11 - Executive Compensation 15
Item 12 - Security Ownership of Certain Beneficial Owners
and Management 15
Item 13 - Certain Relationships and Related Transactions 15
PART IV: Item 14 - Exhibits, Financial Statement Schedules and Reports
on Form 8-K
16
SIGNATURES 19
PART I
Item 1. Business.
- ------- ---------
GENERAL
First West Chester Corporation (the "Corporation") is a Pennsylvania
business corporation and a bank holding company registered under the Federal
Bank Holding Company Act of 1956, as amended (the "BHC Act"). As a bank holding
company, the Corporation's operations are confined to the ownership and
operation of banks and activities deemed by the Board of Governors of the
Federal Reserve System (the "Federal Reserve Board") to be so closely related to
banking to be a proper incident thereto. The Corporation was incorporated on
March 9, 1984, for the purpose of becoming a registered bank holding company
pursuant to the BHC Act and acquiring The First National Bank of West Chester
(the "Bank"), thereby enabling the Bank to operate within a bank holding company
structure. On September 13, 1984, the Corporation acquired all of the issued and
outstanding shares of common stock of the Bank. The principal activities of the
Corporation are the owning and supervising of the Bank, which engages in a
general banking business in Chester County, Pennsylvania. The Corporation
directs the policies and coordinates the financial resources of the Bank. In
addition, the Corporation is the sole shareholder of 323 East Gay Street Corp.,
a Pennsylvania corporation ("EGSC"), which was formed in 1996 for the purpose of
holding the Bank's interest in and operating foreclosed real property until
liquidation of such property.
BUSINESS OF THE BANK
The Bank is engaged in the business of commercial and retail banking
and was organized under the banking laws of the United States in December 1863.
The Bank currently conducts its business through seven banking offices located
in Chester County, Pennsylvania, including its main office. In addition, the
Bank operates four limited service ATM facilities. The Bank is a member of the
Federal Reserve System. At December 31, 1998, the Bank had total assets of
approximately $471 million, total loans of approximately $320 million, total
deposits of approximately $418 million and employed 206 full-time equivalent
persons.
The Bank is a full service commercial bank offering a broad range of
retail banking, commercial banking, trust and financial management services to
individuals and businesses. Retail services include checking accounts, savings
programs, money-market accounts, certificates of deposit, safe deposit
facilities, consumer loan programs, residential mortgages, overdraft checking,
automated tellers and extended banking hours. Commercial services include
revolving lines of credit, commercial mortgages, equipment leasing and letter of
credit services.
These retail and commercial banking activities are provided primarily
to consumers and small to mid-sized companies within the Bank's market area.
Lending services are focused on commercial, consumer and real estate lending to
local borrowers. The Bank attempts to establish a total borrowing relationship
with its customers which may typically include a commercial real estate loan, a
business line of credit for working capital needs, a mortgage loan for a
borrower's residence, a consumer loan or a revolving personal credit line.
The Bank's Financial Management Services Department (formerly, the
Trust Department) provides a broad range of personal trust services. It
administers and provides investment management services for estates, trusts,
agency accounts and employee benefit plans. At December 31, 1998, the Bank's
Financial Management Services Department administered or provided investment
management for 827 accounts, which possessed assets with an aggregate market
value of approximately $405 million. For the year ended December 31, 1998, gross
income from the Bank's Financial Management Services Department and related
activities amounted to approximately $2.3 million and accounted for 5.9% of the
total of interest income and other income of the Bank for such period.
COMPETITION
The Bank's service area consists primarily of greater Chester County,
including West Chester and Kennett Square, as well as the fringe of Delaware
County, Pennsylvania. The core of the Bank's service area is located within a
fifteen-mile radius of the Bank's main office in West Chester, Pennsylvania. The
Bank encounters vigorous competition for market share in the communities it
serves from community banks, thrift institutions and other non-bank financial
organizations. The Bank also competes with banking and financial branching
systems, some from out of state, which are substantially larger and have greater
financial resources than the Bank. There are branches of many commercial banks,
savings banks and credit unions, including the Bank, in the general market area
serviced by the Bank. The largest of these institutions had assets of over $100
billion and the smallest had assets of less than $30 million. The Bank had total
assets of approximately $471 million as of December 31, 1998.
The Bank competes for deposits with various other commercial banks,
savings banks, credit unions, brokerage firms and stock, bond and money market
funds. The Bank also faces competition from major retail-oriented firms that
offer financial services similar to traditional services available through
commercial banks without being subject to the same degree of regulation.
Mortgage banking firms, finance companies, insurance companies and leasing
companies also compete with the Bank for traditional lending services.
Management believes that the Bank is able to effectively compete with
its competitors because of its ability to provide responsive personalized
services and competitive rates. This ability is a direct result of management's
knowledge of the Bank's market area and customer base. Management believes the
needs of the small to mid-sized commercial business and retail customers are not
adequately met by larger financial institutions, therefore creating a marketing
opportunity for the Bank.
BUSINESS OF EGSC
EGSC was formed in 1996 to hold the Bank's partnership interest in WCP
Partnership. WCP Partnership was formed to facilitate the acquisition, necessary
repairs, required environmental remediation and other actions necessary to sell
real property located in West Chester, Pennsylvania (the "West Chester
Property") at fair market value. EGSC purchased a 62% interest in the mortgage
on the West Chester Property in 1996 from the Bank at book value and immediately
contributed the interest in the mortgage to WCP Partnership as capital. Another
financial institution contributed the remaining 38% interest in the mortgage to
WCP Partnership. WCP Partnership foreclosed on the West Chester Property in
1996. During 1997, the property was liquidated. The proceeds from the
liquidation were in excess of the transferred loan amount resulting in a gain
which was included in noninterest income. As of December 31, 1998, the WCP
Partnership was dissolved.
