<PAGE>
As filed with the Securities and Exchange Commission on December 13, 1996
Registration No. 333-____
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
______________________________
FORM S-4
REGISTRATION STATEMENT
Under
The Securities Act of 1933
PENNFIRST BANCORP, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
PENNSYLVANIA 6711 25-1659846
(State or other juris- (Primary Standard (I.R.S. Employer
diction of incorporation Industrial Classification Identification No.)
or organization) Code No.)
600 Lawrence Avenue
Ellwood City, Pennsylvania 16117
(412) 758-5584
(Address, including zip code and telephone number, including area code,
of Registrant's principal executive offices)
Charlotte A. Zuschlag
President and Chief Executive Officer
PennFirst Bancorp, Inc.
600 Lawrence Avenue
Ellwood City, Pennsylvania 16117
(412) 758-5584
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
with a copy to:
Hugh T. Wilkinson, Esq. Ellry N. Davis
Jeffrey D. Haas, Esq. President and Chief Executive Officer
Elias, Matz, Tiernan & Herrick L.L.P. Troy Hill Bancorp, Inc.
734 15th Street, N.W. 1706 Lowrie Street
Washington, D.C. 20005 Pittsburgh, Pennsylvania 15212
(202) 347-0300 (412) 231-8238
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As
soon as practicable after this Registration Statement becomes effective.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance
with General Instruction G, check the following box. / /
CALCULATION OF REGISTRATION FEE
<TABLE>
<S> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------
<CAPTION>
TITLE OF EACH CLASS PROPOSED MAXIMUM PROPOSED MAXIMUM
OF SECURITIES TO BE OFFERING PRICE PER AGGREGATE OFFERING AMOUNT OF
REGISTERED AMOUNT TO BE REGISTERED(1) SHARE OR UNIT(2) PRICE(2) REGISTRATION FEE(2)
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, par
value $.01 per share 1,315,000 shares $20.00 $26,300,000 $7,969.70
- -----------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
(1) This Registration Statement covers the maximum number of shares of
common stock of the Registrant issuable upon consummation of the merger
of Troy Hill Bancorp, Inc. ("THB") with and into the Registrant (the
"Merger").
(2) Estimated solely for the purpose of calculation of the registration fee.
Pursuant to Rules 457(f)(1) and 457(c) under the Securities Act of 1933,
the registration fee is based on the average of the high and low prices
of the THB Common Stock as reported on the Nasdaq Stock Market's
National Market on December 9, 1996, and computed based on the maximum
number of shares (1,140,978) that may be exchanged for the securities
being registered.
______________________
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(a) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION
STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(a), MAY DETERMINE.
<PAGE>
PENNFIRST BANCORP, INC.
CROSS-REFERENCE SHEET
<TABLE>
<CAPTION>
ITEM OF FORM S-4 LOCATION IN PROSPECTUS
---------------- -----------------------
<C> <C> <S>
1. Forepart of Registration Facing Page; Cross Reference
Statement and Outside Front Sheet; Outside Front Cover
Cover Page of Prospectus Page of Joint Proxy
Statement/Prospectus
2. Inside Front and Outside Inside Front Cover Page of
Back Cover Pages of Prospectus; Table of
Prospectus Contents; Available
Information; Incorporation
of Certain Documents by
Reference
3. Risk Factors, Ratio of Summary; Comparative Market
Earnings to Fixed Charges Prices; Comparative Per
and Other Information Share Data; PennFirst
Selected Consolidated
Financial Information; THB
Selected Consolidated
Financial Information
4. Terms of the Transaction Summary; The Merger;
Description of PennFirst
Capital Stock; Comparison of
the Rights of Stockholders
5. Pro Forma Financial Unaudited Pro Forma
Information Condensed Combined Financial
Information
6. Material Contracts with the The Merger
Company Being Acquired
7. Additional Information Not Applicable
Required for Reoffering by
Persons and Parties Deemed
to be Underwriters
8. Interests of Named Experts Not Applicable
and Counsel
9. Disclosure of Commission's Not Applicable
Position on Indemnification
for Securities Act
Liabilities
10. Information with Respect to Not Applicable
S-3 Registrants
11. Incorporation of Certain Not Applicable
Information by Reference
12. Information with Respect to Incorporation of Certain
S-2 or Documents by Reference;
S-3 Registrants Summary
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ITEM OF FORM S-4 LOCATION IN PROSPECTUS
---------------- -----------------------
<C> <C> <S>
13. Incorporation of Certain Incorporation of Certain
Information by Reference Documents by Reference
14. Information with Respect to Not Applicable
Registrants other than S-2
or S-3 Registrants
15. Information with Respect to Not Applicable
S-3 Companies
16. Information with Respect to Not Applibable
S-2 or
S-3 Companies
17. Information with Respect to Summary; THB Selected
Companies other than S-2 or Consolidated Financial
S-3 Companies Information; THB's
Management's Discussion and
Analysis of Financial
Condition and Results of
Operations; Business of THB;
Experts; Index to THB
Consolidated Financial
Statements
18. Information if Proxies, Summary; Stockholder
Consents or Authorizations Meetings; The
are to be Solicited Merger; Incorporation of
Certain Documents by
Reference; Ownership of THB
Common Stock by Certain
Beneficial Owners and
Management of THB
19. Information if Proxies, Not Applicable
Consents or Authorizations
are not to be Solicited, or
in an Exchange Offer
</TABLE>
<PAGE>
PENNFIRST BANCORP, INC.
600 Lawrence Avenue
Ellwood City, Pennsylvania 16117
(412) 758-5584
_________ ___, 1997
Dear Stockholder:
You are cordially invited to attend the Special Meeting of Stockholders
(the "Special Meeting") of PennFirst Bancorp, Inc. ("PennFirst"), which will
be held at the Connoquenessing Country Club located at RD #2, Route 65,
Ellwood City, Pennsylvania, on _______, _____ __, 1997 at __:00 _.m., Eastern
Time.
At the Special Meeting, stockholders will be asked to approve the
Agreement and Plan of Reorganization and a related Agreement of Merger, both
dated as of September 16, 1996 (together, the "Merger Agreement"), whereby
Troy Hill Bancorp, Inc. ("THB") will be merged into PennFirst (the "Merger"),
with PennFirst as the surviving corporation. If the Merger is consummated,
each share of common stock of THB, par value $.01 per share ("THB Common
Stock"), outstanding immediately prior to consummation of the Merger (other
than shares as to which dissenters' rights have been asserted and duly
perfected in accordance with Pennsylvania law and shares held by THB,
PennFirst or any of their respective subsidiaries) shall be converted into
and represent the right to receive either (i) $21.15 in cash or (ii) a number
of shares of PennFirst common stock, par value $.01 per share ("PennFirst
Common Stock"), with a value equal to $21.15, as determined by applying a
formula (the "Exchange Ratio") set forth in the Merger Agreement and based on
the average market price ("Average Share Price") of PennFirst Common Stock
over the 20 trading day period ending on the date PennFirst and THB receive
all requisite regulatory approvals and satisfy all applicable waiting periods
related to the Merger, subject to the terms, conditions, limitations and
procedures set forth in the Merger Agreement ("Merger Consideration").
As a result of the Merger, Troy Hill Federal Savings Bank ("Troy Hill"),
a wholly-owned subsidiary of THB, will become a wholly-owned subsidiary of
PennFirst. Approval by PennFirst's stockholders of the Merger Agreement,
which involves the issuance of new shares of PennFirst Common Stock in
connection with the Merger, is a condition to consummation of the Merger.
The terms of the proposed Merger are explained in detail in the accompanying
Joint Proxy Statement/Prospectus, which we urge you to read carefully.
THE BOARD OF DIRECTORS OF PENNFIRST HAS UNANIMOUSLY APPROVED THE MERGER
AND RECOMMENDS THAT YOU VOTE IN FAVOR OF THE MERGER.
Enclosed is a Notice of Special Meeting of Stockholders, the Joint Proxy
Statement/Prospectus, a proxy card and, for PennFirst, its 1995 Annual Report
to Stockholders and Form 10-Q for the quarter ended September 30, 1996. Your
vote is important, regardless of the number of shares you own. Please
complete, sign and date the enclosed proxy card and return it as soon as
possible in the envelope provided. If you decide to attend the meeting, you
may vote your shares in person whether or not you have previously submitted a
proxy. On behalf of the Board, I thank you for your attention to this
important matter.
Sincerely,
Charlotte A. Zuschlag
President and Chief Executive
Officer
<PAGE>
PENNFIRST BANCORP, INC.
600 Lawrence Avenue
Ellwood City, Pennsylvania 16117
(412) 758-5584
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON _____ __, 1997
NOTICE IS HEREBY GIVEN that a Special Meeting of Stockholders of
PennFirst Bancorp, Inc. ("PennFirst") will be held at the Connoquenessing
Country Club located at RD #2, Route 65, Ellwood City, Pennsylvania, on
______, _____ __, 1997, commencing at _:00 _.m., Eastern Time, for the
following purposes, all of which are more completely set forth in the
accompanying Joint Proxy Statement/Prospectus:
1. To consider and vote upon the Agreement and Plan of
Reorganization dated as of September 16, 1996, by and between
PennFirst and Troy Hill Bancorp, Inc. ("THB"), and a related
Agreement of Merger (together, the "Merger Agreement"),
pursuant to which (i) THB will be merged into PennFirst (the
"Merger"), with PennFirst as the surviving corporation of the
Merger; and (ii) each share of common stock of THB, par value
$.01 per share ("THB Common Stock"), outstanding immediately
prior to consummation of the Merger (other than shares as to
which dissenters' rights have been asserted and duly perfected
in accordance with Pennsylvania law and shares held by
PennFirst, THB or any of their respective subsidiaries) shall
be converted into and represent the right to receive either
(i) $21.15 in cash or (ii) a number of shares of PennFirst
common stock, par value $.01 per share ("PennFirst Common
Stock"), with a value equal to $21.15, as determined by
applying a formula (the "Exchange Ratio") set forth in the
Merger Agreement and based on the average market price
("Average Share Price") of PennFirst Common Stock over the 20
trading day period ending on the date PennFirst and THB
receive all requisite regulatory approvals and satisfy all
applicable waiting periods related to the Merger, subject to
the terms, conditions, limitations and procedures set forth in
the Merger Agreement ("Merger Consideration"), as described in
the Joint Proxy Statement/Prospectus and the Merger Agreement
which is attached as Appendix A thereto; and
2. To transact such other business, if any, as may properly come
before the Special Meeting or any adjournment thereof.
Only holders of record of the PennFirst Common Stock at the close of
business on ________ __, 1997 are entitled to notice of and to vote at the
Special Meeting or any adjournments thereof.
BY ORDER OF THE BOARD OF DIRECTORS
Frank D. Martz
Senior Vice President of Operations and
Secretary
Ellwood City, Pennsylvania
_______ __, 1997
- -------------------------------------------------------------------------------
YOU ARE CORDIALLY INVITED TO ATTEND THE SPECIAL MEETING. IT IS IMPORTANT
THAT YOUR SHARES BE REPRESENTED REGARDLESS OF THE NUMBER YOU OWN. EVEN IF
YOU PLAN TO BE PRESENT, YOU ARE URGED TO COMPLETE, SIGN, DATE AND RETURN THE
ENCLOSED PROXY PROMPTLY IN THE ENVELOPE PROVIDED. IF YOU ATTEND THE MEETING,
YOU MAY VOTE EITHER IN PERSON OR BY YOUR PROXY. ANY PROXY GIVEN MAY BE
REVOKED BY YOU IN WRITING OR IN PERSON AT ANY TIME PRIOR TO THE EXERCISE
THEREOF.
- -------------------------------------------------------------------------------
<PAGE>
TROY HILL BANCORP, INC.
1706 Lowrie Street
Pittsburgh, Pennsylvania 15212
(412) 231-8238
_______ __, 1997
Dear Stockholder:
You are cordially invited to attend a Special Meeting of Stockholders of
Troy Hill Bancorp, Inc. ("THB") on ________, _____ __, 1997 at _:00 _.m.,
Eastern Time, at the Holiday Inn located at 4859 McKnight Road, Pittsburgh,
Pennsylvania.
At the Special Meeting, stockholders will be asked to approve the
Agreement and Plan of Reorganization and a related Agreement of Merger, both
dated as of September 16, 1996 (together, the "Merger Agreement"), whereby
THB will be merged (the "Merger") into PennFirst Bancorp, Inc. ("PennFirst"),
with PennFirst as the surviving corporation. If the Merger is consummated,
each share of common stock of THB, par value $.01 per share ("THB Common
Stock"), outstanding immediately prior to consummation of the Merger (other
than shares as to which dissenters' rights have been asserted and duly
perfected in accordance with Pennsylvania law and shares held by PennFirst,
THB or any of their respective subsidiaries) shall be converted into and
represent the right to receive either (i) $21.15 in cash or (ii) a number of
shares of PennFirst common stock, par value $.01 per share ("PennFirst Common
Stock"), with a value equal to $21.15, as determined by applying a formula
(the "Exchange Ratio") set forth in the Merger Agreement and based on the
average market price ("Average Share Price") of PennFirst Common Stock over
the 20 trading day period ending on the date PennFirst and THB receive all
requisite regulatory approvals and satisfy all applicable waiting periods
related to the Merger, subject to the terms, conditions, limitations and
procedures set forth in the Merger Agreement ("Merger Consideration").
As a result of the Merger, Troy Hill Federal Savings Bank ("Troy Hill"),
a wholly-owned subsidiary of THB, will become a wholly-owned subsidiary of
PennFirst. Approval by THB's stockholders of the Merger Agreement is a
condition to consummation of the Merger. The terms of the proposed Merger
are explained in detail in the accompanying Joint Proxy Statement/Prospectus,
which we urge you to read carefully.
Each stockholder entitled to vote at the THB Special Meeting will have
the right to dissent from the Merger and to obtain payment for the fair value
of his shares upon compliance with the applicable provisions of Pennsylvania
law. For a summary of the rights of stockholders of THB to dissent, see "The
Merger - Dissenters' Rights" in the attached Joint Proxy Statement/Prospectus
and Appendix D thereto.
YOUR BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE IN FAVOR OF
THE PROPOSAL TO APPROVE THE MERGER, WHICH THE BOARD BELIEVES IS IN THE BEST
INTERESTS OF THB'S STOCKHOLDERS.
Enclosed is a Notice of Special Meeting of Stockholders, the Joint Proxy
Statement/Prospectus, a proxy card, and, for PennFirst, its 1995 Annual
Report to Stockholders and Form 10-Q for the quarter ended September 30,
1996. Your vote is important, regardless of the number of shares you own.
Please complete, sign and date the enclosed proxy card and return it as soon
as possible in the envelope provided. If you decide to attend the meeting,
you may vote your shares in person whether or not you have previously
submitted a proxy. On behalf of the Board, I thank you for your attention to
this important matter.
Very truly yours,
Ellry N. Davis
President and Chief Executive Officer
<PAGE>
TROY HILL BANCORP, INC.
1706 Lowrie Street
Pittsburgh, Pennsylvania 15212
(412) 231-8238
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON _____ __, 1997
NOTICE IS HEREBY GIVEN that a Special Meeting of Stockholders of Troy
Hill Bancorp, Inc. ("THB") will be held at the Holiday Inn located at 4859
McKnight Road, Pittsburgh, Pennsylvania, on ________, _____ ___, 1997 at _:00
_.m., Eastern Time, for the following purposes, all of which are more
completely set forth in the accompanying Joint Proxy Statement/Prospectus:
1. To consider and vote upon the Agreement and Plan of Reorganization
dated as of September 16, 1996, by and between PennFirst Bancorp,
Inc. ("PennFirst") and THB, and a related Agreement of Merger
(together, the "Merger Agreement"), pursuant to which (i) THB will be
merged into PennFirst (the "Merger"), with PennFirst as the surviving
corporation of the Merger; and (ii) each share of common stock of
THB, par value $.01 per share ("THB Common Stock"), outstanding
immediately prior to consummation of the Merger (other than shares as
to which dissenters' rights have been asserted and duly perfected in
accordance with Pennsylvania law and shares held by PennFirst, THB or
any of their respective subsidiaries) shall be converted into and
represent the right to receive either (i) $21.15 in cash or (ii) a
number of shares of PennFirst common stock, par value $.01 per share
("PennFirst Common Stock"), with a value equal to $21.15, as
determined by applying a formula (the "Exchange Ratio") set forth in
the Merger Agreement and based on the average market price ("Average
Share Price") of PennFirst Common Stock over the 20 trading day
period ending on the date PennFirst and THB receive all requisite
regulatory approvals and satisfy all applicable waiting periods
related to the Merger, subject to the terms, conditions, limitations
and procedures set forth in the Merger Agreement ("Merger
Consideration"), as described in the Joint Proxy Statement/Prospectus
and the Merger Agreement which is attached as Appendix A thereto; and
2. To transact such other business as may properly come before the THB
Special Meeting or any adjournment thereof.
Only holders of record of the THB Common Stock at the close of
business on _______ __, 1997 are entitled to notice of and to vote
at the Special Meeting and any adjournments thereof.
Any stockholder entitled to vote at the THB Special Meeting will have
the right to dissent from the Merger and to obtain payment for the fair value
of his shares upon compliance with the applicable provisions of Pennsylvania
law. For a summary of the rights of stockholders of THB to dissent, see "The
Merger - Dissenters' Rights" in the attached Joint Proxy Statement/Prospectus
and Appendix D thereto.
BY ORDER OF THE BOARD OF DIRECTORS
Nancy H. Kufner
Secretary
Pittsburgh, Pennsylvania
_______ __, 1997
_______________________________________________________________________________
YOU ARE CORDIALLY INVITED TO ATTEND THE THB SPECIAL MEETING. IT IS
IMPORTANT THAT YOUR SHARES BE REPRESENTED REGARDLESS OF THE NUMBER YOU OWN.
EVEN IF YOU PLAN TO BE PRESENT, YOU ARE URGED TO COMPLETE, SIGN, DATE AND
RETURN THE ENCLOSED PROXY PROMPTLY IN THE ENVELOPE PROVIDED. IF YOU ATTEND
THE MEETING, YOU MAY VOTE EITHER IN PERSON OR BY YOUR PROXY. ANY PROXY GIVEN
MAY BE REVOKED BY YOU IN WRITING OR IN PERSON AT ANY TIME PRIOR TO THE
EXERCISE THEREOF.
_______________________________________________________________________________
<PAGE>
JOINT PROXY STATEMENT
for
Special Meeting of Stockholders of PennFirst Bancorp, Inc.
to be held on _____ ___, 1997
and
Special Meeting of Stockholders of Troy Hill Bancorp, Inc.
to be held on _____ ___, 1997
----------------------------------------------------------
PENNFIRST BANCORP, INC.
PROSPECTUS
for
up to 1,315,000 shares of Common Stock of
PennFirst Bancorp, Inc. to be issued in connection with the
acquisition of Troy Hill Bancorp, Inc. by PennFirst Bancorp, Inc.
----------------------------------------------------------
This Joint Proxy Statement/Prospectus is being furnished in
connection with the solicitation of proxies by the Board of Directors of
PennFirst Bancorp, Inc. ("PennFirst") to be used at a special meeting of its
stockholders to be held on ______, _____ __, 1997 (the "PennFirst Special
Meeting"), and the solicitation of proxies by the Board of Directors of THB
Bancorp, Inc. ("THB") to be used at a special meeting of its stockholders to
be held on ________, _____ __, 1997 (the "THB Special Meeting"). The
PennFirst Special Meeting and the THB Special Meeting are collectively
referred to as the "Stockholder Meetings." The purpose of the Stockholder
Meetings is to consider and vote upon an Agreement and Plan of
Reorganization, dated as of September 16, 1996, by and between PennFirst and
THB, and a related Agreement of Merger (together, the "Merger Agreement"). A
copy of the Merger Agreement is attached as Appendix A to this Joint Proxy
Statement/Prospectus.
In accordance with the terms of the Merger Agreement, upon approval of
the Merger Agreement by the stockholders of PennFirst and THB and receipt of
all requisite regulatory approvals and the satisfaction or waiver of all
conditions, THB shall be merged into PennFirst (the "Merger"), with PennFirst
as the surviving corporation of the Merger. In connection with the Merger,
each share of common stock of THB, par value $.01 per share ("THB Common
Stock"), outstanding immediately prior to consummation of the Merger (other
than shares as to which dissenters' rights have been asserted and duly
perfected in accordance with Pennsylvania law and shares held by PennFirst,
THB or any of their respective subsidiaries) shall be converted into and
represent the right to receive either (i) $21.15 in cash or (ii) a number of
shares of PennFirst common stock, par value $.01 per share ("PennFirst Common
Stock"), with a value equal to $21.15, as determined by applying a formula
(the "Exchange Ratio") set forth in the Merger Agreement and based on the
average market price ("Average Share Price") of PennFirst Common Stock over
the 20 trading day period ending on the date PennFirst and THB
<PAGE>
receive all requisite regulatory approvals and satisfy all applicable waiting
periods related to the Merger, subject to the terms, conditions, limitations
and procedures set forth in the Merger Agreement ("Merger Consideration").
The Merger Agreement also provides that 60% of the aggregate Merger
Consideration will consist of PennFirst Common Stock and the remaining 40%
shall consist of cash. As a result of the Merger, Troy Hill Federal Savings
Bank ("Troy Hill"), a wholly-owned subsidiary of THB, will become a
wholly-owned subsidiary of PennFirst.
The outstanding shares of PennFirst Common Stock are, and the shares
offered hereby will be, included for quotation on the National Association of
Securities Dealers Automated Quotations ("NASDAQ") National Market. The
closing price of PennFirst Common Stock on _______ __, 1997 was $_____ per
share.
PennFirst has filed a Registration Statement on Form S-4 pursuant
to the Securities Act of 1933, as amended, covering up to 1,315,000 shares of
PennFirst Common Stock. In addition to being the Joint Proxy Statement for
the Stockholder Meetings, this document constitutes a prospectus of PennFirst
with respect to the shares of PennFirst Common Stock to be issued in
connection with the Merger.
THB STOCK CERTIFICATES SHOULD NOT BE RETURNED TO THB WITH THE ENCLOSED
PROXY AND SHOULD NOT BE FORWARDED UNTIL AFTER RECEIPT OF A LETTER OF
TRANSMITTAL, WHICH WILL BE PROVIDED TO THB STOCKHOLDERS PROMPTLY FOLLOWING
CONSUMMATION OF THE MERGER.
This Joint Proxy Statement/Prospectus does not cover resales of
shares of PennFirst Common Stock following consummation of the Merger, and no
person may make use of this Joint Proxy Statement/Prospectus in connection
with any such resale.
This Joint Proxy Statement/Prospectus and the accompanying form of
proxy are first being mailed to stockholders of PennFirst and THB on or about
________ __, 1997.
All information contained in this Joint Proxy Statement/Prospectus
relating to PennFirst and its subsidiaries has been supplied by PennFirst,
and all information contained in this Joint Proxy Statement/Prospectus
relating to THB and its subsidiaries has been supplied by THB.
----------------------------------------------------------
THE SHARES OF PENNFIRST COMMON STOCK TO BE ISSUED IN THE MERGER
HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE
COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE COMMISSION OR ANY
STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
JOINT PROXY STATEMENT/ PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
THE SHARES OF PENNFIRST COMMON STOCK OFFERED HEREBY ARE NOT
DEPOSITS, SAVINGS ACCOUNTS OR OTHER OBLIGATIONS OF ANY DEPOSITORY INSTITUTION
AND ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER
GOVERNMENTAL AGENCY.
----------------------------------------------------------
The date of this Joint Proxy Statement/Prospectus is _______ __, 1997.
-2-
<PAGE>
TABLE OF CONTENTS
PAGE
----
AVAILABLE INFORMATION..........................................................5
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE................................5
SUMMARY........................................................................8
COMPARATIVE PER SHARE DATA....................................................17
COMPARATIVE MARKET PRICES.....................................................18
PENNFIRST SELECTED CONSOLIDATED FINANCIAL INFORMATION.........................20
THB SELECTED CONSOLIDATED FINANCIAL INFORMATION...............................22
STOCKHOLDER MEETINGS..........................................................23
Special Meeting of PennFirst Stockholders...................................24
Special Meeting of THB Stockholders.........................................25
Costs.......................................................................27
THE MERGER....................................................................27
General.....................................................................27
Background of and Reasons for the Merger....................................27
Opinion of THB's Financial Advisor..........................................30
The Merger Consideration....................................................33
Conditions to the Merger....................................................36
Regulatory Approvals........................................................38
Business Pending the Merger.................................................39
Acquisition Proposals.......................................................40
Representations and Warranties..............................................40
Effective Time of the Merger; Termination and Amendment.....................41
Interests of Certain Persons in the Merger..................................42
Resale Considerations With Respect to the PennFirst Common Stock............44
Certain Federal Income Tax Consequences.....................................44
Accounting Treatment of the Merger..........................................47
Dissenters' Rights..........................................................48
Expenses of the Merger......................................................51
Option Agreement............................................................51
Stockholders Agreement......................................................53
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION..................53
OWNERSHIP OF THB COMMON STOCK BY CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT OF THB...........................................................60
THB MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.......................................................63
BUSINESS OF THB...............................................................76
REGULATION AND SUPERVISION OF THB............................................101
DESCRIPTION OF PENNFIRST CAPITAL STOCK.......................................116
General....................................................................116
PennFirst Common Stock.....................................................116
PennFirst Preferred Stock..................................................116
COMPARISON OF THE RIGHTS OF STOCKHOLDERS.....................................117
Authorized Capital Stock...................................................117
Amendment of Governing Instruments.........................................117
Removal of Directors and Vacancies.........................................118
Director Indemnification and Liability.....................................118
Special Meetings of Stockholders...........................................119
3
<PAGE>
Actions by Stockholders Without a Meeting.................................120
Stockholder Nominations and Proposals.....................................120
Provisions Affecting Business Combinations and Control Share Acquisitions.120
Acquisition of Capital Stock..............................................121
STOCKHOLDER PROPOSALS.......................................................122
PennFirst.................................................................122
THB.......................................................................122
LEGAL OPINIONS..............................................................122
EXPERTS.....................................................................122
INDEX TO THB CONSOLIDATED FINANCIAL STATEMENTS..............................124
APPENDIX A: Agreement and Plan of Reorganization, dated as of September
16, 1996, between PennFirst Bancorp, Inc. and Troy Hill
Bancorp, Inc., including a related Agreement of Merger
attached as Appendix A thereto................................A-1
APPENDIX B: Stock Option Agreement, dated as of September 16, 1996
between PennFirst Bancorp, Inc. and Troy Hill Bancorp,
Inc...........................................................B-1
APPENDIX C: Opinion of Charles Webb & Company.............................C-1
APPENDIX D: Pennsylvania Business Corporation Law provisions regarding
dissenters' rights of appraisal...............................D-1
Accompanying Documents
1. PennFirst's 1995 Annual Report to Stockholders
2. PennFirst's Form 10-Q Quarterly Report for the quarter ended
September 30, 1996
____________________________________________
NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION NOT CONTAINED IN THIS JOINT PROXY STATEMENT/PROSPECTUS IN
CONNECTION WITH THE SOLICITATION OF PROXIES OR THE OFFERING OF SECURITIES
MADE HEREBY, AND, IF GIVEN OR MADE, ANY SUCH INFORMATION OR REPRESENTATION
SHOULD NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY PENNFIRST OR THB OR
ANY OTHER PERSON. THIS JOINT PROXY STATEMENT/PROSPECTUS DOES NOT CONSTITUTE
AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO PURCHASE, THE SECURITIES
OFFERED BY THIS JOINT PROXY STATEMENT/PROSPECTUS, OR THE SOLICITATION OF A
PROXY, IN ANY JURISDICTION IN WHICH IT IS UNLAWFUL TO MAKE SUCH AN OFFER,
SOLICITATION OF AN OFFER OR PROXY SOLICITATION. NEITHER THE DELIVERY OF THIS
JOINT PROXY STATEMENT/PROSPECTUS NOR ANY DISTRIBUTION OF THE SECURITIES
OFFERED PURSUANT TO THIS JOINT PROXY STATEMENT/PROSPECTUS SHALL, UNDER ANY
CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE
INFORMATION SET FORTH HEREIN OR IN THE AFFAIRS OF PENNFIRST OR THB OR ANY OF
THEIR RESPECTIVE SUBSIDIARIES SINCE THE DATE OF THIS JOINT PROXY
STATEMENT/PROSPECTUS.
____________________________________________
4
<PAGE>
AVAILABLE INFORMATION
PennFirst and THB are subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith file reports, proxy statements and other information
with the Securities and Exchange Commission (the "Commission"). The reports,
proxy statements and other information filed by PennFirst and THB with the
Commission can be inspected and copied at the public reference facilities
maintained by the Commission at Room 2120, 450 Fifth Street, N.W., Judiciary
Plaza, Washington, D.C. 20549, and at the Commission's Regional Offices at 7
World Trade Center, Suite 1300, New York, New York 10048, and Northwestern
Atrium Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661
or from the Web Site maintained by the Commission at "http:\\www.sec.gov."
Copies of such material also can be obtained from the Public Reference
Section of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549,
upon payment of prescribed rates. Copies of such reports, proxy statements
and other information may also be inspected at the National Association of
Securities Dealers, Inc., located at 1735 K Street, N.W., Washington, D.C.
20006.
PennFirst has filed with the Commission a Registration Statement on
Form S-4 (together with all amendments and exhibits thereto, the
"Registration Statement") under the Securities Act of 1933, as amended (the
"Securities Act"), with respect to the PennFirst Common Stock to be issued
pursuant to the Merger. As permitted by the rules and regulations of the
Commission, this Joint Proxy Statement/Prospectus does not contain all the
information set forth in the Registration Statement and the exhibits thereto.
Such additional information may be obtained from the Commission's principal
office in Washington, D.C. by either of the means described above for
obtaining reports, proxy statements and other information filed pursuant to
the Exchange Act. Statements contained in this Joint Proxy
Statement/Prospectus or in any document incorporated in this Joint Proxy
Statement/Prospectus by reference or supplied herewith as to the contents of
any contract or other document referred to herein or therein are not
necessarily complete, and, in each instance, reference is made to the copy of
such contract or other document, each such statement being qualified in all
respects by such reference.
_____________________
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed with the Commission by PennFirst (File
No. 0-19345) pursuant to the Exchange Act are incorporated by reference in
this Joint Proxy Statement/Prospectus:
1. PennFirst's Annual Report on Form 10-K for the year ended
December 31, 1995 (including certain information contained in
PennFirst's Proxy Statement dated February 19, 1996, used in
connection with PennFirst's 1996 Annual Meeting of Stockholders
and incorporated by reference in the Form 10-K);
5
<PAGE>
2. PennFirst's Quarterly Reports on Form 10-Q for the quarters ended
March 31, June 30, and September 30, 1996;
3. PennFirst's Current Reports on Form 8-K dated May 22, 1996,
June 19, 1996, September 18, 1996 and September 25, 1996; and
4. The following portions of PennFirst's Annual Report to
Stockholders for the year ended December 31, 1995: selected
consolidated financial and other data (page 5); management's
discussion and analysis of financial condition and results of
operations (pages 6 through 13); and audited consolidated
financial statements and notes thereto (pages 14 through 35).
ACCOMPANYING THIS JOINT PROXY STATEMENT/PROSPECTUS ARE PENNFIRST'S
1995 ANNUAL REPORT TO STOCKHOLDERS AND QUARTERLY REPORT ON FORM 10-Q FOR THE
QUARTER ENDED SEPTEMBER 30, 1996.
Financial and other information included in the reports
incorporated by reference herein do not reflect stock splits or stock
dividends declared subsequent to the respective issuance dates of such
reports.
The Merger Agreement and the Stock Option Agreement between
PennFirst and THB dated as of September 16, 1996 ("Option Agreement") are
included herewith as Appendices A and B, respectively, and are incorporated
by reference herein. Discussions of the terms and conditions of the Merger
Agreement and the Option Agreement are summary in nature, and holders of
PennFirst Common Stock and THB Common Stock are referred to the Merger
Agreement and the Option Agreement for a more complete discussion of the
terms and conditions of the Merger, the Merger Agreement, the Option
Agreement and related transactions.
Any statement contained herein, in any supplement hereto or in a
document incorporated or deemed to be incorporated by reference herein shall
be deemed to be modified or superseded for purposes of this Joint Proxy
Statement/Prospectus to the extent that a statement contained herein, in any
supplement hereto or in any subsequently filed document which also is or is
deemed to be incorporated by reference herein modifies or supersedes such
statement. Any such statement so modified or superseded shall not be deemed,
except as so modified or superseded, to constitute a part of this Joint Proxy
Statement/Prospectus or any supplement hereto.
Also incorporated herein by reference are the documents attached
hereto as Appendices C and D to this Joint Proxy Statement/Prospectus.
THIS JOINT PROXY STATEMENT/PROSPECTUS INCORPORATES BY REFERENCE
DOCUMENTS FILED BY PENNFIRST WITH THE COMMISSION WHICH ARE NOT PRESENTED
HEREIN OR DELIVERED HEREWITH. ALL OF SUCH DOCUMENTS WITH RESPECT TO
PENNFIRST ARE AVAILABLE, UPON WRITTEN OR ORAL REQUEST,
6
<PAGE>
FROM MR. FRANK D. MARTZ, SECRETARY, PENNFIRST BANCORP, INC., 600 LAWRENCE
AVENUE, ELLWOOD CITY, PENNSYLVANIA 16117; TELEPHONE NUMBER (412) 758-5584.
COPIES WILL BE FURNISHED (WITHOUT EXHIBITS UNLESS THE EXHIBITS HAVE BEEN
SPECIFICALLY INCORPORATED BY REFERENCE) FREE OF CHARGE. IN ORDER TO ENSURE
TIMELY DELIVERY OF SUCH DOCUMENTS, ANY REQUEST SHOULD BE MADE BY _______ ___,
1997.
7
<PAGE>
SUMMARY
THE FOLLOWING IS A SUMMARY OF CERTAIN INFORMATION CONTAINED
ELSEWHERE IN THIS JOINT PROXY STATEMENT/PROSPECTUS AND IS NOT INTENDED TO BE
A COMPLETE STATEMENT OF THE MATTERS DESCRIBED HEREIN. REFERENCE IS MADE TO,
AND THIS SUMMARY IS QUALIFIED IN ITS ENTIRETY BY, THE MORE DETAILED
INFORMATION CONTAINED, OR INCORPORATED BY REFERENCE, IN THIS JOINT PROXY
STATEMENT/PROSPECTUS AND IN THE APPENDICES ATTACHED HERETO. STOCKHOLDERS ARE
URGED TO READ THIS JOINT PROXY STATEMENT/PROSPECTUS AND THE APPENDICES HERETO
IN THEIR ENTIRETY.
THE PARTIES TO THE MERGER
PENNFIRST. PennFirst is a Pennsylvania corporation and a unitary
savings and loan holding company registered under the Home Owners' Loan Act,
as amended (the "HOLA"). PennFirst is the parent holding company of ESB
Bank, FSB ("ESBB"), a federally chartered savings bank. ESBB currently
conducts business through nine offices in Lawrence, Beaver, Butler and
Allegheny counties, located in western Pennsylvania. The deposits of ESBB
are insured to the maximum extent provided by law by the Savings Association
Insurance Fund ("SAIF"), which is administered by the Federal Deposit
Insurance Corporation ("FDIC"). The principal business of ESBB consists of
attracting retail deposits from the general public and using such deposits to
originate loans secured by first mortgage liens on existing single-family
(one-to-four units) residential and commercial real estate and consumer loans
and to purchase mortgage-backed securities. PennFirst's executive offices
are located at 600 Lawrence Avenue, Ellwood City, Pennsylvania 16117, and its
telephone number is (412) 758-5584. At September 30, 1996, PennFirst had
total consolidated assets of $700.8 million, total liabilities of $651.8
million, including deposits of $325.8 million, and stockholders' equity of
$48.9 million.
For additional information concerning PennFirst, its business,
financial condition and results of operations, see "Available Information,"
"Incorporation Of Certain Documents By Reference," and "PennFirst Selected
Consolidated Financial Information."
THB. THB is a Pennsylvania corporation and a unitary savings and loan
holding company registered under the HOLA. THB is the parent holding company
of Troy Hill, a federally chartered savings bank. Troy Hill conducts
business from two full-service offices located in the Troy Hill section of
Pittsburgh and in Wexford, Pennsylvania. The deposits of Troy Hill are
insured to the maximum extent provided by law by the SAIF. Troy Hill's
principal business consists of attracting savings deposits from the general
public and using such deposits to originate and purchase first mortgage loans
secured by residential properties and to originate construction loans,
multi-family residential real estate loans and commercial real estate loans
and consumer loans. THB's executive offices are located at 1706 Lowrie
Street, Pittsburgh, Pennsylvania 15212, and its telephone number is (412)
231-8238. At September 30, 1996, THB had total consolidated assets of $99.5
million, total liabilities of $81.5 million, including deposits of $52.7
million, and stockholders' equity of $18.0 million.
8
<PAGE>
For additional information concerning THB, see "Available
Information," "THB Selected Consolidated Financial Information," "THB
Management's Discussion and Analysis of Financial Condition and Results of
Operations," "Business of THB," "Regulation and Supervision of THB" and the
THB Consolidated Financial Statements contained elsewhere herein.
THE STOCKHOLDER MEETINGS
PENNFIRST. The PennFirst Special Meeting will be held at the
Connoquenessing Country Club located at RD #2, Route 65, Ellwood City,
Pennsylvania on _______ ___, 1997 at __:00 _.m., Eastern Time. Only the
holders of record of the outstanding shares of PennFirst Common Stock at the
close of business on ________ __, 1997 (the "PennFirst Record Date") are
entitled to notice of and to vote at the PennFirst Special Meeting. At the
PennFirst Record Date, [3,909,184] shares of PennFirst Common Stock were
outstanding and entitled to vote. A majority of the outstanding shares of
PennFirst Common Stock must be represented in person or by proxy at the
PennFirst Special Meeting in order for a quorum to be present. Each share of
PennFirst Common Stock entitles the holder thereof to one vote on each matter
to be submitted to PennFirst's stockholders at the PennFirst Special Meeting.
At the PennFirst Special Meeting, PennFirst's stockholders will be
asked to consider and vote upon (a) a proposal to approve the Merger
Agreement and (b) the transaction of such other business as may properly come
before the PennFirst Special Meeting and any adjournment or adjournments
thereof. The affirmative vote of a majority of the votes cast by all
stockholders entitled to vote thereon at the PennFirst Special Meeting is
required to adopt and approve the Merger Agreement. Shares as to which the
"ABSTAIN" box has been marked on the proxy and shares held by brokers in
street name for customers for which voting instructions have not been
received ("broker non-votes") will be counted as present for determining if a
quorum is present; however, such abstentions and broker non-votes are not
considered votes cast and thus will not affect the number of votes required
for approval. See "Stockholder Meetings - Special Meeting of PennFirst
Stockholders."
As of the PennFirst Record Date, the directors and executive
officers of PennFirst and their affiliates in the aggregate beneficially
owned _______ shares, or ____%, of the issued and outstanding PennFirst
Common Stock, excluding shares subject to options.
REVOCABILITY OF PROXIES. Holders of PennFirst Common Stock may
revoke a proxy at any time prior to its exercise by filing with the Secretary
of PennFirst (Frank D. Martz, Secretary, 600 Lawrence Avenue, Ellwood City,
Pennsylvania 16117) a written notice of revocation or a proxy bearing a later
date, or by voting in person at the PennFirst Special Meeting. Attendance at
the PennFirst Special Meeting will not of itself constitute revocation of a
proxy. If your shares are not registered in your own name, you will need
additional documentation from your recordholder in order to vote personally
at the PennFirst Special Meeting.
9
<PAGE>
HOLDERS OF PENNFIRST COMMON STOCK ARE URGED TO COMPLETE, DATE AND
SIGN THE ACCOMPANYING PROXY CARD AND RETURN IT PROMPTLY IN THE ENCLOSED,
POSTAGE-PAID ENVELOPE, EVEN IF THEY ARE PLANNING TO ATTEND THE PENNFIRST
SPECIAL MEETING. ALL PROPERLY EXECUTED PROXIES RECEIVED PRIOR TO OR AT THE
PENNFIRST SPECIAL MEETING WILL BE VOTED WITH RESPECT TO THE MATTERS
IDENTIFIED ON THE PROXY CARDS IN ACCORDANCE WITH ANY INSTRUCTIONS THEREON
AND, IF NO INSTRUCTIONS ARE GIVEN, WILL BE VOTED FOR ADOPTION AND APPROVAL OF
THE MERGER AGREEMENT.
THB. The THB Special Meeting will be held at the Holiday Inn
located at 4859 McKnight Road, Pittsburgh, Pennsylvania, on ________ __, 1997
at __:00 __.m., Eastern Time. Only the holders of record of the outstanding
shares of THB Common Stock at the close of business on _______ __, 1997 (the
"THB Record Date") are entitled to notice of and to vote at the THB Special
Meeting. At the THB Record Date, [1,067,917] shares of THB Common Stock were
outstanding and entitled to vote. A majority of the outstanding shares of
THB Common Stock must be represented in person or by proxy at the THB Special
Meeting in order for a quorum to be present. Each share of THB Common Stock
entitles the holder thereof to one vote on each matter to be submitted to
THB's stockholders at the THB Special Meeting.
At the THB Special Meeting, THB's stockholders will be asked to
consider and vote upon (a) a proposal to approve the Merger Agreement and (b)
the transaction of such other business as may properly come before the THB
Special Meeting and any adjournment or adjournments thereof. The proposal to
approve the Merger Agreement will require the affirmative vote of a majority
of the votes cast by all stockholders of THB entitled to vote thereon at the
THB Special Meeting. Shares as to which the "ABSTAIN" box have been marked
on the proxy and broker non-votes will be counted as present for determining
if a quorum is present; however, such abstentions and broker non-votes are
not considered votes cast and thus will not affect the number of votes
required for approval. See "Stockholder Meetings - Special Meeting of THB
Stockholders."
The directors and certain officers of THB have agreed and intend to
vote or cause to be voted all shares of THB Common Stock in which they have
the right to vote for approval and adoption of the Merger Agreement. At the
THB Record Date, directors and executive officers of THB and their affiliates
in the aggregate beneficially owned ______ shares, or ___%, of the issued and
outstanding THB Common Stock, excluding shares subject to options.
REVOCABILITY OF PROXIES. Holders of THB Common Stock may revoke a
proxy at any time prior to its exercise by filing with the Secretary of THB
(Nancy H. Kufner, Secretary, 1706 Lowrie Street, Pittsburgh, Pennsylvania
15212) a written notice of revocation or a proxy bearing a later date, or by
voting in person at the THB Special Meeting. Attendance at the THB Special
Meeting will not of itself constitute revocation of a proxy. If your shares
are
10
<PAGE>
not registered in your own name, you will need additional documentation from
your recordholder in order to vote personally at the THB Special Meeting.
HOLDERS OF THB COMMON STOCK ARE REQUESTED TO COMPLETE, DATE AND
SIGN THE ACCOMPANYING PROXY CARD AND RETURN IT PROMPTLY IN THE ENCLOSED,
POSTAGE-PAID ENVELOPE, EVEN IF THEY ARE PLANNING TO ATTEND THE THB SPECIAL
MEETING. ALL PROPERLY EXECUTED PROXIES RECEIVED PRIOR TO OR AT THE THB
SPECIAL MEETING WILL BE VOTED WITH RESPECT TO THE MATTERS IDENTIFIED ON THE
PROXY CARDS IN ACCORDANCE WITH ANY INSTRUCTIONS THEREON AND, IF NO
INSTRUCTIONS ARE GIVEN, WILL BE VOTED FOR ADOPTION AND APPROVAL OF THE MERGER
AGREEMENT.
TERMS OF THE MERGER
In accordance with the terms of the Merger Agreement, THB will be
merged with and into PennFirst, with PennFirst as the surviving corporation
of the Merger. The Merger Agreement contemplates that, upon consummation of
the Merger, Troy Hill will be operated as a direct, wholly-owned subsidiary
of PennFirst.
The Merger Agreement provides that at the effective time of the
Merger, each share of THB Common Stock outstanding immediately prior to
consummation of the Merger (other than shares as to which dissenters' rights
have been asserted and duly perfected in accordance with Pennsylvania law and
shares held by PennFirst, THB or any of their respective subsidiaries) shall
be converted into and represent the right to receive either (i) $21.15 in
cash ("Per Share Cash Consideration") or (ii) a number of shares of PennFirst
Common Stock with a value equal to $21.15 ("Per Share Stock Consideration"),
as determined by the Exchange Ratio and based on the Average Share Price of
PennFirst Common Stock over the 20 trading day period ("Pricing Period")
ending on the date PennFirst and THB receive all requisite regulatory
approvals and satisfy all applicable waiting periods related to the Merger.
The Exchange Ratio in the Merger Agreement provides that the number of shares
of PennFirst Common Stock comprising the Per Share Stock Consideration shall
be equal to the quotient determined by dividing (x) $21.15 by (y) the Average
Share Price during the Pricing Period. The Merger Agreement also provides
that 60% of the aggregate Merger Consideration will consist of PennFirst
Common Stock and the remaining 40% shall consist of cash. See "The Merger
- -The Merger Consideration."
No fractional shares of PennFirst Common Stock will be issued in
the Merger to holders of THB Common Stock. Each holder of THB Common Stock
who otherwise would have been entitled to a fraction of a share of PennFirst
Common Stock shall receive in lieu thereof, at the time of surrender of the
certificate or certificates representing such holder's shares of THB Common
Stock, an amount of cash (without interest) determined by
11
<PAGE>
multiplying the fractional share interest to which such holder would
otherwise be entitled by $21.15.
OPINIONS OF THB'S FINANCIAL ADVISOR
The Board of Directors of THB has received a written opinion from
Charles Webb & Company, a Division of Keefe Bruyette & Woods, Inc. ("Webb"),
dated as of the date of this Joint Proxy Statement/Prospectus to the effect
that, based on the factors stated therein, the consideration to be received
by THB's stockholders pursuant to the Merger Agreement is fair to the
stockholders of THB from a financial point of view. A copy of the fairness
opinion of Webb is attached hereto as Appendix C and should be read in its
entirety.
RECOMMENDATION OF THE BOARDS OF DIRECTORS OF PENNFIRST AND THB
The Boards of Directors of PennFirst and THB have determined that the
Merger is in the best interests of their respective stockholders and,
accordingly, have unanimously approved the Merger. THE BOARDS OF DIRECTORS
OF PENNFIRST AND THB UNANIMOUSLY RECOMMEND THAT THEIR RESPECTIVE STOCKHOLDERS
VOTE FOR THE MERGER AGREEMENT. SEE "THE MERGER - BACKGROUND OF AND REASONS
FOR THE MERGER."
OPTION AGREEMENT
In fulfillment of a condition to PennFirst's obligation under the
Merger Agreement, PennFirst and THB entered into an Option Agreement, a copy
of which is attached to this Joint Proxy Statement/Prospectus as Appendix B.
Pursuant to the Option Agreement, THB granted to PennFirst an option (the
"PennFirst Option"), exercisable in whole or in part only under certain
circumstances, to purchase up to 213,000 authorized but unissued shares of
THB Common Stock at a price of $15.75 per share. The per share exercise
price of the PennFirst Option was determined by arm's length negotiations and
was based on the historical market price of the THB Common Stock prior to the
announcement of the Merger. The purpose of the PennFirst Option is to
increase the likelihood that the Merger will occur by making it more
difficult and expensive for another party to acquire THB. See "The Merger
- -Option Agreement."
STOCKHOLDERS AGREEMENT
In conjunction with the Merger Agreement and the Option Agreement,
PennFirst has entered into a Stockholders Agreement, dated as of September
16, 1996, with each of the directors and certain officers of THB
("Stockholders Agreement"). Pursuant to such Stockholders Agreement, each
such director and officer of THB has agreed, among other things, not to sell,
pledge, transfer or otherwise dispose of his or her shares of THB Common
Stock and to vote such shares of THB Common Stock in favor of the Merger
Agreement. See "The Merger - Stockholders Agreement."
12
<PAGE>
EFFECTIVE TIME OF THE MERGER; TERMINATION OF THE MERGER AGREEMENT
The Merger shall become effective at the time and on the date
specified in the Articles of Merger to be filed with the Secretary of State
of the Commonwealth of Pennsylvania (the "Effective Time"). Such filing will
occur only after the receipt of all requisite regulatory approvals, approval
of the Merger Agreement by the requisite vote of PennFirst's and THB's
respective stockholders, the expiration of all applicable regulatory waiting
periods and the satisfaction or waiver of all other conditions to the Merger.
See "The Merger - Effective Time of the Merger; Termination and Amendment."
The Merger Agreement may be terminated by mutual consent of
PennFirst and THB and by PennFirst or THB if either (i) the Merger has not
been consummated on or prior to September 30, 1997; (ii) the stockholders of
either PennFirst or THB do not approve the Merger Agreement; (iii) any of the
required regulatory applications are denied or are approved contingent upon
the satisfaction of any condition or requirement which materially impairs the
value of THB to PennFirst; or (iv) there is a material breach of any
representation, warranty, covenant or undertaking by the other party which is
not cured within the specified time period. See "The Merger - Effective Time
of the Merger; Termination and Amendment."
CONDITIONS TO THE MERGER
Consummation of the Merger is subject to various conditions,
including, without limitation, obtaining the requisite approval of the Merger
Agreement by the stockholders of PennFirst and THB; receipt of all necessary
regulatory approvals pertaining to the Merger, including those from the
Office of Thrift Supervision ("OTS"); and certain other closing conditions.
A holding company application has been filed by PennFirst with the OTS with
respect to the Merger. There can be no assurance that all requisite
regulatory approvals will be obtained by PennFirst promptly or at all. See
"The Merger -Conditions to the Merger" and "The Merger - Regulatory
Approvals." Substantially all of the conditions to consummation of the Merger
(except for required stockholder and regulatory approvals) may be waived at
any time by the party for whose benefit they were created, and the Merger
Agreement may be amended at any time by written agreement of the parties,
except that no waiver or amendment occurring after approval of the Merger
Agreement by PennFirst's and THB's respective stockholders shall modify
either the amount or the form of the Merger Consideration.
DISSENTERS' RIGHTS
Holders of shares of THB Common Stock who object to the Merger and
comply with the prescribed statutory procedures are entitled to have the fair
value of their shares determined in accordance with the Pennsylvania Business
Corporation Law ("BCL") and paid to them in cash in lieu of the shares of
PennFirst Common Stock and/or cash they would otherwise be entitled to
receive in the Merger. A copy of the pertinent statutory provisions of the
BCL is attached to this Joint Proxy Statement/Prospectus as Appendix D.
13
<PAGE>
FAILURE TO FOLLOW SUCH PROVISIONS PRECISELY MAY RESULT IN A LOSS OF
DISSENTERS' RIGHTS. See "The Merger - Dissenters' Rights."
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
Consummation of the Merger is conditioned upon an opinion of
counsel delivered to both PennFirst and THB to the effect that the Merger
will constitute a reorganization within the meaning of Section 368(a) of the
Internal Revenue Code of 1986, as amended (the "Code") and that no taxable
gain will be recognized by PennFirst or THB in connection with the Merger.
The opinion of counsel is summarized under "The Merger - Certain Federal
Income Tax Consequences" and is filed as an exhibit to the Registration
Statement of which this Joint Proxy Statement/Prospectus is a part. No gain
or loss will be recognized by the stockholders of THB upon the exchange of
their shares of THB Common Stock for shares of PennFirst Common Stock, except
for cash received in lieu of fractional shares. A THB stockholder who
exchanges shares of THB Common Stock for cash, either as part of the Merger
Consideration or through the exercise of dissenters' rights, will recognize
gain or loss, but not in excess of the amount of cash received. See "The
Merger - Certain Federal Income Tax Consequences."
ACCOUNTING TREATMENT OF THE MERGER
It is a condition to consummation of the Merger that the Merger be
accounted for as a purchase for accounting purposes. See "The Merger
- -Conditions to the Merger " and "The Merger - Accounting Treatment of the
Merger."
INTERESTS OF CERTAIN PERSONS IN THE MERGER
The Merger Agreement contains provisions which require PennFirst to
increase the size of its board and the size of ESBB's board by one member and
elect one person (to be designated by PennFirst) as a director for a term of
not less than three years. PennFirst has agreed to operate Troy Hill as a
separate subsidiary for a period of not less than one year following the
Effective Time. Upon consummation of the Merger, Charlotte A. Zuschlag,
President and Chief Executive Officer of PennFirst and ESBB, will become
President of Troy Hill. In the event Troy Hill is thereafter merged with or
consolidated into ESBB, (i) the current Chairman of the Board of Troy Hill
will be appointed to a newly created Troy Hill Advisory Board for at least
one year and (ii) two additional current directors of Troy Hill will be
elected as directors of ESBB for a term of not less than three years. Upon
consummation of the Merger, Ellry N. Davis, the current President and Chief
Executive Officer of THB and Troy Hill, will retire as both an officer and
director of THB and Troy Hill. However, it is contemplated that PennFirst
will enter into a two-year consulting agreement with Mr. Davis. See "The
Merger - Interests of Certain Person in the Merger."
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<PAGE>
UNAUDITED PRO FORMA CONDENSED COMBINED SUMMARY FINANCIAL INFORMATION
The unaudited pro forma condensed combined summary financial
information set forth below gives effect to the Merger under the purchase
accounting method. The pro forma condensed combined summary statements of
income treat the Merger as if it had been consummated at the beginning of the
respective periods, and the pro forma condensed combined summary balance
sheet treats the Merger as if it had been consummated on September 30, 1996.
The pro forma combined per share data gives effect to the assumed issuance of
985,687 shares of PennFirst Common Stock based on the Exchange Ratio. For a
description of the bases for the pro forma adjustments, including the basis
for the number of shares of PennFirst Common Stock which are assumed to be
issued, in the Merger, see "Unaudited Pro Forma Condensed Combined Financial
Information."
This pro forma financial information is presented for illustrative
purposes only and is not necessarily indicative of the operating results or
financial position that would have occurred if the Merger had been
consummated at the dates assumed for purposes hereof, nor is it necessarily
indicative of future operating results or financial position. See "Unaudited
Pro Forma Condensed Combined Financial Information."
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30, 1996
------------------------------------------------------
PRO FORMA PRO FORMA
PENNFIRST THB ADJUSTMENTS COMBINED
--------- ----- ----------- ----------
(IN THOUSANDS, EXCEPT SHARES AND PER SHARE DATA)
<S> <C> <C> <C> <C>
Interest income $34,766 $ 5,246 $ (81) $39,931
Interest expense 24,240 2,486 304 27,030
Net interest income 10,526 2,760 (385) 12,901
Income before income
taxes 2,178 1,022 (626) 2,574
Net income 1,814 618 (468) 1,964
Net income per share:
Primary $0.46 $0.62 -- $0.40
Fully diluted $0.46 $0.61 -- $0.40
Weighted average shares
and share equivalents
outstanding:
Primary 3,972,151 1,001,342 -- 4,852,858
Fully diluted 3,976,026 1,019,839 -- 4,856,733
</TABLE>
-15-
<PAGE>
<TABLE>
YEAR ENDED DECEMBER 31, 1995
------------------------------------------------------
PRO FORMA PRO FORMA
PENNFIRST THB ADJUSTMENTS COMBINED
--------- ----- ----------- ----------
(IN THOUSANDS, EXCEPT SHARES AND PER SHARE DATA)
<S> <C> <C> <C> <C>
Interest income $44,183 $5,911 $(130) $49,964
Interest expense 30,219 2,776 362 33,357
Net interest income 13,964 3,135 (492) 16,607
Income before income
taxes 5,935 1,653 (814) 6,774
Net income 3,968 1,020 (612) 4,376
Net income per share:
Primary $0.94 $1.05 -- $0.86
Fully diluted $0.94 $1.04 -- $0.86
Weighted average shares
and share equivalents
outstanding:
Primary 4,228,245 971,550 -- 5,108,952
Fully diluted 4,233,307 976,157 -- 5,114,014
</TABLE>
<TABLE>
BALANCE SHEET DATA AS OF SEPTEMBER 30, 1996
------------------------------------------------------
PRO FORMA PRO FORMA
PENNFIRST THB ADJUSTMENTS COMBINED
--------- ----- ----------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Investment securities held to
maturity $ 18,083 $ -- $ -- $18,083
Investment securities
available for sale 99,701 6,591 -- 106,292
Mortgage-backed securities
held to maturity 81,104 -- -- 81,104
Mortgage-backed securities
available for sale 252,944 2,412 -- 255,356
Loans receivable, net 211,996 83,882 201 296,079
Total assets 700,794 99,470 4,093 804,357
Deposits 325,839 52,655 265 378,759
Borrowed funds 317,242 27,692 9,020 353,954
Total liabilities 651,845 81,457 9,285 742,587
Retained income 31,333 9,348 (9,348) 31,333
Total stockholders' equity 48,949 18,013 (5,192) 61,770
</TABLE>
-16-
<PAGE>
COMPARATIVE PER SHARE DATA
The following table sets forth certain historical per share, pro
forma combined per share and pro forma equivalent per share information with
respect to the PennFirst Common Stock and the THB Common Stock at the dates
and for the periods indicated, giving effect to the Merger using the purchase
method of accounting, based on the Exchange Ratio (assuming that 985,687
shares of PennFirst Common Stock are issued in the Merger based upon the
assumptions described in the Notes to PennFirst's Pro Forma Consolidated
Balance Sheet included elsewhere herein) and assuming that none of the
options to purchase THB Common Stock outstanding as of the date of the
Agreement are exercised. See "The Merger - Accounting Treatment of the
Merger" and "Unaudited Pro Forma Condensed Combined Financial Information."