SUPERVISION AND REGULATION
General
The Corporation is a bank holding company subject to supervision and
regulation by the Federal Reserve Board. In addition, the Bank is subject to
supervision and regulation by the Office of the Comptroller of the Currency (the
"OCC"), and the Federal Deposit Insurance Corporation (the "FDIC"). Certain
aspects of the Bank's operation are also subject to state laws. The following is
not intended to be an exhaustive description of the statutes and regulations
applicable to the Corporation and the Bank.
Government Regulation
The Corporation is required to file with the Federal Reserve Board an
annual report and such additional information as the Federal Reserve Board may
require pursuant to the BHC Act. Annual and other periodic reports also are
required to be filed with the Federal Reserve Board. The Federal Reserve Board
also makes examinations of bank holding companies and their subsidiaries. The
BHC Act requires each bank holding company to obtain the prior approval of the
Federal Reserve Board before it may acquire substantially all of the assets of
any bank, or if it would acquire or control more than 5% of the voting shares of
such a bank. The Federal Reserve Board considers numerous factors, including its
capital adequacy guidelines, before approving such acquisitions. For a
description of certain applicable guidelines, see this Item "Capital," Part II,
Item 7, "Management's Discussion and Analysis of Financial Condition and Results
of Operations -- Capital Adequacy," and Part II, Item 8, "Note I -- Capital
Requirements" in the consolidated financial statements.
The BHC Act also restricts the types of businesses and operations in
which a bank holding company and its subsidiaries may engage. Generally,
permissible activities are limited to banking and activities found by the
Federal Reserve Board to be so closely related to banking as to be a proper
incident thereto. Further, a bank holding company and its subsidiaries are
generally prohibited from engaging in certain tie-in arrangements in connection
with any extension of credit, lease or sale of property or furnishing of
services.
The operations of the Bank are subject to requirements and restrictions
under federal and state law, including requirements to maintain reserves against
deposits, restrictions on the types and amounts of loans that may be made and
the types of services which may be offered, and restrictions on the ability to
acquire deposits under certain circumstances. Various consumer laws and
regulations also affect the operations of the Bank. Approval of the OCC is
required for branching by the Bank and for bank mergers in which the continuing
bank is a national bank.
The Community Reinvestment Act
The Community Reinvestment Act of 1977, as amended (the "CRA"), and the
regulations promulgated to implement the CRA are designed to create a system for
bank regulatory agencies to evaluate a depository institution's record in
meeting the credit needs of its community. The CRA regulations were completely
revised in 1995 to establish performance-based standards for use in examining a
depository institution's compliance with the CRA (the "revised CRA
regulations"). The revised CRA regulations establish new tests for evaluating
both small and large depository institutions' investment in the community. For
the purposes of the revised CRA regulations, the Bank is deemed to be a large
retail institution, based upon financial information as of December 31, 1998.
The Bank has opted to be examined under a three-part test evaluating the Bank's
lending service and investment performance. The Bank received a "satisfactory"
rating in 1998.
Dividend Restrictions
The Corporation is a legal entity separate and distinct from the Bank.
Virtually all of the revenue of the Corporation available for payment of
dividends on its common stock, with a par value of $1.00 (the "Common Stock")
will result from amounts paid to the Corporation from dividends received from
the Bank. All such dividends are subject to limitations imposed by federal and
state laws and by regulations and policies adopted by federal and state
regulatory agencies.
The Bank as a national bank is required by federal law to obtain the
approval of the OCC for the payment of dividends if the total of all dividends
declared by the Board of Directors of the Bank in any calendar year will exceed
the total of Bank's net income for that year and the retained net income for the
preceding two years, less any required transfers to surplus or a fund for the
retirement of any preferred stock. Under this formula, in 1998, the Bank,
without affirmative governmental approvals, could declare aggregate dividends in
1998 of approximately $5.9 million, plus an amount approximately equal to the
net income, if any, earned by the Bank for the period from January 1, 1998,
through the date of declaration of such dividend less dividends previously paid
in 1998, subject to the further limitations that a national bank can pay
dividends only to the extent that retained net profits (including the portion
transferred to surplus) exceed bad debts and provided that the Bank would not
become "undercapitalized" (as these terms are defined under federal law).
If, in the opinion of the applicable regulatory authority, a bank or
bank holding company under its jurisdiction is engaged in or is about to engage
in an unsafe or unsound practice (which, depending on the financial condition of
the bank or bank holding company, could include the payment of dividends), such
regulatory authority may require such bank or bank holding company to cease and
desist from such practice, or to limit dividends in the future. Finally, the
several regulatory authorities described herein, may from time to time,
establish guidelines, issue policy statements and adopt regulations with respect
to the maintenance of appropriate levels of capital by a bank or bank holding
company under their jurisdiction. Compliance with the standards set forth in
such policy statements, guidelines and regulations could limit the amount of
dividends which the Corporation and the Bank may pay.
Capital
The Corporation and the Bank are both subject to minimum capital
requirements and guidelines. The Federal Reserve Board measures capital adequacy
for bank holding companies on the basis of a risk-based capital framework and a
leverage ratio. The Federal Reserve Board has established minimum leverage ratio
guidelines for bank holding companies. These guidelines currently provide for a
minimum leverage ratio of Tier I capital to adjusted total assets of 3% for bank
holding companies that meet certain criteria, including that they maintain the
highest regulatory rating. All other bank holding companies are required to
maintain a leverage ratio of 3% plus an additional cushion of at least 100 to
200 basis points. The Federal Reserve Board has not advised the Corporation of
any specific minimum leverage ratio under these guidelines which would be
applicable to the Corporation. Failure to satisfy regulators that a bank holding
company will comply fully with capital adequacy guidelines upon consummation of
an acquisition may impede the ability of a bank holding company to consummate
such acquisition, particularly if the acquisition involves payment of
consideration other than common stock. In many cases, the regulatory agencies
will not approve acquisitions by bank holding companies and banks unless their
capital ratios are well above regulatory minimums.