The selected per share data set forth below should be read in
conjunction with, and is qualified in its entirety by, the historical
consolidated financial statements of PennFirst, including the related notes,
incorporated herein by reference and the historical consolidated financial
statements of THB and the unaudited pro forma combined consolidated financial
information appearing elsewhere herein. See "Available Information,"
"Incorporation of Certain Documents by Reference," the historical
consolidated financial statements of THB included elsewhere herein and
"Unaudited Pro Forma Condensed Combined Financial Information." The data set
forth below is not necessarily indicative of the results of the future
operations of PennFirst upon consummation of the Merger or the actual results
that would have been achieved had the Merger been consummated prior to the
periods indicated.
<TABLE>
<CAPTION>
PENNFIRST COMMON STOCK THB COMMON STOCK
---------------------- -------------------------------
PRO FORMA PRO FORMA
HISTORICAL COMBINED(1) HISTORICAL(2) EQUIVALENT(3)
---------- ----------- ------------- -------------
<S> <C> <C> <C> <C>
Net income per share:
Nine months ended
September 30, 1996 $0.46 $0.40 $0.62 $0.37
Year ended
December 31, 1995 0.94 0.86 1.05 0.79
Dividends declared per share:
Nine months ended
September 30, 1996 0.77 0.77 0.30 0.71
Year ended
December 31, 1995 0.36 0.36 0.27 0.33
Book value per share:
September 30, 1996 12.52 12.62 16.87 11.65
December 31, 1995 13.77 13.56 16.57 12.52
Tangible book value per share:
September 30, 1996 11.49 10.83 16.93 10.00
December 31, 1995 12.19 11.31 16.54 10.44
</TABLE>
-17-
<PAGE>
______________________________
(1) Reflects (i) estimated purchase accounting adjustments to be recorded in
connection with the Merger, consisting of mark-to-market valuation
adjustments for assets acquired and liabilities assumed and adjustments
for intangible assets established, and the resultant
amortization/accretion of all such adjustments over appropriate future
periods, and (ii) the assumed issuance of 985,687 shares of PennFirst
Common Stock in the Merger.
(2) PennFirst's fiscal year is December 31 while THB's fiscal year is
June 30. For purposes of the table above, THB financial data is
presented consistent with the fiscal year end of PennFirst.
(3) Represents the PennFirst pro forma combined amounts multiplied by 0.923,
which is the assumed number of shares of PennFirst Common Stock to be
issued for each share of THB Common Stock.
COMPARATIVE MARKET PRICES
The PennFirst Common Stock and the THB Common Stock are included for
quotation on the NASDAQ National Market under the symbols "PWBC" and "THBC,"
respectively. The table below sets forth, for the calendar quarters
indicated, the reported high and low closing sales prices of PennFirst Common
Stock and THB Common Stock based on published financial sources and cash
dividends paid or declared per share by PennFirst and THB. The closing sales
prices and the cash dividends paid per share for the PennFirst Common Stock
have been retroactively adjusted for the six-for-five stock splits paid on
January 25, 1994 and January 25, 1995.
<TABLE>
<CAPTION>
PENNFIRST COMMON STOCK THB COMMON STOCK
------------------------------- -------------------------
CASH CASH
DIVIDENDS DIVIDENDS
PAID PER DECLARED
1994 HIGH LOW SHARE HIGH LOW PER SHARE
- ------------- ------ ----- ----------- ------ ----- ----------
<S> <C> <C> <C> <C> <C> <C>
First Quarter $15.21 $12.08 $.075 $ -- $ -- $ --
Second Quarter 13.13 11.46 .075 -- -- --
Third Quarter 12.92 11.67 .075 11.88 11.58 .05
Fourth Quarter 13.25 11.25 .075 11.18 11.11 .05
</TABLE>
-18-
<PAGE>
<TABLE>
<CAPTION>
1995
- ------------
<S> <C> <C> <C> <C> <C> <C>
First Quarter 14.13 12.75 .090 11.41 11.16 .05
Second Quarter 13.75 12.50 .090 12.18 11.86 .06
Third Quarter 13.75 12.75 .090 13.25 11.50 .06
Fourth Quarter 13.75 12.00 .090 13.50 12.25 .10
1996
- -------------
First Quarter 13.25 11.87 .090 13.75 13.00 .10
Second Quarter 13.75 13.00 .590 14.00 12.75 .10
Third Quarter 14.75 13.00 .090 15.96 13.08 .10
Fourth Quarter
(through _______, 1996)
</TABLE>
Since the market price of the PennFirst Common Stock is subject to
fluctuation, the market value of the shares of PennFirst Common Stock that
holders of shares of THB Common Stock may receive in the Merger may increase
or decrease prior to and after the Merger.
On September 13, 1996, the last full trading day prior to the
execution and delivery of the Merger Agreement and the public announcement
thereof, the closing sales prices per share of PennFirst Common Stock and THB
Common Stock on the NASDAQ National Market as reported in the WALL STREET
JOURNAL were $13.75 and $17.50, respectively. On _______ __, 1997, the most
recent practicable date prior to the printing of this Joint Proxy
Statement/Prospectus, the closing sales prices per share of PennFirst Common
Stock and THB Common Stock on the NASDAQ National Market were $_____ and
$_____, respectively.
Set forth below is information regarding the price per share of
PennFirst Common Stock and THB Common Stock on September 13, 1996, the last
trading day preceding public announcement of the Agreement. The historical
prices are as reported on NASDAQ.
<TABLE>
<CAPTION>
HISTORICAL MARKET
VALUE PER SHARE
----------------------------
EQUIVALENT MARKET
VALUE PER SHARE OF
DATE PENN FIRST THB THB (1)
- -------------- ---------- ----- -------------------
<S> <C> <C> <C>
September 13, 1996 $13.75 $17.50 $21.15
</TABLE>
(1) Equivalent market value per share of THB Common Stock based on the
Exchange Ratio.
STOCKHOLDERS ARE URGED TO OBTAIN CURRENT MARKET QUOTATIONS FOR THE
PENNFIRST COMMON STOCK AND THB COMMON STOCK, TO THE EXTENT POSSIBLE, PRIOR TO
THE STOCKHOLDER MEETINGS.
-19-
<PAGE>
PENNFIRST SELECTED CONSOLIDATED FINANCIAL INFORMATION
(Dollars in Thousands, Except Per Share Data)
The following tables set forth certain consolidated financial and other
data of PennFirst at the dates and for the periods indicated. For additional
financial information about PennFirst, reference is made to "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the Consolidated Financial Statements of PennFirst and related notes included
in PennFirst's 1995 Annual Report to Stockholders.
<TABLE>
<CAPTION>
December 31,
September 30, ------------------------------------------------------------------
1996 1995 1994(1) 1993 1992 1991
-------- -------- ---------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Total assets $700,794 $659,371 $637,916 $410,314 $331,520 $282,455
Short-term investments and cash
equivalents 4,797 4,599 6,393 3,431 4,200 5,760
Investment securities held to
maturity 18,083 20,757 25,206 1,973 8,925 12,042
Investment securities available
for sale 99,701 43,932 3,260 1,015 -- --
Mortgage-backed securities
held to maturity 81,104 91,173 307,172 192,201 192,059 176,695
Mortgage-backed securities
available for sale 252,994 286,921 105,175 117,700 38,666 --
Loans receivable, net 215,134 183,878 161,630 79,250 75,961 76,756
Savings deposits 325,839 338,494 338,825 206,629 210,903 232,670
Borrowed funds 317,242 259,472 246,437 160,988 80,187 11,111
Stockholders' equity 48,949 54,926 52,407 40,099 37,615 35,825
</TABLE>
<TABLE>
<CAPTION>
Nine Months Ended
September 30, Year Ended December 31,
--------------------- ------------------------------------------------------------------
1996 1995 1995 1994 1993 1992 1991
------- ------- --------- -------- --------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
Interest income $34,766 $32,662 $44,183 $34,873 $23,878 $22,671 $20,113
Interest expense 24,240 22,398 30,219 22,159 14,585 13,365 12,494
Net interest income 10,526 10,264 13,964 12,714 9,293 9,306 7,619
Provision for possible losses on
loans 681 19 13 41 336 314 612
Net interest income after provision
for possible losses on loans 9,845 10,245 13,951 12,673 8,957 8,992 7,007
Gains (losses) on sales of
investments
available for sale (31) 54 54 140 324 (244) --
Noninterest income 670 651 892 871 771 652 620
Noninterest expense 8,306(2) 6,329 8,962 7,364 4,993 5,676 4,449
------ ------ ------ ------ ------ ------- ------
Income before income taxes and
cumulative effect of change in
accounting principle 2,178 4,624 5,935 6,320 5,059 3,724 3,178
Income tax expense 364 1,708 1,967 2,461 1,902 1,420 1,261
Income before cumulative effect
of change in accounting principle 1,814 2,916 3,968 3859 3,157 2,304 1,917
Cumulative effect of change in
accounting principle -- -- -- -- 125 -- --
Net income $ 1,814 $ 2,916 $ 3,968 $ 3,859 $ 3,282 $ 2,304 $ 1,917
------- ------- ------- ------- ------- ------- -------
------- ------- ------- ------- ------- ------- -------
Earnings per share (3):
Primary $ .46 $ .69 $ .94 $ .91 $ .94 $ .66 $ .55
------- -------- ------- ------- ------- ------- --------
------- -------- ------- ------- ------- ------- --------
Fully diluted $ .46 $ .69 $ .94 $ .91 $ .94 $ .65 $ .55
------- -------- ------- ------- ------- ------- --------
------- -------- ------- ------- ------- ------- --------
</TABLE>
(CONTINUED ON NEXT PAGE)
20
<PAGE>
<TABLE>
<CAPTION>
Nine Months Ended
September 30, At or For the Year Ended December 31,
------------------ ------------------------------------------------------------
1996 1995 1995 1994 1993 1992 1991
-------- ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
OTHER DATA:(4)
Return on assets 0.35%(5) 0.60% 0.61% 0.68% 0.83% 0.73% 0.81%
Return on equity 4.66(5) 7.32 7.44 7.68 8.44 6.27 5.47
Equity to assets 7.58 8.24 8.24 8.79 9.83 11.70 14.86
Interest rate spread 1.92 1.88 1.92 1.96 2.01 2.52 2.46
Net interest margin 2.27 2.26 2.29 2.29 2.39 3.05 3.34
Interest-earning assets
to interest-bearing
liabilities 1.07 1.08 1.08 1.08 1.10 1.12 1.16
Noninterest expense
to assets 1.62 1.31 1.39 1.29 1.26 1.81 1.89
Efficiency Ratio (6) 52.14 55.97 58.25 52.98 49.89 55.65 56.35
Allowance for loan
losses to total
loans receivable at
end of period 1.40 1.31 1.29 1.43 1.64 1.48 1.22
Non-performing assets to
total assets at end
of period 0.59 0.36 0.13 0.40 0.49 1.16 1.03
Cash dividends per share $0.77 $0.27 $ 0.36 $ 0.28 $ 0.17 $ 0.12 $ 0.09
Full service offices at end of
period 9 9 9 9 5 5 6
</TABLE>
(1) In March 1994, PennFirst completed its acquisition of ESB Bancorp, Inc.
As a result of the merger, PennFirst acquired $147.2 million in assets,
including total loans of $65.0 million, and total liabilities of $121.3
million, including $114.2 million in deposits.
(2) Includes $2.2 million in a one-time SAIF special assessment.
(3) The earnings per share have been retroactively adjusted for the
six-for-five stock splits paid on January 25, 1992, July 25, 1992,
January 25, 1993, June 7, 1993, January 25, 1994 and January 25, 1995.
(4) With the exception of end of period ratios, all ratios are based on
average monthly balances during the respective periods and are
annualized where appropriate.
(5) Exclusive of the $2.2 million one-time SAIF special assessment,
PennFirst's return on assets and return on equity would have been 0.62%
and 8.11%, respectively, for the nine months ended September 30, 1996.
(6) The ratio is calculated by dividing noninterest operating expenses by
total recurring operating revenues (securities and other asset sales
excluded from revenue), adjusted by removing non-cash charges such as
intangible amortization and foreclosed real estate charges. During the
nine months ended September 30, 1996, the ratio excludes the $2.2
million one-time SAIF special assessment.
21
<PAGE>
THB SELECTED CONSOLIDATED FINANCIAL INFORMATION
(Dollars in Thousands, Except Per Share Data)
The following selected financial and other data of THB does not purport
to be complete and is qualified in its entirety by reference to the more
detailed financial information contained elsewhere herein. See "Index to
THB Consolidated Financial Statements."
<TABLE>
<CAPTION>
June 30,
September 30, ------------------------------------------------------------
1996 1996 1995 1994 1993 1992
------------- ------ ------ ------ ------ -------
<S> <C> <C> <C> <C> <C> <C>
SELECTED FINANCIAL CONDITION
AND OTHER DATA:
Total assets $99,470 $92,183 $75,091 $64,087 $57,595 $59,904
Interest-bearing deposits in other
financial institutions -- -- -- -- 2,463 1,287
Investment and mortgage-backed
securities, available for sale 9,003 11,731 10,831 -- -- --
Investment securities, held to
maturity -- -- 7,301 9,975 3,926 2,988
Mortgage-backed securities, net -- -- -- 5,902 3,254 3,208
Loans receivable, net 83,882 74,552 53,180 39,074 41,205 46,353
Loans held for sale -- -- 272 -- 687 --
Deposits 52,655 53,960 50,610 42,410 46,725 49,560
FHLB advances 26,950 18,583 5,750 3,000 3,000 3,000
Stockholders' equity 18,013 18,040 17,216 17,600 6,873 5,976
Full service offices 2 2 2 1 1 1
</TABLE>
<TABLE>
<CAPTION>
Three Months Ended
September 30, Year Ended June 30,
------------------ ---------------------------------------------------------
1996 1995 1996 1995 1994 1993 1992
------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
SELECTED OPERATING
DATA:
Total interest income $1,904 $1,523 $6,469 $5,151 $4,490 $5,346 $4,988
Total interest expense 936 738 3,072 2,155 1,935 2,409 2,813
------ ------ ------ ------ ------ ------ ------
Net interest income 968 785 3,397 2,996 2,555 2,937 2,175
Provision for loan losses 30 30 220 10 80 380 102
------ ------ ------ ------ ------ ------ ------
Net interest income after
provision for loan losses 938 755 3,177 2,986 2,475 2,557 2,073
Noninterest income 59 57 210 121 338 81 68
Noninterest expense 914(1) 383 1,700 1,599 1,323 999 868
Earnings before income taxes and
cumulative effect of change
in accounting principle 83 429 1,687 1,508 1,490 1,639 1,273
Income taxes 31 167 599 589 611 742 487
------ ------ ------ ------ ------ ------ ------
Earnings before cumulative effect
of change in accounting principle 52 262 1,088 919 879 897 786
Cumulative effect of change in
accounting for income taxes -- -- -- -- 200 -- --
------ ------ ------ ------ ------ ------ ------
Net earnings $ 52 $ 262 $1,088 $ 919 $1,079 $ 897 $ 786
------ ------ ------ ------ ------ ------ ------
------ ------ ------ ------ ------ ------ ------
Earnings per share(2) $ 0.05 $ 0.25 $ 1.09 $ 0.89 $ -- $ -- $ --
------ ------ ------ ------ ------ ------ ------
------ ------ ------ ------ ------ ------ ------
</TABLE>
<TABLE>
<CAPTION>
At or For the Three
Months Ended
September 30, At or For the Year Ended June 30,
-------------------- -------------------------------------------------------
1996 1995 1996 1995 1994 1993 1992
------ ------ ------ ------ ------ ------ -------
<S> <C> <C> <C> <C> <C> <C> <C>
SELECTED OPERATING AND
OTHER RATIOS(3):
PERFORMANCE RATIOS:
Return on average assets(4) .22% 1.33% 1.34% 1.35% 1.89% 1.53% 1.47%
Return on average equity(4) 1.14 5.93 6.04 5.21 14.15 13.99 14.17
Interest rate spread(5) 3.19 2.95 3.16 3.54 4.21 4.64 3.66
Net interest margin(5) 4.11 4.07 4.27 4.61 4.67 5.09 4.17
Average interest-earning
assets to average
interest-bearing liabilities 123.28 129.04 128.54 133.15 113.36 110.90 109.30
Net interest income after
provision for loan
losses to total noninterest
expense 102.63 196.61 186.88 186.74 187.07 255.96 238.82
Noninterest expense to average
total assets 3.80 1.95 2.09 2.35 2.31 1.70 1.62
ASSET QUALITY RATIOS:
Non-performing loans to total
loans at end of
period(6) .99 2.09 1.22 3.39 2.67 1.53 0.51
Non-performing assets to total
assets at end of
period(6) 1.39 1.62 1.57 3.09 2.03 1.24 0.46
Allowance for loan losses to total
loans
outstanding at end of period .76 1.20 0.81 1.15 1.45 1.34 0.50
Allowance for loan losses to total
non-performing loans at
end of period 76.50 51.98 66.73 33.55 54.39 87.85 97.07
CAPITAL RATIOS:
Average equity to average assets 18.95 22.38 22.14 25.94 13.32 10.91 10.37
Equity to assets at end of period 18.11 21.12 19.57 22.93 27.46 11.93 9.98
</TABLE>
(FOOTNOTES ON FOLLOWING PAGE)
22
<PAGE>
____________________
(1) Includes $326,000 in a one-time SAIF special assessment. See
"Regulation and Supervision of THB - Troy Hill - Insurance of Accounts."
(2) Earnings per share have been stated only for periods subsequent to June
30, 1994 because of Troy Hill's conversion to stock form on June 24,
1994.
(3) With the exception of end of period ratios, all ratios are based on
month-end or quarter-end balances during the periods and are annualized
where appropriate. Management does not believe that the use of
month-end or quarter-end balances instead of daily average balances has
caused any material differences in the information presented.
(4) Exclusive of the $326,000 one-time SAIF special assessment, THB's return
on assets and return on equity would have been 1.11% and 5.84%,
respectively, for the three months ended September 30, 1996. Return on
average assets and return on average equity before cumulative effect of
accounting change amounted to 1.54% and 11.53%, respectively, for the
year ended June 30, 1994.
(5) Interest rate spread represents the difference between the weighted
average yield on interest-earning assets and the weighted average rate
on interest-bearing liabilities. Net interest margin represents net
interest income as a percentage of average interest-earning assets.
(6) Non-performing loans consist of non-accrual loans and loans that are
contractually past due 90 days or more but still accruing interest, and
non-performing assets consist of non-performing loans and real estate
acquired by foreclosure or deed-in-lieu thereof.
STOCKHOLDER MEETINGS
This Joint Proxy Statement/Prospectus is being furnished to PennFirst
stockholders in connection with the solicitation of proxies by the Board of
Directors of PennFirst for use at the PennFirst Special Meeting to be held on
_______ __, 1997, and at any adjournment or adjournments thereof. This Joint
Proxy Statement/Prospectus also serves as a prospectus of PennFirst in
connection with the issuance of PennFirst Common Stock to holders of THB
Common Stock upon consummation of the Merger.
This Joint Proxy Statement/Prospectus is being furnished to THB
stockholders in connection with the solicitation of proxies by the Board of
Directors of THB for use at the THB Special Meeting to be held on ________
__, 1997, and at any adjournment or adjournments thereof.
23
<PAGE>
THB STOCKHOLDERS SHOULD NOT FORWARD ANY STOCK CERTIFICATES WITH THEIR
PROXY CARDS.
This Joint Proxy Statement/Prospectus, the Notice of Special Meeting of
Stockholders of PennFirst and the Notice of Special Meeting of Stockholders
of THB and the accompanying proxies solicited by the Boards of Directors of
PennFirst and THB, respectively, are first being mailed to the stockholders
of PennFirst and THB on or about ________ __, 1997.
The principal executive offices of PennFirst are located at 600 Lawrence
Avenue, Ellwood City, Pennsylvania 16117, and its telephone number is (412)
758-5584. The principal executive offices of THB are located at 1706 Lowrie
Street, Pittsburgh, Pennsylvania 15212, and its telephone number is (412)
231-8238.
SPECIAL MEETING OF PENNFIRST STOCKHOLDERS
The PennFirst Special Meeting will be held on _______ __, 1997,
commencing at __:00 _.m., Eastern Time, at the Connoquenessing Country Club
located at RD #2, Route 65, Ellwood City, Pennsylvania.
PURPOSE OF MEETING. The purpose of the PennFirst Special Meeting is to
consider and vote upon a proposal to approve the Merger Agreement and the
issuance of PennFirst Common Stock provided for in connection therewith and
the transaction of such other business as may properly come before the
PennFirst Special Meeting and any adjournment or adjournments thereof. It is
not anticipated that any matter other than the proposal to adopt and approve
the Merger Agreement will be brought before the PennFirst Special Meeting.
If any other matter is properly presented at the PennFirst Special Meeting
for consideration, the persons named in the enclosed form of proxy card and
acting thereunder will have discretion to vote on such matter in accordance
with their best judgment.
SHARES OUTSTANDING AND ENTITLED TO VOTE; RECORD DATE. The close of
business on _______ __, 1997 has been fixed by the Board of Directors of
PennFirst as the PennFirst Record Date for the determination of holders of
PennFirst Common Stock entitled to notice of and to vote at the PennFirst
Special Meeting and any adjournment or adjournments thereof. At the close of
business on the PennFirst Record Date, there were [3,909,184] shares of
PennFirst Common Stock outstanding and entitled to vote, held by
approximately [2,200] holders of record. Each share of PennFirst Common
Stock entitles the holder thereof to one vote on each matter to be submitted
to PennFirst stockholders at the PennFirst Special Meeting.
VOTE REQUIRED. A quorum, consisting of a majority of the voting power
of the issued and outstanding stock of PennFirst entitled to vote at the
PennFirst Special Meeting, must be present in person or by proxy before any
action may be taken at the PennFirst Special Meeting. Under the BCL, the
affirmative vote of a majority of the votes cast by all
24
<PAGE>
stockholders of PennFirst entitled to vote thereon is required to approve the
Merger Agreement. The votes may be made in person or by proxy. Shares as to
which the "ABSTAIN" box has been marked on the proxy and broker non-votes
will be counted as present for determining if a quorum is present; however,
under the BCL, an abstention or a broker non-vote is not a vote cast and thus
will not affect the number of votes required for approval. PennFirst is also
seeking stockholder approval of the Merger pursuant to the regulations of the
National Association of Securities Dealers, Inc. ("NASD") because the Merger
may result in more than a 20% increase in the number of shares outstanding of
PennFirst Common Stock. The vote required under the NASD regulations is also
a majority of the total votes cast on the proposal in person or by proxy, and
thus abstentions and broker non-votes will not affect the number of votes
required for approval.
As of the PennFirst Record Date, the directors and executive officers of
PennFirst and their affiliates in the aggregate beneficially owned and are
entitled to vote _______ shares or ____% of the outstanding shares of
PennFirst Common Stock (exclusive of shares of PennFirst Common Stock which
may be acquired upon the exercise of outstanding stock options and stock
appreciation rights).
VOTING; SOLICITATION AND REVOCATION OF PROXIES. A proxy for use at the
PennFirst Special Meeting is being furnished to each PennFirst stockholder
together with this Joint Proxy Statement/Prospectus and is solicited by the
Board of Directors of PennFirst. Any PennFirst stockholder executing a proxy
may revoke it at any time before it is voted by filing with the Secretary of
PennFirst, at the address of PennFirst set forth on the Notice of Special
Meeting of Stockholders, written notice of such revocation; by executing a
later-dated proxy; or by attending the PennFirst Special Meeting and giving
notice of such revocation in person. Attendance at the PennFirst Special
Meeting will not, in and of itself, constitute revocation of a proxy. Each
proxy returned to PennFirst (and not revoked) will be voted in accordance
with the instructions indicated thereon. IF NO INSTRUCTIONS ARE INDICATED,
THE PROXY WILL BE VOTED FOR APPROVAL OF THE MERGER AGREEMENT, WHICH INVOLVES
THE ISSUANCE OF PENNFIRST COMMON STOCK IN CONNECTION WITH THE MERGER.
SPECIAL MEETING OF THB STOCKHOLDERS
The THB Special Meeting will be held on _____ __, 1997, commencing at
__:00 _.m., Eastern Time, at the Holiday Inn located at 4859 McKnight Road,
Pittsburgh, Pennsylvania.
PURPOSE OF MEETING. The purpose of the THB Special Meeting is to
consider and vote upon a proposal to approve the Merger Agreement and the
transaction of such other business as may properly come before the THB
Special Meeting and any adjournment or adjournments thereof. It is not
anticipated that any matter other than the proposal to adopt and approve the
Merger Agreement will be brought before the THB Special Meeting. If any
other matter is properly presented at the THB Special Meeting for
consideration, the
25
<PAGE>
persons named in the enclosed form of proxy card and acting thereunder will
have discretion to vote on such matter in accordance with their best judgment.
SHARES OUTSTANDING AND ENTITLED TO VOTE; RECORD DATE. The close of
business on _______ __, 1997 has been fixed by the Board of Directors of THB
as the THB Record Date for the determination of holders of THB Common Stock
entitled to notice of and to vote at the THB Special Meeting and any
adjournment or adjournments thereof. At the close of business on the THB
Record Date, there were [1,067,917] shares outstanding and entitled to vote,
held by approximately [350] holders of record. Each share of THB Common
Stock entitles the holder thereof to one vote on each matter to be submitted
to THB stockholders at the THB Special Meeting.
VOTE REQUIRED. A quorum, consisting of a majority of the voting power
of the issued and outstanding stock of THB entitled to vote at the THB
Special Meeting, must be present in person or by proxy before any action may
be taken at the THB Special Meeting. The affirmative vote of a majority of
the votes cast by all stockholders of THB entitled to vote thereon is
required to approve the Merger Agreement. The votes may be made in person or
by proxy. Shares as to which the "ABSTAIN" box has been marked on the proxy
and broker non-votes will be counted as present for determining if a quorum
is present; however, under the BCL, an abstention or a broker non-vote is not
a vote cast and thus will not affect the number of votes required for
approval.
As of the THB Record Date, the directors and executive officers of THB
and their affiliates in the aggregate beneficially owned and are entitled to
vote ______ shares or ____% of the outstanding THB Common Stock (exclusive of
shares of THB Common Stock which may be acquired upon the exercise of
outstanding stock options). The directors and certain officers of THB and
Troy Hill have signed a Stockholders Agreement which provides, among other
things, that they will vote any shares of THB Common Stock over which they
have voting power in favor of the Merger Agreement. The directors and
officers of THB and Troy Hill who signed the Stockholders Agreement
beneficially owned _______ shares or ____% of the THB Common Stock
outstanding on the THB Record Date.
VOTING; SOLICITATION AND REVOCATION OF PROXIES. A proxy for use at the
THB Special Meeting is being furnished to each THB stockholder together with
this Joint Proxy Statement/Prospectus and is solicited by the Board of
Directors of THB. Any THB stockholder executing a proxy may revoke it at any
time before it is voted by filing with the Secretary of THB, at the address
of THB set forth on the Notice of Special Meeting of Stockholders, written
notice of such revocation; by executing a later-dated proxy; or by attending
the THB Special Meeting and giving notice of such revocation in person.
Attendance at the THB Special Meeting will not, in and of itself, constitute
revocation of a proxy. Each proxy returned to THB (and not revoked) will be
voted in accordance with the instructions thereon. IF NO INSTRUCTIONS ARE
INDICATED, THE PROXY WILL BE VOTED FOR APPROVAL OF THE MERGER AGREEMENT.
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COSTS
PennFirst will bear the costs of printing and mailing this Joint Proxy
Statement/Prospectus, the accompanying proxy and the additional reports filed
pursuant to the Exchange Act which accompany this Joint Proxy
Statement/Prospectus. Proxies will be solicited by mail and may be further
solicited, for no additional compensation by officers, directors or employees
of PennFirst and THB, by further mailing, by telephone or by personal
contact. PennFirst will also pay the standard charges and expenses of
brokerage houses, voting trustees, banks, associations and other custodians,
nominees and fiduciaries, who are record holders of PennFirst Common Stock
and THB Common Stock, respectively, not beneficially owned by them, for
forwarding such materials to and obtaining proxies from the beneficial owners
of PennFirst Common Stock and THB Common Stock entitled to vote at the
PennFirst Special Meeting and the THB Special Meeting, respectively. All
other costs incurred in connection with the solicitation of proxies from
PennFirst stockholders and THB stockholders will be borne by the party
incurring such costs.
THE MERGER
The following description of the material terms of the Merger does not
purport to be complete and is qualified in its entirety by reference to the
Merger Agreement, a copy of which is attached to this Joint Proxy
Statement/Prospectus as Appendix A. All stockholders of PennFirst and THB are
urged to read such document carefully.
GENERAL
The Boards of Directors of PennFirst and THB have determined that the
acquisition of THB by PennFirst is desirable and in the best interests of
PennFirst's and THB's respective stockholders and have unanimously approved
the Merger. The Merger will be accomplished through the Merger of THB with
and into PennFirst pursuant to the Merger Agreement, with PennFirst being the
surviving corporation. THE BOARDS OF DIRECTORS OF PENNFIRST AND THB
UNANIMOUSLY RECOMMEND A VOTE FOR THE APPROVAL OF THE MERGER AGREEMENT. Upon
consummation of the Merger, each share of THB Common Stock outstanding at the
Effective Time will be converted into and represent the right to receive
shares of PennFirst Common Stock, cash or a combination of both, as described
under "The Merger - The Merger Consideration."
BACKGROUND OF AND REASONS FOR THE MERGER
BACKGROUND OF THE MERGER. In connection with its strategic planning
process, THB reviews its strategic business alternatives, devoting particular
attention to the continuing consolidation and increasing competition within
the banking and financial services industries in the Pittsburgh market area.
The Pittsburgh market is home to several large regional commercial banking
entities which have substantially greater financial and marketing
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resources available to them as well as a significant number of commercial banks
and savings institutions which are reasonably comparable to THB and PennFirst in
size and resources. In recent years, competition within the local banking
and financial services industries has intensified, especially for smaller
institutions such as THB, leading to THB's exploration of a possible business
combination with PennFirst.
In early June 1996, a representative of THB approached executive
management of PennFirst, indicating that THB was interested in meeting with
representatives of PennFirst to discuss a possible transaction between the
two companies. As a result of this indication of interest, Ellry N. Davis,
President and Chief Executive Officer of THB, and Charlotte A. Zuschlag,
President and Chief Executive Officer of PennFirst, met on June 6, 1996 in
order to discuss the respective companies, the competitive challenges faced
by each, consolidation within the banking industry generally and the possible
strategic benefits of a business combination between PennFirst and THB.
On June 14, 1996, THB received a letter from PennFirst, dated June 13,
1996, which indicated PennFirst's interest in continuing to discuss a
possible transaction with THB, proposed in general terms the structure of a
possible transaction and outlined certain potential plans for integrating the
combined companies. The June 13th letter summarized the informal discussions
that Ms. Zuschlag and Mr. Davis had held to date, but did not include any
formal offer. On June 14, 1996, Ms. Zuschlag met with the full Board of
Directors of THB in order to familiarize them with PennFirst, its business
strategies and long range goals and to discuss the June 13th letter.
Additional telephone conversations and meetings among the parties continued
over the next several weeks, during which the parties continued to discuss
the possible strategic benefits of a business combination, as well as certain
considerations related to the proposed management and staffing of the
combined company. On August 23, 1996, PennFirst and THB entered into a
mutual confidentiality agreement and, between September 4, 1996 and September
15, 1996, PennFirst and THB conducted reciprocal due diligence analysis. On
September 9, 1996, THB engaged Webb as its financial advisor.
On September 16, 1996, at a meeting of the Board of Directors of THB,
the THB Board discussed the reasons for, and the potential benefits of, the
Merger; THB's legal counsel reviewed the terms of the Merger Agreement, the
Option Agreement and the Stockholders Agreement and the transactions
contemplated thereby; and THB's financial advisor made a presentation
regarding the financial terms of the Merger Agreement and delivered its
opinion that the Merger Consideration was fair, from a financial point of
view, to holders of THB Common Stock. After a thorough discussion and
consideration of the factors discussed below under "The Merger - Background
of and Reasons for the Merger -Reasons for the Merger," the Board of
Directors of THB unanimously approved the Merger Agreement and the
transactions contemplated thereby and authorized the execution of the Merger
Agreement and the Option Agreement.
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On September 16, 1996, at a meeting of the Board of Directors of
PennFirst, Ms. Zuschlag reviewed with the PennFirst Board the reasons for,
and the potential benefits of the Merger; and PennFirst's legal counsel
reviewed the terms of the Merger Agreement, the Option Agreement and the
Stockholders Agreement and the transactions contemplated thereby. After a
thorough discussion and consideration of the factors discussed below under
"The Merger - Background of and Reasons for the Merger - Reasons for the
Merger," the Board of Directors of PennFirst unanimously approved the Merger
Agreement and the transactions contemplated thereby and authorized the
execution of the Merger Agreement, the Option Agreement and the Stockholders
Agreement. The Merger Agreement, the Option Agreement and the Stockholders
Agreement were entered into on September 16, 1996.
REASONS FOR THE MERGER. The terms of the Merger Agreement, including
the Merger Consideration to be paid to THB's stockholders, were the result of
arm's-length negotiations between the representatives of PennFirst and THB.
Among the factors considered by the Boards of Directors of PennFirst or THB,
as appropriate, in deciding to approve and recommend the terms of the Merger
were (i) the Merger Consideration to be paid to THB's stockholders in
relation to the market value, book value, earnings per share and dividend
rates of the PennFirst Common Stock and the THB Common Stock, (ii) the
ability to expand PennFirst's presence in Allegheny County, Pennsylvania,
(iii) information concerning the financial condition, results of operations,
capital levels, asset quality and prospects of PennFirst and THB, (iv) the
short-term and long-term impact the Merger will have on PennFirst's
consolidated results of operations, including anticipated cost savings
resulting from consolidations in certain areas and expanded consumer lending
and retail banking products and services, (v) the general structure of the
transaction and the compatibility of management and business philosophy, (vi)
the improvement of the franchise value of PennFirst to its stockholders as a
result of the enhanced network and products and services, (vii) the
likelihood of receiving the requisite regulatory approvals in a timely
manner, (viii) the tax-free nature of the stock portion of the Merger
Consideration to the stockholders of THB, (ix) the ability of the combined
enterprise to compete in relevant banking and non-banking markets, (x)
industry and economic conditions, (xi) the impact of the Merger on the
depositors, employees, customers and communities served by PennFirst and THB
through expanded consumer lending and retail banking products and services,
and (xii) the opinion of THB's financial advisor as to the fairness of the
Merger Consideration from a financial point of view to the holders of the THB
Common Stock. In making their determination, the Boards of Directors of
PennFirst and THB did not ascribe relative weights to the factors which they
considered.
The Boards of Directors of PennFirst and THB believe that the Merger is
in the best interest of their respective organizations and their respective
stockholders. THE PENNFIRST AND THB DIRECTORS UNANIMOUSLY RECOMMEND THAT
PENNFIRST AND THB STOCKHOLDERS, RESPECTIVELY, VOTE FOR THE APPROVAL OF THE
MERGER.
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OPINION OF THB'S FINANCIAL ADVISOR
On September 9, 1996, the Board of Directors of THB retained Webb as its
financial advisor to issue an opinion as to the fairness ("Fairness
Opinion"), from a financial point of view, to the shareholders of THB with
respect to the proposed merger of THB with PennFirst. Webb, as part of its
investment banking business, is regularly engaged in the evaluation of
businesses and securities in connection with mergers and acquisitions,
negotiated underwritings, and distributions of listed and unlisted
securities. Webb is familiar with the market for common stocks of publicly
traded banks, thrifts and bank and thrift holding companies. The THB Board
of Directors selected Webb on the basis of the firm's reputation and its
experience and expertise in transactions similar to the Merger and its prior
work for and relationship with THB in connection with THB's public offering
of common stock.
Pursuant to its engagement, Webb was asked to render an opinion as to
the fairness, from a financial point of view, of the Merger Consideration to
shareholders of THB. Webb delivered its opinion to the THB Board of
Directors dated as of September 16, 1996, that the Merger Consideration was
fair, from a financial point of view, to the shareholders of THB. Such
Opinion was updated as of the date of this Joint Proxy Statement/Prospectus.
No limitations were imposed by the THB Board of Directors upon Webb with
respect to the investigations made or procedures followed by it in rendering
its opinion. Webb has consented to the inclusion herein of the summary of
its opinion to the THB Board of Directors and to the reference to the entire
opinion attached hereto as Appendix C.
THE FULL TEXT OF THE OPINION OF WEBB, WHICH IS ATTACHED AS APPENDIX C TO
THIS JOINT PROXY STATEMENT/PROSPECTUS, SETS FORTH CERTAIN ASSUMPTIONS MADE,
MATTERS CONSIDERED AND LIMITATIONS ON THE REVIEW UNDERTAKEN BY WEBB, AND
SHOULD BE READ IN ITS ENTIRETY. THE SUMMARY OF THE OPINION OF WEBB SET FORTH
IN THIS JOINT PROXY STATEMENT/PROSPECTUS IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO THE OPINION. SUCH OPINION DOES NOT CONSTITUTE A RECOMMENDATION
BY WEBB TO ANY THB SHAREHOLDER AS TO HOW SUCH SHAREHOLDER SHOULD VOTE WITH
RESPECT TO THE MERGER.
In rendering its opinion, Webb (i) reviewed drafts of the Merger
Agreement; (ii) reviewed THB's Annual Reports, Proxy Statements and Form
10-K's for the years ended June 30, 1995, 1994, and a draft of June 30, 1996
financial statements; (iii) reviewed PennFirst's Annual Reports, Proxy
Statements and Form 10-K's for the years ended December 31, 1995, 1994 and
1993, subsequent 10-Q's, and certain other internal financial analysis
considered relevant; (iv) discussed with senior management and the boards of
directors of THB and its wholly-owned subsidiary, Troy Hill, the current
position and prospective outlook for THB; (v) discussed with senior
management PennFirst's operations, financial performance and future plans and
prospects; (vi) considered historical quotations, levels of activity and
prices of recorded transactions in THB's and PennFirst's Common Stocks; (vii)
reviewed financial and stock market data of other thrifts in a comparable
asset range to THB; (viii) reviewed financial and stock market data of other
thrifts in a
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<PAGE>
comparable asset range to PennFirst; (ix) reviewed certain
recent business combinations with thrifts as the acquired company, which Webb
deemed comparable in whole or in part; (x) performed other analyses which
Webb considered appropriate.
In rendering it opinion, Webb assumed and relied upon the accuracy and
completeness of the financial information provided to it by THB and
PennFirst. In its review, with the consent of the THB Board of Directors,
Webb did not undertake any independent verification of the information
provided to it, nor did it make any independent appraisal or evaluation of
the assets or liabilities of THB or PennFirst, and potential or contingent
liabilities of THB or PennFirst.
ANALYSIS OF COMPARABLE PUBLICLY TRADED COMPANIES. Webb compared
selected publicly available financial information of a comparable peer group
of THB consisting of assets between $50-$200 million and located in the
Mid-Atlantic Region. The peer group consisted of eleven institutions located
in the states of Pennsylvania, New York, New Jersey, and Maryland. Financial
data and comparisons included, but were not limited to, (i) stock price to
tangible book value (THB was 81% of book value compared to the peer group
median of 81%); (ii) stock price to last twelve months ("LTM") earnings (THB
was 12.6x LTM earnings compared to the peer group median of 15.2x); (iii)
return on average assets (THB, based on LTM earnings, was 1.38% compared to
the peer group median of .80%); (iv) return on average equity (THB, based on
LTM earnings, was 6.1% compared to the peer group median of 5.2%); and (v)
tangible equity as a percentage of total assets (THB reported 22.2% compared
to the peer group median of 15.7%).
Webb also analyzed the performance and financial condition of PennFirst
relative to a peer group of thrifts with assets between $500 million and $750
million and located in the Mid-Atlantic region. The peer group consisted of
thirteen financial institutions located in Pennsylvania, New York, Maryland,
and New Jersey. Financial data and comparisons included but were not limited
to, (i) stock price to tangible book value (PennFirst's 117% of tangible book
value compared to the peer group median of 118%); (ii) stock price to LTM
earnings (PennFirst's 12.9x LTM earnings compared to the peer group median of
12.7x); (iii) return on average assets (PennFirst's, based on LTM earnings,
was .62% compared to the peer group median of .91%); (iv) return on average
equity (PennFirst, based on LTM earnings, reported 7.7% compared to the peer
group median of 7.7%); and (v) tangible equity as a percentage of total
assets (PennFirst reported 6.3% compared to the peer group median of 8.2%).
ANALYSIS OF RECENT COMPARABLE ACQUISITION TRANSACTIONS. In preparing
its opinion, Webb analyzed certain comparable merger and acquisition
transactions of both pending and completed thrift deals, comparing the
acquisition price relative to stated book value, tangible book value, LTM
earnings, total assets, total deposits, and premium to core deposits. The
analysis included a comparison of the average and median of the above ratios
for completed and pending acquisitions, based on the following three
comparable groups: (i) all thrift acquisitions since June 30, 1995 with the
target thrift having assets between $25 million and
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$250 million ("Recent Transactions"); (ii) all thrift acquisitions since
June 30, 1995 with the selling thrift having a return on average equity
between 4.5% and 9.0% ("Comparable Earnings Ratio"); and (iii) all
acquisitions since June 30, 1995 with the selling thrift having 15% or more
equity to total assets ("Comparable Equity Ratio").
The information in the following table summarizes the material
information analyzed by Webb with respect to the Merger. The summary does
not purport to be a complete description of the analyses performed by Webb
and should not be construed independently of the other information considered
by Webb in rendering its opinion. Selecting portions of Webb's analysis or
isolating certain aspects of the comparable transactions without considering
all analysis and factors, could create an incomplete or potentially
misleading view of the evaluation process.
SUMMARY OF SELECTED ACQUISITIONS
WHERE THE TARGET IS A SAVINGS INSTITUTION
<TABLE>
Tangible
Price/ Price/ Price/ Price/ Price/ Core Deposit Equity to
Book Tangible Book LTM EPS(a) Deposits Assets Premium Assets
------ ------------- ---------- -------- ------ ------------ ---------
<S> <C> <C> <C> <C> <C> <C> <C>
THB/PennFirst
Merger
based on Merger
Consideration of
$21.15 per share 127.9% 127.9% 21.6x 43.2% 25.3% 9.7% 19.6%
Recent Transactions:
Completed (68 deals)
Average 144.3% 150.4% 23.1x 18.9% 15.1% 6.6% 9.9%
Median 145.1% 145.2% 20.3x 16.5% 13.9% 6.2% 8.6%
Pending (25 deals)
Average 132.1% 134.7% 25.2x 22.2% 17.0% 5.7% 12.5%
Median 128.1% 128.8% 21.6x 18.7% 14.8% 5.6% 9.5%
Comparable
Earnings Ratios:
Completed (42 deals)
Average 142.3% 146.2% 22.5x 20.6% 16.0% 6.7% 10.9%
Median 141.5% 148.7% 21.2x 20.6% 14.7% 6.5% 10.4%
Pending (15 deals)
Average 129.6% 133.1% 19.4x 20.4% 15.9% 5.7% 11.8%
Median 133.0% 133.0% 18.7x 22.4% 16.6% 4.8% 10.6%
Comparable Equity Ratios:
Completed (16 deals)
Average 132.5% 145.1% 26.9x 33.1% 25.7% 9.5% 17.9%
Median 125.3% 125.3% 23.6x 30.1% 24.9% 7.0% 17.5%
Pending (9 deals)
Average 119.3% 119.3% 31.8x 37.6% 26.8% 6.8% 21.7%
Median 119.2% 119.2% 31.4x 37.3% 26.6% 6.4% 21.2%
</TABLE>
_________________
(a) Last twelve months earnings per share.
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In preparing its analysis, Webb made numerous assumptions with respect
to industry performance, business and economic conditions and other matters,
many of which are beyond the control of Webb and THB. The analyses performed
by Webb are not necessarily indicative of actual values or future results,
which may be significantly more or less favorable than suggested by such
analyses and do not purport to be appraisals or reflect the prices at which a
business may be sold.
Webb will receive a fee of $80,000 for services rendered in connection
with advising, issuing a fairness opinion and coordinating the due diligence
sessions of PennFirst with respect to the Merger. As of the date of the
Joint Proxy Statement/Prospectus, Webb has received $30,000 of such fee; the
remainder of the fee is due upon approval by THB's shareholders of the
Merger. Webb was paid a fee in connection with the services it performed in
connection with THB's stock offering in 1994.
THE MERGER CONSIDERATION
The Merger Agreement provides that at the Effective Time of the Merger,
each share of THB Common Stock outstanding immediately prior to consummation
of the Merger (other than shares as to which dissenters' rights have been
asserted and duly perfected in accordance with Pennsylvania law and shares
held by PennFirst, THB or any of their respective subsidiaries) shall be
converted into and represent the right to receive either (i) $21.15 in cash
("Per Share Cash Consideration") or (ii) a number of shares of PennFirst
Common Stock with a value equal to $21.15 ("Per Share Stock Consideration"),
as determined by the Exchange Ratio and based on the Average Share Price of
PennFirst Common Stock over the 20 trading day period ("Pricing Period")
ending on the date PennFirst and THB receive all requisite regulatory
approvals and satisfy all applicable waiting periods related to the Merger.
The Exchange Ratio in the Merger Agreement provides that the number of shares
of PennFirst Common Stock comprising the Per Share Stock Consideration shall
be equal to the quotient determined by dividing (x) $21.15 by (y) the Average
Share Price (defined as the average of the high bid and low asked price per
share as reported by the NASDAQ National Market) during the Pricing Period.
The Merger Agreement provides that 60% of the aggregate Merger Consideration
will consist of PennFirst Common Stock and the remaining 40% shall consist of
cash.
If, between the date of this Joint Proxy Statement/Prospectus and the
Effective Time, the shares of PennFirst Common Stock are changed into a
different number or class of shares by reason of any reclassification,
recapitalization, split-up, combination, exchange of shares or readjustment,
or a stock dividend thereon is declared with a record date within said
period, the Merger Consideration as specified above shall be adjusted
accordingly.
ELECTION AND EXCHANGE PROCEDURES. As promptly as practicable after the
Effective Time (and in no event later than seven business days following the
Effective Time), PennFirst shall cause a to-be-designated exchange agent
("Exchange Agent") to mail to each holder of record of a certificate or
certificates which immediately prior the Effective Time
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represented issued and outstanding shares of THB Common Stock (i) a notice
and letter of transmittal (which shall specify that delivery shall be
effected and risk of loss and title to the certificates theretofore
representing shares of THB Common Stock shall pass only upon proper delivery
of such certificates to the Exchange Agent) advising such holder of the
effectiveness of the Merger and the procedure for surrendering to the
Exchange Agent such certificate or certificates in exchange for that Merger
Consideration and (ii) an election form in such form as PennFirst and THB
shall mutually agree ("Election Form"). Each Election Form shall permit the
holder (or in the case of nominee record holders, the beneficial owner
through proper instructions and documentation) (i) to elect to receive
PennFirst Common stock with respect to all such holder's THB Common Stock
(the "Stock Election Shares"), (ii) to elect to receive cash with respect to
all such holder's THB Common Stock (the "Cash Election Shares"), or (iii) to
indicate that such holder makes no such election with respect to such
holder's shares of THB Common Stock (the "No-Election Shares"). Any shares
of THB Common Stock with respect to which the holder thereof shall not, as of
a to-be-specified deadline ("Election Deadline"), have made such an election
by submission to the Exchange Agent of an effective, properly completed
Election Form shall be deemed to be No-Election Shares.
Any election to receive PennFirst Common Stock or cash shall have been
properly made only if the Exchange Agent shall have actually received a
properly completed Election Form by the Election Deadline. An Election Form
will be properly completed only if accompanied by certificates representing
all shares of THB Common Stock covered thereby, subject to certain limited
exceptions in the case of lost or destroyed certificates. Any Election Form
may be revoked or changed by the person submitting such Election Form to the
Exchange Agent by written notice to the Exchange Agent only if such notice is
actually received by the Exchange Agent at or prior to the Election Deadline.
The certificate or certificates representing THB Common Stock relating to any
revoked Election Form shall be promptly returned without charge to the person
submitting the Election Form to the Exchange Agent. The Exchange Agent shall
have reasonable discretion to determine when any election, modification or
revocation is received and whether any such election, modification or
revocation has been properly made.
Within ten business days after the Election Deadline, the Exchange Agent
will effect the allocation among holders of THB Common Stock of rights to
receive PennFirst Common Stock or cash in accordance with the Election Form.
If the number of Cash Election Shares times $21.15 is less than the
product of the number of shares of THB Common Stock (other than shares of THB
Common Stock owned by THB (including treasury shares) or PennFirst)
outstanding at the Effective Time times .40 times $21.15 (the "Aggregate Cash
Consideration"), then:
(1) all Cash Election Shares will be converted into the right to
receive cash,
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(2) the Exchange Agent will select first from among the holders of
No-Election Shares and then (if necessary) will allocate among the
holders of Stock Election Shares (by the method of allocation described
below), a sufficient number of Stock Election Shares ("Reallocated Cash
Shares") such that the sum of the number of Cash Election Shares plus
the number of Reallocated Cash Shares times $21.15 equals the Aggregate
Cash Consideration, and all Reallocated Cash Shares will be converted in
the right to receive cash, and
(3) the No-Election Shares and Stock Election Shares which are not
Reallocated Cash Shares will be converted into the right to receive
PennFirst Common Stock.
If the number of Cash Election Shares times $21.15 is greater than the
Aggregate Cash Consideration, then:
(1) all Stock Election Shares and No-Election Shares will be
converted into the right to receive PennFirst Common Stock,
(2) the Exchange Agent will allocate among the holders of Cash
Election Shares (by the method of allocation described below), a
sufficient number of Cash Election Shares ("Reallocated Stock Shares")
such that the number of remaining Cash Election Shares times $21.15
equals the Aggregate Cash Consideration, and all Reallocated Stock
Shares shall be converted into the right to receive PennFirst Common
Stock, and
(3) the Cash Election Shares which are not Reallocated Stock
Shares will be converted into the right to receive cash.
After the completion of the foregoing allocation, each holder of an
outstanding certificate or certificates which prior thereto represented
shares of THB Common Stock who surrenders such certificate or certificates to
the Exchange Agent will, upon acceptance thereof by the Exchange Agent, be
entitled to a certificate or certificates representing the number of full
shares of PennFirst Common stock or the amount of cash into which the
aggregate number of shares of THB Common stock previously represented by such
certificate or certificates surrendered shall have been converted pursuant to
the Merger Agreement and, if such holder's shares of THB Common Stock have
been converted into PennFirst Common Stock, any other distribution
theretofore paid with respect to PennFirst Common Stock issuable in the
Merger, in each case without interest. The Exchange Agent shall accept such
certificates upon compliance with such reasonable terms and conditions as the
Exchange Agent may impose to effect an orderly exchange thereof in accordance
with normal exchange practices. Each outstanding certificate which prior to
the Effective Time represented THB Common Stock and which is not surrendered
to the Exchange Agent in accordance with the procedures provided for in the
Merger Agreement shall, except as otherwise provided in the Merger Agreement,
until duly surrendered to the Exchange Agent
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be deemed to evidence ownership of the number of shares of PennFirst Common
Stock or the right to receive the amount of cash into which such THB Common
Stock shall have been converted. After the Effective Time, there shall be no
further transfer on the records of THB of certificates representing shares of
THB Common Stock and if such certificates are presented to PennFirst for
transfer, they shall be cancelled against delivery of certificates for
PennFirst Common Stock or cash as provided in the Merger Agreement. No
dividends which have been declared will be remitted to any person entitled to
receive shares of PennFirst Common Stock until such person surrenders the
certificate or certificates representing THB Common stock, at which time such
dividends shall be remitted to such person, without interest.
NO FRACTIONAL SHARES OF PENNFIRST COMMON STOCK TO BE ISSUED. No
fractional shares of PennFirst Common Stock shall be issued in the Merger to
holders of shares of THB Common Stock. Each holder of shares of THB Common
Stock who otherwise would have been entitled to a fraction of a share of
PennFirst Common Stock shall receive in lieu thereof, at the time of
surrender of the certificate or certificates representing such holder's
shares of THB Common Stock, an amount of cash (without interest) determined
by multiplying the fractional share interest to which such holder would
otherwise be entitled by $21.15.
TREATMENT OF OUTSTANDING STOCK OPTIONS FOR THB COMMON STOCK. The Merger
Agreement provides that upon consummation of the Merger, each outstanding
option to acquire THB Common Stock ("Option"), other than the PennFirst
Option, whether or not otherwise exercisable or vested, shall become fully
exercisable and vested immediately prior to the Effective Time at which time
each holder of an Option shall receive either (x) an amount in cash in
cancellation of such Option determined by multiplying (i) the excess, if any,
of $21.15 over the applicable exercise price per share of such Option by (ii)
the number of shares of THB Common Stock subject to such Option, or (y) an
option to acquire shares of PennFirst Common stock, on the same terms and
conditions as were applicable under such Option immediately prior to the
Effective Time. The number of shares of PennFirst Common Stock which may be
acquired upon exercise of any such new option shall be equal to the product
of the number of shares of THB Common Stock subject to the original Option
multiplied by the Exchange Ratio, rounded down to the nearest whole number of
shares, and the exercise price of any such new option shall be equal to the
exercise price of the original THB Option divided by the Exchange Ratio,
rounded up to the nearest cent.
CONDITIONS TO THE MERGER
The Merger Agreement provides that consummation of the proposed
transaction is subject to the satisfaction of certain conditions, or the
waiver of such conditions by the party entitled to do so, at or before the
Effective Time. Each of the parties' obligations under the Merger Agreement
is subject to the following conditions, among others: (a) the receipt of all
necessary regulatory or governmental approvals and consents required to
consummate the transactions contemplated by the Merger Agreement without any
term or condition
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which would materially impair the value of THB and its
subsidiaries to PennFirst, the satisfaction of all conditions required to be
satisfied prior to the Effective Time by the terms of such approvals and
consents, and the expiration of all waiting periods with respect thereto; (b)
all corporate action (including stockholder approvals) necessary to authorize
the execution and delivery of the Merger Agreement and consummation of the
transactions contemplated thereby shall have been duly and validly taken; (c)
the absence of any order, judgment or decree that would have the effect of
preventing completion of the Merger and the absence of any pending or
threatened suit, action or other proceeding to restrain or prohibit the
Merger or seeking to obtain substantial monetary or other relief which either
party determines, based upon the advice of counsel, has a significant
potential to result in the deprivation of material benefits of the Merger;
(d) the Registration Statement shall have become effective under the
Securities Act, PennFirst shall have received all permits, authorizations or
exemptions necessary under all state securities laws to issue the PennFirst
Common Stock in connection with the Merger, and neither the Registration
Statement nor any such permit, authorization or exemption shall be subject to
a stop order or threatened stop order by the Commission or any state
securities authority; and (e) PennFirst and THB shall have received an
opinion from Elias, Matz, Tiernan & Herrick L.L.P. to the effect that, among
other things, the Merger will qualify as a "reorganization" under Section
368(a) of the Code and no taxable gain will be recognized by PennFirst or THB
(i) upon the transfer of THB's assets to PennFirst in exchange for PennFirst
Common Stock, cash and the assumption of THB's liabilities or (ii) upon the
distribution of PennFirst Common Stock and cash to THB's stockholders. See
"The Merger - Certain Federal Income Tax Consequences."