The Bank is subject to capital requirements which generally are similar
to those affecting the Corporation. The minimum ratio of total risk-based
capital to risk-adjusted assets (including certain off-balance sheet items, such
as standby letters of credit) is 8%. Capital may consist of equity and
qualifying perpetual preferred stock, less goodwill ("Tier I capital"), and
certain convertible debt securities, qualifying subordinated debt, other
preferred stock and a portion of the reserve for possible credit losses ("Tier
II capital").
A depository institution's capital classification depends upon its
capital levels in relation to various relevant capital measures, which include a
risk-based capital measure and a leverage ratio capital measure. A depository
institution is considered well capitalized if it significantly exceeds the
minimum level required by regulation for each relevant capital measure,
adequately capitalized if it meets each such measure, undercapitalized if it
fails to meet any such measure, significantly undercapitalized if it is
significantly below any such measure and critically undercapitalized if it fails
to meet any critical capital level set forth in the regulations. An institution
may be placed in a lower capitalization category if it receives an
unsatisfactory examination rating, is deemed to be in an unsafe or unsound
condition, or engages in unsafe or unsound practices. Under applicable
regulations, for an institution to be well capitalized it must have a total
risk-based capital ratio of at least 10%, a Tier I risk-based capital ratio of
at least 6% and a Tier I leverage ratio of at least 5% and not be subject to any
specific capital order or directive. As of December 31, 1998, 1997 and 1996, the
Corporation and the Bank had capital in excess of all regulatory minimums and
the Bank was "well capitalized." See Part II, Item 7, "Management's Discussion
and Analysis of Financial Condition and Results of Operations -- Financial
Condition" and "--Capital Adequacy" and Part II, Item 8, "Note I -- Capital
Requirements" in the consolidated financial statements.
Deposit Insurance Assessments
The Bank is subject to deposit insurance assessments by the FDIC's Bank
Insurance Fund ("BIF"). The FDIC has developed a risk-based assessment system,
under which the assessment rate for an insured depository institution varies
according to its level of risk. An institution's risk category is based upon
whether the institution is well capitalized, adequately capitalized or
undercapitalized and the institution's "supervisory subgroups": Subgroup A, B or
C. Subgroup A institutions are financially sound institutions with a few minor
weaknesses; Subgroup B institutions are institutions that demonstrate weaknesses
which, if not corrected, could result in significant deterioration; and Subgroup
C institutions are institutions for which there is a substantial probability
that the FDIC will suffer a loss in connection with the institution unless
effective action is taken to correct the areas of weakness. Based on its capital
and supervisory subgroups, each BIF member institution is assigned an annual
FDIC assessment rate per $100 of insured deposits varying between 0.00% per
annum (for well capitalized Subgroup A institutions) and 0.27% per annum (for
undercapitalized Subgroup C institutions). As of January 1, 1999, well
capitalized Subgroup A institutions will pay between 0.00% and 0.10% per annum.
In accordance with the Deposit Insurance Act of 1997 an additional
assessment by the Financing Corporation ("FICO") became applicable to all
insured institutions as of January 1, 1998. This assessment is not tied to the
FDIC risk classification. The BIF FICO assessment will be 1.220 basis points for
1999. For the first quarter of 1999, the Bank's assessments for BIF and BIF FICO
are $0.00 and $11,918, respectively.
Other Matters
Federal and state law also contains a variety of other provisions that
affect the operations of the Corporation and the Bank including certain
reporting requirements, regulatory standards and guidelines for real estate
lending, "truth in savings" provisions, the requirement that a depository
institution give 90 days prior notice to customers and regulatory authorities
before closing any branch, certain restrictions on investments and activities of
nationally-chartered insured banks and their subsidiaries, limitations on credit
exposure between banks, restrictions on loans to a bank's insiders, guidelines
governing regulatory examinations, and a prohibition on the acceptance or
renewal of brokered deposits by depository institutions that are not well
capitalized or are adequately capitalized and have not received a waiver from
the FDIC.
The Corporation's Common Stock is registered under the Securities
Exchange Act of 1934, as amended (the "Exchange Act"). As a result, the
Corporation is subject to the regulations promulgated under the Exchange Act
regarding the filing of public reports, the solicitation of proxies, the
disclosure of beneficial ownership of certain securities, short swing profits
and the conduct of tender offers.
EFFECT OF GOVERNMENTAL POLICIES
The earnings of the Bank and, therefore, of the Corporation are
affected not only by domestic and foreign economic conditions, but also by the
monetary and fiscal policies of the United States and its agencies (particularly
the Federal Reserve Board), foreign governments and other official agencies. The
Federal Reserve Board can and does implement national monetary policy, such as
the curbing of inflation and combating of recession, by its open market
operations in United States government securities, control of the discount rate
applicable to borrowings from the Federal Reserve and the establishment of
reserve requirements against deposits and certain liabilities of depository
institutions. The actions of the Federal Reserve Board influence the level of
loans, investments and deposits and also affect interest rates charged on loans
or paid on deposits. The nature and impact of future changes in monetary and
fiscal policies are not predictable.
From time to time, various proposals are made in the United States
Congress and the Pennsylvania legislature and before various regulatory
authorities which would alter the powers of different types of banking
organizations, remove restrictions on such organizations and change the existing
regulatory framework for banks, bank holding companies and other financial
institutions. It is impossible to predict whether any of such proposals will be
adopted and the impact, if any, of such adoption on the business of the
Corporation.
ACCOUNTING STANDARDS
Impairment of Long-Lived Assets
The Corporation adopted the Financial Accounting Standards Board
Statement ("SFAS") No. 121, "Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to be Disposed of" on January 1, 1996. See Note A-6 in
Notes to Consolidated Financial Statements included in the Corporation's 1998
Annual Report to Shareholders, incorporated herein by reference.
Stock Based Compensation Plans
The Corporation adopted SFAS No. 123, "Accounting for Stock Based
Compensation" on January 1, 1996. See Note A-10 in Notes to Consolidated
Financial Statements included in the Corporation's 1998 Annual Report to
Shareholders, incorporated herein by reference.
Accounting for Transfer and Services of Financial Assets and Extinquishments of
The Corporation adopted SFAS No. 125, "Accounting for Transfer and
Servicing of Financial Assets and Extinguishments of Liabilities" as amended by
SFAS No. 127, as of January 1, 1998. See Note A-14 in Notes to Consolidated
Financial Statements included in the Corporation's 1998 Annual Report to
Shareholders, incorporated herein by reference.
Earnings Per Share
The Corporation adopted SFAS No. 128, "Earnings per Share" as of
January 1, 1998. See Note A-12 in Notes to Consolidated Financial Statements
included in the Corporation's 1998 Annual Report to Shareholders, incorporated
herein by reference.
Reporting Comprehensive Income
The Corporation adopted SFAS No. 130, "Reporting Comprehensive Income"
effective as of January 1, 1998. See Note A-15 in Notes to Consolidated
Financial Statements included in the Corporation's 1998 Annual Report to
Shareholders, incorporated herein by reference.
Disclosures about Segments of an Enterprise and Related Information
The Corporation adopted SFAS No. 131, "Disclosure about Segments of an
Enterprise and Related Information" as of January 1, 1998. See Note A-16 in
Notes to Consolidated Financial Statements included in the Corporations 1998
Annual Report to Shareholders, incorporated by herein by reference.
Disclosures about Derivative Instruments and Hedging Activities
In June 1998, SFAS No. 133, "Disclosures about Derivative Instruments
and Hedging Activities" was issued effective for all fiscal quarters of fiscal
years beginning after June 15, 1999. See Note A-17 in Notes to Consolidated
Financial Statements included in the Corporation's 1998 Annual Report to
Shareholders, incorporated herein by reference.
STATISTICAL DISCLOSURES
The following tables set forth certain statistical disclosures
concerning the Corporation and the Bank. These tables should be read in
conjunction with Management's Discussion and Analysis of Financial Condition and
Results of Operations contained in the Corporation's 1998 Annual Report to
Shareholders, incorporated herein by reference.
FIRST WEST CHESTER CORPORATION AND SUBSIDIARIES
RATE VOLUME ANALYSIS (1)
Increase (decrease) in net interest income due to:
--------------------------------------------------
Volume (2) Rate (2) Total Volume (2) Rate (2) Total
------ ---- ----- ------ ---- -----
(Dollars in thousands) 1998 Compared to 1997 1997 Compared to 1996
--------------------------------- ---------------------------------
INTEREST INCOME
Federal funds sold $ 138 $ (10) $ 128 $ (435) $ 9 $ (426)
Interest Bearing Deposits in Banks (12) - (12) (35) - (35)
------- ------ ------ ------ ------ -----
Investment securities
Taxable 244 (410) (166) (946) 187 (759)
Tax-exempt(3) (42) 4 (38) (29) 5 (24)
------- ------ ------ ------ ------ -----
Total investment securities 202 (406) (204) (975) 192 (783)
Loans
Taxable 2,035 (198) 1,837 4,430 (738) 3,692
Tax-exempt(3) (205) 32 (174) 210 (169) 41
------- ------ ------ ------ ------ -----
Total loans(4) 1,830 (167) 1,663 4,640 (907) 3,733
------- ------ ------ ------ ------ -----
Total interest income 2,158 (582) 1,575 3,195 (706) 2,489
------- ------ ------ ------ ------ -----
INTEREST EXPENSE
Savings, NOW and money market
deposits 323 (46) 277 162 43 205
Certificates of deposits and other time 714 18 732 582 68 650
------- ------ ------ ------ ------ -----
Total interest bearing deposits 1,037 (28) 1,009 744 111 855
Securities sold under repurchase
agreements (181) 16 (165) (37) (2) (39)
Other borrowings (76) 15 (61) -- 401 401
------- ------ ------ ------ ------ -----
Total Interest expense 780 3 783 707 510 1,217
------- ------ ------ ------ ------ -----
Net Interest income $ 1,378 $ (585) $ 792 $ 2,488 $(1,216) $1,272
======= ====== ====== ====== ====== =====
NOTES:
- -----
(1) The related average balance sheets can be found on page 25 of the
Corporation's 1998 Annual Report to Shareholders.
(2) The changes in interest due to both rate and volume has been allocated to
volume and rate changes in proportion to the relationship of the absolute
dollar amounts of the change in each.
(3) The indicated changes are presented on a tax equivalent basis.
(4) Non-accruing loans have been used in the daily average balances to
determine changes in interest due to volume. Loan fees included in the
interest income computation are not material.
FIRST WEST CHESTER CORPORATION AND SUBSIDIARIES
LOAN PORTFOLIO BY TYPE AT DECEMBER 31,
(Dollars in thousand) 1998 1997 1996 1995 1994
-------------- --------------- --------------- ------------- ---------------
Amount % Amount % Amount % Amount % Amount %
------ - ------ - ------ - ------ - ------ -
Commercial loans $ 85,110 27% $ 93,914 30% $ 87,932 34% $ 86,686 36% $ 87,689 37%
Real estate - construction 13,439 4% 17,256 5% 11,447 4% 9,372 4% 4,607 2%
Real estate - other 133,191 42% 117,953 37% 109,179 41% 100,814 41% 101,589 42%
Consumer loans (1) 62,481 19% 66,753 21% 39,803 15% 33,836 14% 32,984 14%
Lease financing receivables 26,174 8% 23,023 7% 16,221 6% 11,879 5% 12,257 5%
-------- -------- ------- -------- --------
Total gross loans $ 320,395 100% $ 318,899 100% $264,582 100% $242,587 100% $ 239,126 100%
Allowance for possible loan
losses(2) $ (5,877) $ (5,900) $ (5,218) $ (4,506) $ (3,303)
-------- ------- ------ -------- -------
Total loans(2) $ 314,518 $ 312,999 $259,364 $238,081 $ 235,823
======== ======== ======= ======= =======
NOTES:
- -----
(1) Consumer loans include open-end home equity lines of credit and credit card
receivables.