In addition to the foregoing conditions, PennFirst's obligations under
the Merger Agreement are conditioned upon, among others: (a) the performance
in all material respects by THB of all obligations to be performed by it and
the accuracy as of September 16, 1996 and as of the Effective Time (as though
made at and as of the Effective Time) of the representations and warranties
of THB set forth in the Merger Agreement, except as to any representation or
warranty which specifically relates to an earlier date and except as
otherwise provided in the Merger Agreement; (b) the receipt of all permits,
consents, waivers, clearances, approvals and authorizations from regulatory
or governmental authorities or third parties which are necessary in
connection with the consummation of the Merger, and none of such permits,
consents, waivers, clearances, approvals and authorizations shall contain any
term or condition which would materially impair the value of THB and its
subsidiaries to PennFirst; (c) the receipt by PennFirst of a letter from KPMG
Peat Marwick LLP to the effect that the Merger will qualify for purchase
accounting treatment; (d) the amount of THB Common Stock held by stockholders
of THB who dissent from the Merger pursuant to the applicable provisions of
the BCL shall not exceed 15% of the THB Common Stock immediately prior to the
Effective Time; (e) the execution by certain stockholders of THB of an
agreement regarding compliance with Rule 145 under the Securities Act; and
(f) the receipt from THB of such certificates of its officers or others and
such other documents to evidence fulfillment of the conditions as PennFirst
may reasonably request.
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In addition to the conditions set forth above as applicable to both
parties, THB's obligations under the Merger Agreement are conditioned upon,
among others: (a) the performance in all material respects by PennFirst of
all obligations to be performed by it and the accuracy as of September 16,
1996 and as of the Effective Time (as though made at and as of the Effective
Time) of the representations and warranties of PennFirst set forth in the
Merger Agreement, except as to any representation or warranty which
specifically relates to an earlier date and except as otherwise provided in
the Merger Agreement; and (b) the receipt from PennFirst of such certificates
of its officers or others and such other documents to evidence fulfillment of
the conditions as THB may reasonably request.
REGULATORY APPROVALS
Consummation of the Merger is subject to, among other things, prior
receipt of all requisite approvals from the OTS and any other regulatory
agency of competent jurisdiction necessary to consummate the Merger and
expiration of all regulatory waiting periods applicable to the Merger.
PennFirst has applied to the OTS pursuant to Section 10(e)(1)(A) of the HOLA
to merge THB with and into PennFirst and to acquire Troy Hill. Other
applications required under state securities laws have been filed with the
appropriate regulatory authorities.
The period for the OTS' review of any proposed acquisition, such as the
acquisition of THB, commences upon receipt by the OTS of an application
deemed sufficient by the OTS. PennFirst's application was deemed sufficient
by the OTS on _______ __, 1997. Once an application is deemed sufficient, the
OTS generally has a 60-day period for review of the application, which may be
extended by the OTS for up to an additional 30 days.
Generally, the OTS will approve an application unless it determines that
the financial and managerial resources and future prospects of the acquiror
and the savings association involved would be detrimental to the savings
association or to the SAIF or the Bank Insurance Fund ("BIF"), or if the
acquiror fails or refuses to furnish information requested by the OTS. The
OTS will also consider the convenience and needs of the community to be
served, and it will examine the impact of the acquisition under the relevant
antitrust laws.
The regulations provide that an acquiror must publish a notification, no
earlier than three calendar days before and no later than three calendar days
after filing an application, in the community in which the home office of the
savings association to be acquired is located. Generally, within 20 calendar
days of the date of filing (or up to 40 calendar days after such date if an
extension is requested in writing within the initial 20-day period), anyone
may file comments in favor of or in protest of the application and may also
submit such information as he or she deems relevant.
There can be no assurance that the necessary regulatory authorities will
approve the Merger, and if the Merger is approved, there can be no assurance
as to the dates of such approvals. There can also be no assurance that any
such approval will not contain a
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condition or requirement which would cause such approval to fail to satisfy
one of the conditions to consummation of the Merger set forth in the Merger
Agreement. There can likewise be no assurance that the Department of Justice
will not challenge the Merger, or if such a challenge is made, as to the
results thereof. In the event the Merger is not consummated on or before
September 30, 1997, the Merger Agreement may be terminated by either
PennFirst or THB.
BUSINESS PENDING THE MERGER
Under the terms of the Merger Agreement, THB has agreed not to take
certain actions, nor permit its subsidiaries to take certain actions, prior
to consummation of the Merger without the prior written consent of PennFirst,
including, among other things, the following: (1) change any provision of
the Articles of Incorporation or other governing instrument or Bylaws of it
or its subsidiaries; (2) change the number of its authorized or issued
capital stock or issue or grant any option, warrant, call, commitment,
subscription, right to purchase or agreement of any character relating to the
authorized or issued capital stock of it or its subsidiaries, except for
issuance of THB Common Stock pursuant to any outstanding Option and in
compliance with the terms of the Option Agreement; (3) declare, set aside,
make or pay any dividend or other distribution other than its regular
quarterly cash dividends not in excess of $.10 per share; (4) grant any
severance or termination pay (other than pursuant to binding contracts
disclosed pursuant to the Merger Agreement) to, or enter into or amend any
employment, consulting or compensation agreement with, any of its directors,
officers or employees, or award any increase in compensation or benefits to
such individuals, except, in the case of employees, such as may be granted in
the ordinary course of business consistent with past practices and policies;
(5) subject to certain exceptions, enter into or modify any employee benefit
plan or any trust agreement related thereto with respect to any of its
directors, officers or employees or make any contributions to its Employee
Stock Ownership Plan or any other defined contribution plan or similar plan
other than in the ordinary course of business consistent with past practice;
(6) sell or dispose of any significant assets or incur any significant
liabilities other than in the ordinary course of business consistent with
past practices and policies, or acquire in any manner whatsoever (other than
to realize upon collateral for a defaulted loan) any business or entity; (7)
make any capital expenditures in excess of $25,000 in the aggregate, other
than pursuant to binding commitments existing on September 16, 1996, other
than expenditures necessary to maintain existing assets in good repair and
other than as disclosed pursuant to the Merger Agreement; (8) file any
applications or make any contract with respect to branching or site location
or relocation, except as disclosed pursuant to the Merger Agreement; (9) make
any material change in its accounting methods or practices, other than
changes required by generally accepted accounting principles, or change any
of its methods of reporting income and deductions for federal income tax
purposes, except as required by changes in laws or regulations; (10) change
its lending, investment, deposit or asset and liability management or other
banking policies in any material respect except as may be required by
applicable law; (11) engage in any transaction with an "affiliated person" or
"affiliate," in each case as defined in the Merger Agreement; (12) enter into
any futures contract, option or other
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agreement or take any other action for purposes of hedging the exposure of
its interest-earning assets and interest-bearing liabilities to changes in
market rates of interest; (13) take any action that would result in any of
the representations and warranties of THB contained in the Merger Agreement
not to be true and correct in any material respect at the Effective Time; or
(14) agree to do any of the foregoing.
Furthermore, each party has agreed to provide the other party and its
representatives with such financial data and other information with respect
to its business and properties as such party shall from time to time
reasonably request. Each party will cause all non-public financial and
business information obtained by it from the other to be treated
confidentially. If the Merger is not consummated, each party will either
return to the other all non-public financial statements, documents and other
materials previously furnished by such party or destroy such information.
ACQUISITION PROPOSALS
Until the Effective Time of the Merger or the earlier termination of the
Merger Agreement, neither THB nor its subsidiaries shall, nor shall THB or
its subsidiaries authorize or permit any of its directors, officers or
employees or any investment banker, financial advisor, attorney, accountant
or other representative of THB or its subsidiaries to, directly or
indirectly, encourage or solicit or hold discussions or negotiations with, or
provide any information to, any person, entity or group (other than
PennFirst) concerning any merger, sale of substantial assets or liabilities
not in the ordinary course of business, sale of shares of capital stock or
similar transactions involving THB or its subsidiaries (an "Acquisition
Transaction"); provided, however, that THB may provide information in
connection with an unsolicited possible Acquisition Transaction if the Board
of Directors of THB, after consulting with counsel, determines in the
exercise of its fiduciary responsibilities that such information should be
furnished. Under the Merger Agreement, THB is required to promptly
communicate to PennFirst the terms of any proposal which it may receive in
respect of any such Acquisition Transaction and to provide PennFirst with
copies of (i) any written legal advice provided to the Board of Directors of
THB, (ii) all such written inquiries or proposals and (iii) an accurate and
complete written synopsis of all such oral inquiries or proposals.
REPRESENTATIONS AND WARRANTIES
The Merger Agreement contains representations and warranties of
PennFirst and THB which are customary in transactions of this type,
including, but not limited to, representations and warranties concerning:
(a) the organization and capitalization of PennFirst and its subsidiaries and
THB and its subsidiaries; (b) the due authorization, execution, delivery and
enforceability of the Merger Agreement; (c) consents or approvals required,
and the lack of conflicts or violations under applicable articles of
incorporation, bylaws, instruments and laws, with respect to the transactions
contemplated by the Merger Agreement; (d) the documents to be filed by
PennFirst and THB with the Commission and
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other regulatory agencies; (e) the conduct of business in the ordinary course
and absence of certain changes; (f) financial statements; (g) compliance with
laws; and (h) the allowance for loan losses and real estate owned.
EFFECTIVE TIME OF THE MERGER; TERMINATION AND AMENDMENT
The Effective Time of the Merger shall be the date specified in the
Articles of Merger to be filed with the Secretary of State of the
Commonwealth of Pennsylvania, unless a later date and time is specified as
the effective time in such Articles of Merger. Such filing will occur only
after the receipt of all requisite regulatory approvals, approval of the
Merger Agreement by the requisite vote of PennFirst's and THB's stockholders
and the satisfaction or waiver of all other conditions to the Merger.
A closing (the "Closing") shall take place immediately prior to the
Effective Time at 10:00 a.m. on the fifth business day following the receipt
of all necessary regulatory or governmental approvals and consents and the
expiration of all statutory waiting periods in respect thereof and the
satisfaction or waiver (to the extent permitted) of all the conditions to
consummation of the Merger, or on such later date as the parties may mutually
agree upon.
The Merger Agreement may be terminated, either before or after approval
by the stockholders of PennFirst and THB, as follows: (a) at any time on or
prior to the Effective Time by the mutual consent of the parties; (b) by
PennFirst or THB (i) if the Effective Time shall not have occurred on or
prior to September 30, 1997 or (ii) if a vote of the stockholders of
PennFirst or THB is taken and either of such stockholders fails to approve
the Merger Agreement, unless in each case the failure of such occurrence
shall be due to the failure of the party seeking to terminate the Merger
Agreement to perform or observe its agreements set forth therein to be
performed or observed by such party at or before the Effective Time; (c) by
PennFirst or THB upon written notice to the other 30 or more days after the
date upon which any application for a regulatory or governmental approval
necessary to consummate the Merger and the other transactions contemplated
thereby shall have been denied or withdrawn at the request or recommendation
of the applicable regulatory agency or governmental authority, unless within
such 30-day period a petition for rehearing or an amended application is
filed or noticed, or 30 or more days after any petition for rehearing or
amended application is denied; (d) by PennFirst in writing if THB has, or by
THB in writing if PennFirst has, breached (i) any covenant or undertaking
contained in the Merger Agreement, or (ii) any representation or warranty
contained therein, which breach would have a material adverse effect on the
business, operations, assets or financial condition of THB and its
subsidiaries or PennFirst and its subsidiaries, as applicable, in each case
taken as a whole, or upon the consummation of the transactions contemplated
thereby, in any case if such breach has not been cured by the earlier of 30
days after the date on which written notice of such breach is given to the
party committing such breach or the Effective Time; provided that either
party may terminate the Merger Agreement on the basis of any such material
breach of any representation or warranty
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contained therein, notwithstanding any qualification therein relating to the
knowledge of the other party; and (e) by PennFirst or THB in writing, if any
of the applications for prior regulatory approval referred to in the Merger
Agreement are denied or are approved contingent upon the satisfaction of any
condition or requirement which, in the reasonable opinion of the Board of
Directors of PennFirst, would materially impair the value of THB and its
subsidiaries to PennFirst, and the time period for appeals and requests for
reconsideration has run.
To the extent permitted under applicable law, at any time prior to the
consummation of the Merger, whether before or after approval thereof by the
stockholders of PennFirst and/or THB, the parties may by written agreement
(a) amend the Merger Agreement, (b) extend the time for the performance of
any of the obligations or other acts of the other parties thereto, (c) waive
any inaccuracies in the representations and warranties contained therein or
in any document delivered pursuant thereto, or (d) waive compliance with any
of the agreements or conditions contained therein. However, after any
approval of the Merger by the stockholders of PennFirst and/or THB, there may
not be, without further approval of such stockholders, any amendment or
waiver of the Merger Agreement which modifies either the amount or the form
of the Merger Consideration to be delivered to the stockholders of THB.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
In considering the recommendation of the THB Board of Directors,
stockholders should be aware that members of THB's management and the THB
Board of Directors have interests in the Merger that are in addition to the
interests of stockholders generally. The THB Board of Directors was aware of
these interests and considered them, among other matters, in approving the
Merger Agreement and the transactions contemplated thereby.
OPERATIONS OF TROY HILL. It is the intention of PennFirst to maintain
Troy Hill as a separate subsidiary of PennFirst for a period of not less than
one year from the Effective Time. During the period that Troy Hill is
maintained as a separate subsidiary of PennFirst, Charlotte A. Zuschlag will
serve as President and Chief Executive Officer of Troy Hill. Ms. Zuschlag
will not receive any additional compensation for serving as President of Troy
Hill. Following such one-year period, PennFirst may, in its sole discretion,
determine to merge or consolidate Troy Hill with ESBB.
BOARDS OF DIRECTORS OF PENNFIRST AND ESBB. Pursuant to the Merger
Agreement and effective as of the Effective Time, the number of directors of
both PennFirst and ESBB shall be increased by one and PennFirst and ESBB
shall each nominate and elect one current director of THB (to be designated
by PennFirst) as a director for a term of not less than three years.
Furthermore, in the event PennFirst determines to merge or consolidate Troy
Hill and ESBB, an additional two of the current directors of Troy Hill shall
be elected to the Board of Directors of ESBB for a term of not less than
three years, and the current Chairman of the Board of Troy Hill will be
appointed to a newly created Troy Hill Advisory
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Board for a period of not less than one year and shall be compensated for his
services in an amount of not less than $1,300 per month.
BOARD OF DIRECTORS OF TROY HILL. Pursuant to the Merger Agreement and
effective as of the Effective Time, the number of directors of Troy Hill
shall be increased by at least one, and the resulting vacancy shall be filled
by the election of the President and Chief Executive Officer of PennFirst,
Charlotte A. Zuschlag. Ms. Zuschlag will receive no additional compensation
for serving as a director of Troy Hill.
EMPLOYMENT OF TROY HILL PERSONNEL. PennFirst has agreed to continue the
employment of all personnel of Troy Hill and its subsidiaries (other than Mr.
Davis who will retire as of the Effective Time) as of the Effective Time,
except in the event of good cause for termination, for a period of not less
than twelve months subsequent to the Effective Time.
TRANSFERRED EMPLOYEES. All employees of Troy Hill or its subsidiaries
immediately prior to the Effective Time who are employed by PennFirst, ESBB
or Troy Hill immediately following the Effective Time ("Transferred
Employees") will be covered by PennFirst's, ESBB's or Troy Hill's employee
benefit plans on substantially the same basis as any employee of PennFirst,
ESBB or Troy Hill in a comparable position. Notwithstanding the foregoing,
PennFirst may determine to continue any of the Troy Hill benefit plans for
Transferred Employees in lieu of offering participation in PennFirst's
benefit plans providing similar benefits (e.g., medical and hospitalization
benefits), to terminate any of the Troy Hill benefit plans, or to merge any
such benefit plans with PennFirst's benefit plans, provided the result is the
provision of the benefits to Transferred Employees that are substantially
similar to the benefits provides to PennFirst's employees generally. Except
as specially provided in the Merger Agreement and as otherwise prohibited by
law, Transferred Employees' service with Troy Hill shall be recognized as
service with PennFirst for purposes of eligibility to participate and
vesting, if applicable (but not for purposes of benefit accrual) under
PennFirst's benefit plans, subject to applicable break-in-service rules.
Upon consummation of the Merger, Ellry N. Davis, the current President
and Chief Executive Officer of THB and Troy Hill, will retire as both an
officer and director of THB and Troy Hill. It is expected that PennFirst
will enter into a two-year agreement ("Consulting Agreement") with Mr. Davis
pursuant to which Mr. Davis will provide certain consulting services to
PennFirst subsequent to the Merger. In return for his services under the
Consulting Agreement, PennFirst has agreed to pay Mr. Davis a fee of $71,000
during the first year and a fee of $48,000 during the second year and to
continue Mr. Davis' medical insurance coverage during the term of the
Consulting Agreement (with the costs of such medical coverage being deducted
from the fees being paid to Mr. Davis).
HEALTH PLANS. PennFirst has agreed that any pre-existing condition,
limitation or exclusion in its medical, long-term disability and life
insurance plans shall not apply to Transferred Employees or their covered
dependents who are covered under a medical or hospitalization indemnity plan
maintained by Troy Hill on the Effective Time and who then
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change coverage to PennFirst's medical or hospitalization indemnity health
plan at the time such Transferred Employees are first given the option to
enroll.
THB ESOP. On or after the Effective Time, the THB employee stock
ownership plan (the "THB ESOP") may, at PennFirst's discretion, be combined
with the PennFirst employee stock ownership plan (the "PennFirst ESOP").
However, prior to any such combination of the THB ESOP and the PennFirst
ESOP, the parties have agreed to take all necessary action in order to amend
the THB ESOP in order to ensure that any such combination does not accelerate
(other than as required by law or regulation) or materially increase the
benefits available to any participant in the THB ESOP. Notwithstanding
anything in the Merger Agreement to the contrary, the parties hereto will
take all necessary action to amend the THB ESOP in order to provide that the
Merger will not accelerate (other than as required by law or regulation) or
materially increase the benefits available to any participant in the THB
ESOP.
Other than as set forth above, no director or executive officer of THB
or PennFirst has any direct or indirect material interest in the Merger,
except in the case of THB insofar as ownership of THB Common Stock and
existing options might be deemed such an interest.
RESALE CONSIDERATIONS WITH RESPECT TO THE PENNFIRST COMMON STOCK
The shares of PennFirst Common Stock that will be issued if the Merger
is consummated have been registered under the Securities Act and listed on
the NASDAQ National Market and will be freely transferable, except for shares
of PennFirst Common Stock received by persons, including directors and
executive officers of THB, who may be deemed to be "affiliates" of THB under
Rule 145 promulgated under the Securities Act. Affiliates may not sell their
shares of PennFirst Common Stock acquired pursuant to the Merger, except
pursuant to an effective registration statement under the Securities Act
covering such shares of PennFirst Common Stock or in compliance with Rule 145
or another applicable exemption from the registration requirements of the
Securities Act. Persons who may be deemed to be affiliates of THB generally
include individuals or entities that control, are controlled by, or are under
common control with, THB and may include certain officers and directors of
THB as well as any stockholders who own more than 10% of the THB Common
Stock.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
Elias, Matz, Tiernan & Herrick L.L.P., Washington, D. C., special
counsel to PennFirst, has rendered an opinion to PennFirst and THB as to the
principal federal income tax consequences expected to result from the Merger.
Such opinion is included as an exhibit to the Registration Statement.
Neither the opinion nor this summary addresses any tax considerations under
foreign, state or local laws, or the tax considerations to certain
stockholders in light of their particular circumstances, including persons
who are not United States citizens, or who are resident aliens, life
insurance companies, dealers in securities, tax
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exempt entities, stockholders who received their shares through the exercise
of employee stock options or through other compensation arrangements, and
stockholders who do not hold their shares as "capital assets" within the
meaning of Section 1221 of the Code.
No rulings have been requested from the Internal Revenue Service ("IRS")
as to the federal income tax consequences of the Merger. Stockholders should
be aware that the opinion of Elias, Matz, Tiernan & Herrick L.L.P. is not
binding on the IRS. Stockholders should also be aware that some of the tax
consequences of the Merger are governed by provisions of the Code as to which
there are no final regulations and little or no judicial or administrative
guidance. The opinion of Elias, Matz, Tiernan & Herrick L.L.P. is based upon
the federal income tax laws as in effect on the date of such opinion and as
those laws are currently interpreted. There can be no assurance that future
legislation, regulations, administrative rulings or court decisions will not
adversely affect the accuracy of the statements contained herein.
The federal income tax consequences discussed below are conditioned
upon, and the opinion of Elias, Matz, Tiernan & Herrick L.L.P. is based upon,
the accuracy as of the date hereof and at, as of and after the Effective Time
of the Merger of certain assumptions, including, but not limited to, the
following (taking into account for purposes hereof all of the events which
are contemplated under the Merger Agreement): (A) that, pursuant to the
Merger, the holders of THB Common Stock receive shares of PennFirst Common
Stock having a value as of the Effective Time of the Merger of not less than
fifty percent (50%) of the value of the THB Common Stock as of the same date;
(B) that following the Merger, PennFirst will continue the historic business
of THB or use a significant portion of THB's historic business assets in a
business; and (C) that a bona fide corporate business purpose exists for the
Merger.
PennFirst and THB believe that all of the foregoing assumptions are
accurate as of the date hereof, and will be accurate at, as of and after the
Effective Time of the Merger. If either PennFirst or THB learns before the
Effective Time of the Merger that such assumptions are false and that its
counsel therefore believes that the Merger is unlikely to be treated as a
tax-free reorganization, then additional stockholder approval will be
obtained before consummation of the Merger.
Elias, Matz, Tiernan & Herrick L.L.P. has rendered an opinion to
PennFirst and THB, based upon the assumptions set forth herein, that the
Merger will have the following federal income tax consequences: (i) no gain
or loss will be recognized by PennFirst or THB as a result of the Merger;
(ii) no gain or loss will be recognized by any stockholder of THB upon the
exchange of that holder's shares of THB Common Stock solely for shares of
PennFirst Common Stock pursuant to the Merger; (iii) stockholders of THB will
recognize gain with respect to the cash portion of the Merger Consideration
(the "Cash Consideration") received, but not in excess of the amount of the
Cash Consideration received; (iv) the basis of the shares of PennFirst Common
Stock received by a stockholder of THB (including any fractional shares) will
be the same as the basis of the shares of THB
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Common Stock surrendered in exchange therefor (a) decreased by the amount of
the Cash Consideration, and (b) increased by (1) the amount, if any, of the
Cash Consideration that was treated as a dividend, and (2) the amount of gain
recognized by that stockholder on the exchange (not including any portion of
such gain that is treated as a dividend); (v) if shares of THB Common Stock
were capital assets in the hands of the THB stockholder immediately prior to
the Merger, the holding period of the shares of PennFirst Common Stock
received by that stockholder in the Merger will include the holding period of
the shares of THB Common Stock surrendered in exchange therefor; (vi) a
stockholder of THB who dissents from the proposed Merger and receives solely
cash in exchange for that stockholder's shares of THB Common Stock will be
treated as having received that cash as a distribution in redemption of those
shares subject to the provisions and limitations of Section 302 of the Code.
If the distribution is eligible for treatment as a distribution in redemption
of that stockholder's shares, that stockholder will have gain to the extent
of the consideration received less that stockholder's adjusted basis in those
shares; and (vii) the receipt by a stockholder of THB of cash in lieu of a
fractional share of PennFirst Common Stock will be treated as if that
fractional share was issued to that holder in the Merger and thereafter
redeemed by PennFirst for cash. That receipt of cash by a stockholder will
be treated as a distribution by PennFirst in full payment in exchange for the
fractional share as provided in Section 302(a) of the Code. If the
distribution is eligible for treatment as a distribution in redemption of a
stockholder's fractional share, that stockholder will have gain to the extent
of the consideration received less that stockholder's allocable adjusted
basis in that fractional share.
If the shares of THB Common Stock exchanged are a capital asset, any
gain recognized will be capital gain to the extent described below. The
capital gain will be long-term if the shares of THB Common Stock have been
held by the applicable stockholder for more than one year. The determination
of whether a stockholder would recognize a capital gain and/or dividend
income is made by reference to the redemption rules of Section 302 of the
Code. Under Section 302, all of the cash representing gain recognized on the
exchange will be taxed as capital gain if the deemed redemption is a
"substantially disproportionate redemption" of stock with respect to a
stockholder or is "not essentially equivalent to a dividend." For this
purpose, the Merger will be viewed as if each stockholder had received only
PennFirst Common Stock in the Merger and as if PennFirst had thereafter
redeemed appropriate portions of the PennFirst Common Stock in exchange for
the cash received by that stockholder. The deemed redemption is a
"substantially disproportionate redemption" if that stockholder's deemed
percentage share of the outstanding PennFirst Common Stock after the Merger
but before the deemed redemption is reduced by more than 20% as a result of
the deemed redemption. The deemed redemption is "not essentially equivalent
to a dividend" if that stockholder experiences a "meaningful reduction" in
his proportionate interest in PennFirst by reason of the deemed redemption.
In general, there are no fixed rules for determining when a meaningful
reduction has occurred.
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In determining whether a stockholder has a "substantially
disproportionate redemption" or experiences a "meaningful reduction" in his
proportionate interest in PennFirst, shares of PennFirst Common Stock which
are considered to be owned by the stockholder pursuant to certain
constructive stock ownership rules set forth in Section 318 of the Code, as
well as shares actually owned, must be taken into account. In general, under
Section 318, a stockholder constructively owns any stock which that
stockholder has an option to acquire, or any stock owned directly or
indirectly by (1) that stockholder's spouse (unless legally separated under
court decree), children, grandchildren or parents; (2) a partnership, trust
or estate in which that stockholder has an interest to the extent of that
stockholder's interest; or (3) a corporation to the extent of that
stockholder's interest, but only if that stockholder actually or
constructively owns 50% or more in value of the corporation's stock. Also, a
stockholder that is a partnership, trust or estate will be considered to own
stock owned by its partners, grantors or beneficiaries, as the case may be,
and a stockholder which is a corporation will be considered to own stock
owned by any of its stockholders who owned 50% or more in value of the
corporation's stock. An S corporation and its stockholders are treated as if
they were a partnership and partners, respectively. In many instances, stock
owned constructively as a result of the attribution rules can be attributed
again to another (for example, stock owned due to family attribution can
further be attributed to a partnership), but in other circumstances, there is
no "double" attribution.
If any of the cash received by a stockholder has the effect of a
dividend, the portion of the gain recognized equal to that stockholder's
share of undistributed corporate earnings and profits is treated as dividend
income and the balance of the gain is capital gain. It is unclear whether it
is the earnings and profits of THB which are considered or some combination
of those of THB and PennFirst. It is possible that the cash distributed
might exceed the applicable earnings and profits. No loss will be
recognized.
Unless an exception is available under applicable law or regulations,
31% of the cash portion of the Merger Consideration payable to a stockholder
will be withheld unless that payee provides a tax identification number
(social security number or employer number) and certifies that such number is
correct on a Form W-9 which will be provided with the letter of transmittal
that will be used to exchange shares of THB Common Stock for the Merger
Consideration.
ACCOUNTING TREATMENT OF THE MERGER
The Merger will be accounted for as a purchase for financial reporting
purposes. Under this method of accounting, PennFirst will record the
acquisition of THB at its cost at the Effective Time of the Merger, which
cost would include the cash paid in the Merger, the fair value of the shares
of PennFirst Common Stock issued in the Merger and all direct acquisition
costs. The acquisition costs will be allocated to the acquired assets and
liabilities of THB based upon their fair values at the Effective Time of the
Merger in accordance with generally accepted accounting principles.
Acquisition costs in excess of the fair values of
47
<PAGE>
the net assets acquired, if any, will be recorded as an intangible asset and
amortized over a period of 15 years for financial accounting purposes. The
reported income of PennFirst will include the operations of THB after the
Effective Time of the Merger. See "Unaudited Pro Forma Condensed Combined
Financial Information."
DISSENTERS' RIGHTS
Any owner of shares of THB Common Stock has the right under Subchapter
15D of the BCL to object to the Merger and demand to be paid in cash the fair
value of such shares upon complying in full with the provisions of Subchapter
15D. THE FOLLOWING DOES NOT PURPORT TO BE A COMPLETE STATEMENT OF THE
PROVISIONS OF SUBCHAPTER 15D OR SECTION 1930 OF THE BCL AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO THOSE PROVISIONS, A COPY OF WHICH IS ATTACHED
HERETO AS APPENDIX D. SUCH PROVISIONS MUST BE STRICTLY COMPLIED WITH OR A
STOCKHOLDER'S DISSENTERS' RIGHTS WILL BE LOST.
If an owner of shares of THB Common Stock wants to exercise the right to
dissent, such owner must satisfy all the following conditions: (a) the owner
must file with THB prior to the vote with respect to the Merger a written
notice of his intention to demand that he be paid the fair value of his
shares of THB Common Stock if the Merger takes place (neither a vote in
person or by proxy against adoption and approval of the Merger Agreement nor
an abstention from voting with respect to, or a failure to vote for adoption
and approval of, the Merger Agreement will constitute such a written
notice.); (b) the owner must not effect any change in the beneficial
ownership of his shares of THB Common Stock from the date of filing such
written notice continuously through the Effective Time of the Merger; and (c)
the owner must not vote in person or by proxy for adoption and approval of
the Merger Agreement. (Neither an abstention from voting with respect to, nor
a failure to vote in person or by proxy against adoption and approval of, the
Merger Agreement will constitute a vote for adoption and approval of the
Merger Agreement.) Unless an owner follows all these steps, he will not
acquire any right to payment of the fair value of his shares and will be
conclusively presumed to have consented to the Merger and will be bound by
its terms. A written notice of an intention to demand payment of fair value
should be sent prior to the THB Special Meeting to Troy Hill Bancorp, Inc.,
1706 Lowrie Street, Pittsburgh, Pennsylvania 15212, Attention: Secretary.
A person who is the beneficial owner, but not the record holder, of
shares of THB Common Stock and who desires to exercise the rights of a
dissenting stockholder may assert those rights with respect to shares held on
that person's behalf. Such a person will be treated as a dissenting
stockholder if he submits to THB a written consent of the record holder of
those shares to such treatment no later than the time dissenters' rights are
asserted with respect to those shares. A beneficial owner may not dissent
with respect to less than all shares of which such person is the owner,
whether or not the shares so owned are registered in such person's name.
48
<PAGE>
A record holder for more than one beneficial owner may assert
dissenters' rights as to less than all of the shares registered in his name
only if that holder dissents with respect to all shares beneficially owned by
a person that are held by him and discloses the name and address of that
person. In that event, the record holder will be treated as if the shares as
to which he has dissented and the other shares held by him were registered in
the names of different persons.
If the Merger Agreement is adopted and approved by the requisite vote of
the stockholders of PennFirst and THB, THB or PennFirst, as the surviving
corporation, will mail a "further notice" to each owner who followed all of
the steps described above (a "Dissenter"). The "further notice" will (i)
state the location where and the date by which a demand for payment must be
sent and certificates formerly representing shares of THB Common Stock
("Certificates") must be deposited in order to obtain payment, which date
will not be less than 30 days after the date of mailing of the "further
notice", (ii) supply a form for demanding payment that includes a request for
certification of the date on which the Dissenter acquired beneficial
ownership of his shares of THB Common Stock, and (iii) include a copy of
Subchapter 15D of the BCL. If a Dissenter fails to timely demand payment or
to timely deposit his Certificates as required by the "further notice," that
person will not have any right to receive payment of the fair value of his
shares.
If the Merger has not been consummated within 60 days after the date
specified in the "further notice" for demanding payment and depositing
Certificates, THB will return any deposited Certificates. At any time
thereafter, THB or PennFirst, as the surviving corporation, may send a new
"further notice" containing the provisions described above to all Dissenters.
Promptly after the Effective Time of the Merger, or upon timely receipt
of demand for payment if the Merger has already occurred, PennFirst will
either (i) pay the amount that PennFirst estimates is the fair value of the
Dissenters' shares to the Dissenters who timely made demand for payment and
timely deposited their Certificates, or (ii) provide written notice to those
Dissenters that no payment will be made. This payment or written notice will
be accompanied by a closing balance sheet and statement of income of THB for
a fiscal year ending not more than 16 months before the date of payment or
notice, the latest available interim financial statements of THB, a statement
of PennFirst's estimate of the fair value of the Dissenters' shares, a notice
of the right of a Dissenter to demand payment or supplemental payment, as the
case may be, and a copy of Subchapter 15D of the BCL. If PennFirst does not
pay its estimate of the fair value of the shares of THB Common Stock of any
Dissenter, it must return his deposited Certificates to him. PennFirst may
make a notation on any returned Certificate that a demand for payment of fair
value with respect to that Certificate has been made. If that Certificate is
transferred, any new Certificate will bear a similar notation, together with
the name of the original dissenting holder or owner thereof. A transferee
will not acquire by transfer any rights other than those that the original
Dissenter had after making demand for payment of fair value.
49
<PAGE>
If a Dissenter believes that PennFirst's estimate of the fair value of
his shares of THB Common Stock is less than their fair value, that Dissenter
should send PennFirst his own estimate of their fair value. A Dissenter's
estimate will constitute a demand for payment of his estimate of the fair
value of his shares of THB Common Stock or for payment of the difference
between the two estimates if PennFirst has paid that Dissenter its estimate.
If a Dissenter does not file with PennFirst his own estimate within 30 days
after the mailing to him of the payment of PennFirst's estimated fair value
or its written notice thereof, that Dissenter will not be entitled to receive
any amount greater than the payment remitted by PennFirst or the amount
stated in that notice.
Within 60 days after the latest of (i) the Effective Time of the Merger,
(ii) timely receipt of any demands for payment of fair value in response to a
"further notice," or (iii) timely receipt of a Dissenter's estimate of the
fair value of his shares of THB Common Stock, if any demand for payment
remains unsettled, PennFirst may file an application for relief in the Court
of Common Pleas of Allegheny County, Pennsylvania (the "County Court"),
requesting that the fair value of the remaining Dissenters' shares be
determined. All Dissenters whose demands for payment of the fair value of
their Dissenters' shares have not been settled will be made parties to such
proceeding. Each Dissenter who is made a party to such proceeding will be
entitled to recover the amount by which the fair value of his Dissenters'
shares exceeds any amount previously paid to that Dissenter by PennFirst for
his shares, plus interest. If PennFirst fails to file an application with
the County Court prior to the expiration of that 60-day period, any Dissenter
who has made a demand for payment of the fair value of his Dissenters'
shares, and has not already settled his claim against PennFirst may file an
application with the County Court in the name of PennFirst within 30 days of
the expiration of that 60-day period. If no such Dissenter files an
application within that 30-day period, all remaining Dissenters will be paid
PennFirst's estimate of the fair value of their Dissenters' shares and will
not be entitled to any additional amounts. In any proceeding before the
County Court, the fair value of the Dissenters' shares to be determined by
the County Court is the fair value of those shares immediately prior to the
Effective Time of the Merger, taking into account all relevant factors, but
excluding any appreciation or depreciation in anticipation of the Merger.
The costs and expenses of any proceeding to determine the fair value of
the remaining Dissenters' shares will be determined by the County Court and
assessed against PennFirst, although all or any part of those costs and
expenses may be apportioned and assessed as the County Court deems
appropriate against any Dissenters who are parties to the proceeding and
whose actions in demanding supplemental payments the County Court finds to be
dilatory, obdurate, arbitrary, vexatious or in bad faith. The fees and
expenses of counsel and experts for the respective parties may be assessed as
the County Court deems appropriate against PennFirst and in favor of any or
all Dissenters if PennFirst failed to comply substantially with the
requirements of Subchapter 15D and may be assessed against PennFirst or any
Dissenter, in favor of any other party, if the County Court finds that the
party against whom the fees and expenses are assessed acted in bad faith or
in a dilatory, obdurate, arbitrary or vexatious manner in respect to the
rights provided by Subchapter 15D.
50
<PAGE>
If the County Court decides that any
Dissenter's counsel provided substantial benefits to other Dissenters, but
that the fees of such counsel should not be assessed against PennFirst, then
the County Court may award that counsel reasonable fees to be paid out of the
amounts awarded to those other Dissenters.
It is a condition to PennFirst's obligation to consummate the Merger
that the number of Dissenters' shares be less than 15% of the THB Common
Stock immediately prior to the Effective Time. See "The Merger - Conditions
to the Merger." PennFirst has reserved the right to waive this condition at
any time.
EXPENSES OF THE MERGER
The Merger Agreement provides that PennFirst and THB shall each bear and
pay all costs and expenses incurred by it in connection with the transactions
contemplated by the Merger Agreement, including, without limitation, legal,
accounting, investment banking and printing expenses, provided, however, that
PennFirst shall bear all costs of printing, mailing and filing, as
applicable, the Registration Statement, this Joint Proxy Statement/Prospectus
and all other registration and filing fees relating to the Merger.
In order to increase the likelihood that the transactions contemplated
by the Merger Agreement will be consummated, the Merger Agreement provides
that in the event that, (x) PennFirst's Board of Directors fails to recommend
to its stockholders the approval of the Merger Agreement and such
stockholders fail to approve the Merger Agreement or (y) PennFirst fails to
duly hold a meeting of its stockholders for the purpose of voting on the
Merger Agreement, then PennFirst will promptly reimburse THB for its
out-of-pocket costs and expenses (documented with reasonable specificity)
incurred by THB in connection with entering into the Merger Agreement and
carrying out any and all acts contemplated thereunder up to a maximum amount
of $150,000 and shall also promptly pay THB a termination fee of $150,000.
OPTION AGREEMENT
In fulfillment of a condition to PennFirst's execution of the Merger
Agreement, PennFirst and THB entered into an Option Agreement, a copy of
which is attached to this Joint Proxy Statement/Prospectus as Appendix B and
is incorporated by reference herein. The following summary is qualified in
its entirety by reference to the full text of the Option Agreement.
Pursuant to the Option Agreement, THB granted to PennFirst an option to
purchase up to an aggregate of 213,000 shares of authorized but unissued THB
Common Stock (representing 19.9% of the outstanding THB Common Stock as of
the date of the Option Agreement) at a price of $15.75 per share upon the
occurrence of certain triggering events, subject to the receipt of any
required approvals of applicable regulatory authorities. The exercise price
of the PennFirst Option and the number of shares subject to the PennFirst
51
<PAGE>
Option are subject to anti-dilution provisions. The Option Agreement is
intended to increase the likelihood that the Merger will be consummated in
accordance with its terms by making it more difficult and more expensive for
a third party to acquire control of THB.
Pursuant to the Option Agreement, the PennFirst Option is exercisable
only upon the occurrence of a Purchase Event (as defined below). A Purchase
Event means any of the following events: (i) THB or any of its subsidiaries
shall have entered into an agreement with any person (other than PennFirst or
any subsidiary thereof) (A) to merge, consolidate or enter into any similar
transaction with such person, (B) for the disposition, by sale, lease,
exchange or otherwise, of all or substantially all of the consolidated assets
or deposits of THB or (C) for the issuance, sale or other disposition of
securities representing 15% or more of the voting power of THB or any of its
subsidiaries; (ii) any person (other than PennFirst or any subsidiary
thereof) shall have acquired beneficial ownership of, or any group of persons
shall have been formed which beneficially owns, 15% or more of the THB Common
Stock (clauses (i) and (ii) above are collectively referred to as an
"Acquisition Transaction"); (iii) any person (other than PennFirst or any
subsidiary thereof) shall have commenced a tender offer or exchange offer to
purchase or otherwise acquire control of 15% or more of the THB Common Stock
(a "Tender Offer" or "Exchange Offer," respectively); (iv) THB's stockholders
shall have failed to approve the Merger Agreement at a meeting called for
such purpose or such meeting shall not have been held or shall have been
cancelled prior to the termination of the Merger Agreement in accordance with
its terms or THB's Board of Directors shall have withdrawn, or modified in a
manner which is adverse to PennFirst, the recommendation of THB's Board of
Directors with respect to the Merger Agreement after it shall have been
publicly announced that any person (other than PennFirst or any subsidiary
thereof) shall have (A) commenced a Tender Offer or filed a registration
statement under the Securities Act with respect to an Exchange Offer, (B)
made, or disclosed an intention to make, a proposal to engage in an
Acquisition Transaction, (C) filed an application (or given notice), whether
in draft or final form, under the Bank Holding Company Act of 1956, the HOLA,
the Bank Merger Act or the Change in Bank Control Act of 1978, for approval
to engage in an Acquisition Transaction or (D) any person shall have
solicited proxies in a proxy solicitation subject to Regulation 14A under the
Exchange Act in opposition to approval of the Merger Agreement by THB's
stockholders.
The Option Agreement further provides that, if requested by PennFirst,
THB shall promptly prepare and file a registration statement with the
Commission, covering the number of shares of THB Common Stock purchased by
PennFirst pursuant to the Option Agreement as PennFirst shall specify in
order to permit the public sale or other disposition of such shares. THB
will use its best efforts to cause such registration statement to remain
effective for a period of at least 180 days. PennFirst will have the right
to request two such registration statements.
The Option Agreement terminates in accordance with its terms on the date
on which occurs the earliest of: (i) immediately prior to the Effective Time,
(ii) 12 months after the
52
<PAGE>
first occurrence of a Purchase Event, (iii) 12 months after the termination of
the Merger Agreement by PennFirst pursuant to Section 6.01(d) thereof prior to
the occurrence of a Purchase Event, and (iv) a termination of the Merger
Agreement in accordance with its terms (other than by PennFirst pursuant to
Section 6.01(d) thereof) prior to the occurrence of a Purchase Event.
STOCKHOLDERS AGREEMENT
In conjunction with the Merger Agreement and the Option Agreement,
PennFirst has also entered into a Stockholders Agreement with each of the
directors and certain officers of THB and Troy Hill. Pursuant to such
Stockholders Agreement, the directors and certain officers of THB have
agreed, among other things, not to sell, pledge, transfer or otherwise
dispose of his or her shares of THB Common Stock prior to the final voting
record date established in connection with the THB Special Meeting and to
vote such shares of THB Common Stock in favor of the Merger Agreement, and
against any plan or proposal pursuant to which THB is to be acquired by or
merged with, or pursuant to which THB or Troy Hill proposes to sell all or
substantially all of its assets and liabilities to, any person, entity or
group (other than PennFirst or any affiliate thereof).
UNAUDITED PRO FORMA CONDENSED COMBINED
FINANCIAL INFORMATION
The unaudited pro forma condensed combined financial information set
forth below should be read in conjunction with the historical consolidated
financial statements, including the notes thereto, of PennFirst that are
incorporated by reference in this Joint Proxy Statement/Prospectus (see
"Incorporation of Certain Documents by Reference" and "PennFirst Selected
Consolidated Financial Information") and the historical consolidated
financial statements of THB, including the notes thereto, of THB included
elsewhere herein (see "Index to THB Consolidated Financial Statements" and
"THB Selected Consolidated Financial Information"). The unaudited pro forma
condensed combined financial information set forth below gives effect to the
Merger under the purchase accounting method. The pro forma condensed
combined balance sheet treats the Merger as if it had been consummated on
September 30, 1996, and the pro forma condensed combined statements of income
treat the Merger as if it has been consummated at the beginning of the
respective periods. The pro forma combined per share data gives effect to
the assumed issuance of 985,687 shares of PennFirst Common Stock, which
assumes that the Per Share Stock Consideration consists of 0.923 shares of
PennFirst Common Stock and that none of the outstanding stock options to
purchase THB Common Stock are exercised.
This pro forma financial information is presented for illustrative
purposes only and is not necessarily indicative of the operating results or
financial position that would have occurred if the Merger had been
consummated at the dates assumed for purposes hereof, nor is it necessarily
indicative of future operating results or financial position.
53
<PAGE>
<TABLE>
<CAPTION>
Pro Forma Condensed Combined Balance Sheet
As of September 30, 1996
--------------------------------------------------
Pro Forma Pro Forma
PennFirst THB Adjustments Combined
--------- ------- ------------- ---------
(In Thousands)
<S> <C> <C> <C> <C>
Assets:
Cash on hand and due from banks $ 1,451 $ 3,057 $ -- $ 4,508
Interest-earning deposits in other
institutions 4,339 -- (967)(A) 3,372
Federal funds sold 458 -- -- 458
Investment securities held to maturity,
at cost 18,083 -- -- 18,083
Investment securities available for sale,
at market 99,701 6,591 -- 106,292
Mortgage-backed securities held to
maturity, at cost 81,104 -- -- 81,104
Mortgage-backed securities available
for sale, at market 252,944 2,412 -- 255,356
Loans receivable, net 211,996 83,882 201(B) 296,079
Federal Home Loan Bank stock 15,278 1,348 -- 16,626
Other assets 15,440 2,180 4,830(C) 22,479
29(D)
-------- ------- ------ --------
Total assets $700,794 $99,470 $4,093 $804,357
======== ======= ====== ========
Liabilities:
Deposits $325,839 $52,655 $ 265(E) $378,759
Borrowed funds 317,242 27,692 20(E) 353,954
9,000(A)(F)
Other liabilities 8,764 1,110 -- 9,874
-------- ------- ------ --------
Total liabilities 651,845 81,457 9,285 742,587
-------- ------- ------ --------
Stockholders' Equity:
Common stock, par value 44 11 (1)(G) 54
Additional paid-in capital 26,052 10,624 2,919(H) 39,595
Retained income 31,333 9,348 (9,348)(I) 31,333
Unrealized gain (loss) on securities
available for sale, net (1,443) (72) 72(I) (1,443)
Treasury stock, at cost (5,854) (703) 703(I) (5,854)
ESOP debt (1,183) (732) -- (1,915)
Unvested shares held by Management
Recognition Plan -- (463) 463(I) --
-------- ------- ------ --------
Total stockholders' equity 48,949 18,013 (5,192) 61,770
-------- ------- ------ --------
Total liabilities and stockholders'
equity $700,794 $ 99,470 $ 4,093 $804,357
======== ======= ====== ========
</TABLE>
54
<PAGE>
PENNFIRST BANCORP, INC.
Notes to Pro Forma Consolidated Balance Sheet
(Unaudited)
As of September 30, 1996
(A) PennFirst intends to utilize $966,649 of interest-earning deposits in
other institutions as a partial source of funds for the cash portion of
the Merger Consideration. The total cash component of the acquisition
price is calculated below:
<TABLE>
<S> <C> <C>
Shares of THB Common Stock outstanding
at September 30, 1996 1,067,917
Cash payment per share x $8.46
---------
Cash portion of the Merger Consideration $9,034,578
Cash to be paid to holders of the 73,061
Options to purchase THB Common Stock 732,071
Estimated acquisition costs 200,000
---------
Total estimated cash payment by PennFirst $9,966,649
=========
</TABLE>
The funds for the cash portion of the acquisition price were assumed to
come from the following sources:
<TABLE>
<S> <C>
Redemption of cash from interest-earning
deposits in other institutions $ 966,649
The issuance of short-term debt 9,000,000
---------
$9,966,649
=========
</TABLE>
The remaining acquisition price will be in the form of PennFirst Common
Stock as shown below:
<TABLE>
<S> <C> <C>
Shares of THB Common Stock outstanding
at September 30, 1996 1,067,917
Exchange ratio x 0.923
---------
Total shares of PennFirst Common Stock
to be issued 985,687
=========
</TABLE>
Fractional shares are not determinable at this point. Cash will be paid
in lieu of fractional shares at a rate of $21.15 per full share.
(B) The adjustment to loans receivable, net reflects the write-up of THB's
portfolio to its estimated market value by discounting the portfolio
using the estimated remaining lives of the various types of loans and
estimated current interest rates.
55
<PAGE>
(C) This adjustment reflects the allocation of goodwill as a result of net
mark to market adjustments. The calculation of this adjustment is shown
below:
<TABLE>
<S> <C> <C>
Total shares of PennFirst Common Stock issued
pursuant to Note A 985,687
Market price of PennFirst Common Stock used
for exchange x $13.75
----------
Market value of shares exchanged $13,553,196
Total estimated cash payment by PennFirst
pursuant to Note A 9,966,649
Less THB's September 30, 1996 capital
without ESOP debt (18,745,000)
Plus mark to market adjustments(1) 55,000
----------
$ 4,829,845
===========
</TABLE>
(1) Represents the summation of notes B, D and E.
(D) The $29,000 adjustment of other assets reflects the incurrence of a
deferred tax asset pursuant to Notes B and E.
(E) The adjustments to deposits and borrowed funds reflect the adjustments
of such liabilities to their estimated market value by discounting such
liabilities using the estimated remaining lives of the various types of
deposits and advances and estimated current interest rates.
(F) The $9,000,000 adjustment to borrowings reflects the incurrence of
short-term debt by PennFirst to partially finance the cash portion of
the acquisition price. Under the terms of the debt commitment, the debt
will (i) be secured by mortgage-backed securities, (ii) have a 90-day
term, (iii) bear a market rate of interest for secured 90-day repo
advances, and (iv) be payable at the end of the 90-day term for
principal and interest in total.
(G) Represents the elimination of THB's Common Stock and the issuance of
985,687 shares of PennFirst Common Stock at a par value of $.01 per
share pursuant to Note A.
(H) Represents the elimination of THB's Additional Paid-in Capital and the
issuance of 985,687 shares of PennFirst Common stock at the current
market value of $13.75 per share on September 30, 1996 pursuant to Note
C, less the par value per share pursuant to Note G.
(I) Represents the elimination of THB's retained earnings, treasury stock,
unrealized loss on securities available for sale and the shares held by
the recognition and retention plan.
56
<PAGE>
<TABLE>
<CAPTION>
Pro Forma Condensed Combined Income Statement for
Nine Months Ended September 30, 1996
-------------------------------------------------
Pro Forma Pro Forma
PennFirst THB Adjustments Combined
--------- ------- ------------- ---------
(In Thousands, except shares and per share data)
<S> <C> <C> <C> <C>
Interest income:
Loans $11,894 $4,500 $ (59)(A) $16,335
Mortgage-backed securities 17,258 300 (3)(B) 17,555
Investments 4,951 446 (38)(C) 5,378
19(D)
FHLB stock 663 -- -- 663
------ ----- ---- ------
Total interest income 34,766 5,246 (81) 39,931
------ ----- ---- ------
Interest expense:
Savings deposits and escrow 10,863 1,844 (63)(E) 12,644
Borrowed funds 13,377 642 (1)(F) 14,386
368(G)
------ ----- ---- ------
Total interest expense 24,240 2,486 304 27,030
Net interest income 10,526 2,760 (385) 12,901
Provision for possible losses
on loans 681 90 -- 771
Net interest income after
provision for possible losses
on loans 9,845 2,670 (385) 12,130
Non-interest income 639 180 -- 819
Non-interest expense 8,306 1,828 241(H) 10,375
Income before income taxes 2,178 1,022 (626) 2,574
Income taxes 364 404 (158)(I) 610
Net income $ 1,814 $ 618 $ (468) $ 1,964
----- ----- ---- ------
Net income per share(J):
Primary $0.46 $0.62 $ -- $0.40
Fully diluted $0.46 $0.61 $ -- $0.40
Weighted average shares and
share equivalents outstanding:
Primary 3,972,151 1,001,342 -- 4,852,858
Fully diluted 3,976,026 1,019,839 -- 4,856,733
</TABLE>
57
<PAGE>
<TABLE>
<CAPTION>
Pro Forma Condensed Combined Income Statement For
Year Ended December 31, 1995
--------------------------------------------------
Pro Forma Pro Forma
PennFirst THB Adjustments Combined
---------- ------- ------------- ---------
(In Thousands, except shares and per share data)
<S> <C> <C> <C> <C>
Interest income:
Loans $15,156 $4,669 $(98)(A) $19,727
Mortgage-backed securities 25,204 500 (6)(B) 25,698
Investments 3,005 656 (56)(C) 3,635
30(D)
FHLB stock 818 86 -- 904
Total interest income 44,183 5,911 (130) 49,964
Interest expense:
Savings deposits and escrow 14,721 2,344 (173)(E) 16,892
Borrowed funds 15,498 432 (3)(F) 16,465
538(G)
------ ----- ---- ------
Total interest expense 30,219 2,776 362 33,357
------ ----- ---- ------
Net interest income 13,964 3,135 (492) 16,607
Provision for possible losses
on loans 13 70 -- 83
------- ----- ----- ------
Net interest income after
provision for possible losses
on loans 13,951 3,065 (492) 16,524
Non-interest income 946 190 -- 1,136
Non-interest expense 8,962 1,602 322(H) 10,886
Income before income taxes 5,935 1,653 (814) 6,774
Income taxes 1,967 633 (202)(I) 2,398
------ ----- ----- ------
Net income $ 3,968 $1,020 $(612) $ 4,376
------ ----- ----- ------
Net income per share(J):
Primary $0.94 $1.05 $ -- $ 0.86
Fully diluted $0.94 $1.04 $ -- $ 0.86
Weighted average shares and
share equivalents outstanding:
Primary 4,228,245 971,550 -- 5,108,952
Fully diluted 4,233,307 976,157 -- 5,114,014
</TABLE>
58
<PAGE>
PENNFIRST BANCORP, INC.
Notes to Pro Forma Condensed Combined Statements of Income
(Unaudited)
(A) Represents the current period amortization of the adjustment
to fair value of the loans receivable of THB on the level
yield method over an estimated life of approximately 15
years.
(B) Represents the current period amortization of the Financial
Accounting Standards Board ("FASB") No. 115 adjustment to
fair value of the mortgage-backed securities of THB on the
level yield method over an estimated life of approximately
five years.
(C) Represents the loss of earnings on the $966,649 of cash and
interest-earning deposits used to partially fund the cash
portion of the acquisition price, at an average rate of
5.75% for 1995 and 5.22% for the nine months ended September
30, 1996.
(D) Represents the current period accretion of the FASB No. 115
adjustment to fair value of the investment securities of THB
on the level yield method over an estimated life of ten
years.
(E) Represents the current period accretion of the adjustment to
fair value of the savings deposits of THB on the level yield
method over an estimated life of approximately five years.
(F) Represents the current period accretion of the adjustment to
fair value of the advances from the FHLB of Pittsburgh on
the level yield method.
(G) Represents the current period interest expense on the
short-term debt to be incurred in connection with the
Merger, at an average rate of 5.98% for 1995 and 5.44% for
the nine months ended September 30, 1996. An average
balance of $9,000,000 was assumed to be outstanding for both
periods.
(H) Represents the current period write-off of the amortization
expense on intangible assets as recorded in the financial
statements.
(I) Represents the reduction in current period income tax
expense with respect to the adjustments described in the
above Notes, excluding Note H.
(J) Earnings per share are based upon the combined historical
income of PennFirst and THB, including the effects of the
pro forma purchase accounting adjustments. For purposes of
calculating pro forma earnings per share, the 985,687 shares
of PennFirst Common Stock to be issued to THB's stockholders
were assumed to be issued as of the beginning of each of the
periods presented. Also, for calculating pro forma earnings
per share, THB's ESOP had approximately 104,980 unallocated
shares of stock that were excluded from the calculation.
<PAGE>
OWNERSHIP OF THB COMMON STOCK
BY CERTAIN BENEFICIAL OWNERS AND MANAGEMENT OF THB
The following table includes, as of the THB Record Date, certain
information as to the THB Common Stock beneficially owned by (i) the only
persons or entities, including any "group" as that term is used in Section
13(d)(3) of the 1934 Act, who or which were known to THB to be the beneficial
owner of more than 5% of the issued and outstanding THB Common Stock, (ii)
the directors of THB, (iii) certain executive officers of THB and Troy Hill,
and (iv) all directors and executive officers of THB and Troy Hill as a group.
<TABLE>
<CAPTION>
THB Common Stock
Beneficially
Owned as of
Name of Beneficial Owner _________ __, 199_(1)
- ------------------------ -------------------------
No. %
-------------- -----
<S> <C> <C>
Troy Hill Bancorp, Inc. 89,930(2) 8.4%
Employee Stock Ownership Trust
1706 Lowrie Street
Pittsburgh, Pennsylvania 15212
Wellington Management Company 111,300(3) 10.4%
75 State Street
Boston, Massachusetts 02109
PennFirst Bancorp, Inc.
600 Lawrence Avenue
Ellwood City, Pennsylvania 16117 213,000(4) 19.9%
Directors:
Harry B. Thaner 13,992(5) 1.3%
Raymond K. Aiken 24,612(2)(6) 2.3%
Ellry N. Davis 35,244(2)(7) 3.3%
Joseph W. Snyder 19,212(2)(8) 1.8%
Edwin A. Thaner 21,992(9) 2.0%
Executive officers who are not
Directors:
Lawrence C. Kerr 10,491(10) *
Nancy H. Kufner 3,028(11) *
Marilyn L. Scripko 9,203(12) *
All directors and executive officers of THB
and Troy Hill as a group (eight persons) 137,774(2)(13) 12.4%
</TABLE>
60
<PAGE>
_______________
* Represents less than 1% of the outstanding THB Common
Stock.
(1) For purposes of this table, pursuant to rules promulgated under the
Exchange Act, an individual is considered to beneficially own shares of
THB Common Stock if he or she directly or indirectly has or shares (1)
voting power, which includes the power to vote or to direct the voting
of the shares; or (2) investment power, which includes the power to
dispose or direct the disposition of the shares. Unless otherwise
indicated, a director has sole voting power and sole investment power
with respect to the indicated shares.
(2) The Troy Hill Bancorp, Inc. Employee Stock Ownership Trust
("Trust") was established pursuant to the THB ESOP by an agreement
between THB and Ellry N. Davis, Joseph W. Snyder and Raymond K. Aiken,
who act as trustees of the plan ("Trustees"). As of the THB Record
Date, 20,428 shares held in the Trust had been allocated to the accounts
of participating employees. Under the terms of the THB ESOP, the
Trustees must vote all allocated shares held in the THB ESOP in
accordance with the instructions of the participating employees, and
allocated shares for which employees do not give instructions and
unallocated shares will be voted in the same ratio on any matter as to
those shares for which instructions are given. The amount of THB Common
Stock beneficially owned by each individual trustee or all directors and
executive officers as a group does not include the shares held by the
Trust.
(3) Consists of shares with respect to which Wellington Management
Company ("WMC") shares dispositive power and which are owned by numerous
investment counselling clients and, consequently, may be deemed to be
beneficially owned by WMC.
(4) In connection with the execution of the Merger Agreement, THB
granted PennFirst an option to purchase up to 213,000 shares of THB
Common Stock upon the occurrence of certain events, none of which has
occurred as of the date hereof. See "The Merger -Option Agreement."
Because the PennFirst Option is not currently exercisable, PennFirst has
disclaimed beneficial ownership of the shares subject to such option.
The shares subject to the Option Agreement represent 19.9% of the THB
Common Stock outstanding as of the THB Record Date (after giving effect
to the exercise of the PennFirst Option described above).
(5) Includes 4,496 shares which are subject to stock options and are
exercisable within 60 days and 2,698 shares which were awarded to Mr.
Thaner pursuant to THB's Recognition and Retention Plan and Trust
("RRP") and which had not vested as of the THB Record Date. Does not
include 26,382 shares beneficially owned by Edwin A. Thaner, Mr.
Thaner's son.
(6) Includes 3,000 shares held by Mr. Aiken's wife, which shares may be
deemed to be beneficially owned by Mr. Aiken. Also includes 9,366
shares which are subject to stock options and are exercisable within 60
days and 2,322 shares which were awarded to Mr. Aiken pursuant to THB's
RRP and which had not vested as of the THB Record Date.
61
<PAGE>
(7) Includes 4,172 shares held by Mr. Davis' wife, and 2,919 shares
held jointly with Mr. Davis' wife, which shares may be deemed to be
beneficially owned by Mr. Davis. Also includes, 8,993 shares which are
subject to stock options and are exercisable within 60 days, 6,070
shares which were awarded to Mr. Davis pursuant to THB's RRP and which
had not vested as of the THB Record Date, and 5,134 shares which are
held by THB's ESOP for the account of Mr. Davis.
(8) Includes 2,500 shares held by Mr. Snyder's wife, which shares may
be deemed to be beneficially owned by Mr. Snyder. Also includes 9,366
shares which are subject to stock options and are exercisable within 60
days and 2,322 shares which were awarded to Mr. Snyder pursuant to THB's
RRP and which had not vested as of the THB Record Date.
(9) Includes 4,335 shares held by Mr. Thaner's wife, which shares may
be deemed to be beneficially owned by Mr. Thaner. Also includes 9,366
shares which are subject to stock options and are exercisable within 60
days and 2,322 shares which were awarded to Mr. Thaner pursuant to THB's
RRP and which had not vested as of the THB Record Date. Does not
include 13,992 shares beneficially owned by Harry B. Thaner, Mr.
Thaner's father.
(10) Includes 780 shares which are owned jointly by Mr. Kerr and his
wife. Also includes 2,248 shares which are subject to stock options and
are exercisable within 60 days, 2,192 shares which were awarded to Mr.
Kerr pursuant to THB's RRP and which had not vested as of the THB Record
Date, and 3,186 shares which are held by THB's ESOP for the account of
Mr. Kerr.
(11) Includes 450 shares which are subject to stock options and are
exercisable within 60 days, 674 shares which were awarded to Ms. Kufner
pursuant to THB's RRP and which had not vested as of the THB Record
Date, and 1,454 shares which are held by THB's ESOP for the account of
Ms. Kufner.
(12) Includes 1,798 shares which are subject to stock options and are
exercisable within 60 days, 1,855 shares which were awarded to Ms.
Scripko pursuant to THB's RRP and which has not vested as of the THB
Record Date and 2,714 shares which are held by THB's ESOP for the
account of Ms. Scripko.
(13) Includes in the case of all directors and officers of THB and Troy
Hill as a group, options to purchase 46,083 shares pursuant to THB's
1994 Stock Option Plan which are exercisable within 60 days. Also
includes, in the case of all directors and officers of THB and Troy Hill
as a group, 20,455 shares which were awarded to certain directors and
officers of THB and Troy Hill pursuant to THB's RRP and which had not
vested as of the THB Record Date and 12,488 shares which are held in
trust established pursuant to THB's ESOP, which have been allocated to
the accounts of participating officers and consequently will be voted at
the THB Meeting by such participating officers.
62
<PAGE>
THB MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
The operating results of THB depend primarily upon its net interest
income, which is determined by the difference between interest and dividend
income on interest-earning assets, principally loans, mortgage-backed
securities and investment securities, and interest expense on
interest-bearing liabilities, which principally consist of deposits and
borrowings. THB's net income also is affected by its provision for loan
losses, as well as the level of its noninterest income, including loan
service charges, gain on sale of loans, and other income, and its noninterest
expenses, such as salaries and employee benefits, occupancy expense, federal
deposit insurance and miscellaneous other expenses, and income taxes.
In general, financial institutions are vulnerable to an increase in
interest rates to the extent that interest-bearing liabilities mature or
reprice more rapidly than interest-earning assets. The lending activities of
financial institutions, including Troy Hill, have historically emphasized the
origination of long-term, fixed-rate loans secured by single-family
residences, and the primary source of funds of such institutions has been
deposits, which largely mature or are subject to repricing within a short
period of time. This factor has historically caused the income earned by Troy
Hill on its loan portfolio to adjust more slowly to changes in interest rates
than its cost of funds. While having liabilities that reprice more frequently
than assets is generally beneficial to net interest income in times of
declining interest rates, such an asset/liability mismatch is generally
detrimental during periods of rising interest rates. To reduce the effect of
adverse changes in interest rates on its operations, THB has implemented the
asset and liability management policies described below.
ASSET AND LIABILITY MANAGEMENT
THB maintains a program designed to monitor its exposure to material and
prolonged increases in interest rates. The principal determinant of the
exposure of THB's earnings to interest rate risk is the timing difference
between the repricing or maturity of THB's interest-earning assets and the
repricing or maturity of its interest-bearing liabilities. As described
below, THB's asset and liability management policies have increased THB's
interest rate sensitivity primarily by shortening the maturities of THB's
interest-earning assets. To the extent possible, THB also attempts to extend
the maturities of its interest-bearing liabilities. THB's Board of Directors
establishes and monitors THB's asset and liability management policies.
THB has adopted a strategy designed to improve the interest rate
sensitivity of its assets relative to its liabilities. The primary elements
of this strategy include: (i) maintaining a high level of liquid assets that
can be reinvested in higher yielding investments should interest rates rise;
(ii) emphasizing investment in (A) shorter-term (15 years or less),
fixed-rate single-family residential loans and (B) residential construction
and commercial real estate loans, which generally have adjustable interest
rates and/or shorter maturities than traditional single-family residential
loans;
63
<PAGE>
(iii) to the extent market conditions permit, increasing the origination of
adjustable-rate single-family residential loans ("ARMs"); (iv) maintaining
the weighted average maturity of THB's investment portfolio at five years or
less; and (v) selling newly originated loans with maturities of greater than
fifteen years.
As of September 30, 1996, the implementation of these asset and liability
initiatives resulted in the following: (i) $18.6 million or 22.2% of THB's
total loan portfolio had adjustable interest rates or maturities of less than
12 months; (ii) $1.2 million or 48.6% of THB's portfolio of mortgage-backed
securities were secured by ARMs; and (iii) $5.1 million or 81.0% of THB's
investment securities portfolio had scheduled maturities of five years or
less.
CHANGES IN FINANCIAL CONDITION
GENERAL. At September 30, 1996, THB's total assets amounted to $99.5
million, compared to $92.2 million at June 30, 1996 and $75.1 million at June
30, 1995. Total assets increased by $7.3 million or 7.9% from June 30, 1996
to September 30, 1996 and by $17.1 million or 22.8% from June 30, 1995 to
June 30, 1996. The increases were primarily due to increases of loans
receivable which was primarily due to increased relationships with real
estate brokers. These increases were partially offset by decreases in
investment and mortgage-backed securities (including securities available for
sale) which was the result of THB selling a portion of its investments to
fund the increase in loans.
INVESTMENTS IN DEBT AND EQUITY SECURITIES. In May 1993, the Financial
Accounting Standards Board ("FASB") released SFAS No. 115, "Accounting for
Certain Investments in Debt and Equity Securities." SFAS No. 115 addresses
the accounting and reporting for investments in equity securities that have
readily determinable fair values and all investments in debt securities.
Investments are to be classified into the following three categories: 1) Debt
Securities that THB has the positive intent and ability to hold to maturity
are classified as held to maturity securities and reported at amortized cost;
2) Debt and Equity Securities that are bought and held principally for the
purpose of resale in the near future are classified as trading securities and
reported at fair value, with unrealized gains and losses included in current
period earnings; 3) Debt and Equity Securities not classified as either held
to maturity securities or trading securities are classed as available for
sale securities and reported at fair value, with unrealized gains and losses
excluded from earnings and reported as a separate component of stockholders'
equity, net of deferred taxes. THB adopted SFAS No. 115 as of July 1, 1994.
In November 1995, the FASB issued "A Guide to Implementation of Statement
115 on Accounting for Certain Investments in Debt and Equity Securities,
Questions and Answers." This guide permitted a one-time reassessment of the
appropriateness of the classifications of securities as available for sale or
held for investment. In December 1995, THB transferred approximately $6.9
million of investment securities with a market value of $6.8 million from the
held to maturity category to the securities available for sale category.
Concurrent with this redesignation, all but approximately $1.7 million of the
securities transferred were sold at a realized loss of $5,000.
64
<PAGE>
As a matter of policy, THB generally emphasizes lending activities in
order to enhance the weighted average yield on its interest-earning assets
and, thus, its results of operations. Investment securities (excluding
securities available for sale), which consist of U.S. Government and agency
obligations and corporate obligations, decreased by $7.3 million or 100.0%
during the year ended June 30, 1996, due primarily to the one-time transfer
of securities referred to in the preceding paragraph. At September 30, 1996,
all of THB's investment securities were classified as available for sale.
Approximately $751,000 of equity securities were purchased by THB during
the fiscal year ended June 30, 1996 due to the tax benefits and higher yields
associated with these securities. The portfolio of equity securities
primarily consist of cumulative preferred equity stocks and are classified as
available for sale. No securities were purchase by THB during the three
months ended September 30, 1996.
MORTGAGE-BACKED SECURITIES. Mortgage-backed securities, which consist
primarily of securities which are insured or guaranteed by the Federal Home
Loan Mortgage Corporation ("FHLMC"), the Federal National Mortgage
Association ("FNMA") or the Government National Mortgage Association
("GNMA"), were all classified as available for sale at September 30, and June
30, 1996. Such securities decreased by $2.7 million or 53.2% during the three
months ended September 30, 1996 due primarily to the sale of $2.5 million of
such securities, and by $1.9 million or 28.7% during the year ended June 30,
1996. The decreases reflected principal repayments and the selling of
mortgage-backed securities to finance the increase in loan volume.
LOANS RECEIVABLE. Loans receivable (including loans classified as held
for sale) amounted to $83.9 million at September 30, 1996 and $74.6 million
and $53.5 million at June 30, 1996 and 1995, respectively. Loans receivable
(including loans classified as held for sale) increased by $9.3 million or
12.5% during the three months ended September 30, 1996 and by $21.1 million
or 39.5% during the year ended June 30, 1996. The increases were due to
generally lower interest rates which produced a higher market demand.
ALLOWANCE FOR LOAN LOSSES. At September 30, 1996, THB's allowance for
loan losses totaled $687,000, which represented a $27,000 increase from the
level maintained at June 30, 1996 and a $20,000 increase from the level
maintained at June 30, 1995. At September 30, 1996, THB's allowance
represented approximately .76% of the gross loan portfolio and 76.5% of total
nonperforming loans. At that date, the ratio of total non-performing loans
to total loans amounted to 0.99%, as compared to 1.22% at June 30, 1996 and
3.39% at June 30, 1995. Although management of THB believes that its
allowance for loan losses at September 30, 1996 was adequate based on facts
and circumstances available to it, there can be no assurances that future
additions to such allowance will not be necessary in future periods, which
could adversely affect THB's results of operations.
65
<PAGE>
DEPOSITS. Deposits totaled $52.7 million at September 30, 1996, compared
to $54.0 million at June 30, 1996 and $50.6 million at June 30, 1995. Deposit
accounts subject to daily repricing (passbook, money market deposit and NOW
accounts) amounted to $18.1 million at September 30, 1996, compared to $18.8
million and $18.9 million at June 30, 1996 and 1995, respectively. During
the three months ended September 30, 1996, certificates of deposit decreased
by $536,000 or 1.5%, compared to an increase in certificates of deposit of
$3.4 million or 10.6% in fiscal 1996 compared to fiscal 1995. This increase
is primarily due to the opening of an additional full-service branch office
during fiscal 1995. Troy Hill has generally not engaged in sporadic increases
or decreases in interest rates paid or offered the highest rates available in
its deposit market except upon specific occasions when market conditions have
created opportunities to attract longer-term deposits.
BORROWINGS. Borrowings, which consist primarily of advances from the FHLB
of Pittsburgh, amounted to $27.0 million at September 30, 1996 and $18.6
million and $5.8 million at June 30, 1996 and 1995, respectively. The
weighted average rate on FHLB advances was 5.40% during the three months
ended September 30, 1996 and 6.06% and 5.40% during the years ended June 30,
1996 and 1995, respectively. The increase in borrowings were primarily
utilized to fund loan demand.
STOCKHOLDERS' EQUITY. Stockholders' equity increased from $17.2 million
at June 30, 1995 to $18.0 million at both June 30, 1996 and September 30,
1996. This increase was primarily due to the $1.1 million of net earnings
recognized during fiscal 1996 which was offset by $449,000 of dividends paid
to the stockholders and a decrease in the market value of $125,000 in
securities available for sale. Stockholders' equity also increased as a
result of the vesting of benefits pursuant to Troy Hill's employee stock
benefit plans.
RESULTS OF OPERATIONS
GENERAL. THB reported net earnings of $52,000 and $262,000 during the
three months ended September 30, 1996 and 1995, respectively. The $210,000
or 80.2% decrease in net earnings for the three months ended September 30,
1996, as compared to the same period in the prior year, is primarily due to
the $530,000 increase in noninterest expense which is primarily attributable
to the $326,000 special one-time SAIF assessment and a $198,000 increase in
interest expense, which were partially offset by a $381,000 increase in total
interest income and a $136,000 decrease in income taxes. If not for this
one-time assessment, net earnings for the three months ended September 30,
1996 would have been $266,000 or a 1.5% increase over the 1995 quarter.
THB reported net earnings of $1.1 million, $919,000 and $1.1 million for
fiscal 1996, 1995 and 1994, respectively. Net earnings during fiscal 1996
increased by $169,000 or 18.4% when compared to June 30, 1995. This increase
in net earnings resulted primarily from an increase of $401,000 in net
interest income and a $89,000 increase in total noninterest income, which was
partially offset by a $210,000 increase in the provision for loan losses, a
$10,000 increase in income taxes and an increase of $101,000 in total
noninterest expense. Net earnings during fiscal 1995 increased $40,000 or
4.6% (before the $200,000 cumulative effect of the change in
66
<PAGE>
accounting for income taxes recognized during the fiscal year ended June 30,
1994). The increase in net earnings resulted primarily from an increase of
$441,000 in net interest income, a $70,000 decline in the provision for loan
losses and a $22,000 decrease in income taxes, which was partially offset by
a $276,000 increase in total noninterest expense and a decrease of $217,000
in total noninterest income.
NET INTEREST INCOME. Net interest income is determined by THB's interest
rate spread (i.e., the difference between the yields earned on its
interest-earning assets and the rates paid on its interest-bearing
liabilities) and the relative amounts of interest-earning assets and
interest-bearing liabilities.
67
<PAGE>
AVERAGE BALANCES, NET INTEREST INCOME AND YIELDS EARNED AND RATES PAID.
The following table presents for the periods indicated the total dollar
amount of interest from average interest-earning assets and the resultant
yields, as well as the interest expense on average interest-bearing
liabilities, expressed both in dollars and rates, and the net interest
margin. All average balances are based on month-end or quarter-end balances.
Management does not believe that the use of month-end or quarter-end balances
instead of daily average balances has caused any material differences in the
information presented.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
SEPTEMBER 30,
-----------------------------------------------------------------
1996 1995
-------------------------------- -----------------------------
AVERAGE YIELD/ AVERAGE YIELD/
BALANCE INTEREST RATE(1) BALANCE INTEREST RATE
------- -------- ------- ------- -------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans receivable(2) $80,149 $1,700 8.48% $57,338 $1,226 8.55%
Mortgage-backed securities(3) 4,464 89 7.98 6,916 116 6.71
Investment securities(3) 6,594 95 5.76 10,861 148 5.45
Interest-bearing deposits and other 2,912 20 2.75 2,056 33 6.42
------- ------ ------- ------
Total interest-earning assets 94,119 $1,904 8.09 77,170 $1,523 7.89
------- ------ ------- ------
------- ------ ------- ------
Non-interest-earning assets 2,013 1,659
------- -------
Total assets $96,132 $78,829
------- -------
Interest-bearing liabilities:
Deposits $52,474 $ 614 4.68 $50,943 $ 615 4.83
FHLB advances and other 23,870 322 5.40 8,859 123 5.55
------
Total interest-bearing liabilities 76,344 $ 936 4.90 59,802 $ 738 4.94
------- ------ ------- ------
------ ------
Non-interest-bearing liabilities 1,572 1,304
------- -------
Total liabilities 77,916 61,106
------- -------
Stockholders' equity 18,216 17,724
------- -------
Total liabilities and stockholders'
equity $96,132 $78,829
------- -------
------- -------
Net interest income; interest rate
spread $ 968 3.19% $ 785 2.95%
------ ------ ------ ------
------ ------ ------ ------
Net interest margin(4) 4.11% 4.07%
------ ------
------ ------
Average interest-earning assets to
average interest-bearing liabilities 123.28% 129.04%
------ ------
------ ------
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
-----------------------------------------------------------------------------------------
1996 1995 1994
---------------------------- ----------------------------- ---------------------------
AVERAGE YIELD/ AVERAGE YIELD/ AVERAGE YIELD/
BALANCE INTEREST RATE(1) BALANCE INTEREST RATE BALANCE INTEREST RATE
------- -------- ------- ------- -------- ------- ------- -------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans receivable(2) $61,934 $5,334 8.61% $46,194 $3,957 8.57% $39,489 $3,655 9.26%
Mortgage-backed securities(3) 6,360 443 6.97 7,857 493 6.27 4,069 256 6.29
Investment securities(3) 8,957 568 6.34 9,865 575 5.83 7,782 400 5.14
Interest-bearing deposits and other 2,396 124 5.18 2,823 126 4.46 4,547 179 3.94
------- ------ ------- ------ ------- ------
Total interest-earning assets 79,647 $6,469 8.12 66,739 $5,151 7.72 55,890 $4,490 8.03
------- ------ ------- ------ ------- ------
------- ------ ------- ------ ------- ------
Non-interest-earning assets 1,665 1,284 1,330
------- ------- -------
Total assets $81,310 $68,023 $57,220
------- ------- -------
------- ------- -------
Interest-bearing liabilities:
Deposits $52,269 $2,484 4.75 $45,440 $1,902 4.19 $45,561 $1,736 3.81
FHLB advances and other 9,695 588 6.06 4,684 253 5.40 3,740 199 5.32
------- ------ ------- ------ ------- ------
Total interest-bearing liabilities 61,964 $3,072 4.96 50,124 $2,155 4.30 49,301 $1,935 3.92
------- ------ ------- ------ ------- ------
------- ------ ------- ------ ------- ------
Non-interest-bearing liabilities 1,342 251 296
------- ------- -------
Total liabilities 63,306 50,375 49,597
------- ------- -------
Stockholders' equity 18,004 17,648 7,623
------- ------- -------
Total liabilities and stockholders'
equity $81,310 $68,023 $57,220
------- ------- -------
------- ------- -------
Net interest income; interest rate
spread $3,397 3.16% $2,996 3.42% $2,555 4.11%
----- ------ ------ ------ ------ ------
----- ------ ------ ------ ------ ------
Net interest margin(4) 4.27% 4.49% 4.57%
------ ------ ------
------ ------ ------
Average interest-earning assets to
average interest-bearing liabilities 128.54% 133.15% 113.36%
------ ------ ------
------ ------ ------
</TABLE>
_______________
(1) At September 30, 1996, the yields earned and rates paid were as
follows: loans receivable, 8.08%; mortgage-backed securities, 7.66%;
investment securities, 6.51%; other interest-earning assets, 5.85%;
total interest-earning assets, 7.88%; deposits, 4.76%; FHLB advances,
6.21%; total interest-bearing liabilities, 5.25%; and interest rate
spread, 2.63%
(2) Includes non-accrual loans and loans classified as held for sale.
(3) Includes investment and mortgage-backed securities classified as
available for sale.
(4) Net interest margin is net interest income divided by average
interest-earning assets.
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<PAGE>
RATE/VOLUME ANALYSIS. The following table described the extent to which
changes in interest rates and changes in volume of interest-related assets
and liabilities have affected THB's interest income and expense during the
periods indicated. For each category of interest-earning assets and
interest-bearing liabilities, information is provided on changes attributable
to (i) changes in volume (change in volume multiplied by prior year rate),
(ii) changes in rate (change in rate multiplied by prior year volume), and
(iii) total change in rate and volume. The combined effect of changes in
both rate and volume has been allocated proportionately to the change due to
rate and the change due to volume.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
SEPTEMBER 30, YEAR ENDED JUNE 30,
-------------------------- -------------------------------------------------------
1996 VS 1995 1996 VS 1995 1995 VS 1994
-------------------------- -------------------------- ---------------------------
INCREASE INCREASE INCREASE
(DECREASE) (DECREASE) (DECREASE)
DUE TO DUE TO DUE TO
------------- ------------- -------------
TOTAL TOTAL TOTAL
INCREASE INCREASE INCREASE
RATE VOLUME (DECREASE) RATE VOLUME (DECREASE) RATE VOLUME (DECREASE)
---- ------ ---------- ---- ------ ---------- ---- ------ ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
(IN THOUSANDS)
Interest-earnings assets:
Loans receivable (1) $(10) $484 $474 $ 22 $1,355 $1,377 $(236) $538 $302
Mortgage-backed
securities(2) 19 (46) (27) 50 (100) (50) (1) 238 237
Investment securities(2) 9 (62) (53) 48 (55) (7) 58 117 175
Interest-bearing deposits in other
banks -- -- -- -- -- -- -- (47) (47)
Other interest-earning assets (24) 11 (13) 19 (21) (2) 22 (28) (6)
---- ---- ---- ----- ------ ------ ----- ---- ----
Total interest-earning assets $ (6) $ 387 $381 $139 $1,179 $1,318 $(157) $818 $661
---- ---- ---- ----- ------ ------ ----- ---- ----
---- ---- ---- ----- ------ ------ ----- ---- ----
Deposits $(19) $ 18 $(1) $276 $ 306 $ 582 $ 171 $ (5) $166
FHLB advances (4) 203 199 (7) 347 340 7 56 63
Other interest-bearing liabilities -- -- -- (3) (2) (5) (10) 1 (9)
---- ---- ---- ----- ------ ------ ----- ---- ----
Total interest-bearing liabilities $(23) $ 221 $198 $266 $ 651 $ 917 $ 168 $ 52 $220
---- ---- ---- ----- ------ ------ ----- ---- ----
Increase (decrease) in net interest
income $ 17 $ 166 $183 $(127) $ 528 $ 401 $(325) $766 $441
---- ---- ---- ----- ------ ------ ----- ---- ----
---- ---- ---- ----- ------ ------ ----- ---- ----
</TABLE>
___________________
(1) Includes loans classified as held for sale.
(2) Includes investment and mortgage-backed securities classified as
available for sale.
69
<PAGE>
THB's net interest income increased by $183,000 or 23.3% during the
three months ended September 30, 1996 compared to the same period in 1995.
THB's net interest income increased by $401,000 or 13.4% during fiscal 1996
and increased by $441,000 or 17.3% during fiscal 1995. The increase in net
interest income during fiscal 1996 was the result of an increase in interest
income primarily due to an increase in the average balance of loans
receivable which was offset by an increase in interest expense due primarily
to an increase in the average rate paid on deposits and on interest paid to
the Federal Home Loan Bank of Pittsburgh on borrowed money. The increase in
net interest income during fiscal 1995 was the result of an increase in
interest income primarily due to an increase in the average balance of loans
receivable, mortgage-backed securities and investment securities which offset
an increase in interest expense due primarily to an increase in the average
rate paid on deposits.
INTEREST INCOME. Interest on loans increased by $474,000 or 38.7% for
the three months ended September 30, 1996, when compared with the same period
in 1995. The increase in interest on loans was due primarily to an increase
in the balance of loans receivable for the three months ended September 30,
1996 when compared to the same period in 1995. Interest income on loans
increased by $1.4 million or 34.8% during fiscal 1996, and increased $302,000
or 8.3% during fiscal 1995. The increase during fiscal 1996 was due to a
$15.7 million increase in the average balance of loans receivable and an
increase of 4 basis points in the average yield earned thereon (100 basis
points equals 1%). The increase in interest income on loans during fiscal
1995 was due to a $6.7 million increase in the average balance of loans
receivable which offset a decline of 69 basis points in the average yield
earned thereon.
Interest on mortgage-backed securities decreased $27,000 or 23.3% during
the three months ended September 30, 1996 when compared with the same period
in 1995. The decrease was due primarily to a decrease of $2.4 million in the
average balance of mortgage-backed securities outstanding for the three
months ended September 30, 1996 when compared to the same period in 1995.
Interest income on mortgage-backed securities decreased by $50,000 or 10.1%
during fiscal 1996, and increased by $237,000 or 92.6% during fiscal 1995.
The decrease during fiscal 1996 was due to a decrease in the average balance
of mortgage-backed securities of $1.5 million which was partially offset by a
70 basis point increase in the average yield earned thereon. The increase in
interest income on mortgage-backed securities during fiscal 1995 was due to
the reinvestment of a portion of the proceeds of THB's stock offering into
mortgage-backed securities, which resulted in an increase in the average
balance of such securities of $3.8 million, which was partially offset by a 2
basis point decline in the average yield earned thereon.
Interest and dividends on investment securities and other
interest-earning assets (consisting primarily of U.S. Government and agency
obligations, corporate obligations, interest-bearing deposits and FHLB of
Pittsburgh stock) decreased by $66,000 or 36.5% during the three months ended
September 30, 1996 when compared with the same period in 1995. The decrease
was the result of the sale of U.S. Government and agency obligations
70
<PAGE>
to fund newly originated loans. Interest and dividends on investment
securities and other interest-earning assets decreased by $9,000 or 1.3%
during fiscal 1996 and increased by $122,000 or 21.1% during fiscal 1995. The
decrease during fiscal 1996 was due primarily to a $1.3 million decrease in
the average balance of such investments, which was partially offset by an
increase of 125 basis points in the average yield earned thereon. The
increase during fiscal 1995 was due primarily to a $1.6 million increase in
the average balance of such investments together with an increase of 129
basis points in the average yield earned thereon.
INTEREST EXPENSE. Interest expense on deposits, the largest component of
THB's interest-bearing liabilities, was relatively constant in the three
months ended September 30, 1996 compared to the same period in 1995 and
increased by $582,000 or 30.6% during fiscal 1996 and by $166,000 or 9.6%
during fiscal 1995. The increase during fiscal 1996 was due to an increase of
56 basis points in the average rate paid thereon, and a $6.8 million increase
in the average balance of deposits outstanding. The increase in interest
expense on deposits during fiscal 1995 was due to an increase of 37 basis
points in the average rate paid thereon, which offset a slight decline in the
average balance of deposits outstanding. The decrease in the average balance
of deposits during fiscal 1995 was due primarily to disintermediation (the
outflow of deposits into competing investment products), and the result of
the customers of the Troy Hill withdrawing their deposit accounts to purchase
common stock of THB. The increase in the average rate paid on deposits during
fiscal 1996 and 1995 was due to a competitive market and rising interest
rates.
THB's interest on borrowings (consisting of advances from the FHLB of
Pittsburgh) increased $199,000 or 161.8% during the three months ended
September 30, 1996, when compared with the same period in 1995. The increase
was due to an increase in the average balance of such borrowings of $15.0
million during the three months ended September 30, 1996 as compared to the
same period in 1995. Troy Hill reinvested these additional advances from the
FHLB of Pittsburgh into permanent and construction loans secured by
single-family residences. Interest expense on advances and other borrowings
increased by $335,000 or 132.4% during fiscal 1996 and increased by $54,000
or 27.1% during fiscal 1995. The increase during fiscal 1996 was due to a
$5.0 million increase in the average balance of FHLB advances and an increase
of 66 basis points in the average rate paid thereon. The increase in such
expense during fiscal 1995 was due to an increase in the average balance of
FHLB advances which were utilized to fund the increase in loan demand.
PROVISIONS FOR LOAN LOSSES. Provisions for loan losses are charged to
earnings to bring the total allowance to a level considered appropriate by
management based on historical experience, the volume and type of lending
conducted by Troy Hill, the status of past due principal and interest
payments, general economic conditions, particularly as they relate to Troy
Hill's market area, and other factors related to the collectibility of Troy
Hill's loan portfolio.
71
<PAGE>
THB established provisions for loan losses of $30,000 during the three
months ended September 30, 1996 and 1995 and $220,000, $10,000 and $80,000
during fiscal 1996, 1995 and 1994, respectively. The provisions during fiscal
1996 and 1994 were due, in part, to losses experienced with respect to
certain commercial leases which Troy Hill had purchased and losses on certain
single-family construction loans during the fourth quarter of 1996. In
addition, THB determined to increase its allowance for loan losses due to its
increased origination of residential construction loans, which generally
involve a higher level of risk as compared to single-family residential
lending (and therefore have the inherent risk of higher levels of losses) and
increased loan charge-offs of $184,000 in fiscal 1996.
NONINTEREST INCOME. THB's noninterest income amounted to $59,000 during
the three months ended September 30, 1996 compared to $57,000 during the same
period in 1995. Total noninterest income increased by $89,000 or 73.6%
during fiscal 1996 due primarily to a $51,000 increase in the gain on sale of
loans and a $31,000 decrease in loss on the sale of investment securities.
Total noninterest income decreased by $217,000 or 64.2% during fiscal 1995
due primarily to a $189,000 decrease in gain on sale of loans and a $36,000
loss on sales of investment securities recognized during the year. The
increase in noninterest income during fiscal 1996 was due primarily to an
increase in sales of loans to financial institutions. The decrease in gain on
sales of loans during fiscal 1995 was due to an increase in market rates of
interest which resulted in a decline in loan demand with respect to 30-year
mortgage loans.
NONINTEREST EXPENSE. Noninterest expense increased by $530,000 or
138.0% during the three months ended September 30, 1996 when compared with
the same period in 1995. The increase is primarily due to the $326,000
one-time SAIF assessment, expenses incurred with respect to the proposed
merger with PennFirst and expenses incurred for properties held in real
estate owned through foreclosure. Without the one-time SAIF assessment,
THB's noninterest expense would have increased by $204,000 or 53.1%. Total
noninterest expense increased by $101,000 or 6.3% during fiscal 1996, as
compared to the prior fiscal year. The primary reason for the increase was
due to a $92,000 increase in salaries and employee benefits. This increase
was partially offset by a $14,000 decrease in miscellaneous other operating
expenses (consisting primarily of office supplies and services and legal and
professional fees). Total noninterest expense increased by $276,000 or 20.9%
during fiscal 1995, due primarily to a $161,000 or 26.8% increase in salaries
and employee benefits, and a $127,000 or 28.2% increase in miscellaneous
other operating expenses. The increase in employee compensation and benefits
during fiscal 1996 and 1995 was due to the hiring of additional employees and
the funding of THB's employee stock benefit plans.
INCOME TAXES. THB recognized $31,000 in income tax expense which
reflected an effective rate of 37.3% for the three months ended September 30,
1996, as compared to $167,000 with an effective tax rate of 38.9% for the
comparable 1995 period, due to lower pretax income. THB incurred income tax
expense of $599,000, $589,000 and $611,000 during fiscal 1996, 1995 and 1994,
respectively. THB's effective tax rate amounted to 35.5%, 39.1% and 41.0%
during fiscal 1996, 1995 and 1994, respectively. The varied tax expense
72
<PAGE>
reflects, among other things, the receipt of tax free interest dividend
received deductions, state taxes and other items during the periods.
THB adopted SFAS No. 109 as of July 1, 1993. The general objective of
SFAS No. 109 is to recognize annually the deferred tax assets and liabilities
which will arise from future tax consequences of events that have been
recognized in THB's financial statements or tax returns. As a result of the
adoption of SFAS No. 109, THB recognized $200,000 in income during the year
ended June 30, 1994 representing the cumulative effect of this change in
accounting principle.
LIQUIDITY AND CAPITAL RESOURCES
THB's liquidity, represented by cash and cash equivalents, is a product
of its operating, investing and financing activities. THB's primary sources
of funds are deposits, borrowings, amortization, prepayments, maturities of
outstanding loans, mortgage-backed securities and investment securities,
sales of loans, available for sale securities and other short-term
investments and funds provided from operations. While scheduled loan and
mortgage-backed securities amortization and maturing investment securities
and short-term investments are relatively predictable sources of funds,
deposit flows and loan prepayments are greatly influenced by general interest
rates, economic conditions and competition. THB manages the pricing of its
deposits to maintain a steady deposit balance. In addition, THB invests
excess funds in overnight deposits and other short-term interest-earning
assets which provides liquidity to meet lending requirements. THB has been
able to generate enough cash through an increase in advances from the FHLB of
Pittsburgh and to a lesser extent, growth in THB's deposit accounts. At
September 30, 1996, THB had $27.0 million of outstanding advances from the
FHLB of Pittsburgh and a line of credit of $4.9 million, all of which is
currently being utilized. Furthermore, Troy Hill has access to the Federal
Reserve Bank discount window.
Liquidity management is both a daily and long-term function of business
management. Excess liquidity is generally invested in short-term investments
such as overnight deposits. On a longer-term basis, THB maintains a strategy
of investing in various lending products. THB uses its sources of funds
primarily to meet its ongoing commitments, to pay maturing savings
certificates and savings withdrawals, fund loan commitments and maintain a
portfolio of investment and mortgage-backed securities. At September 30,
1996, THB's total approved loan commitments outstanding amounted to $3.8
million. At the same date, commitments under unused lines of credit amounted
to $3.0 million and the unadvanced portion of construction loans approximated
$5.2 million. Certificates of deposit scheduled to mature in one year or less
at September 30, 1996 totaled $17.8 million. Management of THB believes
that a significant portion of maturing deposits will remain with Troy Hill.
73
<PAGE>
Federally insured savings institutions are required to maintain minimum
levels of regulatory capital. The OTS has established capital standards
applicable to all savings institutions. These standards generally must be as
stringent as the comparable capital requirements imposed on national banks.
The OTS also is authorized to impose capital requirements in excess of these
standards on individual institutions on a case-by-case basis.
Savings institutions must satisfy three different OTS capital
requirements. Under these standards, savings institutions must maintain
"tangible" capital equal to at least 1.5% of adjusted total assets, "core"
capital equal to at least 3% of adjusted total assets and "total" capital (a
combination of core and "supplementary" capital) equal to at least 8% of
"risk-weighted" assets. For purposes of the regulation, core capital is
defined as common stockholders' equity (including retained earnings),
noncumulative perpetual preferred stock and related surplus, minority
interests in the equity accounts of fully consolidated subsidiaries, certain
nonwithdrawable accounts and pledged deposits and qualifying supervisory
goodwill. Core capital is generally reduced by the amount of a savings
institution's intangible assets, although limited exceptions to the deduction
of intangible assets are provided for purchased mortgage servicing rights,
qualifying supervisory goodwill and certain other intangibles, all of which
are currently not relevant to the calculation of Troy Hill's regulatory
capital. Tangible capital is core capital less all intangible assets, with a
limited exception for purchased mortgage servicing rights. Failure to meet
minimum capital requirements can initiate certain mandatory--and, possibly
additional discretionary--actions by regulators that, if undertaken, could
have a direct material effect on THB's financial statements.
Quantitative measures established by regulation to ensure capital
adequacy require Troy Hill to maintain minimum amounts and ratios (set forth
in the table below) of Tangible and Core Capital (as defined in the
regulations) to total assets and of Total Capital (as defined) to
risk-weighted assets (as defined). Management believes, as of September 30,
1996, that Troy Hill meets all capital adequacy requirements to which it is
subject.
As of September 30, 1996, the most recent notification from the Office
of Thrift Supervision (OTS) categorized Troy Hill as "well capitalized" under
the regulatory framework for prompt corrective action. There are no
conditions or events since that notification that management believes have
changed the institution's category.
74
<PAGE>
<TABLE>
<CAPTION>
TANGIBLE CORE RISK-BASED
CAPITAL CAPITAL CAPITAL
-------- ------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Regulatory
capital $14,254 $14,254 $15,022
Minimum required
regulatory capital 1,432 2,864 4,902
-------- ------- -------
Excess
regulatory
capital $12,822 $11,390 $10,120
-------- ------- -------
-------- ------- -------
Regulatory
capital as
a percentage
of assets(1) 14.93% 14.93% 24.51%
Minimum capital
required as a
percentage 1.50% 3.00% 8.00%
-------- ------- -------
Excess
regulatory
capital as a
percentage in
excess of
requirement 13.43% 11.93% 16.51%
-------- ------- -------
-------- ------- -------
</TABLE>
___________________
(1)Tangible and core capital are computed as a percentage of
adjusted total assets of $95.5 million. Risk-based capital
is computed as a percentage of total risk-weighted assets of
$61.3 million.
75
<PAGE>
BUSINESS OF THB
GENERAL. At September 30, 1996, Troy Hill's net portfolio of loans
receivable totalled $83.9 million, representing approximately 84.3% of its
$99.5 million of total assets at that date. The principal lending activity
of Troy Hill is the origination of single-family residential loans and
construction loans primarily with respect to single-family residential
properties. To a much lesser extent, Troy Hill also originates multi-family
residential and nonresidential real estate loans, consumer loans and, prior
to 1992, Troy Hill purchased commercial leases from an investment consulting
and loan servicing firm located in Monroeville, Pennsylvania. Substantially
all of Troy Hill's mortgage loan portfolio consists of conventional mortgage
loans, which are loans that are neither insured by the Federal Housing
Administration ("FHA") nor partially guaranteed by the Department of Veterans
Affairs ("VA").
Historically, Troy Hill's lending activities have been concentrated in
single-family residential loans secured by properties located in its primary
market area of northern Allegheny and southern Butler counties, Pennsylvania.
Troy Hill has increased its emphasis in recent years in construction
lending, primarily on residential properties, in its primary market area. As
discussed under "-Construction Loans," construction lending generally,
including speculative lending to builders (where the property has not been
pre-sold), is generally considered to involve a higher level of risk as
compared to single-family residential lending. Troy Hill estimates that
approximately 90% of its mortgage loans are secured by properties located in
Troy Hill's primary market area.
The Financial Institutions Reform, Recovery, and Enforcement Act of 1989
("FIRREA") imposed limitations on the aggregate amount of loans that a
savings institution could make to any one borrower, including related
entities. Under FIRREA, the permissible amount of loans-to-one borrower
follows the national bank standard for all loans made by savings
institutions, which generally does not permit loans-to-one borrower to exceed
15% of unimpaired capital and surplus. Loans in an amount equal to an
additional 10% of unimpaired capital and surplus also may be made to a
borrower if the loans are fully secured by readily marketable securities. At
September 30, 1996, Troy Hill's limit on loans-to-one borrower under FIRREA
was $2.1 million. At September 30, 1996, Troy Hill's five largest loans or
groups of loans-to-one borrower, including related entities, ranged from an
aggregate of $587,000 to $2.0 million, and are secured primarily by
single-family residential properties located in Troy Hill's primary market
area. All of Troy Hill's five largest loans or groups of loans were
performing in accordance with their terms at September 30, 1996.
76
<PAGE>
LOAN PORTFOLIO COMPOSITION. The following table sets forth the
composition of Troy Hill's loan portfolio by type of loan at the dates
indicated.
<TABLE>
<CAPTION>
September 30, June 30,
1996 1996 1995 1994
--------------- --------------- --------------- ---------------
Amount % Amount % Amount % Amount %
------ - ------ - ------ - ------ -
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Real estate loans:
Single-family residential $59,844 66.13% $50,587 62.38% $38,489 66.47% $29,389 61.00%
Multi-family residential 5,821 6.43 5,297 6.53 530 0.91 567 1.18
Nonresidential real estate 6,936 7.66 7,641 9.42 4,186 7.18 1,218 2.53
Construction(1) 13,402 14.81 13,678 16.87 11,629 19.94 14,548 30.20
------- ------ ------- ------ ------- ------ ------- ------
Total real estate loans 86,003 95.03 77,203 95.20 55,106 94.50 45,722 94.91
Consumer loans:
Loans secured by savings
accounts 89 .10 96 0.12 78 0.13 94 0.20
Home equity and improvement 3,376 3.73 3,187 3.93 2,585 4.43 1,284 2.67
Auto loans 7 .01 8 0.01 17 0.03 34 0.07
------- ------ ------- ------ ------- ------ ------- ------
Total consumer loans 3,472 3.84 3,291 4.06 2,680 4.59 1,412 2.94
Commercial business loans 1,026 1.13 597 0.74 525 0.91 1,043 2.15
------- ------ ------- ------ ------- ------ ------- ------
Total Loans 90,501 100.00% 81,091 100.00% 58,311 100.00% 48,177 100.00%
------- ------ ------- ------ ------- ------ ------- ------
------ ------ ------ ------
Less:
Loans in process 5,208 5,224 3,557 7,825
Deferred loan origination fees 724 655 635 578
Allowance for loan losses 687 660 667 700
------- ------- ------- -------
Net loans $83,882 $74,552 $53,180 $39,074
------- ------- ------- -------
------- ------- ------- -------
</TABLE>
____________________
(1) Consisted solely of loans for the construction of single-family
residential real estate at September 30, 1996 and June 30, 1996 and 1995.
77
<PAGE>
CONTRACTUAL PRINCIPAL REPAYMENTS AND INTEREST RATES. The following table
sets forth certain information at September 30, 1996 regarding the dollar
amount of loans maturing in Troy Hill's portfolio, based on the contractual
terms to maturity, before giving effect to net items. Demand loans and loans
having no stated schedule of repayments and no stated maturity are reported
as due in one year or less.
<TABLE>
<CAPTION>
Due 1-3 years Due 3-5 years Due 5-10 years Due 10-20 years Due 20 years
after after after after and more after
1997 9/30/96 9/30/96 9/30/96 9/30/96 9/30/96 Total
---- ------------- ------------- -------------- --------------- -------------- -----
(In Thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Single-family residential $2,720 $3,388 $ 7,290 $6,034 $18,528 $21,884 $59,844
Multi-family residential -- 106 146 -- 4,116 1,453 5,821
Nonresidential real estate 493 231 1,182 1,492 3,391 147 6,936
Construction 1,738 -- 892 -- 1,668 9,104 13,402
Consumer 711 818 725 1,068 132 18 3,472
Commercial business 189 115 722 -- -- -- 1,026
------ ------ ------- ------ ------- ------- -------
Total $5,851 $4,658 $10,957 $8,594 $27,835 $32,606 $90,501
------ ------ ------- ------ ------- ------- -------
------ ------ ------- ------ ------- ------- -------
</TABLE>
The following table sets forth the dollar amount of all loans, before net
items, due after one year from September 30, 1996 which have fixed interest
rates or which have floating or adjustable-interest rates.
<TABLE>
<CAPTION>
Fixed Floating or
Rates Adjustable-Rates Total
----- ---------------- -----
(In Thousands)
<S> <C> <C> <C>
Single-family residential $46,656 $10,468 $57,124
Multi-family residential 4,512 1,309 5,821
Nonresidential real estate 5,947 496 6,443
Construction 10,240 1,424 11,664
Consumer 1,820 941 2,761
Commercial business 837 -- 837
------- ------- -------
Total $70,012 $14,638 $84,650
------- ------- -------
------- ------- -------
</TABLE>
78
<PAGE>
Scheduled contractual principal repayments do not reflect the actual
maturities of loans. The average maturity of loans is substantially less
than their average contractual terms because of prepayments and, in the case
of conventional mortgage loans, due-on-sale clauses, which generally give
Troy Hill the right to declare a loan immediately due and payable in the
event, among other things, that the borrower sells the real property subject
to the mortgage and the loan is not repaid. The average life of mortgage
loans tends to increase when current mortgage loan rates are substantially
higher than rates on existing mortgage loans and, conversely, decrease when
rates on existing mortgages are substantially higher than current mortgage
loan rates (due to refinancings of adjustable-rate and fixed-rate loans at
lower rates). Under the latter circumstances, the weighted average yield on
loans decreases as higher yielding loans are repaid or refinanced at lower
rates.
ORIGINATION, PURCHASE AND SALE OF LOANS. The lending activities of Troy
Hill are subject to the written, non-discriminatory, underwriting standards
and loan origination procedures established by Troy Hill's Board of Directors
and management. Loan originations are obtained by a variety of sources,
including referrals from real estate brokers, developers, builders, existing
customers, newspaper, radio, periodical advertising and walk-in customers.
Loan applications are taken by lending personnel, and the loan department
supervises the obtainment of credit reports, appraisals and other
documentation involved with a loan. Property valuations are generally
performed by independent outside appraisers approved by Troy Hill's Board of
Directors. Title and hazard insurance are required on all security property.
Loan applications are taken at either one of Troy Hill's offices. All
loan applications are required to be approved by Troy Hill's Loan Committee
which meets weekly. In addition, all loans committed or approved by Troy Hill
are reported to the full Board of Directors and ratified by such Board.
Historically, Troy Hill has originated substantially all of the loans in
its portfolio and has held them until maturity. Nevertheless, Troy Hill's
residential loans are generally made on terms, conditions and documentation
which permit the sale to the Federal Home Loan Mortgage Corporation
("FHLMC"), the Federal National Mortgage Association ("FNMA"), the Government
National Mortgage Association ("GNMA") and other institutional investors in
the secondary market. Since May 1993, Troy Hill has sold a majority of all
long-term (over 15 years), fixed-rate single-family residential loans to
institutional investors in the secondary market as a means of minimizing
interest rate risk as well as generating additional funds for lending and
other purposes. Sales of loans to date generally have been under terms which
do not provide any recourse to Troy Hill by the purchaser in the event of
default on the loan by the borrower.
79
<PAGE>
At September 30, 1996, loans purchased and serviced by others totalled
$1.8 million. Such loans consist primarily of seasoned single-family
residential loans, a substantial portion of which are secured by properties
located outside of Troy Hill's primary market area.
The following table shows total loans originated, purchased, sold and
repaid during the periods indicated.
<TABLE>
<CAPTION>
Three Months Ended
September 30, Year Ended June 30,
------------------ ------------------------------
1996 1995 1996 1995 1994
---- ---- ---- ---- ----
(In Thousands)
<S> <C> <C> <C> <C> <C>
Loan originations:
Single-family residential(1) $11,149 $ 5,869 $ 19,750 $ 10,477 $ 12,432
Multi-family residential 572 1,350 5,368 -- 517
Nonresidential real estate 75 325 4,835 3,150 450
Construction 1,867 3,627 12,029 10,699 14,760
Consumer 268 294 2,316 2,661 1,263
Commercial business 482 -- 382 -- --
------- ------- -------- -------- --------
Total loans originated 14,413 11,465 44,680 26,987 29,422
Purchases -- -- -- 297 --
------- ------- -------- -------- --------
Total loans originated
and purchased 14,413 11,465 44,680 27,284 29,422
Sales and loan principal
reductions:
Loans sold(2) -- (2,719) (7,992) (792) (7,921)
Loan principal reductions (5,050) (3,674) (15,507) (11,918) (24,227)
------- ------- -------- -------- --------
Total loans sold and
principal reductions (5,050) (6,393) (23,499) (12,710) (32,148)
Increase (decrease) due to
other items, net (33) (28) (81) (196) (92)
------- ------- -------- -------- --------
Net increase (decrease) in
loan portfolio $ 9,330 $ 5,044 $ 21,100 $ 14,378 $(2,818)
------- ------- -------- -------- --------
------- ------- -------- -------- --------
</TABLE>
____________________
(1) Includes loans originated for sale in the secondary market.
(2) Consists solely of loans originated for sale in the secondary market.
80
<PAGE>
REAL ESTATE LENDING STANDARDS. Effective March 19, 1993, all financial
institutions were required to adopt and maintain comprehensive written real
estate lending policies that are consistent with safe and sound banking
practices. These lending policies must reflect consideration of the
Interagency Guidelines for Real Estate Lending Policies adopted by the
federal banking agencies in December 1992 ("Guidelines"). The Guidelines set
forth uniform regulations prescribing standards for real estate lending. Real
estate lending is defined as extension of credit secured by liens on
interests in real estate or made for the purpose of financing the
construction of a building or other improvements to real estate, regardless
of whether a lien has been taken on the property.
The policies must address certain lending considerations set forth in the
Guidelines, including loan-to-value ("LTV") limits, loan administration
procedures, underwriting standards, portfolio diversification standards, and
documentation, approval and reporting requirements. These policies must also
be appropriate to the size of the institution and the nature and scope of its
operations, and must be reviewed and approved by the institution's board of
directors at least annually. The LTV ratio framework, with a LTV ratio being
the total amount of credit to be extended divided by the appraised value of
the property at the time the credit is originated, must be established for
each category of real estate loans. If not a first lien, the lender must
combine all senior liens when calculating this ratio. The Guidelines, among
other things, establish the following supervisory LTV limits: raw land
(65%); land development (75%); construction (commercial, multi-family and
nonresidential) (80%); improved property (85%); and one-to-four family
residential (owner occupied) (no maximum ratio; however any LTV ratio in
excess of 90% should require appropriate insurance or readily marketable
collateral).
SINGLE-FAMILY RESIDENTIAL REAL ESTATE LOANS. The primary lending
activity of Troy Hill is the origination of loans secured primarily by first
mortgage liens on existing single-family residences. At September 30, 1996,
$59.8 million or 66.1% of Troy Hill's total loan portfolio (including loans
classified as held for sale) consisted of single-family residential real
estate loans, substantially all of which are conventional loans.
Historically, the single-family residential real estate loans originated
by Troy Hill have consisted primarily of fixed-rate loans. However, such
loans have generally been originated only under terms, conditions and
documentation which permit the sale thereof in the secondary market. At
September 30, 1996, approximately $46.6 million or 77.9% of the permanent
single-family residential loans in Troy Hill's loan portfolio consisted of
loans which provide for fixed rates of interest. Although these loans
provide for repayments of principal over a fixed period of up to 30 years, it
is Troy Hill's experience that such loans remain outstanding for a
substantially shorter period of time. Since May 1993, Troy Hill has sold a
majority of all long-term (over 15 years), fixed-rate single-family
residential loans to institutional investors in the secondary market.
As economic and market conditions permit, Troy Hill has continued to
offer single-family residential loans which provide for periodic adjustments
to the interest rate. The adjustable-rate loans currently being originated
by Troy Hill have up to 30-year terms and an interest rate which
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adjusts every year in accordance with a designated index (the weekly average
yield on U.S. Treasury securities adjusted to a constant comparable maturity
of one year, as made available by the Federal Reserve Board ("FRB"). There
is a cap on the amount of any increase or decrease in the interest rate per
year, and various caps, depending on when the loan was originated, on the
amount which the interest rate can increase or decrease over the life of the
loan. Certain of Troy Hill's adjustable-rate loans can, upon payment of a
fee, be converted into fixed-rate loans during certain specified periods.
Troy Hill's adjustable-rate loans currently being originated are not
assumable and do not contain prepayment penalties. Troy Hill has not engaged
in the practice of using a cap on the payments that could allow the loan
balance to increase rather than decrease, resulting in negative amortization.
The demand for adjustable-rate loans in Troy Hill's primary market area
has been a function of several factors, including the level of interest
rates, the expectations of changes in the level of interest rates and the
difference between the interest rates and loan fees offered for fixed-rate
loans and adjustable-rate loans. The relative amount of fixed-rate and
adjustable-rate residential loans that can be originated at any time is
largely determined by the demand for each in a competitive environment. Due
to the generally lower rates of interest prevailing in recent periods, Troy
Hill's originations of adjustable-rate loans as a percentage of total loans
have decreased as consumer preference for fixed-rate loans has increased. At
September 30, 1996, approximately 22.1% of the permanent single-family
residential loans in Troy Hill's loan portfolio (including loans classified
as held for sale) had adjustable interest rates.
Troy Hill is permitted to lend up to 100% of the appraised value of the
real property securing a residential loan (referred to as the loan-to-value
ratio); however, if the amount of a residential loan originated or refinanced
exceeds 90% of the appraised value, Troy Hill is required by federal
regulations to obtain private mortgage insurance on the portion of the
principal amount that exceeds 80% of the appraised value of the security
property. Pursuant to underwriting guidelines adopted by the Board of
Directors, Troy Hill will lend up to 95% of the appraised value of the
property securing a single-family residential loan, and generally requires
borrowers to obtain private mortgage insurance on the portion of the
principal amount of the loan that exceeds 80% of the appraised value of the
security property.
Property appraisals on the real estate and improvements securing Troy
Hill's single-family residential loans are made by independent appraisers
approved by Troy Hill's Board of Directors. Appraisals are performed in
accordance with federal regulations and policies. Troy Hill obtains title
insurance policies on the first mortgage real estate loans originated by it.