(2) The Corporation does not breakdown the allowance for possible loan losses
by area, industry or type of loan because the evaluation process used to
determine the adequacy of the reserve is based on the portfolio as a whole.
Management believes such an allocation would not be meaningful. See pages
29-30 of the Corporation's 1998 Annual Report to Shareholders for
additional information.
(3) At December 31, 1998 there were no concentrations of loans exceeding 10% of
total loans which is not otherwise disclosed as a category of loans in the
above table.
FIRST WEST CHESTER CORPORATION AND SUBSIDIARIES
MATURITIES AND RATE SENSITIVITY OF LOANS DUE TO CHANGES IN
INTEREST RATES AT DECEMBER 31, 1998 (1) (2)
Maturing
Maturing After 1 Year Maturing
Within And Within After
(Dollars in thousands) 1 Year (3) 5 Years 5 Years Total
-------- ------------ ------- ----------
Commercial loans $64,963 $5,563 $14,584 $85,110
Real Estate - construction 13,439 -- -- 13,439
------ ----- ------ ------
Total $78,402 $5,563 $14,584 $98,549
====== ===== ====== ======
Loans maturing after 1 year with:
Fixed interest rates $5,563 $14,584
Variable interest rates -- --
----- ------
Total $5,563 $14,584
===== ======
NOTES:
- -----
(1) Determination of maturities included in the loan maturity table are based
upon contract terms. In situations where a "rollover" is appropriate, the
Corporation's policy in this regard is to evaluate the credit for
collectability consistent with the normal loan evaluation process. This
policy is used primarily in evaluating ongoing customer's use of their
lines of credit with the Bank that are at floating interest rates.
(2) This data excludes real estate-other loans, consumer loans and lease
financing receivables.
(3) Demand loans and overdrafts are reported maturing "Within 1 Year".
Construction real estate loans are reported maturing "Within 1 Year"
because of their short term maturity or index to the Bank's prime rate. An
immaterial amount of loans has no stated schedule of repayments.
FIRST WEST CHESTER CORPORATION AND SUBSIDIARIES
INVESTMENT SECURITIES YIELD BY MATURITY AT DECEMBER 31, 1998
Due over Due over
Due 1 year 5 years Due
Within Through Through Over
(Dollars in thousands) 1 year 5 years 10 years 10 years Total
------ ------- -------- -------- -----
Held-to-Maturity
U.S. Treasury -- -- -- -- --
U.S. Government agency -- -- -- -- --
Mortgage-backed securities (1) 442 359 -- 58 859
State and municipal (2) 340 907 1,660 -- 2,907
Corporate securities 1,000 2,110 -- -- 3,110
Asset-backed (1) 530 -- -- -- 530
------ ------ ------ ------- --------
2,312 3,376 1,660 58 7,406
------ ------ ------ ------- --------
Available-for-Sale
U.S. Treasury 4,996 -- -- -- 4,996
U.S. Government agency -- -- -- -- --
Mortgage-backed securities (1) -- 10,737 11,409 55,259 77,405
State and municipal (2) -- -- -- 500 500
Corporate securities 1,000 -- 4,578 694 6,272
Asset-backed (1) -- -- 1,585 7,052 8,637
Mutual Funds -- -- -- 1,091 1,091
Other equity securities (3) -- -- -- 3,037 3,037
------ ------ ------ ------- --------
5,996 10,737 17,572 67,633 101,938
------ ------ ------ ------- --------
Total Investment securities $ 8,308 $14,113 $19,232 $ 67,691 $109,344
====== ====== ====== ======= =======
Percent of portfolio 7.60% 12.91% 17.59% 61.91% 100.00%
==== ===== ===== ===== ======
Weighted average yield 5.82% 5.90% 6.50% 5.71% 5.89%
==== ==== ==== ==== ====
NOTES:
- -----
(1) Mortgage-backed and Asset-backed securities are included in the above table
based on their contractual maturity.
(2) The yield on tax-exempt obligations has been computed on a tax equivalent
basis using the Federal marginal rate of 34% adjusted for the 20% interest
expense disallowance.
(3) Other equity securities having no stated maturity have been included in
"Due over 10 years".