Borrowers also must obtain hazard insurance prior to closing and, when
required by the United States Department of Housing and Urban Development,
flood insurance. Borrowers may be required to advance funds, with each
monthly payment of principal and interest, to a loan escrow account from
which Troy Hill makes disbursements for items such as real estate taxes and
mortgage insurance premiums as they become due.
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MULTI-FAMILY RESIDENTIAL AND NONRESIDENTIAL REAL ESTATE LOANS. Troy Hill
originates mortgage loans for the acquisition and refinancing of existing
multi-family residential and nonresidential real estate properties. At
September 30, 1996, $12.8 million or 14.1% of Troy Hill's total loan
portfolio (including loans classified as held for sale) consisted of loans
secured by existing multi-family residential real estate properties and $6.9
million or 7.7% of such loan portfolio (including loans classified as held
for sale) consisted of loans secured by existing nonresidential real estate
properties.
The majority of Troy Hill's multi-family residential loans are secured
primarily by five to 20-unit apartment buildings, while nonresidential real
estate loans are secured primarily by office buildings and small retail
establishments. These types of properties constitute the majority of Troy
Hill's nonresidential real estate loan portfolio. Troy Hill's multi-family
residential and nonresidential real estate loan portfolio consists primarily
of loans secured by properties located in its primary market area.
Although terms vary, multi-family residential and nonresidential real
estate loans generally are amortized over a period of up to 20 years and
mature in 15 years or less. Troy Hill will originate these loans either with
fixed interest rates or with interest rates which adjust in accordance with a
designated index, which generally is negotiated at the time of origination.
Loan-to-value ratios on Troy Hill's multi-family residential and
nonresidential real estate loans are currently limited to 85% or lower. As
part of the criteria for underwriting multi-family residential and
nonresidential real estate loans, Troy Hill generally imposes a specified
debt coverage ratio (the ratio of net cash from operations before payment of
debt service to debt service). It is also Troy Hill's general policy to
obtain personal guarantees on its multi-family residential and nonresidential
real estate loans from the principals of the borrower and, when this cannot
be obtained, to impose more stringent loan-to-value, debt service and other
underwriting requirements.
At September 30, 1996, Troy Hill's multi-family residential and
nonresidential real estate loan portfolio consisted of approximately 55 loans
with an average principal balance of $233,000. At September 30, 1996, all
but $184,000 of Troy Hill's multi-family residential and nonresidential real
estate loans were performing in accordance with their terms.
Multi-family residential and nonresidential real estate lending entails
different and significant risks when compared to single-family residential
lending because such loans typically involve large loan balances to single
borrowers and because the payment experience on such loans is typically
dependent on the successful operation of the project or the borrower's
business. These risks can also be significantly affected by supply and
demand conditions in the local market for apartments, offices, warehouses or
other commercial space. Troy Hill attempts to minimize its risk exposure by
limiting the extent of the nonresidential lending generally. In addition,
Troy Hill imposes stringent loan-to-value ratios, requires conservative debt
coverage ratios, and continually monitors the operation and physical
condition of the collateral.
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CONSTRUCTION LOANS. In recent years, Troy Hill has been increasingly
active in originating loans to construct primarily single-family residences,
and, to a much lesser extent, loans to acquire and develop real estate for
construction of residential properties. These construction lending
activities generally are limited to Troy Hill's primary market area. At
September 30, 1996, construction loans amounted to $13.4 million or 14.8% of
Troy Hill's total loan portfolio (including loans classified as held for
sale). As of such date, Troy Hill's portfolio of construction loans
consisted solely of loans for the construction of single-family residences.
Construction loans are made to individuals for the purpose of
constructing a personal residence or to local real estate builders and
developers. Troy Hill will underwrite construction loans to individuals on a
construction/permanent mortgage loan basis. In addition, approximately 15.7%
of total outstanding construction loans at September 30, 1996 were made to
local real estate builders and developers for the purpose of constructing
primarily single-family homes for which there were no contracts for sale at
the time of origination. Upon application, credit review and analysis of
personal and corporate financial statements, Troy Hill may grant local
builders with whom it has done business lines of credit up to designated
amounts. These credit lines may be used for the purpose of construction of
speculative (or unsold) residential properties. Troy Hill will generally
limit the dollar amount of speculative construction loans made to any one
builder or developer to $750,000. Troy Hill may also, on a case-by-case
basis, grant a limited amount of land acquisition loans.
Construction loans generally have maturities of 12 to 24 months, with
payments being made monthly on an interest-only basis. Thereafter, the
permanent financing arrangements will generally provide for either an
adjustable or fixed interest rate, consistent with Troy Hill's policies with
respect to residential and commercial real estate financing.
Troy Hill intends to continue to increase its involvement in construction
lending within its primary market area. Such loans afford Troy Hill the
opportunity to increase the interest rate sensitivity of its loan portfolio.
Construction lending is generally considered to involve a higher level of
risk as compared to single-family residential lending, due to the
concentration of principal in a limited number of loans and borrowers and the
effects of general economic conditions on real estate developers and
managers. Moreover, a construction loan can involve additional risks because
of the inherent difficulty in estimating both a property's value at
completion of the project and the estimated cost (including interest) of the
project. The nature of these loans is such that they are generally more
difficult to evaluate and monitor. In addition, speculative construction
loans to a builder are not necessarily pre-sold and thus pose a greater
potential risk to Troy Hill than construction loans to individuals on their
personal residences.
Troy Hill has attempted to minimize the foregoing risks by, among other
things, limiting its construction lending primarily to residential
properties. In addition, Troy Hill has adopted underwriting guidelines which
impose stringent loan-to-value (85% with respect to single-family residential
real estate and 80% with respect to multi-family residential and
nonresidential real estate), debt service and other requirements for loans
which are believed to involve higher
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elements of credit risk, by limiting the geographic area in which Troy Hill
will do business and by working with builders with whom it has established
relationships.
CONSUMER LOANS. Troy Hill offers consumer loans, although such lending
activity has not historically been a large part of its business. Troy Hill
has been originating consumer loans in recent years in order to provide a
full range of financial services to its customers and because such loans
generally have shorter terms and higher interest rates than mortgage loans.
At September 30, 1996, $3.5 million or 3.8% of Troy Hill's total loan
portfolio (including loans classified as held for sale) consisted of consumer
loans. The consumer loans offered by Troy Hill include home equity and
improvement loans, deposit account secured loans and, to a much lesser
extent, automobile loans. Most of Troy Hill's consumer loans are secured and
are primarily obtained through existing and walk-in customers.
In recent years, Troy Hill has placed increased emphasis on home equity
and improvement loans, which have increased from $1.3 million or 2.7% of
total loans receivable at June 30, 1994 to $3.4 million or 3.73% of total
loans receivable at September 30, 1996. Troy Hill intends to continue to
increase its origination of consumer loans, primarily home equity and
improvement loans.
COMMERCIAL BUSINESS LOANS. At September 30, 1996, $1.0 million or 1.13%
of Troy Hill's total loan portfolio (including loans classified as held for
sale) consisted of commercial lease financings. During fiscal 1990, Troy
Hill began to purchase participation interests in pools of leases of general
commercial chattel from an investment consulting and loan servicing firm
located in Monroeville, Pennsylvania. Such commercial leases consisted
generally of furniture and equipment financing loans. Such commercial leases
generally had shorter terms and higher interest rates than traditional
mortgage loans but also involved a higher level of credit risk because of the
type and nature of the collateral and, in certain cases, the absence of
collateral. In most cases, any repossessed collateral for a defaulted
commercial lease will not provide an adequate source of repayment because of
improper repair and maintenance of the underlying security. Troy Hill ceased
purchasing such participation interests in fiscal 1992 based on an increase
in delinquencies with respect to some of the pools and because some of the
participation interests in pools it had acquired began to sustain some
losses. However, in April 1996, THB began originating, to a limited extent,
commercial lease financings directly. At September 30, 1996, $165,000 of
commercial lease financings were delinquent 60 days or more.
LOAN FEE INCOME. In addition to interest earned on loans, Troy Hill
receives income from fees in connection with loan originations, loan
modifications, late payments, prepayments and for miscellaneous services
related to its loans. Income from these activities varies from period to
period with the volume and type of loans made and competitive conditions.
Troy Hill charges loan origination fees which are calculated as a
percentage of the amount borrowed. Loan origination and commitment fees and
all incremental direct loan origination costs are deferred and recognized
over the contractual remaining lives of the related loans on a level yield
basis. Discounts and premiums on loans purchased are accrued and
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amortized in the same manner. In accordance with SFAS No. 91, Troy Hill has
recognized $31,000, $141,000, $169,000 and $250,000 of amortized deferred
loan fees in income during the three months ended September 30, 1996 and the
years ended June 30, 1996, 1995 and 1994, respectively.
ASSET QUALITY
GENERAL. When a borrower fails to make a required payment on a loan,
Troy Hill attempts to cure the deficiency by contacting the borrower and
seeking payment. Contacts are generally made on the twentieth day after a
payment is due. In most cases, deficiencies are cured promptly. If a
delinquency extends beyond 20 days, the loan and payment history is reviewed
and efforts are made to collect the loan. While Troy Hill generally prefers
to work with borrowers to resolve such problems, when the account becomes 90
days delinquent, Troy Hill does institute foreclosure or other proceedings,
as necessary, to minimize any potential loss.
Loans are placed on non-accrual status when, in the judgment of
management, the probability of collection of interest is deemed to be
insufficient to warrant further accrual. When a loan is placed on
non-accrual status, previously accrued but unpaid interest is deducted from
interest income. As a matter of policy, Troy Hill does not accrue interest
on loans past due 90 days or more except when the estimated value of the
collateral and collection efforts are deemed sufficient to ensure full
recovery.
Real estate acquired by Troy Hill as a result of foreclosure or by
deed-in-lieu of foreclosure are classified as real estate owned until sold.
Pursuant to a statement of position ("SOP 92-3") issued by the American
Institute of Certified Public Accountants in April 1992, which provides
guidance on determining the balance sheet treatment of foreclosed assets in
annual financial statements for periods ending on or after December 15, 1992,
there is a rebuttable presumption that foreclosed assets are held for sale
and such assets are recommended to be carried at the lower of fair value
minus estimated costs to sell the property, or cost (generally the balance of
the loan on the property at the date of acquisition). After the date of
acquisition, all costs incurred in maintaining the property are expensed and
costs incurred for the improvement or development of such property are
capitalized up to the extent of fair value. Troy Hill's accounting for its
real estate owned complies with the guidance set forth in SOP 92-3.
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DELINQUENT LOANS. The following table sets forth
information concerning delinquent loans at September 30, 1996 in
dollar amount and as a percentage of Troy Hill's total loan
portfolio. The amounts presented represent the total outstanding
principal balances of the related loans, rather than the actual
payment amounts which are past due.
<TABLE>
<CAPTION>
Single-family Multi-family Nonresidential
Residential Residential Real Estate Construction
-------------------- ------------------ ------------------- ------------------
Amount Percentage Amount Percentage Amount Percentage Amount Percentage
-------- ----------- ------- ---------- ------- ---------- ------- ----------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Loans delinquent for:
30-59 days $1,383 1.53% $ -- --% $ -- --% $ -- --%
60-89 days 114 .13 -- -- -- -- 1,282 1.42
90 days and over 299 .33 184 .20 357 .39 -- --
----- ---- ----- ---- ---- ---- ------ -----
Total delinquent loans $1,796 1.99% $184 .20% $357 .39% $1,282 1.42%
------ ---- ----- ---- ---- ---- ------ -----
------ ---- ----- ---- ---- ---- ------ -----
</TABLE>
<TABLE>
<CAPTION>
Commercial
Consumer Business Total
------------------- -------------------- ---------------------
Amount Percentage Amount Percentage Amount Percentage
------ ----------- ------ ---------- ------ ------------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Loans delinquent for:
30-59 days $ 49 .05% $ 4 --% $1,436 1.59%
60-89 days 31 .03 27 .03 1,454 1.60
90 days and over 50 .06 138 .16 1,028 1.14
---- ---- ---- ---- ------ -----
Total delinquent loans $130 .14% $169 .19% $3,918 4.33%
---- ---- ---- ---- ------ -----
---- ---- ---- ---- ------ -----
</TABLE>
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NON-PERFORMING ASSETS. The following table sets forth the
amounts and categories of Troy Hill's non-performing assets at the
dates indicated. Troy Hill did not have any troubled debt
restructurings at any of the dates presented.
<TABLE>
<CAPTION>
June 30,
September 30, -------------------------------
1996 1996 1995 1994
------------ ------ ------ ------
(Dollars in Thousands)
<S> <C> <C> <C> <C>
Non-accruing loans:
Single-family residential $ 106 $-- $ 110 $ --
Multi-family residential -- -- -- --
Nonresidential real estate -- -- -- 104
Construction -- -- -- --
Consumer 138 24 -- --
Commercial business 171 146 224 461
------ ----- ----- -----
Total non-accruing loans 415 170 334 565
Accruing loans greater than
90 days delinquent:
Single-family residential 299 714 1,541 708
Multi-family residential 184 105 112 --
Nonresidential real estate -- -- -- --
Construction -- -- -- --
Consumer -- -- 1 14
Commercial business -- -- -- --
------ ----- ----- -----
Total accruing loans
greater than 90 days
delinquent 483 819 1,654 722
------ ----- ----- -----
Total non-performing loans 898 989 1,988 1,287
Real estate owned 483 462 329 16
------ ----- ----- -----
Total non-performing assets $1,381 $1,451 $2,317 $1,303
------ ----- ----- -----
------ ----- ----- -----
Total non-performing loans as a
percentage of total loans .99% 1.22% 3.39% 2.67%
------ ----- ----- -----
------ ----- ----- -----
Total non-performing assets as a
percentage of total assets 1.39% 1.57% 3.09% 2.03%
------ ----- ----- -----
------ ----- ----- -----
</TABLE>
______________
(1) Includes loans classified as held for sale.
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During the three months ended September 30, 1996 and the years
ended June 30, 1996, 1995 and 1994 approximately $6,000, $23,000,
$41,000 and $54,000, respectively, of interest would have been
recorded on loans accounted for on a non-accrual basis if such
loans had been current according to the original loan agreements
for the entire period. These amounts were not included in Troy
Hill's interest income for the respective periods. The amount of
interest income on loans accounted for on a non-accrual basis and
loans greater than 90 days past due and still accruing that was
included in income during the same periods amounted to
approximately $21,000, $52,000, $83,000 and $36,000, respectively.
CLASSIFIED ASSETS. Federal regulations require that each
insured savings association classify its assets on a regular basis.
In addition, in connection with examinations of insured
institutions, federal examiners have authority to identify problem
assets and, if appropriate, classify them. There are three
classifications for problem assets: "substandard," "doubtful" and
"loss." Substandard assets have one or more defined weaknesses and
are characterized by the distinct possibility that the insured
institution will sustain some loss if the deficiencies are not
corrected. Doubtful assets have the weaknesses of substandard
assets with the additional characteristic that the weaknesses make
collection or liquidation in full, on the basis of currently
existing facts, conditions, and values, questionable, and there is
a high possibility of loss. An asset classified loss is considered
uncollectible and of such little value that continuance as an asset
of the institution is not warranted. Another category designated
"special mention" also must be established and maintained for
assets which do not currently expose an insured institution to a
sufficient degree of risk to warrant classification as substandard,
doubtful or loss.
At September 30, 1996, Troy Hill had $734,000 of assets
classified substandard, $225,000 of assets classified doubtful,
$169,000 of assets classified as loss and $210,000 of assets
classified special mention.
ALLOWANCE FOR LOAN LOSSES. Troy Hill's policy is to establish
reserves for estimated losses on delinquent loans when it
determines that losses are expected to be incurred on such loans.
The allowance for losses on loans is maintained at a level believed
adequate by management to absorb potential losses in the portfolio.
Management's determination of the adequacy of the allowance is
based on an evaluation of the portfolio, past loss experience,
current economic conditions, volume, growth and composition of the
portfolio, and other relevant factors. The allowance is increased
by provisions for loan losses which are charged against income.
Effective December 21, 1993, the OTS, in conjunction with the
Office of the Comptroller of the Currency, the FDIC and the FRB,
issued an Interagency Policy Statement on the Allowance for Loan
and Lease Losses ("Policy Statement"). The Policy Statement, which
effectively superseded the proposed guidance issued on September 1,
1992, includes guidance (i) on the responsibilities of management
for the assessment and establishment of an adequate allowance and
(ii) for the agencies' examiners to use in evaluating the adequacy
of such allowance and the policies utilized to determine such
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allowance. The Policy Statement also sets forth quantitative
measures for the allowance with respect to assets classified
substandard and doubtful and with respect to the remaining portion
of an institution's loan portfolio. Specifically, the Policy
Statement sets forth the following quantitative measures which
examiners may use to determine the reasonableness of an allowance:
(i) 50% of the portfolio that is classified doubtful; (ii) 15% of
the portfolio that is classified substandard; and (iii) for the
portions of the portfolio that have not been classified (including
loans designated special mention), estimated credit losses over the
upcoming twelve months based on facts and circumstances available
on the evaluation date. While the Policy Statement sets forth this
quantitative measure, such guidance is not intended as a "floor" or
"ceiling."
The following table sets forth an analysis of Troy Hill's
allowance for loan and lease losses during the periods indicated.
<TABLE>
<CAPTION>
Three Months Ended
September 30, Year Ended June 30,
------------------ ----------------------------
1996 1995 1996 1995 1994
------- ------- ------ ------ ------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C>
Total loans outstanding $90,501 $58,217 $81,091 $58,039 $48,177
------- ------- ------- ------- -------
------- ------- ------- ------- -------
Average net loans outstanding $80,149 $57,338 $61,934 $46,194 $39,489
------- ------- ------- ------- -------
------- ------- ------- ------- -------
Balance at beginning of period $ 660 $ 667 $ 667 $ 700 $ 629
Charge-offs (3) -- (227) (43) (9)
Recoveries -- -- -- -- --
------- ------- ------- ------- -------
Net charge-offs (3) -- (227) (43) (9)
Provision for loan and lease losses 30 30 220 10 80
------- ------- ------- ------- -------
Balance at end of period $ 687 $ 697 $ 660 $ 667 $ 700
------- ------- ------- ------- -------
------- ------- ------- ------- -------
Allowance for loan and lease losses
as a percent of total
loans outstanding .76% 1.20% 0.81% 1.15% 1.45%
------- ------- ------- ------- -------
------- ------- ------- ------- -------
Ratio of net charge-offs to average
loans outstanding .004% --% 0.37% 0.09% 0.02%
------- ------- ------- ------- -------
------- ------- ------- ------- -------
</TABLE>
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The following table sets forth information concerning the allocation of
Troy Hill's allowance for loan losses by loan category at the dates indicated.
<TABLE>
<CAPTION>
June 30,
September 30, ------------------------------------------------------------------
1996 1996 1995 1994
--------------------- -------------------- --------------------- --------------------
Percent of Percent of Percent of Percent of
Loans to Loans to Loans to Loans to
Amount Total Loans Amount Total Loans Amount Total Loans Amount Total Loans
------ ----------- ------ ----------- ------ ----------- ------ -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
(Dollars in Thousands)
Single-family residential $342 66.13% $315 62.38% $278 66.47% $168 61.00%
Multi-family residential 10 6.43 10 6.53 -- 0.91 -- 1.18
Nonresidential real estate 20 7.66 20 9.42 -- 7.18 -- 2.53
Construction 150 14.81 150 16.87 158 19.94 119 30.20
Consumer 25 3.84 20 4.06 15 4.59 5 2.94
Commercial business 145 1.13 145 0.74 216 0.91 408 2.15
--- ------ --- ------ --- ------ --- ------
Total $687 100.00% $660 100.00% $667 100.00% $700 100.00%
--- ------ --- ------ --- ------ --- ------
--- ------ --- ------ --- ------ --- ------
</TABLE>
Management of Troy Hill believes that the reserves it has established
are adequate to cover any potential losses in THB's loan portfolio. However,
future adjustments to these reserves may be necessary, and THB's results of
operations could be adversely affected if circumstances differ substantially
from the assumptions used by management in making its determinations in this
regard.
MORTGAGE-BACKED SECURITIES
Troy Hill invests in a portfolio of mortgage-backed securities which are
insured or guaranteed by the FHLMC, the FNMA and/or the GNMA. To a much more
limited extent, Troy Hill also invests in collateralized mortgage obligations
("CMOs"), which are securities collateralized by FNMA and FHLMC
mortgage-backed securities. Mortgage-backed securities and CMOs increase the
quality of Troy Hill's assets by virtue of the guarantees that back them, are
more liquid than individual mortgage loans and may be used to collateralize
borrowings or other obligations of Troy Hill.
Mortgage-backed securities typically are issued with stated principal
amounts, and the securities are backed by pools of mortgages that have loans
with interest rates that are within a range and have varying maturities. The
underlying pool of mortgages, i.e., fixed- rate or adjustable-rate, as well
as prepayment risk, are passed on to the certificate holder. The life of a
mortgage-backed pass-through security thus approximates the life of the
underlying mortgages.
As discussed above, Troy Hill's mortgage-backed securities include CMOs,
which include securities issued by entities which have qualified under the
Code as Real Estate Mortgage Investment Conduits ("REMICs"). CMOs and REMICs
(collectively CMOs) have been developed in response to investor concerns
regarding the uncertainty of cash flows associated with the prepayment option
of the underlying mortgagor and are typically issued
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by governmental agencies, government sponsored enterprises and special
purpose entities, such as trusts, corporations or partnerships, established
by financial institutions or other similar institutions. A CMO can be
collateralized by loans or securities which are insured or guaranteed by the
FNMA, the FHLMC or the GNMA. In contrast to pass-through mortgage-backed
securities, in which cash flow is received pro rata by all security holders,
the cash flow from the mortgages underlying a CMO is segmented and paid in
accordance with a predetermined priority to investors holding various CMO
classes. By allocating the principal and interest cash flows from the
underlying collateral among the separate CMO classes, different classes of
bonds are created, each with its own stated maturity, estimated average life,
coupon rate and prepayment characteristics.
At September 30, 1996, the carrying value of Troy Hill's mortgage-backed
securities amounted to $2.4 million, which represented 2.4% of Troy Hill's
$99.5 million of total assets at that date. All of Troy Hill's $2.4 million
of mortgage-backed securities at September 30, 1996 were directly or
indirectly insured or guaranteed by federal agencies, and $1.3 million or
54.2% of the total portfolio had fixed rates of interest and $1.1 million or
45.8% of the total portfolio had adjustable rates of interest.
The following table sets forth the activity in Troy Hill's
mortgage-backed securities portfolio during the periods indicated.
<TABLE>
<CAPTION>
At or For the
Three Months Ended At or For the Year
September 30, Ended June 30,
---------------------- ------------------------------------
1996 1995 1996 1995 1994
------- ------- ------ ------- -------
<S> <C> <C> <C> <C> <C>
(Dollars in Thousands)
Mortgage-backed securities at
beginning of period $5,155 $7,069 $7,069 $ 5,902 $3,254
Purchases -- -- -- 3,357 4,345
Sales (2,548) (327) (937) (1,615) (250)
Repayments (175) -- (1,014) (691) (1,442)
Amortization of premiums (4) -- (5) (2) (5)
Market value adjustment (17) (15) 42 118 --
----- ----- ----- ----- -----
Mortgage-backed securities at end of
period(1) $2,411 $6,727 $5,155 $7,069 $5,902
----- ----- ----- ----- -----
----- ----- ----- ----- -----
Weighted average yield at end of period 7.98% 6.81% 6.98% 6.85% 5.86%
</TABLE>
- ----------------
(1) At September 30, 1996 and 1995 and June 30, 1996, 1995 and
1994, all of such mortgage-backed securities were classified
as available for sale.
92
<PAGE>
As of September 30, 1996, all of Troy Hill's $2.4 million of
mortgage-backed securities with a weighted average yield of 7.98% are
scheduled to mature in over 10 years. Due to prepayments of the underlying
loans, the actual maturities of mortgage-backed securities are substantially
less than the scheduled maturities.
INVESTMENT SECURITIES
Troy Hill invests in various types of securities, including U.S.
Government and agency securities, securities of various state and municipal
agencies and corporate obligations.
Troy Hill's investment securities portfolio is managed by the Treasurer
of Troy Hill in accordance with a comprehensive investment policy which
addresses strategies, types and levels of allowable investments and which is
reviewed and approved by the Board of Directors on an annual basis. The
management of the investment securities portfolio is set in accordance with
strategies developed by Troy Hill's Asset and Liability Committee.
93
<PAGE>
The following table sets forth certain information relating to
Troy Hill's investment securities portfolio at the dates indicated.
<TABLE>
<CAPTION>
June 30,
September 30, -----------------------------------------------------------------
1996 1996 1995 1994
------------------- ------------------- ------------------ -------------------
Carrying Market Carrying Market Carrying Market Carrying Market
Value Value Value Value Value Value Value Value
-------- ------ -------- ------ -------- ------ -------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
(Dollars in Thousands)
Held-to-Maturity:
U.S. Government and
agency securities $ -- $ -- $ -- $ -- $ 2,843 $ 2,737 $6,017 $5,861
Municipal obligations -- -- -- -- 4,200 4,161 3,700 3,583
Corporate obligations -- -- -- -- 258 236 258 244
----- ----- ----- ----- ------ ------ ----- -----
-- -- -- -- 7,301 7,134 9,975 9,688
----- ----- ----- ----- ------ ------ ----- -----
Available-for-Sale:
U.S. Government and
agency securities 2,467 2,467 2,452 2,452 1,012 1,012 -- --
Corporate obligations 4,124 4,124 4,124 4,124 2,750 2,750 -- --
----- ----- ----- ----- ------ ------ ----- -----
Total investment securities $6,591 $6,591 $6,576 $6,576 $11,063 $10,896 $9,975 $9,688
----- ----- ----- ----- ------ ------ ----- -----
----- ----- ----- ----- ------ ------ ----- -----
</TABLE>
94
<PAGE>
Information regarding the carrying values, contractual maturities and
weighted average yield of Troy Hill's investment and mortgage-backed
securities portfolio (including securities classified as available for sale)
at September 30, 1996 is presented below.
<TABLE>
<CAPTION>
At September 30, 1996
------------------------------------------------------------------
One Year After One to After Five to Over 10
or Less Five Years 10 Years Years Total
-------- ------------ ------------- --------- ------
<S> <C> <C> <C> <C> <C>
(Dollars in Thousands)
U.S. Government and
agency securities $ 246 $1,246 $ 975 $ -- $2,467
Collaterized mortgage
obligations -- -- -- 488 488
Mortgage-backed securities -- -- -- 1,924 1,924
Corporate equity securities -- -- 228 3,896 4,124
---- ----- ----- ----- -----
Total $ 246 $1,246 $1,203 $6,308 $9,003
---- ----- ----- ----- -----
---- ----- ----- ----- -----
Weighted average yield 4.37% 4.77% 6.72% 7.23% 6.74%
---- ----- ----- ----- -----
---- ----- ----- ----- -----
</TABLE>
95
<PAGE>
SOURCES OF FUNDS
GENERAL. Troy Hill's principal source of funds for use in lending and
for other general business purposes has traditionally come from deposits
obtained through Troy Hill's offices. Troy Hill also derives funds from
amortization and prepayments of outstanding loans and mortgage-backed
securities, from sales of loans, from maturing investment securities and from
advances from the FHLB of Pittsburgh. Loan repayments are a relatively
stable source of funds, while deposit inflows and outflows are significantly
influenced by general interest rates and money market conditions. Borrowings
may be used on a short-term basis to compensate for reductions in the
availability of funds from other sources. They may also be used on a longer
term basis for general business purposes.
DEPOSITS. Troy Hill's current deposit products include passbook
accounts, negotiable order of withdrawal ("NOW") accounts, money market
deposit accounts, and certificates of deposit ranging in terms from 180 days
to five years. Included among these deposit products are $968,000 of
certificates of deposit with balances of $100,000 or more, which amounted to
.02% of Troy Hill's total deposits at September 30, 1996. Troy Hill's
deposit products also include Individual Retirement Account certificates
("IRA certificates").
Troy Hill's deposits are obtained primarily from residents of northern
Allegheny County, Pennsylvania. Troy Hill attracts deposit accounts by
offering a wide variety of accounts, competitive interest rates, and
convenient service hours. Troy Hill utilizes traditional marketing methods
to attract new customers and savings deposits, including print media
advertising and direct mailings. Troy Hill does not advertise for deposits
outside of its local market area or utilize the services of deposit brokers,
and management believes that an insignificant number of deposit accounts were
held by non-residents of Pennsylvania at September 30, 1996.
Troy Hill has been competitive in the types of accounts and in interest
rates it has offered on its deposit products but does not necessarily seek to
match the highest rates paid by competing institutions. With the significant
decline in interest rates paid on deposit products, Troy Hill has experienced
disintermediation of deposits into competing investment products. Troy Hill
intends to continue its efforts to attract deposits as a principal source of
funds for supporting its lending and investment activities. Although market
demand generally dictates which deposit maturities and rates will be accepted
by the public, Troy Hill intends to continue to promote longer term deposits
to the extent possible and consistent with its asset and liability management
goals.
96
<PAGE>
The following tables sets forth the dollar amount of deposits in
the various types of deposit programs offered by Troy Hill at the dates
indicated.
<TABLE>
<CAPTION>
June 30,
September 30, --------------------------------------------------------------------
1996 1996 1995 1994
------------------- -------------------- -------------------- --------------------
Amount Percentage Amount Percentage Amount Percentage Amount Percentage
------ ---------- ------ ---------- ------ ---------- ------ ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
(Dollars in Thousands)
Certificate accounts:
2.00 - 4.00% $ -- --% $ 16 0.03% $ 1,162 2.30% $11,180 26.36%
4.01 - 6.00% 22,411 42.56 25,614 47.47 14,724 29.09 7,572 17.85
6.01 - 8.00% 12,147 23.07 9,464 17.54 15,214 30.06 1,897 4.47
8.01 - 10.00% 30 .06 30 0.05 610 1.21 918 2.16
Greater than 10.00% -- -- -- -- 43 0.08 145 0.34
------ ------ ------ ------ ------ ------ ------ ------
Total certificate accounts 34,588 65.69 35,124 65.09 31,753 62.74 21,712 51.18
Transaction accounts:
Passbook accounts 12,540 23.82 12,276 22.75 12,629 24.95 14,710 34.69
Money market accounts 3,367 6.39 2,359 4.37 3,542 5.31 3,105 7.32
NOW accounts 2,160 4.10 4,201 7.79 2,686 7.00 2,883 6.81
------ ------ ------ ------ ------ ------ ------ ------
Total transaction accounts 18,067 34.31 18,836 34.91 18,857 37.26 20,698 48.82
------ ------ ------ ------ ------ ------ ------ ------
Total deposits $52,655 100.00% $53,960 100.00% $50,610 100.00% $42,410 100.00%
------ ------ ------ ------ ------ ------ ------ ------
------ ------ ------ ------ ------ ------ ------ ------
</TABLE>
97
<PAGE>
The following table sets forth the savings activities of Troy Hill
during the periods indicated.
<TABLE>
<CAPTION>
Three Months Ended
September 30 Year Ended June 30,
--------------------- ---------------------------------
1996 1995 1996 1995 1994
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
(In Thousands)
Deposits $19,311 $18,309 $69,788 $57,230 $69,303
Withdrawals (21,053) (17,616) (68,468) (50,583) (74,912)
------ ----- ------ ------ ------
Net increase (decrease)
before interest credited (1,742) 693 1,320 6,647 (5,609)
Interest credited 437 443 2,030 1,553 1,294
------ ----- ------ ------ ------
Net increase (decrease)
in deposits $(1,305) $1,136 $ 3,350 $ 8,200 $(4,315)
------ ----- ------ ------ ------
------ ----- ------ ------ ------
</TABLE>
The following table shows the interest rate and maturity information for
Troy Hill's certificates of deposit at September 30, 1996.
Maturity Date
--------------------------------------------------------
One Year Over Over Over
or Less 1-2 Years 2-3 Years 3 Years Total
---------- --------- --------- ------- -------
(In Thousands)
2.00 - 4.00% $ -- $ -- $ -- $ -- $ --
4.01 - 6.00% 16,402 3,072 2,374 563 22,411
6.01 - 8.00% 1,434 9,461 -- 1,252 12,147
8.01 - 10.00% -- -- 30 -- 30
Greater than 10.00% -- -- -- -- --
------ ------ ----- ----- ------
Total $17,836 $12,533 $2,404 $1,815 $34,588
------ ------ ----- ----- ------
------ ------ ----- ----- ------
98
<PAGE>
The following table sets forth the maturities of Troy Hill's certificates of
deposit having principal amounts of $100,000 or more at September 30, 1996.
Certificates of deposit maturing in quarter ending:
_______________________________________________________________________________
<TABLE>
<S> <C>
(In Thousands)
December 31, 1996 $100
March 31, 1997 --
June 30, 1997 --
September 30, 1997 101
After September 30, 1997
767
----
Total certificates of deposit with
balances of $100,000 or more $968
----
----
</TABLE>
BORROWINGS. Troy Hill may obtain advances from the FHLB of Pittsburgh
upon the security of the common stock it owns in that bank and certain of its
residential mortgage loans, provided certain standards related to credit
worthiness have been met. Such advances are made pursuant to several credit
programs, each of which has its own interest rate and range of maturities.
Such advances are generally available to meet seasonal and other withdrawals
of deposit accounts and to permit increased lending. At September 30, 1996,
Troy Hill had $27.0 million of advances from the FHLB of Pittsburgh.
The following table sets forth the maximum month-end balance and average
balance of Troy Hill's FHLB advances during the periods indicated.
<TABLE>
Three Months Ended
September 30, Year Ended June 30,
------------------ --------------------------------
1996 1995 1996 1995 1994
---- ---- ---- ---- ----
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C>
Maximum Balance $30,950 $16,450 $18,583 $7,500 $4,000
Average Balance 23,870 8,859 9,695 3,978 3,083
Weighted average interest rate
of FHLB advances 5.40% 5.55% 6.06% 6.20% 6.00%
</TABLE>
99
<PAGE>
The following table sets forth certain information as to Troy Hill's FHLB
advances at the dates indicated.
<TABLE>
September 30, June 30,
-----------------------------------
1996 1996 1995 1994
------------- ------ ------ ------
(Dollars in Thousands)
<S> <C> <C> <C> <C>
FHLB advances $26,950 $18,583 $5,750 $3,000
Interest rate on FHLB advances 6.21% 5.78% 6.05% 6.17%
</TABLE>
OFFICES
At September 30, 1996, THB conducted its business from its headquarters
and main office at 1706 Lowrie Street, Pittsburgh, Pennsylvania 15212. THB
owns its office, which had a net book value at September 30, 1996, of
$371,000. In September 1993, Troy Hill leased an additional office located
at 11279 Perry Highway, Wexford, Pennsylvania 15090, which had leasehold
improvements amounting to $1,000 at September 30, 1996. The estimated net
book value of the electronic data processing equipment owned by THB was
$42,000 at September 30, 1996.
COMPETITION
Troy Hill faces significant competition in attracting deposits. Its
most direct competition for deposits has historically come from commercial
banks and other savings institutions located in its market area. Troy Hill
faces additional significant competition for investors' funds from other
financial intermediaries. Troy Hill competes for deposits principally by
offering depositors a variety of deposit programs, convenient hours and other
services. Troy Hill does not rely upon any individual group or entity for a
material portion of its deposits.
Troy Hill's competition for real estate loans comes principally from
mortgage banking companies, other savings institutions, commercial banks and
credit unions. Troy Hill competes for loan originations primarily through
the interest rates and loan fees it charges, the efficiency and quality of
services it provides borrowers, referrals from real estate brokers and
builders, and the variety of its products. Factors which affect competition
include the general and local economic conditions, current interest rate
levels and volatility in the mortgage markets. Troy Hill holds only a small
portion of the large deposit and lending market it shares with many other
financial institutions, many of whom are much larger, offer a wider array of
products and services and have substantially greater resources available as
compared to Troy Hill.
100
<PAGE>
FIRREA eliminated many of the distinctions between commercial banks and
savings institutions and holding companies and allowed bank holding companies
to acquire savings institutions. FIRREA has generally resulted in an
increase in the competition encountered by savings institutions and has
resulted in a decrease in both the number of savings institutions and the
aggregate size of the savings industry.
EMPLOYEES
Troy Hill had 18 full-time employees and two part-time employees as of
September 30, 1996. None of these employees is represented by a collective
bargaining agent. Troy Hill believes that it enjoys good relations with its
personnel.
REGULATION AND SUPERVISION OF THB
Set forth below is a brief description of certain laws and regulations
which relate to the regulation of THB and Troy Hill. The description of these
laws and regulations, as well as descriptions of laws and regulations contained
elsewhere herein, does not purport to be complete and is qualified in its
entirety by reference to applicable laws and regulations.
Both PennFirst and THB are unitary savings and loan holding companies
subject to the provisions of the Home Owners' Loan Act ("HOLA") and the
regulations of the OTS. Upon consummation of the Merger, PennFirst will become
a multiple savings and loan holding company unless and until Troy Hill is merged
with and into ESBB. PennFirst does not anticipate that its status as a multiple
savings and loan holding company upon consummation of the Merger will have any
material effect upon its operations. Both Troy Hill and ESBB are federally
chartered savings institutions subject to the same regulations and OTS oversight
and supervision. The Merger will have no effect upon Troy Hill's status as a
federally chartered savings institution.
THB
GENERAL. THB, as a savings and loan holding company within the
meaning of the HOLA, is subject to OTS regulations, examinations, supervision
and reporting requirements. As a subsidiary of a savings and loan holding
company, Troy Hill is subject to certain restrictions in its dealings with
THB and affiliates thereof.
ACTIVITIES RESTRICTIONS. There are generally no restrictions on
the activities of a savings and loan holding company which holds only one
subsidiary savings association. However, if the Director of the OTS
determines that there is reasonable cause to believe that the continuation by
a savings and loan holding company of an activity constitutes a serious risk
to the financial safety, soundness or stability of its subsidiary savings
association, the Director may impose such restrictions as deemed necessary to
address such risk, including limiting (i) payment of dividends by the savings
association; (ii) transactions
101
<PAGE>
between the savings association and its affiliates; and (iii) any activities
of the savings association that might create a serious risk that the
liabilities of the holding company and its affiliates may be imposed on the
savings association. Notwithstanding the above rules as to permissible
business activities of unitary savings and loan holding companies, if the
savings association subsidiary of such a holding company fails to meet a
qualified thrift lender ("QTL") test, then such unitary holding company also
shall become subject to the activities restrictions applicable to multiple
savings and loan holding companies and, unless the savings association
requalifies as a QTL within one year thereafter, shall register as, and
become subject to the restrictions applicable to, a bank holding company.
See "- Troy Hill -Qualified Thrift Lender Test."
If THB were to acquire control of another savings association,
other than through merger or other business combination with Troy Hill, THB
would thereupon become a multiple savings and loan holding company. Except
where such acquisition is pursuant to the authority to approve emergency
thrift acquisitions and where each subsidiary savings association meets the
QTL test, as set forth below, the activities of THB and any of its
subsidiaries (other than Troy Hill or other subsidiary savings associations)
would thereafter be subject to further restrictions. Among other things, no
multiple savings and loan holding company or subsidiary thereof which is not
a savings association shall commence or continue for a limited period of time
after becoming a multiple savings and loan holding company or subsidiary
thereof any business activity, upon prior notice to, and no objection by the
OTS, other than: (i) furnishing or performing management services for a
subsidiary savings association; (ii) conducting an insurance agency or escrow
business; (iii) holding, managing, or liquidating assets owned by or acquired
from a subsidiary savings association; (iv) holding or managing properties
used or occupied by a subsidiary savings association; (v) acting as trustee
under deeds of trust; (vi) those activities authorized by regulation as of
March 5, 1987 to be engaged in by multiple savings and loan holding
companies; or (vii) unless the Director of the OTS by regulation prohibits or
limits such activities for savings and loan holding companies, those
activities authorized by the FRB as permissible for bank holding companies.
Those activities described in (vii) above also must be approved by the
Director of the OTS prior to being engaged in by a multiple savings and loan
holding company.
LIMITATIONS ON TRANSACTIONS WITH AFFILIATES. Transactions between
savings associations and any affiliate are governed by Sections 23A and 23B
of the Federal Reserve Act. An affiliate of a savings association is any
company or entity which controls, is controlled by or is under common control
with the savings association. In a holding company context, the parent
holding company of a savings association (such as THB) and any companies
which are controlled by such parent holding company are affiliates of the
savings association. Generally, Sections 23A and 23B (i) limit the extent to
which the savings association or its subsidiaries may engage in "covered
transactions" with any one affiliate to an amount equal to 10% of such
association's capital stock and surplus, and contain an aggregate limit on
all such transactions with all affiliates to an amount equal to 20% of such
capital stock and surplus and (ii) require that all such transactions be on
terms substantially the same, or at least as favorable, to the association or
subsidiary as those
102
<PAGE>
provided to a non-affiliate. The term "covered transaction" includes the
making of loans, purchase of assets, issuance of a guarantee and similar
other types of transactions. In addition to the restrictions imposed by
Sections 23A and 23B, no savings association may (i) loan or otherwise extend
credit to an affiliate, except for any affiliate which engages only in
activities which are permissible for bank holding companies, or (ii) purchase
or invest in any stocks, bonds, debentures, notes or similar obligations of
any affiliate, except for affiliates which are subsidiaries of the savings
association.
In addition, Sections 22(h) and (g) of the Federal Reserve Act
places restrictions on loans to executive officers, directors and principal
stockholders. Under Section 22(h), loans to a director, an executive officer
and to a greater than 10% stockholder of a savings association, and certain
affiliated interests of either, may not exceed, together with all other
outstanding loans to such person and affiliated interests, the association's
loans to one borrower limit (generally equal to 15% of the institution's
unimpaired capital and surplus). Section 22(h) also requires that loans to
directors, executive officers and principal stockholders be made on terms
substantially the same as offered in comparable transactions to other persons
and also requires prior board approval for certain loans. In addition, the
aggregate amount of extensions of credit by a savings association to all
insiders cannot exceed the association's unimpaired capital and surplus.
Furthermore, Section 22(g) places additional restrictions on loans to
executive officers. At September 30, 1996, Troy Hill was in compliance with
the above restrictions.
RESTRICTIONS ON ACQUISITIONS. Except under limited circumstances,
savings and loan holding companies are prohibited from acquiring, without
prior approval of the Director of the OTS, (i) control of any other savings
association or savings and loan holding company or substantially all the
assets thereof or (ii) more than 5% of the voting shares of a savings
association or holding company thereof which is not a subsidiary. Except
with the prior approval of the Director of the OTS, no director or officer of
a savings and loan holding company or person owning or controlling by proxy
or otherwise more than 25% of such company's stock, may acquire control of
any savings association, other than a subsidiary savings association, or of
any other savings and loan holding company.
The Director of the OTS may only approve acquisitions resulting in
the formation of a multiple savings and loan holding company which controls
savings associations in more than one state if (i) the multiple savings and
loan holding company involved controls a savings association which operated a
home or branch office located in the state of the association to be acquired
as of March 5, 1987; (ii) the acquiror is authorized to acquire control of
the savings association pursuant to the emergency acquisition provisions of
the Federal Deposit Insurance Act; or (iii) the statutes of the state in
which the association to be acquired is located specifically permit
institutions to be acquired by the state-chartered associations or savings
and loan holding companies located in the state where the acquiring entity is
located (or by a holding company that controls such state-chartered savings
associations).
103
<PAGE>
FIRREA amended provisions of the Bank Holding Company Act of 1956
to specifically authorize the FRB to approve an application by a bank holding
company to acquire control of a savings association. FIRREA also authorized
a bank holding company that controls a savings association to merge or
consolidate the assets and liabilities of the savings association with, or
transfer assets and liabilities to, any subsidiary bank which is a member of
the Bank Insurance Fund ("BIF") with the approval of the appropriate federal
banking agency and the FRB. As a result of these provisions, there have been
a number of acquisitions of savings associations by bank holding companies in
recent years.
TROY HILL
GENERAL. The OTS has extensive authority over the operations of
savings associations. As part of this authority, savings associations are
required to file periodic reports with the OTS and are subject to periodic
examinations by the OTS and the FDIC. The investment and lending authority
of savings associations are prescribed by federal laws and regulations and
they are prohibited from engaging in any activities not permitted by such
laws and regulations. Those laws and regulations generally are applicable to
all federally chartered savings associations and may also apply to
state-chartered savings associations. Such regulation and supervision is
primarily intended for the protection of depositors.
FIRREA imposed limitations on the aggregate amount of loans that a
savings association could make to any one borrower, including related
entities. See "Business of Troy Hill - Lending Activities - General" for a
discussion of such limitations.
The OTS' enforcement authority over all savings associations and
their holding companies was substantially enhanced by FIRREA. This
enforcement authority includes, among other things, the ability to assess
civil money penalties, to issue cease and desist or removal orders and to
initiate injunctive actions. In general, these enforcement actions may be
initiated for violations of laws and regulations and unsafe or unsound
practices. Other actions or inactions may provide the basis for enforcement
action, including misleading or untimely reports filed with the OTS. FIRREA
significantly increased the amount of and grounds for civil money penalties.
FIRREA requires, except under certain circumstances, public disclosure of
final enforcement actions by the OTS.
INSURANCE OF ACCOUNTS. The deposits of Troy Hill are insured up to
$100,000 per insured member (as defined by law and regulation) by the SAIF
administered by the FDIC and are backed by the full faith and credit of the
United States Government. As insurer, the FDIC is authorized to conduct
examinations of, and to require reporting by, FDIC-insured institutions. It
also may prohibit any FDIC-insured institution from engaging in any activity
the FDIC determines by regulation or order to pose a serious threat to the
FDIC. The FDIC also has the authority to initiate enforcement actions against
savings associations, after giving the OTS an opportunity to take such action.
104
<PAGE>
The FDIC may terminate the deposit insurance of any insured
depository institution, including Troy Hill, if it determines after a hearing
that the institution has engaged or is engaging in unsafe or unsound
practices, is in an unsafe or unsound condition to continue operations, or
has violated any applicable law, regulation, order or any condition imposed
by an agreement with the FDIC. It also may suspend deposit insurance
temporarily during the hearing process for the permanent termination of
insurance, if the institution has no tangible capital. If insurance of
accounts is terminated, the accounts at the institution at the time of the
termination, less subsequent withdrawals, shall continue to be insured for a
period of six months to two years, as determined by the FDIC. Management is
aware of no existing circumstances which could result in termination of Troy
Hill's deposit insurance.
The FDIC is authorized to establish separate assessment rates for
deposit insurance for members of the BIF and the SAIF. The FDIC may increase
assessment rates for either fund to restore the fund's ratio of reserves to
insured deposits to its statutorily set target level within a reasonable
time, and may decrease such assessment rates if such target level has been
met. Until the SAIF fund meets its target level, savings associations may
not transfer to the BIF fund. Furthermore, any such transfers, when
permitted, would be subject to exit and entrance fees. Under current FDIC
regulations, institutions are assigned to one of three capital groups which
are based solely on the level of an institution's capital- "well
capitalized," "adequately capitalized," and "undercapitalized" - which are
defined in the same manner as the regulations establishing the prompt
corrective action system under Section 38 of the Federal Deposit Insurance
Act ("FDIA") as discussed below. These three groups are then divided into
three subgroups which reflect varying levels of supervisory concern, from
those which are considered to be healthy to those which are considered to be
of substantial supervisory concern. The matrix so created results in nine
assessment risk classifications. The insurance premiums for Troy Hill for
the first semi-annual period in calendar 1996 was .23%.
The BIF fund met its target reserve level in September 1995, but
the SAIF was not expected to meet its target reserve level until at least
2002. Consequently, in late 1995, the FDIC approved a final rule regarding
deposit insurance premiums which, effective with respect to the semiannual
premium assessment beginning January 1, 1996, reduced deposit insurance
premiums for BIF member institutions to zero basis points (subject to an
annual minimum of $2,000) for institutions in the lowest risk category.
Deposit insurance premiums for SAIF members were maintained at their existing
levels (23 basis points for institutions in the lowest risk category).
On September 30, 1996, President Clinton signed into law
legislation which will eliminate the premium differential between
SAIF-insured institutions and BIF-insured institutions by recapitalizing the
SAIF's reserves to the required ratio. The legislation provides that all
SAIF member institutions pay a one-time special assessment to recapitalize
the SAIF, which in the aggregate will be sufficient to bring the reserve
ratio in the SAIF to 1.25% of insured deposits. The legislation also
provides for the merger of the BIF and the SAIF, with such merger being
conditioned upon the prior elimination of the thrift charter.
105
<PAGE>
Effective October 8, 1996, FDIC regulations imposed a one-time
special assessment equal to 65.7 basis points for all SAIF-assessable
deposits as of March 31, 1995, which was collected on November 27, 1996.
Troy Hill's one-time special assessment amounted to $326,000. Net of related
tax benefits, the one-time special assessment amounted to $214,000. The
payment of such special assessment will have the effect of immediately
reducing Troy Hill's capital by such an amount. Nevertheless, management
does not believe that this one-time special assessment will have a material
adverse effect on THB's consolidated financial condition or cause
non-compliance with Troy Hill's regulatory capital requirements.
On October 16, 1996, the FDIC proposed to lower assessment rates
for SAIF members to reduce the disparity in the assessment rates paid by BIF
and SAIF members. Beginning October 1, 1996, effective SAIF rates range from
zero basis points to 27 basis points. From 1997 through 1999, SAIF members
will pay 6.4 basis points to fund the Financing Corporation while BIF member
institutions will pay approximately 1.3 basis points. Troy Hill's insurance
premiums, which have amounted to 23 basis points will be reduced to 6.4 basis
points. Based upon the $53.4 million of assessable deposits at September 30,
1996, Troy Hill would expect to pay $22,000 less in insurance premiums per
quarter during 1997.
REGULATORY CAPITAL REQUIREMENTS. Federally insured savings
associations are required to maintain minimum levels of regulatory capital.
Pursuant to FIRREA, the OTS has established capital standards applicable to
all savings associations. These standards generally must be as stringent as
the comparable capital requirements imposed on national banks. The OTS also
is authorized to impose capital requirements in excess of these standards on
individual associations on a case-by-case basis.
Current OTS capital standards require savings associations to
satisfy three different capital requirements. Under these standards, savings
associations must maintain "tangible" capital equal to at least 1.5% of
adjusted total assets, "core" capital equal to at least 3% of adjusted total
assets and "total" capital (a combination of core and "supplementary"
capital) equal to at least 8.0% of "risk-weighted" assets. For purposes of
the regulation, core capital generally consists of common stockholders'
equity (including retained earnings), noncumulative perpetual preferred stock
and related surplus, minority interests in the equity accounts of fully
consolidated subsidiaries, certain nonwithdrawable accounts and pledged
deposits and "qualifying supervisory goodwill." Tangible capital is given
the same definition as core capital but does not include qualifying
supervisory goodwill and is reduced by the amount of all the savings
association's intangible assets, with only a limited exception for purchased
mortgage servicing rights. Both core and tangible capital are further
reduced by an amount equal to a savings association's debt and equity
investments in subsidiaries engaged in activities not permissible to national
banks (other than subsidiaries engaged in activities undertaken as agent for
customers or in mortgage banking activities and subsidiary depository
institutions or their holding companies). A savings association is allowed
to include both core capital and supplementary capital in the calculation of
its total capital for
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purposes of the risk-based capital requirement, provided that the amount of
supplementary capital does not exceed the savings association's core capital.
Supplementary capital generally consists of hybrid capital instruments;
perpetual preferred stock which is not eligible to be included as core
capital; subordinated debt and intermediate-term preferred stock; and,
subject to limitations, general allowances for loan losses. Assets are
adjusted under the risk-based guidelines to take into account different risk
characteristics, with the categories ranging from 0% (requiring no additional
capital) for assets such as cash to 100% for repossessed assets or loans more
than 90 days past due. Single-family residential real estate loans which are
not past-due or non-performing and which have been made in accordance with
prudent underwriting standards are assigned a 50% level in the risk-weighing
system, as are certain privately-issued mortgage-backed securities
representing indirect ownership of such loans. Off-balance sheet items also
are adjusted to take into account certain risk characteristics.
In August 1993, the OTS adopted a final rule incorporating an
interest-rate risk component into the risk-based capital regulation. Under
the rule, an institution with a greater than "normal" level of interest rate
risk will be subject to a deduction of its interest rate risk component from
total capital for purposes of calculating its risk-based capital requirement.
As a result, such an institution will be required to maintain additional
capital in order to comply with the risk-based capital requirement. An
institution with greater than "normal" interest rate risk is defined as an
institution that would suffer a loss of net portfolio value exceeding 2.0% of
the estimated market value of its assets in the event of a 200 basis point
increase or decrease (with certain minor exceptions) in interest rates. The
interest rate risk component will be calculated, on a quarterly basis, as
one-half of the difference between an institution's measured interest rate
risk and 2.0%, multiplied by the market value of its assets. The rule also
authorizes the Director of the OTS, or his designee, to waive or defer an
institution's interest rate risk component on a case-by-case basis. The
final rule was originally effective as of January 1, 1994, subject however to
a three quarter "lag" time between the reporting date of the data used to
calculate an institution's interest rate risk and the effective date of each
quarter's interest rate risk component. However, in October 1994 the
Director of the OTS indicated that it would waive the capital deductions for
associations with a greater than "normal" risk until the OTS publishes an
appeals process. The OTS has recently indicated that no savings association
will be required to deduct capital for interest rate risk until further
notice.
Effective November 28, 1994, the OTS revised its interim policy
issued in August 1993 under which savings institutions computed their
regulatory capital in accordance with SFAS No. 115, "Accounting for Certain
Investments in Debt and Equity Securities." Under the revised OTS policy,
savings institutions must value securities available for sale at amortized
cost for regulatory capital purposes. This means that in computing
regulatory capital, savings institutions should add back any unrealized
losses and deduct any unrealized gains, net of income taxes, on debt
securities reported as a separate component of GAAP capital.
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The following table sets forth certain information concerning Troy
Hill's regulatory capital at September 30, 1996.
<TABLE>
Required Actual Excess
------------------ ----------------- -----------------
% Amount % Amount % Amount
------ ------- ----- ------- ----- -------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Tangible (1) 1.50% $1,432 14.93% $14,254 13.43% $12,822
Core (1)(2) 3.00 2,865 14.93 14,254 11.93 11,389
Risk-based (3) 8.00 4,902 24.51 15,022 16.51 10,120
</TABLE>
________________________
(1) Tangible and core capital are computed as a percentage of adjusted total
assets of $95.5 million. Risk-based capital is computed as a percentage
of total risk-weighted assets of $61.3 million.
(2) Does not reflect the 4.0% requirement to be met in order for an
institution to be "adequately capitalized," under applicable regulations
as discussed below. See "- Prompt Corrective Action."
(3) Does not reflect the interest-rate risk component to the risk-based
capital requirement, the effective date of which has been postponed, as
discussed above.
PROMPT CORRECTIVE ACTION. Under Section 38 of the FDIA, as added by the
Federal Deposit Insurance Corporation Improvement Act of 1991 ("FDICIA"),
each federal banking agency is required to implement a system of prompt
corrective action for institutions which it regulates. In early September
1992, the federal banking agencies, including the OTS, adopted substantially
similar regulations which are intended to implement Section 38 of the FDIA.
These regulations became effective December 19, 1992. Under the regulations,
an institution shall be deemed to be (i) "well capitalized" if it has total
risk-based capital of 10.0% or more, has a Tier I risk-based capital ratio of
6.0% or more, has a Tier I leverage capital ratio of 5.0% or more and is not
subject to any order or final capital directive to meet and maintain a
specific capital level for any capital measure, (ii) "adequately capitalized"
if it has a total risk-based capital ratio of 8.0% or more, a Tier I
risk-based capital ratio of 4.0% or more and a Tier I leverage capital ratio
of 4.0% or more (3.0% under certain circumstances) and does not meet the
definition of "well capitalized," (iii) "undercapitalized" if it has a total
risk-based capital ratio that is less than 8.0%, a Tier I risk-based capital
ratio that is less than 4.0% or a Tier I leverage capital ratio that is less
than 4.0% (3.0% under certain circumstances), (iv) "significantly
undercapitalized" if it has a total risk-based capital ratio that is less
than 6.0%, a Tier I risk-based capital ratio that is less than 3.0% or a Tier
I leverage capital ratio that is less than 3.0%, and (v) "critically
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undercapitalized" if it has a ratio of tangible equity to total assets that
is equal to or less than 2.0%. Section 38 of the FDIA and the regulations
promulgated thereunder also specify circumstances under which a federal
banking agency may reclassify a well capitalized institution as adequately
capitalized and may require an adequately capitalized institution or an
undercapitalized institution to comply with supervisory actions as if it were
in the next lower category (except that the FDIC may not reclassify a
significantly undercapitalized institution as critically undercapitalized).
At September 30, 1996, Troy Hill was in the "well capitalized" category.
SAFETY AND SOUNDNESS. FDICIA requires each federal banking regulatory
agency to prescribe, by regulation or guideline, standards for all insured
depository institutions and depository institution holding companies relating
to (i) internal controls, information systems and audit systems; (ii) loan
documentation; (iii) credit underwriting; (iv) interest rate risk exposure;
(v) asset growth; (vi) compensation, fees and benefits; and (vii) such other
operational and managerial standards as the agency determines to be
appropriate. The compensation standards would prohibit employment contracts
or other compensatory arrangements that provide excess compensation, fees or
benefits or could lead to material financial loss. In addition, each federal
banking regulatory agency must prescribe, by regulation or guideline,
standards relating to asset quality, earnings and stock valuation as the
agency determines to be appropriate. On July 10, 1995, the federal banking
agencies, including the OTS, adopted final rules and proposed guidelines
concerning standards for safety and soundness required to be prescribed by
regulation pursuant to Section 39 of the FDIA. In general, the standards
relate to (1) operational and managerial matters; (2) asset quality and
earnings; and (3) compensation. The operational and managerial standards
cover (a) internal controls and information systems, (b) internal audit
system, (c) loan documentation, (d) credit underwriting, (e) interest rate
exposure, (f) asset growth, and (g) compensation, fees and benefits. Under
the proposed asset quality and earnings standards, Troy Hill would be
required to establish and maintain systems to (i) identify problem assets and
prevent deterioration in those assets, and (ii) evaluate and monitor earnings
and ensure that earnings are sufficient to maintain adequate capital
reserves. Finally, the proposed compensation standard states that
compensation will be considered excessive if it is unreasonable or
disproportionate to the services actually performed by the individual being
compensated. If a savings association fails to meet any of the standards
promulgated by regulation, then such institution will be required to submit a
plan within 30 days to the OTS specifying the steps it will take to correct
the deficiency. In the event that a savings association fails to submit or
fails in any material respect to implement a compliance plan within the time
allowed by the federal banking agency, Section 39 of the FDIA provides that
the OTS must order the institution to correct the deficiency and may (1)
restrict asset growth; (2) require the savings association to increase its
ratio of tangible equity to assets; (3) restrict the rates of interest that
the savings association may pay; or (4) take any other action that would
better carry out the purpose of prompt corrective action. Troy Hill believes
that it has been and will continue to be in compliance with each of the
standards as they have been adopted by the OTS.
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LIQUIDITY REQUIREMENTS. All savings associations are required to
maintain an average daily balance of liquid assets equal to a certain
percentage of the sum of its average daily balance of net withdrawable
deposit accounts and borrowings payable in one year or less. The liquidity
requirement may vary from time to time (between 4% and 10%) depending upon
economic conditions and savings flows of all savings associations. At the
present time, the required minimum liquid asset ratio is 5%. Troy Hill has
consistently exceeded such regulatory liquidity requirement and, at September
30, 1996, had a liquidity ratio of 7.10%.
QUALIFIED THRIFT LENDER TEST. Under Section 2303 of the Economic Growth
and regulatory Paperwork Reduction Act of 1996, a savings association can
comply with the QTL test by either meeting the QTL test set forth in the HOLA
and implementing regulations or qualifying as a domestic building and loan
association as defined in Section 7701(a)(19) of the Internal Revenue Code of
1986, as amended ("Code"). A savings association that does not comply with
the QTL Test must either convert to a bank charter or comply with the
following restrictions on its operations: (i) the association may not engage
in any new activity or make any new investment, directly or indirectly,
unless such activity or investment is permissible for a national bank; (ii)
the branching powers of the association shall be restricted to those of a
national bank; (iii) the association shall not be eligible to obtain any
advances from its FHLB; and (iv) payment of dividends by the association
shall be subject to the rules regarding payment of dividends by a national
bank. Upon the expiration of three years from the date the association
ceases to be a QTL, it must cease any activity and not retain any investment
not permissible for a national bank and immediately repay any outstanding
FHLB advances (subject to safety and soundness considerations).
The QTL Test set forth in the HOLA requires that Qualified Thrift
Investments ("QTIs") represent 65% of portfolio assets. Portfolio assets are
defined as total assets less intangibles, property used by a savings
association in its business and liquidity investments in an amount not
exceeding 20% of assets. Generally, QTIs are residential housing related
assets. The 1996 amendments allow small business loans, credit card loans,
student loans and loans for personal, family and household purposes to be
included without limitation as qualified investments. At September 30, 1996,
approximately 89.18% of Troy Hill's assets were invested in QTIs, which was
in excess of the percentage required to qualify Troy Hill under the QTL test
in effect at that time.
RESTRICTIONS ON CAPITAL DISTRIBUTIONS. OTS regulations govern capital
distributions by savings associations, which include cash dividends, stock
redemptions or repurchases, cash-out mergers, interest payments on certain
convertible debt and other transactions charged to the capital account of a
savings association to make capital distributions. Generally, the regulation
creates a safe harbor for specified levels of capital distributions from
associations meeting at least their minimum capital requirements, so long as
such associations notify the OTS and receive no objection to the distribution
from the OTS. Savings institutions and distributions that do not qualify for
the safe harbor are required to obtain prior OTS approval before making any
capital distributions.
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Generally, savings associations that before and after the proposed
distribution meet or exceed their fully phased-in capital requirements, or
Tier 1 associations, may make capital distributions during any calendar year
equal to the higher of (i) 100% of net income for the calendar year-to-date
plus 50% of its "surplus capital ratio" at the beginning of the calendar year
or (ii) 75% of net income over the most recent four-quarter period. The
"surplus capital ratio" is defined to mean the percentage by which the
association's ratio of total capital to assets exceeds the ratio of its fully
phased-in capital requirement to assets. "Fully phased-in capital
requirement" is defined to mean an association's capital requirement under
the statutory and regulatory standards to be applicable on December 31, 1994,
as modified to reflect any applicable individual minimum capital requirement
imposed upon the association.
Tier 2 associations, which are associations that before and after the
proposed distribution meet or exceed their minimum capital requirements, may
make capital distributions during any calendar year up to 75% of net income
over the most recent four-quarter period.
In order to make distributions under these safe harbors, Tier 1 and Tier
2 associations must submit written notice to the OTS 30 days prior to making
the distribution. The OTS may object to the distribution during that 30-day
period based on safety and soundness concerns. In addition, a Tier 1
association deemed to be in need of more than normal supervision by the OTS
may be downgraded to a Tier 2 or Tier 3 association (a Tier 3 association is
an association that does not meet current minimum capital requirements or has
been notified by the OTS that it will be treated as a Tier 3 association
because it is in need of more than normal supervision and, consequently, a
Tier 3 association cannot make any capital distribution without obtaining
prior OTS approval) as a result of such a determination. Troy Hill currently
is a Tier 1 institution for purposes of the regulation dealing with capital
distributions.
On December 5, 1994, the OTS published a notice of proposed rule making
to amend its capital distribution regulation. Under the proposal,
associations would be permitted to only make capital distributions that would
not result in their capital being reduced below the level required to remain
"adequately capitalized." An association is adequately capitalized if it has
a total risk-based capital ratio of 8.0% or more, a Tier 1 risk-based capital
ratio of 4.0% or more and a Tier 1 leverage capital ratio of 4.0% or more and
does not meet the definition of well capitalized. Because Troy Hill is a
subsidiary of THB, the proposal would require Troy Hill to provide notice to
the OTS of its intent to make a capital distribution. Troy Hill does not
believe that the proposal will adversely affect its ability to make capital
distributions if it is adopted substantially as proposed.
OTS regulations also prohibit Troy Hill from declaring or paying any
dividends or from repurchasing any of its stock if, as a result, the
regulatory (or total) capital of Troy Hill would be reduced below the amount
required to be maintained for the liquidation account
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established by it for certain depositors in connection with its conversion to
stock form ("Conversion").
POLICY STATEMENT ON NATIONWIDE BRANCHING. Effective May 11, 1992, the
OTS amended its policy statement on branching by federally chartered savings
associations to delete then-existing regulatory restrictions on the branching
authority of such associations and to permit nationwide branching to the
extent allowed by federal statute. (Prior OTS policy generally permitted
interstate branching for federally chartered savings associations only to the
extent allowed with respect to state-chartered savings associations in the
states where the association's home office was located and where the branch
was sought or if the branching resulted from OTS approval of a supervisory
interstate acquisition of a troubled institution.) Current OTS policy
generally permits a federally chartered savings association to establish
branch offices outside of its home state if the association meets the
domestic building and loan test in Section 7701(a)(19) of the Code or the
asset composition test of subparagraph (c) of that section, and if, with
respect to each state outside of its home state where the association has
established branches, the branches, taken alone, also satisfy one of the two
tax tests. An association seeking to take advantage of this authority would
have to have a branching application approved by the OTS, which would
consider the regulatory capital of the association and its record under the
Community Reinvestment Act of 1977, as amended, among other things.
FEDERAL HOME LOAN BANK SYSTEM. Troy Hill is a member of the FHLB of
Pittsburgh, which is one of 12 regional FHLBs that administers the home
financing credit function of savings associations. Each FHLB serves as a
reserve or central bank for its members within its assigned region. It is
funded primarily from proceeds derived from the sale of consolidated
obligations of the FHLB System. It makes loans to members (i.e., advances)
in accordance with policies and procedures established by the Board of
Directors of the FHLB.
As a member, Troy Hill is required to purchase and maintain stock in the
FHLB of Pittsburgh in an amount equal to at least 1% of its aggregate unpaid
residential mortgage loans, home purchase contracts or similar obligations at
the beginning of each year. At September 30, 1996, Troy Hill was in
compliance with this requirement.
As a result of FIRREA, the FHLBs are required to provide funds for the
resolution of troubled savings associations and to contribute to affordable
housing programs through direct loans or interest subsidies on advances
targeted for community investment and low- and moderate-income housing
projects. These contributions have adversely affected the level of FHLB
dividends paid and could continue to do so in the future. These
contributions also could have an adverse effect on the value of FHLB stock in
the future. For the three months ended September 30, 1996 and the years
ended June 30, 1996, 1995 and 1994 dividends paid by the FHLB of Pittsburgh
to Troy Hill totalled approximately $19,000, $32,000, $20,000 and $22,000,
respectively.
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FEDERAL RESERVE SYSTEM. The FRB requires all depository institutions to
maintain reserves against their transaction accounts (primarily NOW and Super
NOW checking accounts) and non-personal time deposits. At September 30,
1996, Troy Hill was in compliance with applicable requirements. However,
because required reserves must be maintained in the form of vault cash or a
noninterest-bearing account at a Federal Reserve Bank, the effect of this
reserve requirement is to reduce an institution's earning assets.
FEDERAL AND STATE TAXATION
GENERAL. THB and Troy Hill are subject to the generally applicable
corporate tax provisions of the Code, as well as certain additional
provisions of the Code which apply to thrifts and other types of financial
institutions. The following discussion of tax matters is intended only as a
summary and does not purport to be a comprehensive description of the tax
rules applicable to THB and Troy Hill.
FISCAL YEAR. THB and Troy Hill file federal income tax returns on the
basis of a June 30 fiscal year.
METHOD OF ACCOUNTING. Troy Hill maintains its books and records for
federal income tax purposes using the accrual method of accounting. The
accrual method of accounting generally requires that items of income be
recognized when all events have occurred that establish the right to receive
the income and the amount of income can be determined with reasonable
accuracy, and that items of expense be deducted at the later of (i) the time
when all events have occurred that establish the liability to pay the expense
and the amount of such liability can be determined with reasonable accuracy
or (ii) the time when economic performance with respect to the item of
expense has occurred.
BAD DEBT RESERVES. Under applicable provisions of the Code, savings
institutions such as Troy Hill are permitted to establish reserves for bad
debts and to make annual additions thereto which qualify as deductions from
taxable income. The bad debt deduction is generally based on a savings
institution's actual loss experience (the "Experience Method"). In addition,
provided that certain definitional tests relating to the composition of
assets and the nature of its business are met, a savings institution through
tax years beginning in 1995 could elect annually to compute its allowable
addition to its bad debt reserves for qualifying real property loans
(generally loans secured by improved real estate) by reference to a
percentage of its taxable income (the "Percentage Method").
Under the Experience Method, the deductible annual addition is the
amount necessary to increase the balance of the reserve at the close of the
taxable year to the greater of (i) the amount which bears the same ratio to
loans outstanding at the close of the taxable year as the total net bad debts
sustained during the current and five preceding taxable years bear to the sum
of the loans outstanding at the close of those six years or (ii) the balance
in the reserve account at the close of Troy Hill's "base year," which was its
tax year ended December 31, 1987.
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Under the Percentage Method, the bad debt deduction with respect to
qualifying real property loans was computed as a percentage of Troy Hill's
taxable income before such deduction, as adjusted for certain items (such as
capital gains and the dividends received deduction). Under this method, a
qualifying institution such as Troy Hill generally could deduct 8% of its
taxable income.
The Percentage Method deduction was limited to the excess of 12% of
savings accounts at year end over the sum of surplus, undivided profits and
reserves at the beginning of the year. For taxable years ended on or before
December 31, 1993, Troy Hill generally elected to use the Percentage Method
to compute the amount of its bad debt deduction with respect to its
qualifying real property loans.
The income of THB would not be subject to the bad debt deduction allowed
Troy Hill, whether or not consolidated tax returns are filed; however, losses
of THB or its subsidiaries included in the consolidated tax returns may
reduce the bad debt deduction allowed Troy Hill if a deduction is claimed
under the Percentage Method.
On August 20, 1996, President Clinton signed legislation which will
eliminate the percentage of taxable income bad debt deduction for thrift
institutions for tax years beginning after December 31, 1995. The new
legislation also requires a thrift to generally recapture the excess of its
current tax reserves over its 1987 base year reserves. As THB has previously
provided deferred taxes on this amount, no additional financial statement tax
expense should result from this new legislation. The recapture amount may be
suspended for two years if Troy Hill meets certain residential lending
origination requirements.
DISTRIBUTIONS. If Troy Hill were to distribute cash or property to its
sole stockholder having a total fair market value in excess of its
accumulated tax-paid earnings and profits, or were to distribute cash or
property to its stockholder in redemption of its stock, Troy Hill would
generally be required to recognize as income an amount which, when reduced by
the amount of federal income tax that would be attributable to the inclusion
of such amount in income, is equal to the lesser of: (i) the amount of the
distribution or (ii) the sum of (a) the amount of the accumulated bad debt
reserve of Troy Hill with respect to qualifying real property loans (to the
extent that additions to such reserve exceed the additions that would be
permitted under the experience method) and (b) the amount of Troy Hill's
supplemental bad debt reserve.
As of September 30, 1996, Troy Hill's accumulated bad debt reserve for
qualifying real property loans and its supplemental bad debt reserve balances
were approximately $1.7 million and $300,000, respectively. Troy Hill
believes it has approximately $7.3 million of accumulated earnings and
profits as of September 30, 1996, which would be available for dividend
distributions, provided regulatory restrictions applicable to the payment of
dividends are met.
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MINIMUM TAX. The Code imposes an alternative minimum tax at a rate of
20% on a base of regular taxable income plus certain tax preferences
("alternative minimum taxable income" or "AMTI"). The alternative minimum tax
is payable to the extent such AMTI is in excess of an exemption amount. The
Code provides that an item of tax preference is the excess of the bad debt
deduction allowable for a taxable year pursuant to the percentage of taxable
income method over the amount allowable under the experience method. The
other items of tax preference that constitute AMTI include (a) tax exempt
interest on newly-issued (generally, issued on or after August 8, 1986)
private activity bonds other than certain qualified bonds and (b) for taxable
years beginning after 1989, 75% of the excess (if any) of (i) adjusted
current earnings as defined in the Code, over (ii) AMTI (determined without
regard to this preference and prior to reduction by net operating losses).
Net operating losses can offset no more than 90% of AMTI. Certain payments
of alternative minimum tax may be used as credits against regular tax
liabilities in future years.
AUDIT BY IRS. Troy Hill's federal income tax returns for taxable years
through December 31, 1993 have been closed for the purpose of examination by
the Internal Revenue Service.
STATE TAXATION. THB is subject to the Pennsylvania Corporate Net Income
Tax and Capital Stock and Franchise Tax. The Corporate Net Income Tax rate
is currently 11.99% and is imposed on THB's unconsolidated taxable income for
federal purposes with certain adjustments. In general, the Capital Stock Tax
is a property tax imposed at the rate of 1.3% of a corporation's capital
stock value, which is determined in accordance with a fixed formula based
upon average net income and net worth.
Troy Hill is taxed under the Pennsylvania Mutual Thrift Institutions Tax
Act (enacted on December 13, 1988 and amended in July 1989) (the "MTIT"), as
amended to include thrift institutions having capital stock. Pursuant to the
MTIT, Troy Hill's tax rate is 11.5%. The MTIT exempts Troy Hill from all
other taxes imposed by the Commonwealth of Pennsylvania for state income tax
purposes and from all local taxation imposed by political subdivisions,
except taxes on real estate and real estate transfers. The MTIT is a tax
upon net earnings, determined in accordance with GAAP with certain
adjustments. The MTIT, in computing GAAP income, allows for the deduction of
interest earned on state and federal securities, while disallowing a
percentage of a thrift's interest expense deduction in the proportion of
those securities to the overall investment portfolio. Net operating losses,
if any, thereafter can be carried forward three years for MTIT purposes.
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DESCRIPTION OF PENNFIRST CAPITAL STOCK
GENERAL
PennFirst's Amended and Restated Articles of Incorporation ("PennFirst's
Articles") authorize the issuance of capital stock consisting of 10,000,000
shares of PennFirst Common Stock and 5,000,000 shares of serial preferred
stock, par value $.01 per share ("PennFirst Preferred Stock"). As of the
PennFirst Record Date, there were [3,909,184] shares of PennFirst Common
Stock issued and outstanding. No shares of PennFirst Preferred Stock are
presently outstanding. The PennFirst Common Stock represents non-withdrawable
capital, is not of an insurable type and is not insured by the FDIC. Except
to the extent required by governing law, rule or regulation, the shares of
capital stock of PennFirst may be issued from time to time by the Board of
Directors without further approval of stockholders.
PENNFIRST COMMON STOCK
Each share of PennFirst Common Stock has the same relative rights as,
and is identical in all respects with, each other share of PennFirst Common
Stock. The holders of shares of PennFirst Common Stock possess all rights,
including exclusive voting rights, pertaining to the capital stock of
PennFirst. Each share of PennFirst Common Stock entitles the holder thereof
to one vote on all matters upon which stockholders have the right to vote,
and stockholders of PennFirst are not entitled to cumulate their votes for
the election of directors. The holders of PennFirst Common Stock are
entitled to dividends when, as and if declared by PennFirst's Board of
Directors out of funds legally available therefor. Holders of shares of
PennFirst Common Stock are not entitled to preemptive rights with respect to
any shares which may be issued. The PennFirst Common Stock is not subject to
call or redemption.
In the event of any liquidation or dissolution of PennFirst, the holders
of PennFirst Common Stock are entitled to receive, after payment or provision
for payment of all debts and liabilities of PennFirst, all assets of
PennFirst available for distribution, in cash or in kind. If PennFirst
Preferred Stock should be issued, the holders thereof may have a priority
over the holders of PennFirst Common Stock in the event of liquidation or
dissolution.
PENNFIRST PREFERRED STOCK
The Board of Directors of PennFirst is authorized to issue PennFirst
Preferred Stock in series and fix and state voting powers, designations,
preferences or other special rights of the shares of each such series of
PennFirst Preferred Stock and the qualifications, limitations and
restrictions thereof. PennFirst Preferred Stock may rank prior to PennFirst
Common Stock as to dividend rights, liquidation preferences, or both, may
have full or limited voting rights, and may be convertible into PennFirst
Common Stock. The holders of any class or series of PennFirst Preferred
Stock also may have the right to vote separately
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as a class or series under the terms of such class or series or as may be
otherwise provided by Pennsylvania law. PennFirst does not have any current
plans to issue any such stock.
COMPARISON OF THE RIGHTS OF STOCKHOLDERS
The rights of holders of THB Common Stock are governed by the BCL and
THB's Articles of Incorporation ("THB's Articles") and Bylaws, while the
rights of holders of PennFirst Common Stock are governed by the BCL and
PennFirst's Amended and Restated Articles of Incorporation ("PennFirst's
Articles") and Bylaws. Both THB and PennFirst are Pennsylvania corporations
and, as described below, there are many similarities in the substantive
provisions of the respective articles of incorporation and bylaws of THB and
PennFirst. Accordingly, as discussed below, the rights of stockholders of THB
are similar in many respects to the rights of stockholders of PennFirst. The
discussion herein is not intended to be a complete statement of the
differences affecting the rights of THB's stockholders, but rather summarizes
the more significant differences affecting the rights of such stockholders
and certain important similarities. This summary is qualified in its
entirety by reference to the BCL, THB's Articles and Bylaws, and PennFirst's
Articles and Bylaws.
AUTHORIZED CAPITAL STOCK
THB's Articles authorize the issuance of up to 10,000,000 shares of THB
Common Stock, of which [1,124,125] shares were issued and [1,067,917] shares
were outstanding as of the THB Record Date, and up to 5,000,000 shares of
serial preferred stock, no par value per share ("THB Preferred Stock"), of
which no shares were issued and outstanding as of the THB Record Date. The
THB Preferred Stock is issuable in series, each series having such rights and
preferences as THB's Board of Directors may fix and determine by resolution.
PennFirst's Articles authorize the issuance of up to 10,000,000 shares
of PennFirst Common Stock, of which [3,909,184] shares were issued and
outstanding as of the PennFirst Record Date, and up to 5,000,000 shares of
PennFirst Preferred Stock, of which no shares were issued and outstanding as
of the PennFirst Record Date. The PennFirst Preferred Stock is issuable in
series, each series having such rights and preferences as PennFirst's Board
of Directors may fix and determine by resolution.
AMENDMENT OF GOVERNING INSTRUMENTS
Under the BCL, no amendment to a corporation's articles of incorporation
may be made unless it is first proposed by the board of directors, or, unless
otherwise provided in the articles, by petition of stockholders entitled to
cast at least 10% of the votes that all stockholders are entitled to cast
thereon.
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<PAGE>
PennFirst's Articles provide that no amendment may be made unless it is
first approved by the Board of Directors and thereafter is approved by the
holders of a majority of the shares of PennFirst Common Stock entitled to
vote generally in an election of directors, voting together as a single
class, with the exception of Article 7 (directors), Article 8 (preemptive
rights), Article 9 (indemnification, etc. of officers, directors, employees
and agents), Article 10 (meetings of stockholders and stockholder proposals),
Article 11 (restrictions on offers and acquisitions of PennFirst's equity
securities) and Article 12 (amendment of articles and bylaws), which may not
be amended without the affirmative vote of the holders of at least 75% of the
shares of PennFirst Common Stock entitled to vote generally in an election of
directors. THB's Articles contains comparable amendment language.
PennFirst's Bylaws may be amended by a majority vote of the Board of
Directors or by the affirmative vote of the holders of a majority of the
shares of PennFirst Common Stock entitled to vote generally in an election of
directors, voting together as a single class, with the exception of Sections
2.3 (organization and conduct of stockholders' meetings), 4.1 (number and
powers of board of directors), 4.2 (change of number of board of directors),
4.3 (vacancies in board of directors) and 4.4 (removal of directors) of the
Bylaws and Articles VIII (personal liability of directors) and XII
(amendments), which may not be amended without the affirmative vote of the
holders of at least 75% of the shares of PennFirst Common Stock entitled to
vote generally in an election of directors. THB's Articles contain
comparable amendment language for the amendment of THB's Bylaws.
REMOVAL OF DIRECTORS AND VACANCIES
Under PennFirst's Articles, any director may be removed from office
without cause by an affirmative vote of not less than 75% of the total votes
eligible to be cast by stockholders at a duly constituted meeting of
stockholders called expressly for such purpose and may be removed from office
with cause by an affirmative vote of not less than a majority of the total
votes eligible to be cast by stockholders. In addition, under PennFirst's
Articles, vacancies in PennFirst's Board of Directors, including vacancies
created by newly created directorships resulting from an increase in the
number of directors, may be filled by PennFirst's Board of Directors, acting
by a vote of a majority of the directors then in office, even if less than a
quorum, and any director so chosen shall serve for the remainder of the term
of the class of directors in which the vacancy occurred and until his
successor is elected and qualified. THB's Articles contains comparable
language to remove directors and fill vacancies.
DIRECTOR INDEMNIFICATION AND LIABILITY
PennFirst's Articles and Bylaws provide that a director of PennFirst
will not be personally liable for monetary damages for actions taken, or any
failure to take any action, as a director except to the extent that by law a
director's liability for monetary damages may not be limited. This
provision, which is permitted under the Pennsylvania Directors'
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<PAGE>
Liability Act, does not limit the personal liability of the directors of
PennFirst for monetary damages for breaches of the standard of care imposed
on directors as fiduciaries which constitute self-dealing, willful misconduct
or recklessness. In addition, this provision does not limit the liability of
directors arising under any criminal statute or for the payment of any
federal, state or local taxes. This provision applies to actions taken by a
director only in that capacity; it does not apply to actions taken in any
other capacity, including that of an officer. PennFirst's Articles and Bylaws
also provide that any amendment or repeal of this provision will not
adversely affect any right of a director of PennFirst with respect to any
acts or omissions of such director occurring prior to such amendment or
repeal.
PennFirst's Articles provide that PennFirst shall indemnify any person
who was or is a party or is threatened to be made a party to any threatened,
pending or completed action, suit or proceeding, whether civil, criminal,
administrative or investigative, because such person is or was a director,
officer, employee or agent of PennFirst. Indemnification will be furnished
to the full extent provided by law against expenses (including attorneys'
fees), judgments, fines, excise taxes and amounts paid in settlement actually
and reasonably incurred in connection with such action, suit or proceeding.
In particular, indemnification will be made against judgments and settlements
in derivative suits. Indemnification will be made unless a judgment or other
final adjudication establishes that the act or failure to act giving rise to
the claim for indemnification constituted willful misconduct or recklessness.
The indemnification provisions also permit PennFirst to pay reasonable
expenses in advance of the final disposition of any action, suit or
proceeding as authorized by PennFirst's Board of Directors, provided that the
indemnified person undertakes to repay PennFirst if it is ultimately
determined that such person was not entitled to indemnification.
The rights of indemnification provided in PennFirst's Articles are not
exclusive of any other rights which may be available under PennFirst's
Bylaws, any insurance or other agreement, by vote of stockholders or
disinterested directors or otherwise. In addition, PennFirst's Articles
authorize PennFirst to maintain insurance on behalf of any person who is or
was a director, officer, employee or agent of PennFirst, whether or not
PennFirst would have the power to provide indemnification to such person. By
action of the Board of Directors, PennFirst may create and fund a trust fund
or fund of any nature, and may enter into agreements with its officers and
directors, for securing or insuring in any manner its obligation to indemnify
or advance expenses provided for in the provisions in PennFirst's Articles
and Bylaws regarding indemnification.
THB's Articles and Bylaws also contain the aforementioned director
indemnification and liability provisions.
SPECIAL MEETINGS OF STOCKHOLDERS
Pursuant to PennFirst's Articles and THB's Articles, special meetings of
stockholders may be called by the Chairman of the Board, the President or by
a majority of the Board of Directors.
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<PAGE>
ACTIONS BY STOCKHOLDERS WITHOUT A MEETING
PennFirst's Articles and THB's Articles provide that any action required to
be taken or which may be taken at any annual or special meeting of
stockholders may be taken without a meeting if a consent in writing, setting
forth the action so taken, is given by the holders of all outstanding shares
entitled to vote thereon.
STOCKHOLDER NOMINATIONS AND PROPOSALS
PennFirst's Articles provide that all nominations for election to the
Board of Directors, other than those made by the Board or a committee
thereof, be made by a stockholder who has complied with the notice provisions
in PennFirst's Articles. Written notice of a stockholder nomination must be
communicated to the attention of the Secretary of PennFirst and either
delivered to, or mailed and received at, the principal executive offices of
PennFirst not less than 60 days prior to the anniversary date of the
immediately preceding annual meeting of stockholders of PennFirst. Each such
notice shall set forth the information required by Article 7.F of PennFirst's
Articles.
PennFirst's Articles also provide that only such business as shall have
been properly brought before an annual meeting of stockholders shall be
conducted at the annual meeting. For business to be properly brought before
an annual meeting, such business must be (a) brought before the meeting by or
at the direction of the Board of Directors or (b) otherwise properly brought
before the meeting by a stockholder who has given timely notice thereof in
writing to the Secretary of PennFirst. To be timely, a stockholder's notice
must be delivered to or mailed and received at the principal executive office
of PennFirst not less than 60 days prior to the anniversary date of the
immediately preceding annual meeting. A stockholder's notice to the
Secretary shall set forth as to each matter the stockholder proposes to bring
before the annual meeting the information required by Article 10.F of
PennFirst's Articles. The presiding officer of an annual meeting shall
determine and declare to the meeting whether the business was properly
brought before the meeting in accordance with the provisions of the PennFirst
Articles, and any such business not properly brought before the annual
meeting shall not be transacted. THB's Articles contain comparable language
on stockholder nominations and proposals.
PROVISIONS AFFECTING BUSINESS COMBINATIONS AND CONTROL SHARE ACQUISITIONS
The BCL contains four "anti-takeover" sections that apply to registered
corporations relating to control share acquisitions, the disgorgement of
profits by certain controlling persons, business combination transactions
with interested stockholders and the ability of stockholders to put their
stock following a control transaction. A corporation that was a registered
corporation on April 27, 1990 could opt-out of the "control share
acquisition" or "disgorgement of profits" provisions by an explicit amendment
of its bylaws adopted by its board of directors on or before July 26, 1990.
A corporation that became a registered corporation after April 27, 1990 could
opt out by an explicit provision in its original articles
120
<PAGE>
of incorporation or by an explicit amendment to its articles of incorporation
adopted on or before 90 days after the corporation first becomes a registered
corporation. PennFirst has opted out of the "control share acquisitions"
section of the BCL, while THB not has opted out of any of the four
"anti-takeover" sections.
The disgorgement of profits section of the BCL generally provides that a
corporation will be entitled to recover any "profit" realized by a
"controlling person or group" from the disposition of any equity security of
the corporation that occurs within 18 months after the date when that person
or group became a controlling person or group, if the equity security was
acquired within 24 months before or 18 months after such date. Generally, a
"controlling person or group" for such purposes is any person or group who
has (i) acquired, offered to acquire or, directly or indirectly, publicly
disclosed or caused to be disclosed the intention of acquiring voting power
over voting shares that would entitle the holder thereof to cast at least 20%
of the votes that all stockholders would be entitled to cast in an election
of directors or (ii) directly or indirectly, publicly disclosed or caused to
be disclosed that it may wish to acquire control of a corporation through any
means.
The business combination transaction with an interested stockholder
section of the BCL provides that certain transactions with an "interested
stockholder," including mergers, consolidations, share exchanges and sales of
assets, must be approved by the holders of a majority of the disinterested
shares in addition to any other approvals that may be required. This
requirement does not apply if the transaction is approved by a disinterested
majority of the board of directors or if the consideration paid to the other
stockholders in the transaction is not less than the highest amount paid by
the interested stockholder in acquiring shares. An "interested stockholder"
includes any stockholder who is a party to the transaction or who is treated
differently from the other stockholders and affiliates of the interested
stockholder.
Under the provision of the BCL that permits stockholders to put their
shares, stockholders of a registered corporation that becomes subject to a
"control transaction" can demand from the controlling person or group payment
in cash for his or her shares an amount equal to the fair value of his or her
shares on the date that the "control transaction" occurred. A "control
transaction" for such purposes is the acquisition of 20% or more of a
corporation's voting shares by a person or group, with several exceptions.
ACQUISITION OF CAPITAL STOCK
THB's Articles and PennFirst's Articles both provide that until five
years from the completion of the conversion of the respective savings bank
from mutual to stock form, June 24, 1999 and June 13, 1995, respectively, no
person shall directly or indirectly offer to acquire or acquire the
beneficial ownership of more than 10% of the issued and outstanding shares of
any class of an equity security of THB or PennFirst, respectively. With
respect to THB, the foregoing restrictions do not apply to, among other
things, any offer or acquisition approved in advance by the affirmative vote
of two-thirds of THB's Board of Directors. The
121
<PAGE>
proposed Merger was approved in advance by the affirmative vote of more than
two-thirds of THB's Board and, accordingly, is not subject to the foregoing
restrictions.
STOCKHOLDER PROPOSALS
PENNFIRST
Any proposal which a stockholder wished to have included in the proxy
solicitation materials to be used in connection with the next Annual Meeting
of Stockholders of PennFirst, must have been received at the principal
executive offices of PennFirst, 600 Lawrence Avenue, Ellwood City,
Pennsylvania 16117, Attention: Secretary, no later than Tuesday, October 22,
1996. No proposals were received by such date.
Stockholder proposals which are not submitted for inclusion in
PennFirst's proxy materials pursuant to Rule 14a-8 under the Exchange Act may
be brought before an annual meeting pursuant to Article 10.F of PennFirst's
Articles as described above. See "Comparison of the Rights of Stockholders -
Stockholder Nominations and Proposals."
THB
If the Merger is not consummated prior to THB's annual meeting of
stockholders, any proposal which a stockholder wished to have included in
THB's proxy statement and form of proxy relating to THB's 1997 Annual Meeting
of Stockholders must have been received by THB at 1706 Lowrie Street,
Pittsburgh, Pennsylvania 15212 by June 2, 1997.
LEGAL OPINIONS
The legality of the shares of PennFirst Common Stock to be issued in the
Merger, certain federal income tax consequences of the Merger, and certain
other legal matters relating to the Merger are being passed upon by Elias,
Matz, Tiernan & Herrick L.L.P., Washington, D.C., special counsel to
PennFirst.
EXPERTS
The consolidated financial statements of PennFirst as of December 31,
1995 and 1994, and for each of the years in the three-year period ended
December 31, 1995, have been incorporated by reference in this Joint Proxy
Statement/Prospectus in reliance upon the report of KPMG Peat Marwick LLP,
independent certified public accountants, incorporated by reference, and upon
the authority of said firm as experts in accounting and
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auditing. The report of KPMG Peat Marwick LLP refers to a change in
accounting for income taxes in 1993 and to a change in accounting for certain
debt and equity securities during 1994.
The consolidated financial statements of THB as of June 30, 1996, and
for the year ended June 30, 1996, have been included in this Joint Proxy
Statement/Prospectus in reliance upon the report of KPMG Peat Marwick LLP,
independent certified public accountants, appearing elsewhere herein and upon
the authority of said firm as experts in accounting and auditing.
The consolidated financial Statements of THB as of June 30, 1995 and
1994, and for each of the years in the two-year period ended June 30, 1995,
included in this Joint Proxy Statement/Prospectus have been audited by Grant
Thornton LLP, independent certified public accountants, as indicated in their
report with respect thereto, and are incorporated herein by reference in
reliance upon the authority of such firm as experts in accounting and
auditing.
On April 10, 1996, the Board of Directors of THB terminated the services
of Grant Thornton LLP as THB's independent auditors. For the fiscal years
ended June 30, 1995 and 1994 and up to the date of the discontinuation of
services of Grant Thornton LLP, there were no disagreements with Grant
Thornton LLP, on any matter of accounting principles or practices, financial
statement disclosure or auditing scope or procedure which, if not resolved to
the satisfaction of Grant Thornton LLP, would have caused it to make a
reference to the subject matter of the disagreement in connection with its
reports.
123
<PAGE>
INDEX TO THB CONSOLIDATED FINANCIAL STATEMENTS
Page
----
Reports of Independent Certified Public Accountants................. F-1
Consolidated Statements of Financial Condition at September 30, 1995
(unaudited) and June 30, 1996 and 1995 (audited)................... F-3
Consolidated Statements of Earnings for the three months
ended September 30, 1996 and 1995 (unaudited) and for the years
ended June 30, 1996, 1995 and 1994 (audited)....................... F-4
Consolidated Statements of Stockholders' Equity for the three
months ended September 30, 1996 (unaudited) and for the
years ended June 30, 1996, 1995 and 1994 (audited)................. F-6
Consolidated Statements of Cash Flows for the three months
ended September 30, 1996 and 1995 (unaudited) and for the years
ended June 30, 1996, 1995 and 1994 (audited)....................... F-7
Notes to Consolidated Financial Statements.......................... F-9
124
<PAGE>
[KPMG PEAT MARWICK LLP LETTERHEAD]
Independent Auditors' Report
The Board of Directors
Troy Hill Bancorp, Inc.:
We have audited the accompanying consolidated statement of financial condition
of Troy Hill Bancorp, Inc. and subsidiary (the Company) as of June 30, 1996, and
the related consolidated statement of earnings, stockholders' equity and cash
flows for the year then ended. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audit. The
accompanying financial statements of the Company as of June 30, 1995, and for
each of the years in the two-year period then ended were audited by other
auditors whose report thereon dated August 11, 1995, expressed an unqualified
opinion with an explanatory paragraph for changes in accounting for investment
securities in 1995 and income taxes in 1994 on those statements.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the 1996 consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Troy Hill
Bancorp, Inc. and subsidiary as of June 30, 1996, and the results of its
operations and its cash flows for the year then ended in conformity with
generally accepted accounting principles.
/s/ KPMG Peat Marwick LLP
Pittsburgh, Pennsylvania
August 16, 1996, except as to
note 18, which is as of
September 16, 1996
F-1
<PAGE>
[GRANT THORNTON LLP LETTERHEAD]
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors and Stockholders
Troy Hill Bancorp, Inc.
We have audited the accompanying consolidated statements of financial
condition of Troy Hill Bancorp, Inc. and subsidiary as of June 30, 1995 and the
related statements of earnings, stockholders' equity and cash flows for each of
the two years in the period ended June 30, 1995. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Troy
Hill Bancorp, Inc. and subsidiary as of June 30, 1995 and the consolidated
results of their operations and cash flows for each of the two years in the
period ended June 30, 1995, in conformity with generally accepted accounting
principles.
As discussed in the notes to the consolidated financial
statements, the Company changed its method of accounting for investment
securities in 1995 and income taxes in 1994.
/s/ Grant Thornton LLP
Pittsburgh, Pennsylvania
August 11, 1995
F-2
<PAGE>
TROY HILL BANCORP, INC.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(IN THOUSANDS)
<TABLE>
<CAPTION>
SEPTEMBER 30, JUNE 30,
1996 1996 1995
---- ---- ----
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Cash and due from banks $ 3,057 2,869 1,469
Investment and mortgage-backed securities
- available for sale (amortized cost $9,108,
$11,819 and $10,750) (note 2) 9,003 11,731 10,831
Investment securities - held to maturity
(market value $-0-, $-0- and $7,134) (note 3) -- -- 7,301
Loans held for sale -- -- 272
Loans receivable, net (notes 1, 4 and 5) 83,882 74,552 53,180
Premise and equipment, net (note 6) 634 653 602
Federal Home Loan Bank stock at cost (note 8) 1,348 929 286
Real estate owned 483 462 330
Accrued interest receivable (notes 2 and 4) 623 546 470
Deferred income tax benefit (note 10) 366 359 288
Other assets 74 82 62
------- ------ ------
Total assets $99,470 92,183 75,091
------- ------ ------
------- ------ ------
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Savings deposits (note 7) 52,655 53,960 50,610
Advances from Federal Home Loan Bank (note 9) 26,950 18,583 5,750
Advances by borrowers for taxes and insurance 742 1,185 986
Accrued expenses and other liabilities 1,110 415 529
------- ------ ------
Total liabilities 81,457 74,143 57,875
Commitments and contingencies (note 5)
Stockholders' equity (notes 1, 10, 13 and 15):
Preferred stock, no par value , 5,000,000 shares
authorized and unissued -- -- --
Common stock, $.01 par value, 10,000,000 shares
authorized, 1,124,125 shares issued 11 11 11
Additional paid-in capital 10,624 10,614 10,591
Retained earnings, substantially restricted 9,348 9,395 8,657
Treasury stock - at cost, 56,208 shares (703) (703) (703)
Shares acquired by the recognition and
retention plan (463) (463) (543)
Unearned ESOP shares (732) (756) (850)
Unrealized gain (loss) on investment
securities available for sale, net of taxes (72) (58) 53
------- ------ ------
Total stockholders' equity 18,013 18,040 17,216
------- ------ ------
Total liabilities and stockholders' equity $99,470 92,183 75,091
------- ------ ------
------- ------ ------
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
TROY HILL BANCORP, INC.
Consolidated Statements of Earnings
(In thousands)
<TABLE>
<CAPTION>
Three months ended Year ended
September 30, June 30,
------------------ ------------------------
1996 1995 1996 1995 1994
---- ---- ---- ---- ----
(unaudited)
<S> <C> <C> <C> <C> <C>
Interest income:
Loans $1,700 1,226 5,334 3,957 3,655
Investment securities 95 148 568 575 400
Mortgage-backed securities 89 116 443 493 256
Interest-bearing deposits and
other 20 33 124 126 179
------ ----- ----- ----- -----
Total interest income 1,904 1,523 6,469 5,151 4,490
Interest expense:
Interest on savings deposits
(note 7) 614 615 2,484 1,902 1,736
Interest on advances and other
borrowings 322 123 588 253 199
------ ----- ----- ----- -----
Total interest expense 936 738 3,072 2,155 1,935
------ ----- ----- ----- -----
Net interest income 968 785 3,397 2,996 2,555
Provision for loan losses (note 4) 30 30 220 10 80
------ ----- ----- ----- -----
Net interest income after
provision for loan
losses 938 755 3,177 2,986 2,475
Noninterest income:
Loan fees and service charges 20 15 47 45 39
Gain on sales of loans -- 32 126 75 264
Gain (loss) on sales of investment
securities 6 -- (5) (36) --
Other 33 10 42 37 35
------ ----- ----- ----- -----
Total noninterest income 59 57 210 121 338
Noninterest expense:
Salaries and employee benefits
(note 11) 214 209 854 762 601
Premises and occupancy expense 42 33 164 160 164
Federal deposit insurance 24 28 119 100 108
SAIF insurance assessment (note 5) 326 -- -- -- --
Other (note 12) 308 113 563 577 450
------ ----- ----- ----- -----
Total noninterest expense 914 383 1,700 1,599 1,323
------ ----- ----- ----- -----
Earnings before income
taxes and cumulative
effect of change in
accounting principle 83 429 1,687 1,508 1,490
</TABLE>
(Continued)
F-4
<PAGE>
TROY HILL BANCORP, INC.
Consolidated Statements of Earnings, Continued
(In thousands)
<TABLE>
<CAPTION>
Three months ended Year ended
September 30, June 30,
------------------ ----------------------
1996 1995 1996 1995 1994
---- ---- ---- ---- ----
(unaudited)
<S> <C> <C> <C> <C> <C>
Provision for income taxes (notes 1
and 10) $ 31 167 599 589 611
---- --- ----- --- -----
Earnings before cumulative effect
of change in accounting principle 52 262 1,088 919 879
Cumulative effect of change in accounting
principle (notes 1 and 10) -- -- -- -- 200
---- --- ----- --- -----
Net earnings $ 52 262 1,088 919 1,079
---- --- ----- --- -----
---- --- ----- --- -----
Earnings per share (note 1) $.05 .25 1.09 .89 N/A
---- --- ----- --- -----
---- --- ----- --- -----
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
TROY HILL BANCORP, INC.
Consolidated Statements of Stockholders' Equity
For the Three Months Ended September 30, 1996 (Unaudited),
and for the Years Ended June 30, 1996, 1995 and 1994
(In thousands)
<TABLE>
<CAPTION>
Shares acquired Unrealized
Additional by recognition Unearned gain (loss) on Total
Common paid-in Retained Treasury and retention ESOP investment stockholders'
stock capital earnings stock plan shares securities equity
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at June 30, 1993 $-- -- 6,873 -- -- -- -- 6,873
Net earnings -- -- 1,079 -- -- -- -- 1,079
Common stock issued 11 10,581 -- -- -- (944) -- 9,648
--- ------ ----- ---- ---- ---- ---- ------
Balance at June 30, 1994 11 10,581 7,952 -- -- (944) -- 17,600
Net earnings -- -- 919 -- -- -- -- 919
Adoption of SFAS 115,
unrealized loss available
for sale securities net of
tax -- -- -- -- -- -- (150) (150)
Cash dividend declared at $.21
per share -- -- (214) -- -- -- -- (214)
Change in market value of
securities available for
sale, net of deferred taxes -- -- -- -- -- -- 203 203
Stock acquired for recognition
and retention plan -- -- -- -- (543) -- -- (543)
Principal payment on ESOP debt -- 10 -- -- -- 94 -- 104
Acquisition of treasury stock -- -- -- (703) -- -- -- (703)
--- ------ ----- ---- ---- ---- ---- ------
Balance at June 30, 1995 11 10,591 8,657 (703) (543) (850) 53 17,216
Net earnings -- -- 1,088 -- -- -- -- 1,088
Cash dividend declared at $.36
per share -- -- (350) -- -- -- -- (350)
Change in market value of
securities available for
sale, net of tax -- -- -- -- -- -- (111) (111)
Amortization of recognition
and retention plan awards -- -- -- -- 80 -- -- 80
Principal payment on ESOP debt -- 23 -- -- -- 94 -- 117
--- ------ ----- ---- ---- ---- ---- ------
Balance at June 30, 1996 11 10,614 9,395 (703) (463) (756) (58) 18,040
Net earnings -- -- 52 -- -- -- -- 52
Cash dividends declared at
$.10 per share -- -- (99) -- -- -- -- (99)
Change in market value of
securities available for
sale, net of tax -- -- -- -- -- -- (14) (14)
Principal payment on ESOP debt -- 10 -- -- -- 24 -- 34
--- ------ ----- ---- ---- ---- ---- ------
Balance at September 30, 1996 $11 10,624 9,348 (703) (463) (732) (72) 18,013
--- ------ ----- ---- ---- ---- ---- ------
--- ------ ----- ---- ---- ---- ---- ------
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
TROY HILL BANCORP, INC.
Consolidated Statements of Cash Flows
(In thousands)
<TABLE>
<CAPTION>
Three months ended Year ended
September 30, June 30,
------------------- ------------------------------
1995 1996 1996 1995 1994
-------- -------- -------- -------- --------
(unaudited)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net earnings $ 52 262 1,088 919 1,079
Adjustments to reconcile net earnings to net
cash provided by operating activities:
Provision for loan losses 30 30 220 10 80
Origination of loans for sale -- (2,719) (8,504) (1,064) (7,234)
Proceeds from sale of loans -- 2,712 8,902 792 7,921
Depreciation and amortization 19 16 75 72 67
SAIF insurance assessment 326 -- -- -- --
Amortization of deferred loan origination
fees and accretion of discounts (25) (21) (141) (161) (245)
Deferred income tax expense (benefit) 15 21 (24) (41) (196)
Decrease (increase) in accrued interest
receivable (77) (30) (76) (94) 42
(Increase) decrease in other assets 8 24 (20) 12 (35)
(Decrease) increase in other liabilities 369 90 (155) 81 119
Other (28) 255 76 140 (12)
-------- -------- -------- ------- --------
Net cash provided by operating
activities 689 640 1,441 666 1,586
Cash flows from investing activities:
Net (increase) decrease in interest-bearing
deposits in other financial institutions -- -- -- -- 2,463
Purchases of investment securities held to
maturity -- -- -- (766) (11,894)
Sale of mortgage-backed securities available for
sale 2,548 -- 6,691 5,662 1,752
Purchases of investment securities available
for sale -- -- (2,647) (7,799) --
Principal repayments of mortgage-backed
and investment securities available for sale 179 1,076 2,189 691 1,442
Net decrease (increase) in loans (9,329) (5,388) (21,897) (14,164) 2,285
Proceeds from sale of real estate owned -- -- 314 -- --
(Purchase) redemptions of Federal Home Loan
Bank stock (419) (331) (643) 36 5
Purchases of premises and equipment -- (1) (121) (59) (86)
-------- -------- -------- -------- --------
Net cash used in investing
activities (7,021) (4,644) (16,114) (16,399) (4,033)
</TABLE>
(Continued)
F-7
<PAGE>
TROY HILL BANCORP, INC.
Consolidated Statements of Cash Flows, Continued
(In thousands)
<TABLE>
<CAPTION>
Three months ended Year ended
September 30, June 30,
------------------- ------------------------------
1995 1996 1996 1995 1994
-------- -------- -------- -------- --------
(unaudited)
<S> <C> <C> <C> <C> <C>
Cash flows from financing activities:
Net (decrease) increase in savings deposits $ (1,305) 1,136 3,350 8,200 (4,315)
Net (decrease) increase in advances by
borrowers for taxes and insurance (443) (396) 199 239 (29)
Proceeds from issuance of common stock, net -- -- -- -- 9,648
Proceeds from FHLB advances 10,367 6,583 26,083 5,750 --
Payment of FHLB advances (2,000) -- (13,250) (3,000) --
Dividends paid (99) (57) (309) (214) --
Purchase of shares for retention plan -- -- -- (543) --
Purchase of treasury stock -- -- -- (703) --
-------- -------- -------- -------- --------
Net cash provided by financing
activities 6,520 7,266 16,073 9,729 5,304
-------- -------- -------- -------- --------
Net (decrease) increase in cash 188 3,262 1,400 (6,004) 2,857
Cash and cash equivalents at beginning of year 2,869 1,469 1,469 7,473 4,616
-------- -------- -------- -------- --------
Cash and cash equivalents at end of year $ 3,057 4,731 2,869 1,469 7,473
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest on deposits and borrowings $ 614 615 3,019 2,149 1,965
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
Income taxes $ 35 63 690 545 658
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
Noncash investing and financing
transactions:
Transfers from loans to real estate
acquired through foreclosure $ -- 335 446 374 16
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
Transfer of securities held to maturity to
available for sale (note 2) $ -- -- 6,950 -- --
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
</TABLE>
See accompanying notes to consolidated financial statements.
F-8
<PAGE>
TROY HILL BANCORP, INC.
Notes to Consolidated Financial Statements
September 30, 1996 (Unaudited), and June 30, 1996, 1995 and 1994
(Dollar Amounts in Thousands)
(1) Summary of Accounting Policies
Troy Hill Bancorp, Inc. and subsidiary (the Company) is primarily
engaged in the business of attracting retail deposits from the
general public and using such funds to invest primarily in
residential and commercial mortgage loans. The Company is
subject to competition from other financial institutions. The
Company is also subject to the regulations of certain federal
agencies and undergoes periodic examinations by those regulatory
authorities.
The following comprise the significant accounting policies which the
Company follows in preparing and presenting their consolidated
financial statements:
Conversion to Stock Form
On June 24, 1994, Troy Hill Federal Savings and Loan Association
(the Association) completed its conversion from a federally
chartered, mutual savings and loan association to a federally
chartered, stock savings bank known as Troy Hill Federal Savings
Bank (Troy Hill), followed by the issuance of all of Troy Hill's
outstanding common shares to the Company, a newly formed holding
company. The financial statements for the periods prior to
June 24, 1994, are those of the Association prior to the
conversion and reorganization.
Principles of Consolidation
The accompanying consolidated financial statements include the
accounts of the Company and its wholly owned subsidiary, Troy
Hill. All significant intercompany transactions have been
eliminated.
Basis of Presentation
The financial statements have been prepared in conformity with
generally accepted accounting principles. In preparing the
financial statements, management is required to make estimates
and assumptions that affect the reported amounts of assets and
liabilities as of the date of the statement of financial
condition and revenues and expenses for the period. Actual
results could differ significantly from those estimates. The
unaudited interim financial statements for the three months ended
September 30, 1996 and 1995, reflect all adjustments (consisting
of only normal recurring accruals except for the item noted in
note 5 relating to the SAIF insurance assessment) which, in the
opinion of management are necessary to present fairly the
results for interim periods. Results of the interim periods are
not necessarily indicative of results to be expected for the
full year.
Loans Held for Sale
Mortgage loans originated and intended for sale are carried at lower
of cost or market value determined in the aggregate.
(Continued)
F-9
<PAGE>
TROY HILL BANCORP, INC.
Notes to Consolidated Financial Statements, Continued
(Dollar Amounts in Thousands)
Investment and Mortgage-Backed Securities Available for Sale
On July 1, 1994, the Company adopted Statement of Financial
Accounting Standards No. 115 (SFAS 115), "Accounting for Certain
Investments in Debt and Equity Securities." SFAS 115 addresses
the accounting and reporting for investments in equity
securities that have readily determinable fair values and all
investments in debt securities. Those investments are
classified in three categories and accounted for based on the
respective classification. Debt securities that the Company has
the positive intent and ability to hold to maturity are
classified as held to maturity and reported at amortized cost.
Debt and equity securities that are bought and held principally
for the purpose of selling them in the near term are classified
as trading securities and reported at fair value, with
unrealized gains and losses included currently in income. Debt
and equity securities classified as neither held to maturity or
trading securities are classified as available for sale and
reported at fair value, with unrealized gains and losses
excluded from income and reported as a separate component of
stockholders' equity, net of income taxes. The Company did not
classify any debt or equity securities as trading securities in
1996 or 1995. In periods prior to July 1, 1994, investments
securities and mortgage-backed securities were stated at cost,
adjusted for amortization of premiums and accretion of discounts
using the level yield method.
Gains and losses on sales of securities are recognized using the
specific identification method. Purchases and sales of securities
are accounted for on a settlement date basis which is not
materially different than use of the trade date basis.
Loans Receivables
Loans receivable are carried at unpaid principal balances, less the
allowance for loan losses and net deferred loan origination
fees. Interest on loans is credited to income as earned.
Interest earned on loans for which no payments were received
during the month is accrued. Uncollectible interest on loans
that are contractually past due is charged off or an allowance
is established based on management's periodic evaluation. The
allowance is established by a charge to interest income equal to
all interest previously accrued. Income is subsequently
recognized only to the extent cash payments are received until,
in management's judgment, the borrower's ability to make
periodic interest and principal payments is re-established, in
which case the loan is returned to accrual status. If the
collection of principal is in doubt in whole or in part, all
payments received on nonaccrual loans are credited to principal
until such doubt is eliminated. Monthly mortgage loan payments
are adjusted annually to cover insurance and tax requirements.
Loan origination fees received, net of certain direct origination
costs are deferred on a loan-by-loan basis and amortized to
interest income using a method which approximates the interest
method, giving effect to actual loan prepayments.
(Continued)
F-10
<PAGE>
TROY HILL BANCORP, INC.
Notes to Consolidated Financial Statements, Continued
(Dollar Amounts in Thousands)
On July 1, 1995, the Company adopted SFAS No. 114, "Accounting by
Creditors for Impairment of a Loan," and SFAS No. 118,
"Accounting by Creditors for Impairment of a Loan - Income
Recognition and Disclosures," which provide guidelines for
measuring and reporting impairment losses on loans. A loan is
considered to be impaired when it is probable that the Company
will be unable to collect all principal and interest amounts due
according to the contractual terms of the loan agreement. All
nonperforming loans, excluding consumer, lease and certain
single-family loans, are considered to be impaired loans.