FIRST WEST CHESTER CORPORATION AND SUBSIDIARIES
INVESTMENT SECURITIES AT DECEMBER 31,
1998 1997 1996
----------------------- ---------------------- ----------------------
(Dollars in thousands) Book Market Book Market Book Market
Value Value Value Value Value Value
----- ----- ----- ----- ----- -----
Held-to-Maturity
U.S. Treasury $ -- $ -- $ 1,493 $ 1,494 $ 1,483 $ 1,482
U.S. Government agency -- -- -- -- -- --
Mortgage-backed securities 859 860 1,519 1,520 2,145 2,130
State and municipal 2,907 3,069 3,955 4,081 5,742 5,834
Corporate securities 3,110 3,144 4,115 4,129 5,121 5,123
Asset-backed 530 533 1,000 1,013 1,176 1,180
Mutual funds -- -- -- -- -- --
Other equity securities -- -- -- -- -- --
-------- -------- ------- -------- ------- ------
$ 7,406 $ 7,606 $ 12,082 $ 12,237 $ 15,667 $15,749
======== ======== ======= ======= ======= ======
Available-for-Sale
U.S. Treasury $ 5,019 $ 5,019 $ 6,528 $ 6,528 $ 9,529 $ 9,529
U.S. Government agency -- -- 7,392 7,392 14,503 14,503
Mortgage-backed securities 77,516 77,516 47,688 47,688 47,031 47,031
State and municipal 497 497 -- -- 278 278
Corporate securities 6,262 6,262 1,000 1,000 -- --
Asset-backed 8,760 8,760 -- -- 1,268 1,268
Mutual Funds 1,039 1,039 1,042 1,042 7,535 7,535
Other equity securities 3,287 3,287 1,866 1,866 1,864 1,864
--------- --------- ------- ------- ------- -------
$ 102,380 $ 102,380 $ 65,516 $ 65,516 $ 82,008 $82,008
======== ======== ======= ======= ======= ======
MATURITIES OF CERTIFICATES OF DEPOSIT AND OTHER TIME DEPOSITS,
$100,000 OR MORE, AT DECEMBER 31, 1998
Due Within Over 3 Months Over 6 Months Due Over
(Dollars in thousands) 3 Months Through 6 Months Through 12 Months 12 Months Total
----------- ---------------- ----------------- --------- -----
Certificates of Deposit
$100,000 or more $ 7,778 $ 6,193 $ 3,697 $ 10,153 $27,821
FIRST WEST CHESTER CORPORATION AND SUBSIDIARIES
EFFECT OF NONACCRUING LOANS ON INTEREST FOR
YEARS ENDED DECEMBER 31,
(Dollars in thousands) 1998 1997 1996 1995 1994
-------- -------- -------- -------- --------
Interest income which would
have been recorded (1) $ 129 $ 64 $ 42 $ 103 $ 432
Interest income that was
received from customer 25 37 1 172 --
----- ----- ------ ----- ----
$ 104 $ 27 $ 41 $ (69) $ 432
==== ===== ===== ===== ====
NOTES:
- ------
(1) Generally the Bank places a loan in nonaccrual status when principal or
interest has been in default for a period of 90 days or more unless the
loan is both well secured and in the process of collection.
Item 2. Properties.
- ------- -----------
The Bank owns eight properties which are not subject to any mortgages.
The Corporation owns one property which is not subject to any mortgage, and
which is located at 124 West Cypress Street, Kennett Square, Pennsylvania. In
addition, the Corporation leases the Westtown-Thornbury, Exton and Frazer
Offices. Management of the Corporation believes the Corporation's and the Bank's
facilities are suitable and adequate for their respective present needs. Set
forth below is a listing of each banking office presently operated by the Bank
and the Corporation, and other properties owned by the Bank and the Corporation
which may serve as future sites for branch offices.
Current Date
Banking Acquired
Offices / Use Address or Opened
- ------------- ------- ---------
Main Office / Branch 9 North High Street December 1863
and Corporate West Chester, Pennsylvania
Headquarters
Walk-In Facility / Branch 17 East Market Street February 1978
West Chester, Pennsylvania
Westtown-Thornbury / Route 202 and Route 926 May 1994
Branch Westtown, Pennsylvania
Goshen / Branch 311 North Five Points Road September 1956
West Goshen, Pennsylvania
Kennett Square / Branch 126 West Cypress Street February 1987
Kennett Square, Pennsylvania
Exton / Branch Route 100 and Boot Road August 1995
West Chester, Pennsylvania
Frazer / Branch 309 Lancaster Avenue August 1998
Frazer, Pennsylvania
Former Commonwealth High & Market Streets July 1995
Building / Mortgage Center West Chester, Pennsylvania
Other Date Acquired
Properties / Use Address or Opened
- ---------------- ------- ---------
Operations 202 Carter Drive July 1988
Center / Operations West Chester, Pennsylvania
Matlack Street / 887 South Matlack Street September 1998
Operations West Chester, Pennsylvania
Paoli Pike / Parking 1104 Paoli Pike July 1963
West Chester, Pennsylvania
Kennett Square / Parking 124 West Cypress Street July 1986
Kennett Square, Pennsylvania
Westtown / Operations 1039 Wilmington Pike February 1965
Westtown, Pennsylvania
Item 3. Legal Proceedings.
- ------- ------------------
There are no material pending legal proceedings, other than ordinary
routine litigation incidental to the business, to which the Corporation, the
Bank or EGSC is a party or of which any of their respective property is the
subject.
Item 4. Submission of Matters to a Vote of Security Holders.
- ------- ----------------------------------------------------
None.
PART II
-------
Item 5. Market for the Corporation's Common Equity and Related Stockholder
- ------- ------------------------------------------------------------------
Matters.
-------
The Corporation's Common Stock is publicly traded over the counter.
Trading is sporadic. Information regarding high and low bid quotations is
incorporated herein by reference from the Corporation's 1998 Annual Report to
Shareholders, attached as an exhibit hereto. As of March 1, 1998, there were
approximately 920 shareholders of record of the Corporation's Common Stock.
The Corporation declared cash dividends per share on its Common Stock
during each quarter of the fiscal years ended December 31, 1998 and 1997, as set
forth in the following table (which have been adjusted for the stock splits
which occurred on April 1, 1997 and November 24, 1998):
Dividends
---------
Amount Per Share
----------------
1998 1997
---- ----
First Quarter............................................. $ 0.11 $ 0.10
Second Quarter............................................ 0.11 0.10
Third Quarter............................................. 0.11 0.10
Fourth Quarter............................................ 0.14 0.12
----- -----
Total................................................... $ 0.47 $ 0.42
===== =====
The holders of the Corporation's Common Stock are entitled to receive
such dividends as may be legally declared by the Corporation's Board of
Directors. The amount, time, and payment of future dividends, however, will
depend on the earnings and financial condition of the Corporation, government
policies, and other factors. See Part I, Item 1, "Supervision and Regulation"
for information concerning limitations on the payment of dividends by the Bank
and the Corporation and on the ability of the Corporation to otherwise obtain
funds from the Bank.