Impaired loans are required to be measured based upon the
present value of expected future cash flows, discounted at the
loan's initial effective interest rate, or at the loan's market
price or fair value of the collateral if the loan is collateral
dependent. If the loan valuation is less than the recorded
value of the loan, an impairment reserve must be established for
the difference by either an allocation of the allowance for loan
losses or by a provision for loan losses, depending on the
adequacy of the allowance for loan losses. Impaired loans at
September 30, 1996, were $184 (unaudited) and $105 at June 30,
1996, that had a related impairment reserve of $28 (unaudited)
and $16 at June 30, 1996. Average impaired loans during the
year ended June 30, 1996, were $269 ($131 (unaudited) for the
three months ended September 30, 1996). During the year 1996,
the Company recognized $15 of interest revenue on impaired
loans, ($2 (unaudited) for the three months ended September 30,
1996) all of which was recognized using the cash basis method of
income recognition.
Provision for Loan Losses
Provisions for estimated losses on loans are charged to earnings in
an amount that results in an allowance for loan losses sufficient,
in management's judgment, to cover anticipated losses based on
management's periodic evaluation of known and inherent risks in
the loan portfolio, past and expected future loss experience of
the Company, current economic conditions, adverse situations
which may affect a specific borrower's ability to repay, the
estimated value of any underlying collateral and other relevant
factors.
Material estimates that are particularly susceptible to significant
change in the near-term relate to the determination of the
allowance for loan losses. Management believes that the
allowance for loan losses is adequate. While management uses
available information to recognize losses on loans, future
additions to the allowance may be necessary based on changes in
economic conditions. In addition, various regulatory agencies,
as an integral part of their examination process, periodically
review the Company's allowance for loan losses. Such agencies
can require the Company to adjust the allowance based on their
judgments about information available to them at the time of
their examination.
(Continued)
F-11
<PAGE>
TROY HILL BANCORP, INC.
Notes to Consolidated Financial Statements, Continued
(Dollar Amounts in Thousands)
Real Estate Owned
Real estate owned (properties acquired by foreclosure or voluntarily
conveyed by delinquent borrowers in lieu of foreclosure) are
recorded as of the acquisition date at the lower of cost or fair
value less estimated costs to sell as established by a current
appraisal. Costs relating to development and improvement of the
property are capitalized, whereas costs relating to the holding
of such real estate are expensed as incurred. Subsequent to
acquisition, valuations are periodically performed by
management; and the carrying value of the real estate acquired
is subsequently adjusted by establishing a valuation allowance
and recording a charge to operations if the carrying value of a
property exceeds its estimated fair value less estimated costs
to sell. Gains and losses from the sale of real estate are
recognized upon sale and are based upon the net carrying value
of the related property.
Premises and Equipment
Premises and equipment are stated at cost less accumulated
depreciation. Depreciation for financial reporting purposes is
computed using the straight-line method over the estimated
useful lives of the related assets of five to forty years.
Accelerated methods are used for income tax purposes.
Interest on Savings Deposits
Interest on savings deposits is accrued and charged to expense
monthly and is paid or credited in accordance with the terms of
the respective accounts.
Income Taxes
Deferred taxes are provided for under the asset and liability method
of accounting for income taxes. Under the asset and liability
method, deferred tax assets and liabilities are recognized for
the future tax consequences attributable to differences between
the financial statement carrying amounts of existing assets and
liabilities and their respective tax bases. Deferred tax assets
and liabilities are measured using enacted tax rates expected to
apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect
on deferred tax assets and liabilities of a change in tax rates
is recognized in income in the period that includes the
enactment date.
(Continued)
F-12
<PAGE>
TROY HILL BANCORP, INC.
Notes to Consolidated Financial Statements, Continued
(Dollar Amounts in Thousands)
Cash Equivalents
For purposes of reporting cash flows, cash and cash equivalents
consists of cash and due from banks.
Earnings Per Share
Earnings per share (EPS) is computed by dividing net income by the
weighted average number of common shares and common stock
equivalents outstanding during the period. Such shares amounted
to 1,005,655 (unaudited) for the three months ended September
30, 1996, and 995,480 and 1,035,235 for the years ended June 30,
1996 and 1995. Shares outstanding for 1996 and 1995, do not
include ESOP shares that were purchased and unallocated during
1996 and 1995 in accordance with SOP 93-6, "Employers'
Accounting for Employee Stock Ownership Plans." Shares granted
but not yet issued under the Company's stock option plan are
considered common stock equivalents for earnings per share
calculations.
For fiscal year ended June 30, 1994, the provisions of Accounting
Principles Board Opinion No. 15, "Earnings Per Share," are not
applicable as the Company converted to the stock form of
ownership in June 1994.
Reclassifications
Certain items previously reported have been reclassified to conform
to the current year's reporting format.
(2) Investment and Mortgage-Backed Securities Available for Sale
The amortized cost, gross unrealized gains, gross unrealized losses
and estimated market value of investment and mortgage-backed
securities available for sale are as follows:
September 30, 1996
-----------------------------------------------
Gross Gross Estimated
Amortized unrealized unrealized market
cost gains losses value
-------- ---------- ---------- ---------
(unaudited)
U.S. agency securities $ 2,543 -- (76) 2,467
Collateralized mortgage
obligations 500 -- (12) 488
Mortgage-backed securities 1,890 34 --- 1,924
Corporate equity securities 4,175 -- (51) 4,124
-------- ---------- ---------- ---------
$ 9,108 34 (139) 9,003
-------- ---------- ---------- ---------
-------- ---------- ---------- ---------
(Continued)
F-13
<PAGE>
TROY HILL BANCORP, INC.
Notes to Consolidated Financial Statements, Continued
(Dollar Amounts in Thousands)
June 30, 1996
---------------------------------------------------
Gross Gross Estimated
Amortized unrealized unrealized market
cost gains losses value
-------- ---------- ---------- ---------
U.S. agency securities $ 2,532 -- (80) 2,452
Collateralized mortgage
obligations 500 -- (11) 489
Mortgage-backed securities 4,613 68 (15) 4,666
Corporate equity securities 4,174 46 (96) 4,124
-------- ---------- ---------- ---------
$11,819 114 (202) 11,731
-------- ---------- ---------- ---------
-------- ---------- ---------- ---------
June 30, 1995
--------------------------------------------------
Gross Gross Estimated
Amortized unrealized unrealized market
cost gains losses value
-------- ---------- ---------- ---------
U.S. agency securities $ 1,000 12 -- 1,012
Collateralized mortgage
obligations 500 -- (17) 483
Mortgage-backed securities 6,451 138 (3) 6,586
Corporate equity securities 2,799 45 (94) 2,750
-------- ---------- ---------- ---------
$10,750 195 (114) 10,831
-------- ---------- ---------- ---------
-------- ---------- ---------- ---------
The amortized cost and approximate market value of investment and
mortgage-backed securities available for sale by contractual
maturities at September 30, 1996, and June 30, 1996, are shown
below. Actual maturities will generally differ from contractual
maturities because borrowers may have the right to call or
prepay obligations with or without call or prepayment penalties.
<TABLE>
<CAPTION>
September 30, June 30,
1996 1996
---------------------- --------------------
Estimated Estimated
Amortized market Amortized market
cost value cost value
--------- --------- --------- ---------
(unaudited)
<S> <C> <C> <C> <C>
U.S. agency securities:
Due within one year or less $ -- 246 -- --
After one but within five years 1,293 1,246 1,285 1,247
After five but within ten years 1,250 975 1,247 1,205
--------- --------- --------- ---------
2,543 2,467 2,532 2,452
Collateralized mortgage
obligations 500 488 500 489
Mortgage-backed securities 1,890 1,924 4,613 4,666
Corporate equity securities 4,175 4,124 4,174 4,124
--------- --------- --------- ---------
$ 9,108 9,003 11,819 11,731
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>
(Continued)
F-14
<PAGE>
TROY HILL BANCORP, INC.
Notes to Consolidated Financial Statements, Continued
(Dollar Amounts in Thousands)
Sale of investment and mortgage-backed securities available for sale
during the three months ended September 30, 1996, and the years
ended June 30, 1996 and 1995, resulted in proceeds of $2,548
(unaudited), $6,691 and $5,662, respectively. Gross realized
gains of $25 (unaudited), $17 and $60 and gross realized losses
of $19 (unaudited), $22 and $96, respectively, were recorded.
There were no sales of securities during the three months ended
September 30, 1996, and the year ended June 30, 1994.
Accrued income receivable on securities available for sale and held
to maturity was approximately $31 (unaudited), $108 and $166 at
September 30, 1996, and June 30, 1996 and 1995, respectively.
In November 1995, the Financial Accounting Standards Board (FASB)
issued "A Guide to Implementation of Statement 115 on
Accounting for Certain Investments in Debt and Equity
Securities, Questions and Answers." This guide permitted a
one-time reassessment of the appropriateness of the
classifications of securities as available for sale or held for
investment. The Company transferred approximately $6,900 of
investment securities with a market value of $6,800 from the
held to maturity category to the securities available for sale
category. Concurrent with this redesignation, all but
approximately $1,700 of the securities transferred were sold at
a realized loss of $5.
(3) Investment Securities Held to Maturity
The amortized cost, gross unrealized gains, gross unrealized losses
and approximate market value of investment and mortgage-backed
securities held to maturity were as follows:
<TABLE>
<CAPTION>
June 30, 1995
---------------------------------------------
Gross Gross Estimated
Amortized unrealized unrealized market
cost gains losses value
---- ---- ------ -----
<S> <C> <C> <C> <C>
U.S. agency securities $ 2,843 - (106) 2,737
Obligations of state and
political subdivisions 4,200 11 (50) 4,161
Corporate bonds 258 - (22) 236
------- -- --- -----
$ 7,301 11 (178) 7,134
------- -- --- -----
------- -- --- -----
</TABLE>
(Continued)
F-15
<PAGE>
TROY HILL BANCORP, INC.
Notes to Consolidated Financial Statements, Continued
(Dollar Amounts in Thousands)
(4) Loans Receivable and Allowance for Loan Losses
Loans receivable are summarized as follows:
<TABLE>
<CAPTION>
September 30, June 30,
1996 1996 1995
---- ---- ----
(unaudited)
<S> <C> <C> <C>
First mortgage loans:
One- to four-family residential $ 59,844 50,587 38,489
Multi-family residential 5,821 5,297 530
Nonresidential 6,936 7,641 4,186
Construction 13,402 13,678 11,629
-------- ------ ------
86,003 77,203 54,834
Commercial loans 1,026 597 525
Consumer loans:
Loans secured by savings accounts 89 96 78
Home equity and second mortgage 3,376 3,187 2,585
Automobile 7 8 17
-------- ------ ------
3,472 3,291 2,680
Less:
Deferred loan origination fees 724 655 635
Loans in process 5,208 5,224 3,557
Allowance for loan losses 687 660 667
-------- ------ ------
6,619 6,539 4,859
-------- ------ ------
$ 83,882 74,552 53,180
-------- ------ ------
-------- ------ ------
</TABLE>
The Company's lending efforts have historically focused on one- to
four-family residential and construction real estate loans,
primarily in the western Pennsylvania area. Generally, such
loans have been underwritten on the basis of 80% loan to value
ratio or mortgage insurance was required. The Company, as with
any lending institution, is subject to the risk that real estate
values could deteriorate in its primary lending area thereby
impairing collateral values. Management believes, however, that
real estate values in the Company's primary lending area are
currently stable.
(Continued)
<PAGE>
TROY HILL BANCORP, INC.
Notes to Consolidated Financial Statements, Continued
(Dollar Amounts in Thousands)
In the normal course of business, the Company has made loans to
directors and officers. An analysis of aggregate loan activity
with related parties is as follows:
<TABLE>
<CAPTION>
Three months
ended Year ended
September 30, June 30,
1996 1996
---- ----
(unaudited)
<S> <C> <C>
Loans outstanding at beginning of period $ 202 228
Loans originated 147 5
Repayments 58 31
------ ---
Loans outstanding at end of period $ 291 202
------ ---
------ ---
</TABLE>
A summary of the activity in the allowance for loan losses follows:
<TABLE>
<CAPTION>
Three months ended Year ended
September 30, June 30,
----------------- ----------
1996 1995 1996 1995 1994
---- ---- ---- ---- ----
(unaudited)
<S> <C> <C> <C> <C> <C>
Balance at beginning of year $ 660 667 667 700 629
Charge-offs (3) -- (227) (43) (9)
Provision charged to operations 30 30 220 10 80
----- --- --- --- ---
Balance at end of year $ 687 697 660 667 700
----- --- --- --- ---
----- --- --- --- ---
</TABLE>
There were no significant recoveries during any of the periods
presented.
Nonaccrual loans totaled $415 (unaudited) at September 30, 1996,
and $170, $334 and $565 at June 30, 1996, 1995 and 1994,
respectively. Interest income that would have been recorded
under the original terms of such loans approximated $6
(unaudited) for the three months ended September 30, 1996, and
$23, $41 and $54 for the years ended June 30, 1996, 1995 and
1994, respectively.
Accrued interest receivable at September 30, 1996, was
approximately $270 (unaudited) and, at June 30, 1996 and 1995,
was approximately $438 and $306, respectively.
(Continued)
F-17
<PAGE>
TROY HILL BANCORP, INC.
Notes to Consolidated Financial Statements, Continued
(Dollar Amounts in Thousands)
(5) Commitments and Contingencies
The Company is a party to financial instruments with
off-balance-sheet risk in the normal course of business to meet
the financing needs of its customers. These financial
instruments include commitments to extend credit through loans
approved, but not yet funded, and lines of credit. The Company
uses the same credit policy in making commitments and
conditional obligations as it does for on-balance sheet
instruments. The Company evaluates each customer's
credit-worthiness on an individual basis, and the amount of
collateral is based upon the credit evaluation. The commitments
to extend credit generally have fixed expiration dates or other
termination clauses and may require payment of a fee. As some
of the commitments may not be utilized, or utilized in amounts
less than the total committed, the total commitment amounts do
not necessarily represent future cash requirements. As of
September 30, 1996, and June 30, 1996, the Company had
outstanding commitments to originate and fund first mortgage and
construction loans of $3,814 (unaudited) and $3,407,
respectively, of which $131 (unaudited) and $407 were at
variable rates. Unused lines of credit approximated $2,692
(unaudited) at September 30, 1996, and $7,750 at June 30, 1996.
At June 30, 1996 and 1995, the Company had not entered into any
derivative instruments with significant off-balance-sheet risk,
such as futures, swaps, options or similar investments.
The undercapitalized status of the FDIC's Savings Association
Insurance Fund resulted in the introduction of federal
legislation to recapitalize the SAIF which would require thrifts
like Troy Hill Bancorp, Inc. to pay a one-time charge based on
deposits to recapitalize the depleted insurance fund. The
legislation became law on September 30, 1996, and resulted in a
charge of $326 (unaudited), $215 (unaudited) net of taxes for
the three-month period ended September 30, 1996. Payment of the
assessment is due in November 1996.
(6) Premises and Equipment
Premises and equipment consist of the following:
<TABLE>
<CAPTION>
September 30, June 30,
------------- ---------------
1996 1996 1995
---- ---- ----
(unaudited)
<S> <C> <C> <C>
Buildings and improvements $ 626 626 566
Furniture, fixtures and equipment 456 456 390
Land and land improvements 122 122 122
------ ----- ------
1,204 1,204 1,078
Less accumulated depreciation 570 551 476
------ ----- ------
$ 634 653 602
------ ----- ------
------ ----- ------
</TABLE>
(Continued)
F-18
<PAGE>
TROY HILL BANCORP, INC.
Notes to Consolidated Financial Statements, Continued
(Dollar Amounts in Thousands)
(7) Savings Deposits
Savings deposits consisted of the following:
<TABLE>
<CAPTION>
September 30, June 30,
----------------- -------------------------------------------
1996 1996 1995
----------------- ------------------- --------------------
Weighted Weighted Weighted
average average average
rate Amount rate Amount rate Amount
---- ------ ---- ------ ---- ------
<S> <C> <C> <C> <C> <C> <C>
(unaudited)
Deposit accounts:
Passbook accounts % 3.03 $ 12,540 % 3.03 $ 12,276 % 3.05 $ 12,629
NOW accounts 1.43 2,160 1.24 4,201 2.52 3,542
Money market
demand deposit 2.53 3,367 2.52 2,359 2.52 2,686
-------- ------- --------
Total transaction
accounts 18,067 18,836 18,857
Certificates of deposit:
2.01 to 4.00 -- -- 3.93 16 3.73 1,162
4.01 to 6.00 5.20 22,411 5.26 25,614 5.18 14,724
6.01 to 8.00 6.07 12,147 6.89 9,464 6.68 15,214
8.01 to 10.00 9.00 30 9.00 30 8.90 610
10.01 and over -- -- -- -- 10.18 43
-------- ------- --------
34,588 35,124 31,753
-------- ------- --------
Total 4.56 $ 52,655 4.63 $ 53,960 4.79 $ 50,610
-------- -------- --------
-------- -------- --------
</TABLE>
The aggregate amount of certificates of deposit with a minimum
denomination of $100 totaled approximately $968 (unaudited) at
September 30, 1996, and $1,900 and $1,700 at June 30, 1996 and
1995, respectively.
Noninterest-bearing checking accounts included in NOW and money
market accounts amounted to $285 (unaudited) at September 30,
1996, and $715 and $134 at June 30, 1996 and 1995, respectively.
The scheduled contractual maturities of certificates of deposit are
summarized as follows:
<TABLE>
<CAPTION>
September 30, June 30,
1996 1996
---- ----
(unaudited)
<S> <C> <C>
Within one year $ 17,836 21,599
Beyond one year but within two years 12,533 8,673
Beyond two years but within three years 2,404 2,880
Thereafter 1,815 1,972
-------- ------
Total $ 34,588 35,124
-------- ------
-------- ------
</TABLE>
(Continued)
F-19
<PAGE>
TROY HILL BANCORP, INC.
Notes to Consolidated Financial Statements, Continued
(Dollar Amounts in Thousands)
Interest expense on deposits is summarized as follows:
<TABLE>
<CAPTION>
Three months ended Year ended
September 30, June 30,
------------------ ------------------
1996 1995 1996 1995 1994
---- ---- ---- ---- ----
(unaudited)
<S> <S> <S> <S> <S> <S>
Passbook accounts $ 93 94 370 416 457
NOW accounts 12 19 70 72 71
Money market 14 17 62 72 87
Certificates of deposit 495 485 1,982 1,342 1,121
---- --- ----- ----- -----
$ 614 615 2,484 1,902 1,736
---- --- ----- ----- -----
---- --- ----- ----- -----
</TABLE>
(8) Federal Home Loan Bank Stock
The Company is a member of the Federal Home Loan Bank System and,
as a member, maintains an investment in the capital stock of the
Federal Home Loan Bank of Pittsburgh. The investment is based
on a predetermined formula and is carried at cost.
(9) Advances from Federal Home Loan Bank
Maturities and interest rates of advances from the Federal Home
Loan Bank of Pittsburgh are as follows:
<TABLE>
<CAPTION>
September 30, June 30, June 30,
1996 1996 1995
-------------------- --------------------- -----------------
Years of Interest Interest Interest
maturity rates Amount rates Amount rates Amount
-------- -------- ------ -------- ------ -------- ------
(unaudited)
<S> <C> <C> <C> <C> <C> <C>
1996 % -- $ -- % -- $ -- % 6.69 $2,750
1997 5.37 - 5.50 6,867 5.54 - 5.91 11,500 -- --
1998 5.40 - 6.75 5,500 5.43 - 6.15 3,500 6.90 1,000
1999 6.10 - 6.56 5,583 6.10 2,583 6.85 1,000
2000 6.30 - 6.73 3,000 6.30 1,000 6.30 1,000
2001 -- -- -- -- -- --
2002 6.63 - 7.07 6,000 -- -- -- --
------- ------- ------
$26,950 $18,583 $5,750
------- ------- ------
------- ------- ------
</TABLE>
The Company also has a line of credit of $4.9 million of which $-0-
is unused at September 30, 1996 (unaudited), with interest on
borrowings computed at federal funds rate plus .34% which
matures in fiscal 1997. All borrowings are collateralized by
investment securities and mortgage loans.
(Continued)
F-20
<PAGE>
TROY HILL BANCORP, INC.
Notes to Consolidated Financial Statements, Continued
(Dollar Amounts in Thousands)
Advances are subject to prepayment penalties predicated on current
interest rates and the remaining period to maturity of any
advance repaid.
(10) Income Taxes
The Company adopted SFAS No. 109 as of July 1, 1993. The
cumulative effect of this change in method on prior periods
increased net earnings by $200 and is reported separately in the
consolidated statement of earnings for the year ended June 30,
1994.
Total income tax expense (benefit) was allocated as follows:
<TABLE>
<CAPTION>
Three months ended Years ended
September 30, June 30,
------------------ ------------------
1996 1995 1996 1995 1994
---- ---- ---- ---- ----
(unaudited)
<S> <C> <C> <C> <C> <C>
Income from operations $31 167 599 589 611
Stockholders' equity for
unrealized net (gain) loss
on securities available for sale 17 (10) 48 (28) --
Cumulative effect of change in
accounting for income taxes -- -- -- -- (200)
--- --- --- --- ---
$48 157 647 561 411
--- --- --- --- ---
--- --- --- --- ---
</TABLE>
The components of income tax expense (benefit) consist of the
following:
<TABLE>
<CAPTION>
Three months ended Years ended
September 30, June 30,
------------------ ------------------
1996 1995 1996 1995 1994
---- ---- ---- ---- ----
(unaudited)
<S> <C> <C> <C> <C> <C>
Current - federal $ 7 119 515 522 502
Current - state 9 27 108 107 105
Deferred 15 21 (24) (40) 4
--- --- --- --- ---
$ 31 167 599 589 611
--- --- --- --- ---
--- --- --- --- ---
</TABLE>
A reconciliation of income tax expense computed at the federal
statutory rate of 34% and actual income tax expense is as
follows:
<TABLE>
<CAPTION>
Three months ended Years ended
September 30, June 30,
------------------ ------------------
1996 1995 1996 1995 1994
---- ---- ---- ---- ----
(unaudited)
<S> <C> <C> <C> <C> <C>
Statutory income tax rate % 34.0 34.0 34.0 34.0 34.0
State taxes, net of federal benefit 7.1 4.2 4.2 4.7 4.6
Dividends received deduction (14.4) (2.9) (3.7) (1.9) (1.9)
Other, net 10.6 3.6 1.0 2.3 4.3
------ ---- ---- ---- ----
% 37.3 38.9 35.5 39.1 41.0
------ ---- ---- ---- ----
------ ---- ---- ---- ----
</TABLE>
(Continued)
F-21
<PAGE>
TROY HILL BANCORP, INC.
Notes to Consolidated Financial Statements, Continued
(Dollar Amounts in Thousands)
The tax effects of temporary differences representing the
components of the Company's net deferred income tax assets are
as follows:
<TABLE>
<CAPTION>
Three months ended Years ended
September 30, June 30,
------------------ -------------
1996 1995 1996 1995
---- ---- ---- ----
(unaudited)
<S> <C> <C> <C> <C>
Allowance for loan losses $211 175 240 167
Deferred loan fees 121 146 126 152
Accrued employee benefits 47 53 34 86
Securities available for sale 36 -- 20 --
---- --- --- ---
Total deferred income
tax assets 415 374 420 405
Securities available for sale -- (38) -- (28)
Accrued interest receivable (20) (46) (27) (53)
Depreciation (34) (34) (34) (36)
---- --- --- ---
Total deferred income
tax liabilities (54) (118) (61) (117)
---- --- --- ---
Net deferred
income tax assets $ 361 256 359 288
---- --- --- ---
---- --- --- ---
</TABLE>
The Company has not established a valuation allowance as it is
management's belief that it has adequate current taxable income
and carrybacks to realize the net deferred income tax assets.
Under certain provisions of the Internal Revenue code (the Code),
qualified thrift institutions were permitted to deduct from
taxable income a provision for bad debts based on either actual
bad debt experience or a percentage of taxable income before
such deduction. The deduction percentage, subject to certain
minimum tax provisions and other limitations, was 8%.
On August 20, 1996, President Clinton signed legislation which will
eliminate the percentage of taxable income bad debt deduction
for thrift institutions for tax years beginning after
December 31, 1995. This new legislation also requires a thrift
to generally recapture the excess of its current tax reserves
over its 1987 base year reserves. As the Company has previously
provided deferred taxes on this amount, no additional financial
statement tax expense should result from this new legislation.
(Continued)
F-22
<PAGE>
TROY HILL BANCORP, INC.
Notes to Consolidated Financial Statements, Continued
(Dollar Amounts in Thousands)
The Company and its subsidiaries file a consolidated federal income
tax return on a June 30 fiscal year end basis. The Company is
permitted under the code to deduct an annual addition to a
reserve for bad debts in determining taxable income, subject to
certain limitations. Bad debt deductions for income tax
purposes are included in taxable income of later years only if
the bad debt reserve is used subsequently for purposes other
than to absorb bad debt losses. Because the Company does not
intend to use the reserve for purpose other than to absorb
losses, no deferred income taxes have been provided prior to
1987. Retained earnings at September 30, 1996, includes
approximately $1.8 million (unaudited) representing such bad
debt deductions for which no deferred income taxes have been
provided.
(11) Employee Benefit Plans
The Company maintains a defined benefit pension plan covering
substantially all of its employees. The Company makes
contributions to the plan equal to the amount that is tax
deductible under the Internal Revenue Code. Plan assets
consist primarily of certificates of deposit issued by
Troy Hill.
Pension cost is comprised of the following components:
<TABLE>
<CAPTION>
Years ended
June 30,
-------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Service cost $ 29 31 28
Interest cost on projected benefit
obligation 28 24 20
Return on plan assets (20) (14) (14)
Net amortization and deferral (12) (13) (12)
---- -- --
Pension cost $ 25 28 22
---- -- --
---- -- --
</TABLE>
(Continued)
F-23
<PAGE>
TROY HILL BANCORP, INC.
Notes to Consolidated Financial Statements, Continued
(Dollar Amounts in Thousands)
The following sets forth the plan's funded status and the amounts
recognized in the Company's consolidated statements of financial
condition at June 30, 1996 and 1995. The plans funding status
and related actuarial information is not available as of
September 30, 1996. Management believes plan conditions did not
materially change during the interim period.
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Vested benefit obligation $272 205
Nonvested 1 6
--- ---
Accumulated benefit obligation 273 211
Future compensation increases 133 150
--- ---
Projected benefit obligation 406 361
Plan assets at fair value (394) (313)
--- ---
Projected benefit obligation in excess of plan assets 12 48
Unrecognized net loss (47) (50)
Unrecognized transition asset 76 81
--- ---
Pension liability recognized in consolidated
statement of financial condition $ 41 79
--- ---
--- ---
</TABLE>
Actuarial assumptions used in all periods presented were as follows:
Discount rate % 8 8
Rate of increase in future compensation
levels 6 6
Expected return on assets 8 8
In conjunction with the conversion to the stock form of ownership,
the Company implemented a tax qualified Employee Stock Ownership
Plan (ESOP). The ESOP provides retirement benefits for
substantially all full-time employees who have completed one
year of service. The ESOP acquired 89,930 shares of the
Company's common stock at a cost of $944, which was financed
through a loan with the Company. The loan obligation of the
ESOP is considered deferred compensation and, accordingly, has
been recorded as a reduction of stockholders' equity. The loan
from the Company will be repaid over a ten-year period from
contributions to the ESOP by the Company. The shares acquired by
the ESOP are held in a suspense account and are released to the
ESOP for allocation to the various plan participants as the loan
is reduced. There were approximately 2,500 (unaudited), 10,576
and 11,096 shares committed to be released to the ESOP at
September 30, 1996, and June 30, 1996 and 1995, respectively.
Unallocated ESOP shares at September 30, 1996, amounted to
68,258 shares with a total fair value of approximately $1,350
(unaudited).
(Continued)
F-24
<PAGE>
TROY HILL BANCORP, INC.
Notes to Consolidated Financial Statements, Continued
(Dollar Amounts in Thousands)
The Company accounts for the ESOP in accordance with Statement of
Position 93-6, "Employers' Accounting for Employee Stock
Ownership Plans." As shares are committed to be released, the
Company reports compensation expense equal to the current market
price of the shares and the shares become outstanding for EPS
computations. Dividends on unallocated ESOP shares are recorded
as a reduction of debt and accrued interest.
Compensation expense for the ESOP was approximately $150 and $123
for the years ended June 30, 1996 and 1995, respectively, and
$42 (unaudited) for the three months ended September 30, 1996.
In connection with the conversion to the stock form of ownership,
the Company has adopted a Recognition and Retention Plan and
Trust (RRP). The RRP has acquired 44,965 shares of the
Company's common stock. Shares of the common stock granted to
officers and directors generally vest over a five-year period
and are restricted until vested. The Company has granted, under
the RRP, 32,597 shares during the year ended June 30, 1995. No
shares were awarded in 1996 or for the three months ended
September 30, 1996. The Company accrues compensation expense for
the shares granted over the respective vesting periods.
Compensation expense for the RRP for the three months ended
September 30, 1996, and the years ended June 30, 1996 and 1995,
amounted to approximately $22 (unaudited), $80 and $56,
respectively.
The Company has implemented stock option plans for officers,
directors and key employees. A total of 112,412 shares of the
Company's common stock has been reserved for future issuance.
Options granted may be incentive or nonqualified, and such
options vest over periods ranging between six months (for
options granted to nonemployee directors) to five years (for
employees of the Company) and expire ten years after issuance.
Options to purchase 25,290 shares and 44,963 shares were granted
in fiscal 1995 at a price of $11.13 to nonemployee directors and
certain employees, respectively. Options to purchase 2,808
shares were granted to nonemployee directors in fiscal 1996. At
September 30, 1996, 37,094 options were exercisable. No options
have been exercised. There were no options granted for the
three-month period ended September 30, 1996.
(Continued)
F-25
<PAGE>
TROY HILL BANCORP, INC.
Notes to Consolidated Financial Statements, Continued
(Dollar Amounts in Thousands)
(12) OTHER OPERATING EXPENSES
The components of other operating expenses follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED YEARS ENDED
SEPTEMBER 30, JUNE 30,
------------------ ------------------
1996 1995 1996 1995 1994
----- ---- ---- ---- ----
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Office supplies and services $18 20 85 84 78
Legal and professional 33 11 66 168 89
Data processing 18 17 69 62 63
Advertising 16 11 53 45 41
Expenses in connection with
anticipated merger 125 -- -- -- --
Other 98 55 290 218 179
----- --- --- --- ---
Total $ 308 114 563 577 450
----- --- --- --- ---
----- --- --- --- ---
</TABLE>
(13) Regulatory Capital
Troy Hill is subject to various regulatory capital
requirements administered by the federal baking agencies.
Failure to meet minimum capital requirements can initiate
certain mandatory - and, possibly additional discretionary -
actions by regulators that, if undertaken, could have a direct
material effect on Troy Hill's financial statements. Under
capital adequacy guidelines and the regulatory framework for
prompt corrective action, Troy Hill must meet specific capital
guidelines that involve quantitative measures of Troy Hill's
assets, liabilities and certain off-balance-sheet items as
calculated under regulatory accounting practices. Troy Hill's
capital amounts and classifications are also subject to
qualitative judgments by the regulators about components, risk
weightings and other factors.
Quantitative measures established by regulation to
ensure capital adequacy require Troy Hill to maintain minimum
amounts and ratios (set forth in the table below) of Tangible
and Core Capital (as defined in the regulations) to total
assets and of Total Capital (as defined) to risk-weighted
assets (as defined). Management believes, as of September 30,
1996 (unaudited), and June 30, 1996, that Troy Hill meets all
capital adequacy requirements to which it is subject.
As of September 30, 1996, the most recent
notification from the Office of Thrift Supervision (OTS)
categorized Troy Hill as "well capitalized" under the
regulatory framework for prompt corrective action. To be
categorized as "well capitalized," Troy Hill must maintain
minimum Total Risk-based, Core and Tangible ratios as set
forth in the accompanying table. There are no conditions or
events since that notification that management believes have
changed the institution's category.
(Continued)
F-26
<PAGE>
TROY HILL BANCORP, INC.
Notes to Consolidated Financial Statements, Continued
(Dollar Amounts in Thousands)
Troy Hill's actual capital amounts and ratios are also presented in
the table. There is no deduction from capital for interest rate
risk.
<TABLE>
<CAPTION>
TO BE WELL
CAPITALIZED UNDER
FOR CAPITAL PROMPT CORRECTIVE
ACTUAL ADEQUACY PURPOSES ACTION PROVISIONS
-------------- ----------------- -----------------
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C>
As of September 30,
1996 (unaudited):
Risk-based
Capital $15,022 %24.51 $4,902 %8.00 $6,128 %10.00
Core Capital 14,254 14.93 2,864 3.00 5,728 6.00
Tangible
Capital 14,254 14.93 1,432 1.50 4,774 5.00
As of June 30, 1996:
Risk-based Capital 14,506 24.30 4,775 8.00 5,969 10.00
Core Capital 14,010 15.89 2,646 3.00 5,292 6.00
Tangible Capital 14,010 15.89 1,322 1.50 4,407 5.00
As of June 30, 1995:
Risk-based
Capital 14,639 33.79 3,466 8.00 4,333 10.00
Core Capital 13,986 19.45 2,159 3.00 4,318 6.00
Tangible Capital 13,986 19.45 1,080 1.50 3,560 5.00
</TABLE>
OTS regulations impose limitations on all capital
distributions. The rule establishes three tiers of
institutions. An institution that exceeds all fully phased-in
capital requirements before and after a proposed capital
distribution (Tier 1 Bank), may after prior notice but without
the approval of the OTS make capital distribution during a
calendar year up to 100 percent of its net income to date
during the calendar year plus the amount that would reduce by
one-half its "surplus capital ratio" (the excess capital over
fully phased-in capital requirements) at the beginning of the
calendar year. Troy Hill is a Tier 1 Bank and, accordingly,
had available at September 30, 1996, and June 30, 1996,
approximately $4.2 million available for distribution. In
October 1995, a capital distribution of $1.0 million was made
to the Company by Troy Hill.
(Continued)
F-27
<PAGE>
TROY HILL BANCORP, INC.
Notes to Consolidated Financial Statements, Continued
(Dollar Amounts in Thousands)
(14) Disclosures About Fair Value of Financial Instruments
Statement of Financial Accounting Standards No. 107,
"Disclosure about Fair Value of Financial Instruments," (SFAS
107), requires disclosure of fair value information about
financial instruments, whether or not recognized in the
consolidated statements of financial condition as of September
30, 1996, and June 30, 1996. SFAS 107 excludes certain
financial instruments and all nonfinancial instruments from
its disclosure requirements. Accordingly, the aggregate fair
value amounts presented do not represent the underlying value
of the Company. The carrying amounts reported in the
consolidated statements of financial condition approximate
fair value for cash and due from banks.
Investment and mortgage-backed securities available
for sale at September 30, 1996, and June 30, 1996, are carried
at market value. Fair values are based on quoted market
prices, dealer quotes and prices obtained from independent
pricing services. Refer to note 2 of the financial statements
for the detail on breakdowns by type of investment products.
The estimated fair value of loans exceeded the net
carrying value at September 30, 1996, and at June 30, 1996, by
approximately $945 (unaudited) and $842, respectively. Loans
with comparable characteristics including collateral and
repricing structures were segregated for valuation purposes.
Each loan pool was separately valued utilizing a discounted
cash flow analysis. Projected monthly cash flows were
discounted to present value using a market rate for comparable
loans. Characteristics of comparable loans included remaining
term, coupon interest and estimated prepayment speeds.
Delinquent loans were evaluated separately given the impact
delinquency has on the projected future cash flow of the loan
and the approximate discount or market rate.
The carrying amounts and estimated fair values of deposits are as
follows:
<TABLE>
<CAPTION>
SEPTEMBER 30, JUNE 30,
1996 1996
-------------------- ----------------------
ESTIMATED ESTIMATED
CARRYING FAIR CARRYING FAIR
VALUE VALUE VALUE VALUE
-------- --------- -------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C>
Passbook accounts $12,540 12,540 12,276 12,276
NOW accounts 2,160 2,160 4,201 4,201
Money market demand deposit
(MMDA) 3,367 3,367 2,359 2,359
Time deposits 34,588 34,081 35,124 34,764
------- ------ ------ ------
Total deposits $52,655 52,148 53,960 53,600
------- ------ ------ ------
------- ------ ------ ------
</TABLE>
(Continued)
F-28
<PAGE>
TROY HILL BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(DOLLAR AMOUNTS IN THOUSANDS)
The carrying amounts of NOW and MMDA accounts and passbook accounts
approximate their fair values. The fair value estimates above
do not include the benefit that results from the low-cost
funding provided by the deposit liabilities compared to the cost
of borrowing funds in the market. Fair values for time deposits
are estimated using a discounted cash flow calculation that
applies contractual cost currently being offered in the existing
portfolio to current market rates being offered locally for
deposits of similar remaining maturities. The mark-to-market
valuation adjustment for the portfolio consists of the present
value of the difference of these two cash flows, discounted at
the assumed market rate of the corresponding maturity.
The estimated fair value of borrowed funds at
September 30, 1996, and June 30, 1996, was $26,965 (unaudited)
and $18,594 with carrying amounts of $26,950 (unaudited) and
$18,583, respectively. Variable rate advances were estimated
to approximate their carrying amounts. The fixed rate advances
were valued by comparing their contractual cost to the
prevailing market cost.
At September 30, 1996, and June 30, 1996, the
Company had no off-balance-sheet commitments to purchase
investment securities or mortgage-backed securities.
The fair value of commitments to extend credit is
estimated using the fees currently charged to enter into
similar agreements, taking into account the remaining terms of
the agreements and the present credit worthiness of the
counterparties. For fixed rate loan commitments fair value
also considers the difference between current levels of
interest rates and the committed rates. At the reporting
date, the carrying value and estimated fair value on
commitments to extend credit were not material.
(15) REORGANIZATION AND CONVERSION TO STOCK FORM
During fiscal 1994, Troy Hill Federal Savings and
Loan Association's Board of Directors adopted a plan of
conversion (the Plan) whereby the Association would convert to
the stock form of ownership, followed by the issuance of all
of the Association's outstanding stock to a newly formed
holding company, Troy Hill Bancorp, Inc. The conversion was
completed on June 24, 1994, and the Company issued 1,124,125
shares of its common stock. Costs of the common stock
offering of $649 were deducted from the offering proceeds.
At the completion of the conversion to stock form,
Troy Hill established a liquidation account in the amount of
retained earnings set forth in the offering prospectus
utilized in the conversion. The liquidation account will be
maintained for the benefit of eligible savings account holders
who maintain deposit accounts in Troy Hill after conversion.
In the event of a complete liquidation (and only in such
event), each eligible savings account holder will be entitled
to receive a liquidation distribution from the liquidation
account in the amount of the then current adjusted balance of
deposit accounts held, before any liquidation distribution may
be made with respect to the common shares. Except for the
repurchase of stock and payment of dividends by Troy Hill,
the existence of the liquidation account will not restrict the
use or further application of such retained earnings.
(Continued)
F-29
<PAGE>
TROY HILL BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(DOLLAR AMOUNTS IN THOUSANDS)
Troy Hill may not declare or pay a cash dividend on,
or repurchase any of its common shares if the effect thereof
would cause Troy Hill's stockholders' equity to be reduced
below either the amount required for the liquidation account
or the regulatory capital requirements for insured
institutions.
(16) CONDENSED FINANCIAL INFORMATION OF TROY HILL BANCORP, INC. (PARENT
COMPANY ONLY)
For 1994, the results of operations and cash flows are for the period
of June 24 through June 30.
BALANCE SHEETS
<TABLE>
<CAPTION>
JUNE 30,
SEPTEMBER 30, -------------------
1996 1996 1995
------------- ---- ----
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Cash $ 52 99 104
Investments available for sale 3,886 3,877 2,750
Investment in subsidiary 14,208 14,005 14,080
Other assets 258 255 466
------- ------ ------
Total assets $18,404 18,236 17,400
------- ------ ------
------- ------ ------
LIABILITIES AND STOCKHOLDERS' EQUITY
Accrued expenses and other liabilities 391 196 184
Common stock 11 11 11
Additional paid-in capital 18,557 18,547 18,523
Retained earnings 1,415 1,462 725
Treasury stock, at cost (703) (703) (703)
Shares acquired by the recognition and
retention plan (463) (463) (543)
Shares acquired by Employee Stock
Ownership Plan (732) (756) (850)
Unrealized gain (loss) on available for
sale investments (72) (58) 53
------- ------ ------
Total stockholders' equity 18,013 18,040 17,216
------- ------ ------
Total liabilities and
stockholders' equity $18,404 18,236 17,400
------- ------ ------
------- ------ ------
</TABLE>
(Continued)
F-30
<PAGE>
TROY HILL BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(DOLLAR AMOUNTS IN THOUSANDS)
STATEMENTS OF EARNINGS
<TABLE>
<CAPTION>
THREE MONTHS ENDED YEARS ENDED
SEPTEMBER 30, JUNE 30,
------------------ --------------------
1996 1995 1996 1995 1994
---- ---- ---- ---- ----
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Interest and dividend income $ 60 74 355 376 4
Dividend from subsidiary -- -- 235 -- --
Other 3 -- 2 40 --
----- ---- ----- --- ---
Total income 63 74 592 416 4
Operating expenses 176 37 188 185 --
----- ---- ----- --- ---
Income (loss) before tax
expense and equity in
undistributed net income
of subsidiary (113) 37 404 231 4
Income tax (benefit) expense (45) -- (4) 61 --
----- ---- ----- --- ---
Income (loss) before benefit in
undistributed net
of subsidiary (68) 37 408 170 4
Equity in undistributed net income of
subsidiary 120 224 680 749 16
----- ---- ----- --- ---
Net earnings $ 52 261 1,088 919 20
----- ---- ----- --- ---
----- ---- ----- --- ---
</TABLE>
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED YEARS ENDED
SEPTEMBER 30, JUNE 30,
------------------ --------------------
1996 1995 1996 1995 1994
---- ---- ---- ---- ----
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net earnings $ 52 261 1,088 919 20
Shares committed to be released by
ESOP 24 24 94 104 --
Decrease (increase) in other assets (3) (1) 87 (447) (4)
Increase (decrease) in accrued
liabilities 195 (46) 12 184 --
Equity in undistributed net income
of subsidiary (120) (224) (680) (749) (16)
Other (88) 23 62 (40) --
----- ---- ----- --- ---
Net cash provided by (used
in) operating activities 60 37 663 (29) --
</TABLE>
(Continued)
F-31
<PAGE>
TROY HILL BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(DOLLAR AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED YEARS ENDED
SEPTEMBER 30, JUNE 30,
------------------ ---------------------------
1996 1995 1996 1995 1994
---- ---- ---- ---- ----
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from investing activities:
Purchase of subsidiary stock $ -- -- -- -- (5,296)
Dividend from subsidiary -- -- 765 -- --
Purchase of investment securities -- -- (1,252) (3,397) --
Sale of investment securities -- -- 128 638 --
----- ---- ------- ------ ------
Net cash used in investing
activities -- -- (359) (2,759) (5,296)
Cash flows from financing activities:
Proceeds from issuance of common
stock, net -- -- -- -- 9,648
Purchase of shares for recognition
and retention plan -- -- -- (543) --
Purchase of Treasury stock -- -- -- (703) --
Cash dividends paid (107) (64) (309) (214) --
----- ---- ------- ------ ------
Net cash provided by
(used in) financing
activities (107) (64) (309) (1,460) 9,648
----- ---- ------- ------ ------
Net increase (decrease) in cash (47) (27) (5) (4,248) 4,352
Cash at beginning of period 99 104 104 4,352 --
----- ---- ------- ------ ------
Cash at end of period$ 52 77 99 104 4,352
----- ---- ------- ------ ------
----- ---- ------- ------ ------
</TABLE>
(Continued)
F-32
<PAGE>
TROY HILL BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(DOLLAR AMOUNTS IN THOUSANDS)
(17) SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-----------------------------------------------------
JUNE 30, MARCH 31, DECEMBER 31, SEPTEMBER 30,
1996 1996 1995 1995
------- --------- ------------ -------------
<S> <C> <C> <C> <C>
1996:
Interest income $ 1,698 1,645 1,621 1,523
Interest expense 789 761 804 737
------- ----- ----- -----
Net interest income before
provision for loan losses 909 884 817 786
Provisions for loan losses 130 30 30 30
Noninterest income 67 55 32 57
Noninterest expense 477 437 402 384
------- ----- ----- -----
Earnings before income
taxes 369 472 417 429
Provision for income taxes 86 187 159 167
------- ----- ----- -----
Net earnings $ 283 285 258 262
------- ----- ----- -----
------- ----- ----- -----
Earnings per share (1) $ .27 .29 .26 .25
------- ----- ----- -----
------- ----- ----- -----
THREE MONTHS ENDED
-----------------------------------------------------
JUNE 30, MARCH 31, DECEMBER 31, SEPTEMBER 30,
1995 1995 1994 1994
------- --------- ------------ -------------
1995:
Interest income $ 1,428 1,339 1,226 1,159
Interest expense 658 576 472 449
------- ----- ----- -----
Net interest income before
provision for loan losses 770 763 754 710
Provisions for loan losses -- 10 -- --
Noninterest income 76 25 (33) 53
Noninterest expense 392 425 413 370
------- ----- ----- -----
Earnings before income
taxes 454 353 308 393
Provision for income taxes 177 130 137 145
------- ----- ----- -----
Net earnings $ 277 223 171 248
------- ----- ----- -----
------- ----- ----- -----
Earnings per share (1) $ .26 .22 .17 .24
------- ----- ----- -----
------- ----- ----- -----
</TABLE>
(1) Quarterly earnings per share may vary from annual earnings per share due
to rounding.
(Continued)
F-33
<PAGE>
TROY HILL BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(DOLLAR AMOUNTS IN THOUSANDS)
(18) CORPORATE REORGANIZATION
On September 16, 1996, the Company entered into a
definitive agreement to be acquired by PennFirst Bancorp Inc.
(PennFirst). Under the agreement, PennFirst will pay $21.15
in cash and stock for each common share of the Company. The
acquisition is subject to various regulatory and shareholder
approvals and is expected to close in March 1997.
F-34
<PAGE>
APPENDIX A
AGREEMENT AND PLAN OF REORGANIZATION
AGREEMENT AND PLAN OF REORGANIZATION, dated as of September 16, 1996
("Agreement"), between PennFirst Bancorp, Inc. ("PennFirst"), a Pennsylvania
corporation headquartered in Ellwood City, Pennsylvania, and Troy Hill
Bancorp, Inc. ("THB"), a Pennsylvania corporation headquartered in
Pittsburgh, Pennsylvania.
WITNESSETH:
WHEREAS, the Boards of Directors of PennFirst and THB have determined
that it is in the best interests of their respective companies and their
shareholders to consummate the business combination transactions provided for
herein, including the merger of THB with and into PennFirst subject to the
terms and conditions set forth herein; and
WHEREAS, the parties desire to provide for certain undertakings,
conditions, representations, warranties and covenants in connection with the
transactions contemplated hereby; and
WHEREAS, as a condition and inducement to PennFirst's willingness to
enter into this Agreement, (i) THB is concurrently entering into a Stock
Option Agreement with PennFirst (the "Stock Option Agreement"), in
substantially the form attached hereto as Exhibit A, pursuant to which THB is
granting to PennFirst the option to purchase shares of THB Common Stock (as
defined herein) under certain circumstances and (ii) certain stockholders of
THB are concurrently entering into a Stockholder Agreement with PennFirst
(the "Stockholder Agreement"), in substantially the form attached hereto as
Exhibit B, pursuant to which, among other things, such stockholders agree to
vote their shares of THB Common Stock in favor of this Agreement and the
transactions contemplated hereby.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants, representations, warranties and agreements herein contained, the
parties hereto agree as follows:
ARTICLE I
THE MERGER
1.01. THE MERGER. Subject to the terms and conditions of this
Agreement and the Agreement of Merger, dated as of the date hereof, between
PennFirst and THB, a copy of which is attached hereto as Appendix A, at the
Effective Time (as defined in Section 1.02 hereof), THB shall be merged with
and into PennFirst in accordance with Chapter 19, Subchapter C of the
Pennsylvania Business Corporation Law ("PBCL") (the "Merger"), with PennFirst
as the surviving corporation (hereinafter sometimes called the "Surviving
Corporation"). Each share
<PAGE>
of common stock, par value $.01 per share, of THB ("THB Common Stock")
outstanding immediately prior to the Effective Time (other than shares as to
which dissenters' rights have been asserted and duly perfected in accordance
with Pennsylvania law (the "THB Dissenting Shares") and shares held by THB
(including treasury shares) or PennFirst or any of their respective
wholly-owned subsidiaries) shall, by virtue of the Merger and without any
further action by the holder thereof, be converted into and represent the
right to receive shares of common stock, par value $.01 per share, of
PennFirst ("PennFirst Common Stock") or $21.15 in cash ("Merger
Consideration"), as provided in Section 1.03 hereof and subject to the terms,
conditions, limitations and procedures set forth in this Agreement and the
Agreement of Merger.
1.02. EFFECTIVE TIME. The Merger shall become effective on the date
and at the time that Articles of Merger are filed with the Secretary of State
of the Commonwealth of Pennsylvania pursuant to Section 1927 of the PBCL,
unless a later date and time is specified as the effective time in such
Articles of Merger ("Effective Time"). A closing (the "Closing") shall take
place immediately prior to the Effective Time at 10:00 a.m., on the fifth
business day following the receipt of all necessary regulatory or
governmental approvals and consents and the expiration of all statutory
waiting periods in respect thereof and the satisfaction or waiver, to the
extent permitted hereunder, of the conditions to the consummation of the
Merger specified in Article V of this Agreement (other than the delivery of
certificates, opinions and other instruments and documents to be delivered at
the Closing), at the offices of PennFirst, 600 Lawrence Avenue, Ellwood City,
Pennsylvania, or at such other place, at such other time, or on such other
date as the parties may mutually agree upon. At the Closing, there shall be
delivered to PennFirst and THB the opinions, certificates and other documents
required to be delivered under Article V hereof.
1.03 CONVERSION OF SHARES. At the Effective Time, by virtue of the
Merger and without any action on the part of a holder of shares of THB Common
Stock:
(a) Each share of PennFirst Common Stock that is issued and outstanding
immediately prior to the Effective Time shall remain issued and outstanding
and shall be unchanged by the Merger.
(b) All shares of THB Common Stock owned by THB (including treasury
shares) or PennFirst or any of their respective wholly-owned subsidiaries
shall be cancelled and retired and shall not represent capital stock of the
Surviving Corporation and shall not be exchanged for shares of PennFirst
Common Stock, cash or other consideration.
(c) (1) Subject to Sections 1.08, 1.05 and 1.09 each share of THB
Common Stock issued and outstanding at the Effective Time (other than shares
to be cancelled in accordance with Section 1.03(b)) shall be converted into,
and shall be cancelled in exchange for, the right to receive, at the election
of the holder thereof:
2
<PAGE>
(i) the number of shares of PennFirst Common Stock which is equal
to (the "Exchange Ratio"), the quotient determined by dividing (x)
$21.15 by (y) the Average Share Price (the "Per Share Stock
Consideration"), or
(ii) a cash amount equal to $21.15 per share of THB Common Stock
(the "Per Share Cash Consideration").
(2) For purposes of this Agreement:
(i) the "Aggregate Cash Consideration" shall amount to the product
of the number of shares of THB Common Stock (other than THB Common Stock
owned by THB (including treasury shares) or PennFirst) outstanding at
the Effective Time times .40 times $21.15; and
(ii) the "Average Share Price" shall mean the average of the high
bid and low asked price per share of PennFirst Common Stock, as reported
on the Nasdaq Stock Market's National Market (as reported by an
authoritative source), for the 20 trading days ending on the date
PennFirst and THB receive all requisite regulatory approvals and satisfy
all applicable waiting periods.
1.04 ELECTION AND EXCHANGE PROCEDURES
(a) The parties shall designate an exchange agent to act as agent (the
"Exchange Agent") for purposes of conducting the election procedure and the
exchange procedure as described in Sections 1.04 and 1.05. No later than
seven business days following the Effective Time, PennFirst shall cause the
Exchange Agent to mail or make available to each holder of record of a
certificate or certificates which immediately prior to the Effective Time
represented issued and outstanding shares of THB Common Stock (i) a notice
and letter of transmittal (which shall specify that delivery shall be
effected and risk of loss and title to the certificates theretofore
representing shares of THB Common Stock shall pass only upon proper delivery
of such certificates to the Exchange Agent) advising such holder of the
effectiveness of the Merger and the procedure for surrendering to the
Exchange Agent such certificate or certificates which immediately prior to
the Effective Time represented issued and outstanding shares of THB Common
Stock in exchange for the consideration set forth in Section 1.03(c) hereof
deliverable in respect thereof pursuant to this Agreement and (ii) an
election form in such form as PennFirst and THB shall mutually agree
("Election Form"). Each Election Form shall permit the holder (or in the
case of nominee record holders, the beneficial owner through proper
instructions and documentation) (i) to elect to receive PennFirst Common
Stock with respect to all such holder's THB Common Stock as hereinabove
provided (the "Stock Election Shares"), (ii) to elect to receive cash with
respect to all such holder's THB Common Stock as hereinabove provided (the
"Cash Election Shares"), or (iii) to indicate that such holder makes no such
election with respect to such holder's shares of THB Common Stock (the
"No-Election Shares"). Any shares of THB Common Stock with respect to which
the holder thereof shall not, as of the Election Deadline, have made such an
election by submission to the Exchange Agent of an effective, properly
3
<PAGE>
completed Election Form shall be deemed to be No-Election Shares. Any THB
Dissenting Shares shall be deemed to be Cash Election Shares, and with
respect to such shares the holders thereof shall in no event be classified as
Reallocated Stock Shares (as hereinafter defined).
(b) The term "Election Deadline," as used below, shall mean 5:00 p.m.,
Eastern Time, on the 20th business day following but not including the date
of mailing of the Election Form or such other date as PennFirst and THB shall
mutually agree upon.
(c) Any election to receive PennFirst Common Stock or cash shall have
been properly made only if the Exchange Agent shall have actually received a
properly completed Election Form by the Election Deadline. An Election Form
will be properly completed only if accompanied by certificates representing
all shares of THB Common Stock covered thereby, subject to the provisions of
subsection (h) below of this Section 1.04. Any Election Form may be revoked
or changed by the person submitting such Election Form to the Exchange Agent
by written notice to the Exchange Agent only if such notice is actually
received by the Exchange Agent at or prior to the Election Deadline. The
certificate or certificates representing THB Common Stock relating to any
revoked Election Form shall be promptly returned without charge to the person
submitting the Election Form to the Exchange Agent. The Exchange Agent shall
have reasonable discretion to determine when any election, modification or
revocation is received and whether any such election, modification or
revocation has been properly made.
(d) Within ten business days after the Election Deadline, the Exchange
Agent shall effect the allocation among holders of THB Common Stock of rights
to receive PennFirst Common Stock or cash in the Merger in accordance with
the Election Forms as follows:
(i) If the number of Cash Election Shares times the Per Share Cash
Consideration is less than the Aggregate Cash Consideration, then:
(1) all Cash Election Shares (subject to Section 1.08(a) with
respect to Company Dissenting Shares) will be converted into the
right to receive cash,
(2) the Exchange Agent will select first from among the
holders of No-Election Shares and then (if necessary) will allocate
among the holders of Stock Election Shares (by the method of
allocation described below), a sufficient number of Stock Election
Shares ("Reallocated Cash Shares") such that the sum of the number
of Cash Election Shares plus the number of Reallocated Cash Shares
times the Per Share Cash Consideration equals the Aggregate Cash
Consideration, and all Reallocated Cash Shares will be converted
into the right to receive cash, and
(3) the No-Election Shares and Stock Election Shares which
are not Reallocated Cash Shares will be converted into the right to
receive PennFirst Common Stock.
4
<PAGE>
(ii) If the number of Cash Election Shares times the Per Share Cash
Consideration is greater than the Aggregate Cash Consideration, then:
(1) all Stock Election Shares and all No-Election Shares will
be converted into the right to receive PennFirst Common Stock,
(2) the Exchange Agent will allocate among the holders of
Cash Election Shares (by the method of allocation described below),
a sufficient number of Cash Election Shares (excluding any THB
Dissenting Shares) ("Reallocated Stock Shares") such that the
number of remaining Cash Election Shares (including THB Dissenting
Shares) times the Per Share Cash Consideration equals the Aggregate
Cash Consideration, and all Reallocated Stock Shares shall be
converted into the right to receive PennFirst Common Stock, and
(3) the Cash Election Shares (subject to Section 1.08(a) with
respect to THB Dissenting Shares) which are not Reallocated Stock
Shares will be converted into the right to receive cash.