Item 6. Selected Financial Data.
- ------- ------------------------
Selected financial data concerning the Corporation and the Bank is
incorporated herein by reference from the Corporation's 1998 Annual Report to
Shareholders, attached as an exhibit hereto.
Item 7. Management's Discussion and Analysis of Financial Condition and Results
- ------- ------------ ---------------------------------------------------------
of Operations.
-------------
Management's Discussion and Analysis of Financial Condition and Results
of Operations is incorporated herein by reference from the Corporation's 1998
Annual Report to Shareholders, attached as an exhibit hereto.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
- ------- ----------------------------------------------------------
Quantitative and Qualitative Disclosures About Market Risk are
incorporated herein by reference from the Corporation's 1998 Annual Report to
Shareholders, attached as an exhibit hereto.
Item 8. Financial Statements and Supplementary Data.
- ------- --------------------------------------------
Consolidated financial statements of the Corporation and the Report of
Independent Certified Public Accountants thereon are incorporated herein by
reference from the Corporation's 1998 Annual Report to Shareholders, attached as
an exhibit hereto.
Item 9. Changes in and Disagreements with Accountants on Accounting and
- ------- -------------------------------------------------------------------
Financial Disclosure.
--------------------
None.
PART III
Item 10. Directors and Executive Officers of the Corporation.
- -------- ----------------------------------------------------
The information called for by this item is incorporated herein by
reference to the Corporation's Proxy Statement dated February 19, 1998, for its
1999 Annual Meeting of Shareholders.
Item 11. Executive Compensation.
- -------- ----------------------
The information called for by this item is incorporated herein by
reference to the Corporation's Proxy Statement dated February 19, 1998, for its
1999 Annual Meeting of Shareholders.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
- -------- ---------------------------------------------------------------
The information called for by this item is incorporated herein by
reference to the Corporation's Proxy Statement dated February 19, 1998, for its
1999 Annual Meeting of Shareholders.
Item 13. Certain Relationships and Related Transactions.
- -------- ----------------------------------------------
The information called for by this item is incorporated herein by
reference to the Corporation's Proxy Statement dated February 19, 1998, for its
1999 Annual Meeting of Shareholders.
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.
- -------- -----------------------------------------------------------------
1. Index to Consolidated Financial Statements
------------------------------------------
Page of Annual
Report to Shareholders
----------------------
Consolidated Balance Sheets Page 35
at December 31, 1998 and
1997
Consolidated Statements of Page 36
Income and Comprehensive
Income for the years ended
December 31, 1998, 1997
and 1996
Consolidated Statement of Page 37
Changes in Stockholders'
Equity for the years
ended December 31, 1998,
1997 and 1996
Consolidated Statements of Page 38
Cash Flows for the years ended
December 31, 1998, 1997 and 1996
Notes to Consolidated Pages 39 to 57
Financial Statements
Report of Independent Certified Page 59
Public Accountants
The Consolidated Financial Statements listed in the above index,
together with the report thereon of Grant Thornton LLP dated January 22, 1999,
which are included in the Corporation's Annual Report to Shareholders for the
year ended December 31, 1998, are hereby incorporated herein by reference.
2. Financial Statement Schedules
-----------------------------
Financial Statement Schedules are not required under the related
instructions of the Securities and Exchange Commission, are inapplicable or are
included in the Consolidated Financial Statements or notes thereto.
3. Exhibits
--------
The following is a list of the exhibits filed with, or incorporated by
reference into, this Report (those exhibits marked with an asterisk are filed
herewith):
* 3(i). Articles of Incorporation. Copy of the Articles of Incorporation
-------------------------
of the Corporation, as amended.
3(ii). By-Laws of the Corporation. By-Laws of the Corporation, filed as
--------------------------
Exhibit 3 (ii) to the Corporation's Annual Report on Form 10-K for the year
ended December 31, 1997 is incorporated by reference.
10. Material contracts.
------------------
(a) Copy of Employment Agreement among the Corporation, the
Bank and Charles E. Swope dated January 1, 1998, filed as Exhibit 10 (a) to the
Corporation's Annual Report on Form 10-K for the year ended December 31, 1997 is
incorporated by reference.
(b) Copy of the Corporation's Dividend Reinvestment and Stock
Purchase Plan, filed as an exhibit to the Corporation's registration statement
on Form S-3 filed August 8, 1997 (File no. 333-33175) is incorporated herein by
reference.
(c) Copy of the Corporation's Amended and Restated Stock Bonus
Plan, filed as an exhibit to the Corporation's registration statement on Form
S-8 filed August 12, 1997 (File no. 333-33411) is incorporated herein by
reference.
(d) Copy of the Bank's Amended and Restated Supplemental
Benefit Retirement Plan, effective date January 1, 1995, is incorporated herein
by reference to Exhibit 10(g) to the Corporation's Annual Report on Form 10-K
for the year ended December 31, 1994.
(e) Copy of the Corporation's and the Bank's Directors
Deferred Compensation Plan, effective December 30, 1995, is incorporated herein
by reference to Exhibit 10(h) to the Corporation's Annual Report on Form 10-K
for the year ended December 31, 1995.
(f) Copy of the Corporation's Amended and Restated 1995 Stock
Option Plan, filed as an exhibit to the Corporation's Proxy statement for the
1999 Annual Meeting of Shareholders is incorporated herein by reference.
* 13 Annual Report to Security Holders, Form 10-Q or Quarterly
Report to Security Holders. The Corporation's Annual Report to Shareholders for
the year ended December 31, 1998. With the exception of the pages listed in the
Index to Consolidated Financial Statements and the items referred to in Items 1,
5, 6, 7 and 8 hereof, the Corporation's 1998 Annual Report to Shareholders is
not deemed to be filed as part of this Report.
* 21. Subsidiaries of the Corporation. The First National Bank of
West Chester, a banking institution organized under the banking laws of the
United States in December 1863. 323 East Gay Street Corporation incorporated in
1996 in the State of Pennsylvania.
* 23. Consents of experts and counsel. Consent of Grant Thornton
LLP, dated March 25, 1999.
* 27. Financial Data Schedules. A Financial Data Schedule is being
submitted with the Corporation's 1998 Annual Report on Form 10-K in the
electronic format prescribed by the EDGAR Filer Manual and sets forth the
financial information specified by Article 9 of Regulation S-X and Securities
Act Industry Guide 3 information and Exchange Act Industry Guide 3 listed in
Appendix C to Item 601 of Regulation S-K. 1996 and 1995 Restated Financial Data
Schedules as per FASB 128.
(b) Reports on Form 8-K. No reports on Form 8-K were filed by the
Corporation during the quarter ended December 31, 1998.
SIGNATURES
----------
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Corporation has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
FIRST WEST CHESTER CORPORATION
/s/ Charles E. Swope
By:_______________________
Charles E. Swope,
President
Date: March 26, 1999
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, this report has been signed below by the following persons on behalf of
the Corporation and in the capacities indicated on March 26, 1999.
Signature Title
--------- -----
/s/ Charles E. Swope President, Chief Executive
______________________________ Officer and Chairman of the
Charles E. Swope Board of Directors
/s/ J. Duncan Smith Treasurer (Principal Accounting
______________________________ and Financial Officer)
J. Duncan Smith
(Signatures continued on following page)
(Signatures continued from previous page)
Signature Title
--------- -----
/s/ John J. Ciccarone Director
- --------------------------------
John J. Ciccarone
/s/ M. Robert Clarke Director
- ---------------------------------
M. Robert Clarke
/s/ Edward J. Cotter Secretary and Director
- ---------------------------------
Edward J. Cotter
/s/ Clifford E. DeBaptiste Director
- ---------------------------------
Clifford E. DeBaptiste
/s/ John A. Featherman, III Director
- ---------------------------------
John A. Featherman, III
/s/ J. Carol Hanson Director
- ---------------------------------
J. Carol Hanson
/s/ John S. Halsted Director
- ---------------------------------
John S. Halsted
/s/ David L. Peirce Director
- ---------------------------------
David L. Peirce
/s/ John B. Waldron Director
- ---------------------------------
John B. Waldron
Index to Exhibits
-----------------
The following is a list of the exhibits filed with, or incorporated by
reference into, this Report (those exhibits marked with an asterisk are filed
herewith):
* 3(i). Articles of Incorporation. Copy of the Articles of Incorporation
-------------------------
of the Corporation, as amended.
3(ii). By-Laws of the Corporation. By-Laws of the Corporation, filed as
--------------------------
Exhibit 3 (ii) to the Corporation's Annual Report on Form 10-K for the year
ended December 31, 1997 is incorporated by reference.
10. Material contracts.
------------------
(a) Copy of Employment Agreement among the Corporation, the
Bank and Charles E. Swope dated January 1, 1998, filed as Exhibit 10 (a) to the
Corporation's Annual Report on Form 10-K for the year ended December 31, 1997 is
incorporated by reference.
(b) Copy of the Corporation's Dividend Reinvestment and Stock
Purchase Plan, filed as an exhibit to the Corporation's registration statement
on Form S-3 filed August 8, 1997 (File no. 333-33175) is incorporated herein by
reference.
(c) Copy of the Corporation's Amended and Restated Stock Bonus
Plan, filed as an exhibit to the Corporation's registration statement on Form
S-8 filed August 12, 1997 (File no. 333-33411) is incorporated herein by
reference.
(d) Copy of the Bank's Amended and Restated Supplemental
Benefit Retirement Plan, effective date January 1, 1995, is incorporated herein
by reference to Exhibit 10(g) to the Corporation's Annual Report on Form 10-K
for the year ended December 31, 1994.
(e) Copy of the Corporation's and the Bank's Directors
Deferred Compensation Plan, effective December 30, 1995, is incorporated herein
by reference to Exhibit 10(h) to the Corporation's Annual Report on Form 10-K
for the year ended December 31, 1995.
(f) Copy of the Corporation's Amended and Restated 1995 Stock
Option Plan, filed as an exhibit to the Corporation's Proxy statement for the
1999 Annual Meeting of Shareholders is incorporated herein by reference.
* 13 Annual Report to Security Holders, Form 10-Q or Quarterly
Report to Security Holders. The Corporation's Annual Report to Shareholders for
the year ended December 31, 1998. With the exception of the pages listed in the
Index to Consolidated Financial Statements and the items referred to in Items 1,
5, 6, 7 and 8 hereof, the Corporation's 1998 Annual Report to Shareholders is
not deemed to be filed as part of this Report.
* 21. Subsidiaries of the Corporation. The First National Bank of
West Chester, a banking institution organized under the banking laws of the
United States in December 1863. 323 East Gay Street Corporation incorporated in
1996 in the State of Pennsylvania.
* 23. Consents of experts and counsel. Consent of Grant Thornton
LLP, dated March 25, 1999.
* 27. Financial Data Schedules. A Financial Data Schedule is being
submitted with the Corporation's 1998 Annual Report on Form 10-K in the
electronic format prescribed by the EDGAR Filer Manual and sets forth the
financial information specified by Article 9 of Regulation S-X and Securities
Act Industry Guide 3 information and Exchange Act Industry Guide 3 listed in
Appendix C to Item 601 of Regulation S-K. 1996 and 1995 Restated Financial Data
Schedules as per FASB 128.
(b) Reports on Form 8-K. No reports on Form 8-K were filed by the
Corporation during the quarter ended December 31, 1998.