(iii) If the number of Cash Election Shares times the Per Share
Cash Consideration is equal to the Aggregate Cash Consideration, then
subparagraphs (d)(i) and (ii) above shall not apply and all No-Election
Shares and all Stock Election Shares will be converted into the right to
receive PennFirst Common Stock.
(e) In the event that the Exchange Agent is required pursuant to
Section 1.04(d)(i)(2) to designate from among all Stock Election Shares the
Reallocated Cash Shares to receive cash, each holder of Stock Election Shares
shall be allocated a pro rata portion of the remainder of the total
Reallocated Cash Shares less the number of No Election Shares which are
Reallocated Cash Shares. In the event the Exchange Agent is required
pursuant to Section 1.04(d)(ii)(2) to designate from among all holders of
Cash Election Shares the Reallocated Stock Shares to receive PennFirst Common
Stock, each holder of Cash Election Shares shall be allocated a pro rata
portion of the total Reallocated Stock Shares.
(f) At the Effective Time, PennFirst shall issue to the Exchange Agent
the number of shares of PennFirst Common Stock issuable and the amount of
cash payable in the Merger (which shall be held by the Exchange Agent in
trust for the holders of THB Common Stock and invested only in deposit
accounts issued by the Exchange Agent (or an FDIC-insured affiliate of the
Exchange Agent), direct obligations of the U.S. Government or obligations
issued or guaranteed by an agency thereof which carry the full faith and
credit of the United States). Within 10 business days after the Election
Deadline, the Exchange Agent shall distribute PennFirst Common Stock and cash
as provided herein. The Exchange Agent shall not be entitled to vote or
exercise any rights of ownership with respect to the shares of PennFirst
Common Stock held by it from time to time hereunder, except that it shall
receive and hold all dividends or other distributions paid or distributed
with respect to such shares for the account of the persons entitled thereto.
5
<PAGE>
(g) After the completion of the foregoing allocation, each holder of an
outstanding certificate or certificates which prior thereto represented
shares of THB Common Stock who surrenders such certificate or certificates to
the Exchange Agent will, upon acceptance thereof by the Exchange Agent, be
entitled to a certificate or certificates representing the number of full
shares of PennFirst Common Stock or the amount of cash into which the
aggregate number of shares of THB Common Stock previously represented by such
certificate or certificates surrendered shall have been converted pursuant to
this Agreement and, if such holder's shares of THB Common Stock have been
converted into PennFirst Common Stock, any other distribution theretofore
paid with respect to PennFirst Common Stock issuable in the Merger, in each
case without interest. The Exchange Agent shall accept such certificates
upon compliance with such reasonable terms and conditions as the Exchange
Agent may impose to effect an orderly exchange thereof in accordance with
normal exchange practices. Each outstanding certificate which prior to the
Effective Time represented THB Common Stock and which is not surrendered to
the Exchange Agent in accordance with the procedures provided for herein
shall, except as otherwise herein provided, until duly surrendered to the
Exchange Agent be deemed to evidence ownership of the number of shares of
PennFirst Common Stock or the right to receive the amount of cash into which
such THB Common Stock shall have been converted. After the Effective Time,
there shall be no further transfer on the records of THB of certificates
representing shares of THB Common Stock and if such certificates are
presented to THB for transfer, they shall be cancelled against delivery of
certificates for PennFirst Common Stock or cash as hereinabove provided. No
dividends which have been declared will be remitted to any person entitled to
receive shares of PennFirst Common Stock under this Section 1.04 until such
person surrenders the certificate or certificates representing THB Common
Stock, at which time such dividends shall be remitted to such person, without
interest.
(h) PennFirst shall not be obligated to deliver cash and/or a
certificate or certificates representing shares of PennFirst Common Stock to
which a holder of THB Common Stock would otherwise be entitled as a result of
the Merger until such holder surrenders the certificate or certificates
representing the shares of THB Common Stock for exchange as provided in this
Section 1.04, or, in default thereof, an appropriate affidavit of loss and
indemnity agreement and/or a bond as may be required in each case by
PennFirst. If any certificates evidencing shares of PennFirst Common Stock
are to be issued in a name other than that in which the certificate
evidencing THB Common Stock surrendered in exchange therefor is registered,
it shall be a condition of the issuance thereof that the certificate so
surrendered shall be properly endorsed or accompanied by an executed form of
assignment separate from the certificate and otherwise in proper form for
transfer and that the person requesting such exchange pay to the Exchange
Agent any transfer or other tax required by reason of the issuance of a
certificate for shares of PennFirst Common Stock in any name other than that
of the registered holder of the certificate surrendered or otherwise
establish to the satisfaction of the Exchange Agent that such tax has been
paid or is not payable.
(i) Any portion of the shares of PennFirst Common Stock and cash
delivered to the Exchange Agent by PennFirst pursuant to Section 1.04(f) that
remains unclaimed by the shareholders of THB for six months after the
Effective Time (as well as any proceeds from any
6
<PAGE>
investment thereof) shall be delivered by the Exchange Agent to PennFirst.
Any shareholders of THB who have not theretofore complied with Section
1.04(g) shall thereafter look only to PennFirst for the consideration
deliverable in respect of each share of THB Common Stock such shareholder
holds as determined pursuant to this Agreement without any interest thereon.
If outstanding certificates for shares of THB Common Stock are not
surrendered or the payment for them is not claimed prior to the date on which
such shares of PennFirst Common Stock or cash would otherwise escheat to or
become the property of any governmental unit or agency, the unclaimed items
shall, to the extent permitted by abandoned property and any other applicable
law, become the property of PennFirst (and to the extent not in its
possession shall be delivered to it), free and clear of all claims or
interest of any person previously entitled to such property. Neither the
Exchange Agent nor any party to this Agreement shall be liable to any holder
of stock represented by any certificate for any consideration paid to a
public official pursuant to applicable abandoned property, escheat or similar
laws. PennFirst and the Exchange Agent shall be entitled to rely upon the
stock transfer books of THB to establish the identity of those persons
entitled to receive consideration specified in this Agreement, which books
shall be conclusive with respect thereto. In the event of a dispute with
respect to ownership of stock represented by any certificate, PennFirst and
the Exchange Agent shall be entitled to deposit any consideration represented
thereby in escrow with an independent third party and thereafter be relieved
with respect to any claims thereto.
1.05 NO FRACTIONAL SHARES. Notwithstanding any other provision of this
Agreement, neither certificates nor scrip for fractional shares of PennFirst
Common Stock shall be issued in the Merger. Each holder who otherwise would
have been entitled to a fraction of a share of PennFirst Common Stock shall
receive in lieu thereof cash (without interest) in an amount determined by
multiplying the fractional share interest to which such holder would
otherwise be entitled by the Average Share Price. No such holder shall be
entitled to dividends, voting rights or any other rights in respect of any
fractional share.
1.06 STOCK OPTIONS.
(a) Immediately before the Effective Time, each option with respect to
THB Common Stock (a "THB Stock Option") that has been issued pursuant to
THB's 1994 Stock Option Plan and is outstanding and exercisable at the
Effective Time shall be cancelled and converted into the right to receive
from THB or PennFirst, subject to required withholding taxes, if any, (x)
cash in an amount equal to the difference between the exercise price of such
THB Stock Option and the Per Share Cash Consideration for each share of THB
Common Stock subject to such THB Stock Option or (y) an option to purchase
shares of PennFirst Common Stock in an amount and at an exercise price
determined as provided below (and otherwise subject to the terms of THB's
1994 Stock Option Plan):
7
<PAGE>
(1) the number of shares of PennFirst Common Stock to be
subject to the new option shall be equal to the product of the
number of shares of THB Common Stock subject to the original option
and the Exchange Ratio, provided that any fractional shares of
PennFirst Common Stock resulting from such multiplication shall be
rounded down to the nearest share; and
(2) the exercise price per share of PennFirst Common Stock
under the new option shall be equal to the exercise price per share
of THB Common Stock under the original option divided by the
Exchange Ratio, provided that such exercise price shall be rounded
up to the nearest cent.
The duration and other terms of the new option shall be the same as the
original option, except that all references to THB shall be deemed to be
references to PennFirst.
(b) Within thirty (30) business days after the Effective Time,
PennFirst shall file with the Securities and Exchange Commission (the "SEC")
a registration statement on an appropriate form under the Securities Act of
1933, as amended (the "Securities Act") with respect to the shares of
PennFirst Common Stock subject to options to acquire PennFirst Common Stock
issued pursuant to Section 1.06(a) hereof, and shall use its reasonable best
efforts to maintain the current status of the prospectus contained therein,
as well as comply with applicable state securities or "blue sky" law, for so
long as such options remain outstanding.
1.07 WITHHOLDING RIGHTS. PennFirst (through the Exchange Agent, if
applicable) shall be entitled to deduct and withhold from any amounts
otherwise payable pursuant to this Agreement to any holder of shares of THB
Common Stock such amounts as PennFirst is required under the Internal Revenue
Code of 1986, as amended ("Code") or any provision of state, local or foreign
tax law to deduct and withhold with respect to the making of such payment.
Any amounts so withheld shall be treated for all purposes of this Agreement
as having been paid to the holder of THB Common Stock in respect of which
such deduction and withholding was made by PennFirst.
1.08 DISSENTING SHARES. Each outstanding share of THB Common Stock the
holder of which has perfected his right to dissent under the PBCL and has not
effectively withdrawn or lost such right as of the Effective Time (the "THB
Dissenting Shares") shall not be converted into or represent a right to
receive shares of PennFirst Common Stock or cash hereunder, and the holder
thereof shall be entitled only to such rights as are granted by the PBCL.
THB shall give PennFirst prompt notice upon receipt by THB of any such
written demands for payment of the fair value of such shares of THB Common
Stock and of withdrawals of such demands and any other instruments provided
pursuant to the PBCL (any shareholder duly making such demand being
hereinafter called a "Dissenting Shareholder"). Any payments made in respect
of THB Dissenting Shares shall be made by PennFirst. If any Dissenting
Shareholder shall effectively withdraw or lose (through failure to perfect or
otherwise) his right to such payment at or prior to the Effective Time, such
holder's shares of THB Common Stock shall be converted into a right to
receive cash or PennFirst Common Stock in accordance with the applicable
8
<PAGE>
provisions of this Agreement. If such holder shall effectively withdraw or
lose (through failure to perfect or otherwise) his right to such payment
after the Effective Time, each share of THB Common Stock of such holder shall
be converted on a share by share basis into either the right to receive cash
or PennFirst Common Stock as PennFirst shall determine.
1.09 ANTI-DILUTION PROVISIONS. The Exchange Ratio, the Per Share Stock
Consideration, the Per Share Cash Consideration and the Stock Amount shall be
subject to appropriate adjustments as mutually agreed to by PennFirst and THB
in the event that, subsequent to the date of this Agreement but prior to the
Effective Time, the outstanding shares of PennFirst Common Stock shall have
been increased, decreased, changed into or exchanged for a different number
or kind of shares or securities through reorganization, recapitalization,
reclassification, stock dividend, stock split, reverse stock split or other
like changes in PennFirst's capitalization. Nothing contained herein shall
be deemed to permit any action which may be proscribed by this Agreement.
1.10 ADDITIONAL ACTIONS. If at any time after the Effective Time the
Surviving Corporation shall consider that any further assignments or
assurances in law or any other acts are necessary or desirable to (i) vest,
perfect or confirm, of record or otherwise, in the Surviving Corporation its
rights, title or interest in, to or under any of the rights, properties or
assets of THB acquired or to be acquired by the Surviving Corporation as a
result of, or in connection with, the Merger, or (ii) otherwise carry out the
purposes of this Agreement, THB and its proper officers and directors shall
be deemed to have granted to the Surviving Corporation an irrevocable power
of attorney to execute and deliver all such proper deeds, assignments and
assurances in law and to do all acts necessary or proper to vest, perfect or
confirm title to and possession of such rights, properties or assets in the
Surviving Corporation and otherwise to carry out the purposes of this
Agreement; and the proper officers and directors of the Surviving Corporation
are fully authorized in the name of THB or otherwise to take any and all such
action.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THB
References to "THB Disclosure Schedules" shall mean all of the
disclosure schedules required by this Article II, dated as of the date hereof
and referenced to the specific sections and subsections of Article II of this
Agreement, which have been delivered by THB to PennFirst. THB hereby
represents and warrants to PennFirst as follows as of the date hereof:
2.01. CORPORATE ORGANIZATION.
(a) THB is a corporation duly organized, validly existing and in good
standing under the laws of the Commonwealth of Pennsylvania. THB has the
corporate power and authority to own or lease all of its properties and
assets and to carry on its business as it is now being
9
<PAGE>
conducted and is duly licensed or qualified to do business and is in good
standing in each jurisdiction in which the nature of the business conducted
by it or the character or location of the properties and assets owned or
leased by it makes such licensing or qualification necessary, except where
the failure to be so licensed, qualified or in good standing would not have a
material adverse effect on the business, operations, assets or financial
condition of THB and the THB Subsidiaries (as defined below) taken as a
whole. THB is registered as a thrift holding company under the Home Owners'
Loan Act, as amended ("HOLA"). THB Disclosure Schedule 2.01(a) sets forth
true and complete copies of the Articles of Incorporation or other governing
instrument and Bylaws of THB and the THB Subsidiaries as in effect on the
date hereof.
(b) The only direct or indirect subsidiaries of THB are Troy Hill
Federal Savings Bank ("Troy Hill") and THF, Inc. (together the "THB
Subsidiaries"). Each of the THB Subsidiaries (i) is duly organized, validly
existing and in good standing under the laws of its respective jurisdiction
of incorporation, (ii) has the corporate power and authority to own or lease
all of its properties and assets and to conduct its business as it is now
being conducted, and (iii) is duly licensed or qualified to do business and
is in good standing in each jurisdiction in which the nature of the business
conducted by it or the character or location of the properties and assets
owned or leased by it makes such licensing or qualification necessary, except
where the failure to be so licensed, qualified or in good standing would not
have a material adverse effect on the business, operations, assets or
financial condition of THB and the THB Subsidiaries taken as a whole. THB
and Troy Hill are in good standing with their appropriate federal thrift
regulatory agencies and each has satisfied in all material respects all
commitments, financial or otherwise, as may have been agreed upon with such
thrift regulatory agencies. Except as set forth in THB Disclosure Schedule
2.01(b) and other than the THB Subsidiaries, THB does not own or control,
directly or indirectly, greater than a 5% equity interest in any corporation,
company, association, partnership, joint venture or other entity.
2.02. CAPITALIZATION. The authorized capital stock of THB consists
of 10,000,000 shares of THB Common Stock, of which 1,067,917 are issued and
outstanding and 56,208 of which are held in treasury as of the date hereof,
and 5,000,000 shares of preferred stock, of which no shares are issued and
outstanding as of the date hereof. All issued and outstanding shares of
capital stock of THB, and all issued and outstanding shares of capital stock
of each of the THB Subsidiaries, have been duly authorized and validly issued
and are fully paid, nonassessable and free of preemptive rights. All of the
outstanding shares of capital stock of each of the THB Subsidiaries are owned
by THB free and clear of any liens, encumbrances, charges, restrictions or
rights of third parties of any kind whatsoever, and, except for options
granted to PennFirst pursuant to the Option Agreement and for options to
purchase 70,253 shares of THB Common Stock which have been granted pursuant
to THB's 1994 Stock Option Plan, and which are outstanding, none of THB or
either of the THB Subsidiaries has or is bound by any outstanding
subscriptions, options, warrants, calls, commitments or agreements of any
character calling for the transfer, purchase or issuance of any shares of
capital stock of THB or either of the THB Subsidiaries or any securities
representing the right to purchase or otherwise receive any shares of such
capital stock or any securities convertible into or representing the right to
purchase or subscribe for any such stock.
10
<PAGE>
2.03. AUTHORITY; NO VIOLATION.
(a) Subject to the approval of this Agreement and the Agreement of
Merger and the transactions contemplated hereby and thereby by the
stockholders of THB, THB has full corporate power and authority to execute
and deliver this Agreement and the Agreement of Merger and to consummate the
transactions contemplated hereby and thereby in accordance with the terms
hereof and thereof. The execution and delivery of this Agreement and the
Agreement of Merger and the consummation of the transactions contemplated
hereby and thereby have been duly and validly approved by the Board of
Directors of THB. Except for the approval of THB's stockholders of this
Agreement and the Agreement of Merger, no other corporate proceedings on the
part of THB are necessary to consummate the transactions so contemplated.
This Agreement and the Agreement of Merger have been duly and validly
executed and delivered by THB and constitute valid and binding obligations of
THB, enforceable against it in accordance with and subject to their terms,
except as limited by applicable bankruptcy, insolvency, reorganization,
moratorium or other similar laws affecting creditors' rights generally, and
except that the availability of equitable remedies (including, without
limitation, specific performance) is within the discretion of the appropriate
court.
(b) None of the execution and delivery of this Agreement and the
Agreement of Merger by THB, nor the consummation by THB of the transactions
contemplated hereby and thereby in accordance with the terms hereof and
thereof, or compliance by THB with any of the terms or provisions hereof or
thereof, will (i) violate any provision of the Articles of Incorporation or
other governing instrument or Bylaws of THB or any of the THB Subsidiaries,
(ii) assuming that the consents and approvals set forth below are duly
obtained, violate any statute, code, ordinance, rule, regulation, judgment,
order, writ, decree or injunction applicable to THB or any of the THB
Subsidiaries or any of their respective properties or assets, or (iii) except
as disclosed in THB Disclosure Schedule 2.03(b), violate, conflict with,
result in a breach of any provisions of, constitute a default (or an event
which, with notice or lapse of time, or both, would constitute a default)
under, result in the termination of, accelerate the performance required by,
or result in the creation of any lien, security interest, charge or other
encumbrance upon any of the respective properties or assets of THB or either
of the THB Subsidiaries under any of the terms, conditions or provisions of
any note, bond, mortgage, indenture, deed of trust, license, lease, agreement
or other instrument or obligation to which THB or any of the THB Subsidiaries
is a party, or by which any of their respective properties or assets may be
bound or affected, except, with respect to (ii) and (iii) above, such as
individually or in the aggregate will not have a material adverse effect on
the business, operations, assets or financial condition of THB and the THB
Subsidiaries taken as a whole and which will not prevent or delay the
consummation of the transactions contemplated hereby. Except as set forth in
THB Disclosure Schedule 2.03(b) and for consents and approvals of or filings
or registrations with or notices to the Securities and Exchange Commission
("Commission"), the Secretary of State of the Commonwealth of Pennsylvania,
the Office of Thrift Supervision ("OTS") and the stockholders of THB, no
consents or approvals of or filings or registrations with or notices to any
federal, state, municipal or other governmental or regulatory commission,
board, agency, or non-governmental third party are required on behalf of THB
in connection with (a) the execution and
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delivery of this Agreement and the Agreement of Merger by THB and (b) the
consummation by THB of the Merger and the other transactions contemplated
hereby and by the Agreement of Merger.
2.04. FINANCIAL STATEMENTS.
(a) THB has previously delivered to PennFirst copies of the
consolidated statements of financial condition of THB as of June 30, 1995,
1994 and 1993 and the related consolidated statements of income, changes in
stockholders' equity and cash flows for the years ended June 30, 1995, 1994
and 1993 in each case accompanied by the audit reports of Grant Thornton LLP,
independent public accountants, as well as the unaudited consolidated
statement of financial condition of THB as of March 31, 1996 and the related
unaudited consolidated statement of income, changes in stockholders' equity
and cash flows for the nine months ended March 31, 1996 and 1995. The
consolidated statements of financial condition of THB referred to herein
(including the related notes, where applicable), as well as the consolidated
financial statements contained in the reports of THB to be delivered by THB
pursuant to Section 4.04 hereof, fairly present or will fairly present, as
the case may be, the consolidated financial condition of THB as of the
respective dates set forth therein, and the related consolidated statements
of income, changes in stockholders' equity and cash flows (including the
related notes, where applicable) fairly present or will fairly present, as
the case may be, the results of the consolidated operations, changes in
stockholders' equity and cash flows of THB for the respective periods or as
of the respective dates set forth therein (it being understood that THB's
interim financial statements are not audited and are not prepared with
related notes but reflect all adjustments which are, in the opinion of THB,
necessary for a fair presentation of such financial statements).
(b) Each of the financial statements referred to in this Section 2.04
(including the related notes, where applicable) has been or will be, as the
case may be, prepared in accordance with generally accepted accounting
principles consistently applied during the periods involved. The books and
records of THB and the THB Subsidiaries are being maintained in material
compliance with applicable legal and accounting requirements and reflect only
actual transactions.
(c) Except to the extent reflected, disclosed or reserved against in
the consolidated financial statements referred to in the first sentence of
Section 2.04(a) or the notes thereto or liabilities incurred since March 31,
1996 in the ordinary course of business and consistent with past practice,
none of THB or either of the THB Subsidiaries has any obligation or
liability, whether absolute, accrued, contingent or otherwise, material to
the business, operations, assets or financial condition of THB and the THB
Subsidiaries taken as a whole.
2.05. ABSENCE OF CERTAIN CHANGES OR EVENTS.
(a) There has not been any material adverse change in the business,
operations, prospects, assets or financial condition of THB and the THB
Subsidiaries taken as a whole since March 31, 1996 and to the best knowledge
of THB, no fact or condition exists which THB believes will cause such a
material adverse change in the future.
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(b) Neither THB nor either of the THB Subsidiaries has taken or
permitted any of the actions set forth in Section 4.02 hereof between March
31, 1996 and the date hereof.
2.06. LEGAL PROCEEDINGS. Except as disclosed in THB Disclosure
Schedule 2.06, none of THB or either of the THB Subsidiaries is a party to
any, and there are no pending or, to the best knowledge of THB, threatened
legal, administrative, arbitration or other proceedings, claims, actions or
governmental investigations of any nature against THB or either of the THB
Subsidiaries, except such proceedings, claims, actions or governmental
investigations which in the good faith judgment of THB will not have a
material adverse effect on the business, operations, assets or financial
condition of THB and the THB Subsidiaries taken as a whole. None of THB or
any of the THB Subsidiaries is a party to any order, judgment or decree which
materially adversely affects the business, operations, assets or financial
condition of THB and the THB Subsidiaries taken as a whole.
2.07. TAXES AND TAX RETURNS.
(a) Each of THB and the THB Subsidiaries, or the affiliated, combined
or unitary group (within the meaning of applicable federal income tax law) of
which any such corporation is or was a member, as the case may be
(individually an "Affiliate" and collectively, "Affiliates"), has duly filed
(and until the Effective Time will so file) all returns, declarations,
reports, information returns and statements ("Returns") required to be filed
or sent by or with respect to them in respect of any Taxes (as hereinafter
defined), and has duly paid (and until the Effective Time will so pay) all
Taxes due and payable other than Taxes or other charges which (i) are being
contested in good faith (and disclosed in writing to PennFirst) and (ii) have
not finally been determined. THB and its Affiliates have established (and
until the Effective Time will establish) on their books and records reserves
that are adequate for the payment of all Taxes not yet due and payable,
whether or not disputed, accrued or applicable. Except as set forth in THB
Disclosure Schedule 2.07(a), (i) the federal income tax returns of THB and
its Affiliates have been examined by the Internal Revenue Service ("IRS") (or
are closed to examination due to the expiration of the applicable statute of
limitations), and (ii) the Pennsylvania income tax returns of THB and its
Affiliates have been examined by applicable authorities (or are closed to
examination due to the expiration of the statute of limitations), and in the
case of both (i) and (ii) no deficiencies were asserted as a result of such
examinations which have not been resolved and paid in full. There are no
audits or other administrative or court proceedings presently pending nor any
other disputes pending, or claims asserted for, Taxes or assessments upon THB
or any of its Affiliates, nor has THB or any of its Affiliates given any
currently outstanding waivers or comparable consents regarding the
application of the statute of limitations with respect to any Taxes or
Returns.
(b) Except as set forth in THB Disclosure Schedule 2.07(b), none of THB
or any of its Affiliates (i) has requested any extension of time within which
to file any Return which Return has not since been filed, (ii) is a party to
any agreement providing for the allocation or sharing of Taxes, (iii) is
required to include in income any adjustment pursuant to Section 481(a) of
the Internal Revenue Code of 1986, as amended (the "Code"), by reason of a
voluntary
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change in accounting method initiated by THB or any Affiliate (nor
does THB have any knowledge that the IRS has proposed any such adjustment or
change of accounting method), or (iv) has filed a consent pursuant to Section
341(f) of the Code or agreed to have Section 341(f)(2) of the Code apply.
(c) For purposes of this Agreement, "Taxes" shall mean all taxes,
charges, fees, levies or other assessments, including, without limitation,
all net income, gross income, gross receipts, sales, use, ad valorem,
transfer, franchise, profits, license, withholding, payroll, employment
(including withholding, payroll and employment taxes required to be withheld
with respect to income paid to employees), excise, estimated, severance,
stamp, occupation, property or other taxes, customs duties, fees, assessments
or charges of any kind whatsoever, together with any interest and any
penalties, additions to tax or additional amounts imposed by any taxing
authority (domestic or foreign) upon THB or any of its Affiliates.
2.08. EMPLOYEE BENEFIT PLANS.
(a) Each employee benefit plan or arrangement of THB or either of the
THB Subsidiaries which is an "employee benefit plan" within the meaning of
Section 3(3) of the Employee Retirement Income Security Act of 1974, as
amended ("ERISA"), is listed in THB Disclosure Schedule 2.08(a) ("THB
Plans"). THB has previously furnished to PennFirst true and complete copies
of each of the THB Plans together with (i) the most recent actuarial and
financial reports prepared with respect to any qualified THB Plans, (ii) the
most recent annual reports filed with any government agency, and (iii) all
rulings and determination letters and any open requests for rulings or
letters that pertain to any qualified THB Plans.
(b) Each THB Plan has been operated in compliance in all material
respects with the applicable provisions of ERISA, the Code, all regulations,
rulings and announcements promulgated or issued thereunder, and all other
applicable governmental laws and regulations.
(c) Neither THB nor any THB Subsidiary participates in or has incurred
any liability under Section 4201 of ERISA for a complete or partial
withdrawal from a multi-employer plan (as such term is defined in ERISA).
(d) The present value of all accrued benefits under each of the THB
Plans subject to Title IV of ERISA did not, as of the latest valuation date
of each such Plan, exceed the then current value of the assets of such plans
allocable to such accrued benefits, based upon the actuarial and accounting
assumptions currently utilized for such THB Plans.
(e) Neither THB nor either of the THB Subsidiaries, nor, to the best
knowledge of THB, any trustee, fiduciary or administrator of an THB Plan or
any trust created thereunder, has engaged in a "prohibited transaction," as
such term is defined in Section 4975 of the Code, which could subject THB or
either of the THB Subsidiaries, or, to the best knowledge of THB, any
trustee, fiduciary or administrator thereof, to the tax or penalty on
prohibited transactions imposed by said Section 4975.
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(f) No THB Plan or any trust created thereunder has been terminated,
nor have there been any "reportable events" with respect to any THB Plan, as
that term is defined in Section 4043(b) of ERISA.
(g) No THB Plan or any trust created thereunder has incurred any
"accumulated funding deficiency," as such term is defined in Section 302 of
ERISA.
(h) Each of the THB Plans which is intended to be a qualified plan
within the meaning of Section 401(a) of the Code has been determined by the
IRS to be so qualified, and THB is not aware of any fact or circumstance
which would adversely affect the qualified status of any such Plan.
2.09. SECURITIES DOCUMENTS AND REGULATORY REPORTS.
(a) THB has previously delivered or made available to PennFirst a
complete copy of each final registration statement, prospectus, annual,
quarterly or current report and definitive proxy statement or other
communication (other than general advertising materials) filed pursuant to
the Securities Act of 1933, as amended ("1933 Act"), or the Securities
Exchange Act of 1934, as amended ("1934 Act"), or mailed by THB to its
stockholders as a class since January 1, 1994, and each such final
registration statement, prospectus, annual, quarterly or current report and
definitive proxy statement or other communication, as of its date, complied
in all material respects with all applicable statutes, rules and regulations
and did not contain any untrue statement of a material fact or omit to state
any material fact required to be stated therein or necessary in order to make
the statements made therein, in light of the circumstances under which they
were made, not misleading; provided that information as of a later date shall
be deemed to modify information as of an earlier date.
(b) THB and each of the THB Subsidiaries has duly filed with the OTS
and the Federal Deposit Insurance Corporation ("FDIC") in correct form the
monthly, quarterly and annual reports required to be filed under applicable
laws and regulations, and THB has delivered or made available to PennFirst
accurate and complete copies of such reports. THB Disclosure Schedule
2.09(b) lists all examinations of THB or of the THB Subsidiaries conducted by
the applicable thrift regulatory authorities since January 1, 1990 and the
dates of any responses thereto submitted by THB. In connection with the most
recent examinations of THB or the THB Subsidiaries by the applicable thrift
regulatory authorities, neither THB nor any THB Subsidiary was required to
correct or change any action, procedure or proceeding which THB or such THB
Subsidiary believes has not been now corrected or changed as required.
2.10. THB INFORMATION. None of the information relating to THB and
the THB Subsidiaries to be contained in (i) the Registration Statement on
Form S-4 to be filed by PennFirst in connection with the issuance of shares
of PennFirst Common Stock pursuant to the Merger, as amended or supplemented
(or on any successor or other appropriate form) ("Form S-4"), will, at the
time the Form S-4 becomes effective, contain any untrue statement of a
material fact or omit to state a material fact necessary to make the
statements therein, in light
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of the circumstances under which they were made, not misleading, and (ii) the
joint proxy statement/prospectus contained in the Form S-4, as amended or
supplemented, and to be delivered to stockholders of PennFirst and THB in
connection with the solicitation of their approval of this Agreement, the
Agreement of Merger and the transactions contemplated hereby and thereby
("Joint Proxy Statement/Prospectus"), as of the date(s) such Joint Proxy
Statement/Prospectus is mailed to stockholders of PennFirst and THB and up to
and including the date(s) of the meetings of stockholders to which such Joint
Proxy Statement/Prospectus relates, will contain any untrue statement of a
material fact or omit to state a material fact necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading, provided that information as of a later date shall be deemed
to modify information as of an earlier date.
2.11. COMPLIANCE WITH APPLICABLE LAW.
(a) THB and each of the THB Subsidiaries has all permits, licenses,
certificates of authority, orders and approvals of, and has made all filings,
applications and registrations with, federal, state, local and foreign
governmental or regulatory bodies that are required in order to permit it to
carry on its business as it is presently being conducted and the absence of
which could have a material adverse effect on the business, operations,
assets or financial condition of THB and the THB Subsidiaries taken as a
whole; all such permits, licenses, certificates of authority, orders and
approvals are in full force and effect; and to the best knowledge of THB and
the THB Subsidiaries, no suspension or cancellation of any of the same is
threatened.
(b) Neither THB nor any of the THB Subsidiaries is in violation of its
respective Articles of Incorporation or other governing instrument or Bylaws,
or of any applicable federal, state or local law or ordinance or any order,
rule or regulation of any federal, state, local or other governmental agency
or body (including, without limitation, all banking, securities, municipal
securities, safety, health, zoning, anti-discrimination, antitrust, and wage
and hour laws, ordinances, orders, rules and regulations), or in default with
respect to any order, writ, injunction or decree of any court, or in default
under any order, license, regulation or demand of any governmental agency,
any of which violations or defaults could have a material adverse effect on
the business, operations, assets or financial condition of THB and the THB
Subsidiaries taken as a whole; and neither THB nor any THB Subsidiary has
received any notice or communication from any federal, state or local
governmental authority asserting that THB or any THB Subsidiary is in
violation of any of the foregoing which could have a material adverse effect
on the business, operations, assets or financial condition of THB and the THB
Subsidiaries taken as a whole. Neither THB nor any THB Subsidiary is subject
to any regulatory or supervisory cease and desist order, agreement, written
directive, memorandum of understanding or written commitment (other than
those of general applicability to all savings associations issued by
governmental authorities), and none of them has received any written
communication requesting that they enter into any of the foregoing.
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2.12. DEPOSIT INSURANCE AND OTHER REGULATORY MATTERS.
(a) The deposit accounts of Troy Hill are insured by the Savings
Association Insurance Fund administered by the FDIC to the maximum extent
permitted by the Federal Deposit Insurance Act, as amended ("FDIA"), and Troy
Hill has paid all premiums and assessments required by the FDIA and the
regulations thereunder.
(b) Troy Hill is a member in good standing of the Federal Home Loan
Bank ("FHLB") of Pittsburgh and owns the requisite amount of stock in the
FHLB of Pittsburgh.
(c) Troy Hill is a "qualified thrift lender," as such term is defined
in the HOLA and the regulations thereunder.
(d) Troy Hill has at all times qualified as a "domestic building and
loan association," as such term is defined in Section 7701(a)(19) of the
Code, for purposes of Section 593 of the Code.
2.13. CERTAIN CONTRACTS.
(a) Except as disclosed in THB Disclosure Schedule 2.13(a), neither THB
nor any THB Subsidiary is a party to, is bound or affected by, receives, or
is obligated to pay benefits under, (i) any agreement, arrangement or
commitment, including without limitation, any agreement, indenture or other
instrument relating to the borrowing of money by THB or any THB Subsidiary or
the guarantee by THB or any THB Subsidiary of any obligation, (ii) any
agreement, arrangement or commitment relating to the employment of a
consultant or the employment, election or retention in office of any present
or former director or officer of THB or any THB Subsidiary, (iii) any
contract, agreement or understanding with a labor union, (iv) any agreement,
arrangement or understanding pursuant to which any payment (whether of
severance pay or otherwise) became or may become due to any director, officer
or employee of THB or any of the THB Subsidiaries upon execution of this
Agreement or upon or following consummation of the transactions contemplated
by this Agreement (either alone or in connection with the occurrence of any
additional acts or events), (v) any agreement, arrangement or understanding
to which THB or any of the THB Subsidiaries is a party or by which any of the
same is bound which limits the freedom of THB or any of the THB Subsidiaries
to compete in any line of business or with any person, (vi) any assistance
agreement, supervisory agreement, memorandum of understanding, consent order,
cease and desist order or condition of any regulatory order or decree with or
by the OTS, the FDIC or any other regulatory agency, (vii) any other
agreement, arrangement or understanding which would be required to be filed
as an exhibit to THB's Annual Report on Form 10-K (or Form 10-KSB) under the
1934 Act and which has not been so filed, or (viii) any other agreement,
arrangement or understanding to which THB or any THB Subsidiary is a party
and which is material to the business, operations, assets or financial
condition of THB and the THB Subsidiaries taken as a whole (excluding loan
agreements or agreements relating to deposit accounts), in each of the
foregoing cases whether written or oral.
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(b) Neither THB nor any THB Subsidiary is in default or in
non-compliance, which default or non-compliance would have a material adverse
effect on the business, operations, assets or financial condition of THB and
the THB Subsidiaries taken as a whole or the transactions contemplated
hereby, under any contract, agreement, commitment, arrangement, lease,
insurance policy or other instrument to which it is a party or by which its
assets, business or operations may be bound or affected, whether entered into
in the ordinary course of business or otherwise and whether written or oral,
and there has not occurred any event that with the lapse of time or the
giving of notice, or both, would constitute such a default or non-compliance.
2.14. PROPERTIES AND INSURANCE.
(a) All real and personal property owned by THB or any of the THB
Subsidiaries or presently used by any of them in their respective business is
in an adequate condition (ordinary wear and tear excepted) and is sufficient
to carry on the business of THB and the THB Subsidiaries in the ordinary
course of business consistent with their past practices. THB and the THB
Subsidiaries have good and, as to owned real property, marketable title to
all material assets and properties, whether real or personal, tangible or
intangible, reflected in THB's consolidated statement of financial condition
as of March 31, 1996, or owned and acquired subsequent thereto (except to the
extent that such assets and properties have been disposed of for fair value
in the ordinary course of business since March 31, 1996), subject to no
encumbrances, liens, mortgages, security interests or pledges, except (i)
those items that secure liabilities that are reflected in said consolidated
statement of financial condition or the notes thereto or have been incurred
in the ordinary course of business after the date of such consolidated
statement of financial condition, (ii) statutory liens for amounts not yet
delinquent or which are being contested in good faith, (iii) such
encumbrances, liens, mortgages, security interests, pledges and title
imperfections that are not in the aggregate material to the business,
operations, assets or financial condition of THB and the THB Subsidiaries
taken as a whole, and (iv) with respect to owned real property, title
imperfections noted in title reports prior to the date hereof. THB and the
THB Subsidiaries as lessees have the right under valid and subsisting leases
to occupy, use, possess and control all property leased by them in all
material respects as presently occupied, used, possessed and controlled by
THB and the THB Subsidiaries and the consummation of the transactions
contemplated hereby and by the Agreement of Merger will not affect any such
right. THB Disclosure Schedule 2.14(a) sets forth an accurate listing of
each lease pursuant to which THB or any of the THB Subsidiaries acts as
lessor or lessee, including the expiration date and the terms of any renewal
options which relate to the same.
(b) The business operations and all insurable properties and assets of
THB and the THB Subsidiaries are insured for their benefit against all risks
which, in the reasonable judgment of the management of THB, should be insured
against, in each case under valid, binding and enforceable policies or bonds
issued by insurers of recognized responsibility, in such amounts with such
deductibles and against such risks and losses as are in the opinion of the
management of THB adequate for the business engaged in by THB and the THB
Subsidiaries. As of the date hereof, neither THB nor either of the THB
Subsidiaries has received any notice of cancellation or notice of a material
amendment of any such insurance policy or bond or is in default under
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such policy or bond, no coverage thereunder is being disputed and all
material claims thereunder have been filed in a timely fashion.
2.15. ENVIRONMENTAL MATTERS. For purposes of this Agreement, the
following terms shall have the indicated meaning:
"Environmental Law" means any federal, state or local law, statute,
ordinance, rule, regulation, code, license, permit, authorization, approval,
consent, order, judgment, decree, injunction or agreement with any
governmental entity relating to (1) the protection, preservation or
restoration of the environment (including, without limitation, air, water
vapor, surface water, groundwater, drinking water supply, surface soil,
subsurface soil, plant and animal life or any other natural resource), and/or
(2) the use, storage, recycling, treatment, generation, transportation,
processing, handling, labeling, production, release or disposal of Hazardous
Substances. The term Environmental Law includes without limitation (1) the
Comprehensive Environmental Response, Compensation and Liability Act, as
amended, 42 U.S.C. Section 9601, et seq; the Resource Conservation and
Recovery Act, as amended, 42 U.S.C. Section 6901, et seq; the Clean Air Act,
as amended, 42 U.S.C. Section 7401, et seq; the Federal Water Pollution
Control Act, as amended, 33 U.S.C. Section 1251, et seq; the Toxic Substances
Control Act, as amended, 15 U.S.C. Section 9601, et seq; the Emergency
Planning and Community Right to Know Act, 42 U.S.C. Section 11001, et seq;
the Safe Drinking Water Act, 42 U.S.C. Section 300f, et seq; and all
comparable state and local laws, and (2) any common law (including without
limitation common law that may impose strict liability) that may impose
liability or obligations for injuries or damages due to, or threatened as a
result of, the presence of or exposure to any Hazardous Substance.
"Hazardous Substance" means any substance presently listed, defined,
designated or classified as hazardous, toxic, radioactive or dangerous, or
otherwise regulated, under any Environmental Law, whether by type or by
quantity, including any regulated material containing any such substance as a
component. Hazardous Substances include without limitation petroleum
(including crude oil or any fraction thereof), asbestos, radioactive
material, and polychlorinated biphenyls.
"Loan Portfolio Properties and Other Properties Owned" means those
properties owned, leased or operated by THB or any of the THB Subsidiaries or
those properties which serve as collateral for loans owned by THB or any of
the THB Subsidiaries.
(a) To the best knowledge of THB and the THB Subsidiaries, neither THB
nor any of the THB Subsidiaries has been or is in violation of or liable
under any Environmental Law, except any such violations or liabilities which
would not singly or in the aggregate have a material adverse effect on the
business, operations, assets or financial condition of THB and the THB
Subsidiaries taken as a whole.
(b) To the best knowledge of THB and the THB Subsidiaries, none of the
Loan Portfolio Properties and Other Properties Owned by THB or the THB
Subsidiaries has been or is in violation of or liable under any Environmental
Law, except any such violations or liabilities
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which singly or in the aggregate would not have a material adverse effect on
the business, operations, assets or financial condition of THB and the THB
Subsidiaries taken as a whole.
(c) To the best knowledge of THB and the THB Subsidiaries, there are no
actions, suits, demands, notices, claims, investigations or proceedings
pending or threatened relating to the liability of the Loan Portfolio
Properties and Other Properties Owned by THB or the THB Subsidiaries under
any Environmental Law, including without limitation any notices, demand
letters or requests for information from any federal or state environmental
agency relating to any such liabilities under or violations of Environmental
Law, except such which would not have or result in a material adverse effect
on the business, operations, assets or financial condition of THB and the THB
Subsidiaries taken as a whole.
2.16. ALLOWANCE FOR LOAN LOSSES AND REAL ESTATE OWNED. The
allowance for loan losses reflected on THB's consolidated statements of
financial condition included in the consolidated financial statements
referred to in Section 2.04 hereof is, or will be in the case of subsequently
delivered financial statements, as the case may be, in the opinion of THB's
management adequate in all material respects as of their respective dates
under the requirements of generally accepted accounting principles to provide
for reasonably anticipated losses on outstanding loans net of recoveries.
The real estate owned reflected on the consolidated statements of financial
condition included in the consolidated financial statements referred to in
Section 2.04 hereof is, or will be in the case of subsequently delivered
financial statements, as the case may be, carried at the lower of cost or
fair value, or the lower of cost or net realizable value, as required by
generally accepted accounting principles.
2.17. MINUTE BOOKS. Since January 1, 1992, the minute books of THB
and the THB Subsidiaries contain complete and accurate records of all
meetings and other corporate action held or taken by their respective Boards
of Directors (including committees of their respective Boards of Directors)
and stockholders.
2.18. AFFILIATE TRANSACTIONS.
(a) Except as disclosed in THB Disclosure Schedule 2.18(a) or in THB's
proxy statements, and except as specifically contemplated by this Agreement,
since January 1, 1992, neither THB nor either of the THB Subsidiaries has
engaged in or agreed to engage in (whether in writing or orally) any
transaction with any "affiliated person" or "affiliate" of Troy Hill, as such
terms are defined in 12 C.F.R Section 561.5 and 12 C.F.R. Section 563.41,
respectively.
(b) THB Disclosure Schedule 2.18(b) sets forth the name and number of
shares of THB Common Stock owned as of the date hereof beneficially or of
record by any persons THB considers to be affiliates of THB ("THB
Affiliates") as that term is defined for purposes of Rule 145 under the 1933
Act.
2.19. BROKER FEES. Except as set forth in THB Disclosure Schedule
2.19, none of THB, either of the THB Subsidiaries or any of the respective
directors or officers of such
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companies has employed any consultant, broker or finder or incurred any
liability for any consultant's, broker's or finder's fees or commissions in
connection with any of the transactions contemplated by this Agreement.
2.20. DISCLOSURES. No representation or warranty contained in
Article II of this Agreement, and no statement contained in the THB
Disclosure Schedules, contains any untrue statement of a material fact or
omits to state a material fact necessary in order to make the statements
herein or therein not misleading.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF PENNFIRST
References to "PennFirst Disclosure Schedules" shall mean all of the
disclosure schedules required by this Article III, dated as of the date
hereof and referenced to the specific sections and subsections of Article III
of this Agreement, which have been delivered by PennFirst to THB. PennFirst
hereby represents and warrants to THB as follows as of the date hereof:
3.01. CORPORATE ORGANIZATION.
(a) PennFirst is a corporation duly organized, validly existing and in
good standing under the laws of the Commonwealth of Pennsylvania. PennFirst
has the corporate power and authority to own or lease all of its properties
and assets and to carry on its business as it is now being conducted and is
duly licensed or qualified to do business and is in good standing in each
jurisdiction in which the nature of the business conducted by it or the
character or location of the properties and assets owned or leased by it
makes such licensing or qualification necessary, except where the failure to
be so licensed, qualified or in good standing would not have a material
adverse effect on the business, operations, assets or financial condition of
PennFirst and the PennFirst Subsidiaries (as defined below) taken as a whole.
PennFirst is registered as a thrift holding company under the HOLA.
PennFirst Disclosure Schedule 3.01(a) sets forth true and complete copies of
the Articles of Incorporation or other governing instrument and Bylaws of
PennFirst and the PennFirst Subsidiaries as in effect on the date hereof.
(b) The only direct or indirect subsidiaries of PennFirst are ESB Bank,
FSB ("ESBB"), PennFirst Financial Services, Inc., Ellwood Service
Corporation, Amsco, Inc. and Shady Park II Townhouse Associates (a limited
partnership) (together the "PennFirst Subsidiaries"). Each of the PennFirst
Subsidiaries (i) is duly organized, validly existing and in good standing
under the laws of its respective jurisdiction of incorporation, (ii) has the
corporate power and authority to own or lease all of its properties and
assets and to conduct its business as it is now being conducted, and (iii) is
duly licensed or qualified to do business and is in good standing in each
jurisdiction in which the nature of the business conducted by it or the
character or location of the properties and assets owned or leased by it
makes such licensing or qualification necessary, except where the failure to
be so licensed, qualified or in good standing
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would not have a material adverse effect on the business, operations, assets
or financial condition of PennFirst and the PennFirst Subsidiaries taken as a
whole. PennFirst and ESBB are in good standing with their appropriate
federal thrift regulatory agencies and each has satisfied in all material
respects all commitments, financial or otherwise, as may have been agreed
upon with such thrift regulatory agencies. Other than the PennFirst
Subsidiaries, PennFirst does not own or control, directly or indirectly,
greater than a 5% equity interest in any corporation, company, association,
partnership, joint venture or other entity.
3.02. CAPITALIZATION. The authorized capital stock of PennFirst
consists of 10,000,000 shares of PennFirst Common Stock, of which 3,909,184
are issued and outstanding as of the date hereof, and 5,000,000 shares of
preferred stock, par value $.01 per share, of which no shares are issued and
outstanding as of the date hereof. All issued and outstanding shares of
capital stock of PennFirst, and all issued and outstanding shares of capital
stock of each of the PennFirst Subsidiaries, have been duly authorized and
validly issued and are fully paid, nonassessable and free of preemptive
rights. All of the outstanding shares of capital stock of each of the
PennFirst Subsidiaries are owned by PennFirst free and clear of any liens,
encumbrances, charges, restrictions or rights of third parties of any kind
whatsoever, and, except for options to purchase 250,521 shares of PennFirst
Common Stock which have been granted pursuant to PennFirst's Stock Option
Plan or 1992 Stock Incentive Plan (or options granted by PennFirst pursuant
thereto after the date hereof), none of PennFirst or any of the PennFirst
Subsidiaries has or is bound by any outstanding subscriptions, options,
warrants, calls, commitments or agreements of any character calling for the
transfer, purchase or issuance of any shares of capital stock of PennFirst or
any of the PennFirst Subsidiaries or any securities representing the right to
purchase or otherwise receive any shares of such capital stock or any
securities convertible into or representing the right to purchase or
subscribe for any such stock.
3.03. AUTHORITY; NO VIOLATION.
(a) Subject to the approval of this Agreement and the Agreement of
Merger and the transactions contemplated hereby and thereby by the
stockholders of PennFirst, PennFirst has full corporate power and authority
to execute and deliver this Agreement and the Agreement of Merger and to
consummate the transactions contemplated hereby and thereby in accordance
with the terms hereof and thereof. The execution and delivery of this
Agreement and the Agreement of Merger and the consummation of the
transactions contemplated hereby and thereby have been duly and validly
approved by the Board of Directors of PennFirst and, except for the approval
of PennFirst's stockholders of this Agreement and the Agreement of Merger, no
other corporate proceedings on the part of PennFirst are necessary to
consummate the transactions so contemplated. This Agreement and the
Agreement of Merger have been duly and validly executed and delivered by
PennFirst and constitute valid and binding obligations of PennFirst,
enforceable against it in accordance with and subject to their terms, except
as limited by applicable bankruptcy, insolvency, reorganization, moratorium
or other similar laws affecting creditors' rights generally, and except that
the availability of equitable remedies (including, without limitation,
specific performance) is within the discretion of the appropriate court.
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(b) None of the execution and delivery of this Agreement and the
Agreement of Merger by PennFirst, nor the consummation by PennFirst of the
transactions contemplated hereby and thereby in accordance with the terms
hereof and thereof, or compliance by PennFirst with any of the terms or
provisions hereof or thereof, will (i) violate any provision of the Articles
of Incorporation or other governing instrument or Bylaws of PennFirst or any
of the PennFirst Subsidiaries, (ii) assuming that the consents and approvals
set forth below are duly obtained, violate any statute, code, ordinance,
rule, regulation, judgment, order, writ, decree or injunction applicable to
PennFirst or any of the PennFirst Subsidiaries or any of their respective
properties or assets, or (iii) violate, conflict with, result in a breach of
any provisions of, constitute a default (or an event which, with notice or
lapse of time, or both, would constitute a default) under, result in the
termination of, accelerate the performance required by, or result in the
creation of any lien, security interest, charge or other encumbrance upon any
of the respective properties or assets of PennFirst or any of the PennFirst
Subsidiaries under any of the terms, conditions or provisions of any note,
bond, mortgage, indenture, deed of trust, license, lease, agreement or other
instrument or obligation to which PennFirst or any of the PennFirst
Subsidiaries is a party, or by which any of their respective properties or
assets may be bound or affected, except, with respect to (ii) and (iii)
above, such as individually or in the aggregate will not have a material
adverse effect on the business, operations, assets or financial condition of
PennFirst and the PennFirst Subsidiaries taken as a whole and which will not
prevent or delay the consummation of the transactions contemplated hereby.
Except for consents and approvals of or filings or registrations with or
notices to the Commission, the Secretary of State of the Commonwealth of
Pennsylvania, the OTS and the stockholders of PennFirst, no consents or
approvals of or filings or registrations with or notices to any federal,
state, municipal or other governmental or regulatory commission, board,
agency or non-governmental third party are required on behalf of PennFirst in
connection with (a) the execution and delivery of this Agreement and the
Agreement of Merger by PennFirst and (b) the consummation by PennFirst of the
transactions contemplated hereby and by the Agreement of Merger.
3.04. FINANCIAL STATEMENTS.
(a) PennFirst has previously delivered to THB copies of the
consolidated statements of financial condition of PennFirst as of December
31, 1993, 1994 and 1995, and the related consolidated statements of income,
changes in stockholders' equity and cash flows for the years ended December
31, 1993, 1994 and 1995, in each case accompanied by the audit reports of
KPMG Peat Marwick, independent public accountants, as well as the unaudited
consolidated statement of financial condition of PennFirst as of June 30,
1996 and the related unaudited consolidated statements of income, changes in
stockholders' equity and cash flows for the six months ended June 30, 1995
and 1996. The consolidated statements of financial condition of PennFirst
referred to herein (including the related notes, where applicable), as well
as the consolidated financial statements contained in the reports of
PennFirst to be delivered by PennFirst pursuant to Section 4.04 hereof,
fairly present or will fairly present, as the case may be, the consolidated
financial condition of PennFirst as of the respective dates set forth
therein, and the related consolidated statements of operations, changes in
stockholders' equity and cash flows (including the related notes, where
applicable) fairly present or will fairly present, as the case may be, the
results of the consolidated operations, changes in stockholders' equity and
cash flows of PennFirst for the respective periods or as of the respective
dates set forth therein (it
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being understood that PennFirst's interim financial statements are not
audited and are not prepared with related notes but reflect all adjustments
which are, in the opinion of PennFirst, necessary for a fair presentation of
such financial statements).
(b) Each of the financial statements referred to in this Section 3.04
(including the related notes, where applicable) has been or will be, as the
case may be, prepared in accordance with generally accepted accounting
principles consistently applied during the periods involved. The books and
records of PennFirst and the PennFirst Subsidiaries are being maintained in
material compliance with applicable legal and accounting requirements and
reflect only actual transactions.
(c) Except to the extent reflected, disclosed or reserved against in
the consolidated financial statements referred to in the first sentence of
this Section 3.04 or the notes thereto or liabilities incurred since June 30,
1996 in the ordinary course of business and consistent with past practice,
none of PennFirst or any of the PennFirst Subsidiaries has any obligation or
liability, whether absolute, accrued, contingent or otherwise, material to
the business, operations, assets or financial condition of PennFirst and the
PennFirst Subsidiaries taken as a whole.
3.05. ABSENCE OF CERTAIN CHANGES OR EVENTS. There has not been any
material adverse change in the business, operations, prospects, assets or
financial condition of PennFirst and the PennFirst Subsidiaries taken as a
whole since June 30, 1996 and to the best knowledge of PennFirst, no fact or
condition exists which PennFirst believes will cause such a material adverse
change in the future.
3.06. LEGAL PROCEEDINGS. None of PennFirst or any of the PennFirst
Subsidiaries is a party to any, and there are no pending or, to the best
knowledge of PennFirst, threatened legal, administrative, arbitration or
other proceedings, claims, actions or governmental investigations of any
nature against PennFirst or any of the PennFirst Subsidiaries, except such
proceedings, claims actions or governmental investigations which in the good
faith judgment of PennFirst will not have a material adverse effect on the
business, operations, assets or financial condition of PennFirst and the
PennFirst Subsidiaries taken as a whole. None of PennFirst or any of the
PennFirst Subsidiaries is a party to any order, judgment or decree which
materially adversely affects the business, operations, assets or financial
condition of PennFirst and the PennFirst Subsidiaries taken as a whole.
3.07. TAXES AND TAX RETURNS.
(a) Each of PennFirst and the PennFirst Subsidiaries, or the
affiliated, combined or unitary group (within the meaning of applicable
federal income tax law) of which any such corporation is or was a member, as
the case may be (individually an "Affiliate" and collectively, "Affiliates"),
has duly filed (and until the Effective Time will so file) all returns,
declarations, reports, information returns and statements ("Returns")
required to be filed or sent by or with respect to them in respect of any
Taxes, and has duly paid (and until the Effective Time will so
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pay) all Taxes due and payable other than Taxes or other charges which (i)
are being contested in good faith (and disclosed in writing to THB and (ii)
have not finally been determined. PennFirst and its Affiliates have
established (and until the Effective Time will establish) on their books and
records reserves that are adequate for the payment of all Taxes not yet due
and payable, whether or not disputed, accrued or applicable. Except as set
forth in PennFirst Disclosure Schedule 3.07(a), (i) the federal income tax
returns of PennFirst and its Affiliates have been examined by the IRS (or are
closed to examination due to the expiration of the applicable statute of
limitations), and (ii) the Pennsylvania income tax returns of PennFirst and
its Affiliates have been examined by applicable authorities (or are closed to
examination due to the expiration of the statute of limitations), and in the
case of both (i) and (ii) no deficiencies were asserted as a result of such
examinations which have not been resolved and paid in full. There are no
audits or other administrative or court proceedings presently pending nor any
other disputes pending, or claims asserted for, Taxes or assessments upon
PennFirst or any of its Affiliates, nor has PennFirst or any of its
Affiliates given any currently outstanding waivers or comparable consents
regarding the application of the statute of limitations with respect to any
Taxes or Returns.
(b) Except as set forth in PennFirst Disclosure Schedule 3.07(b), none
of PennFirst or any of its Affiliates (i) has requested any extension of time
within which to file any Return which Return has not since been filed, (ii)
is a party to any agreement providing for the allocation or sharing of Taxes,
(iii) is required to include in income any adjustment pursuant to Section
481(a) of the Code, by reason of a voluntary change in accounting method
initiated by PennFirst or any Affiliate (nor does PennFirst have any
knowledge that the IRS has proposed any such adjustment or change of
accounting method), or (iv) has filed a consent pursuant to Section 341(f) of
the Code or agreed to have Section 341(f)(2) of the Code apply.
3.08. EMPLOYEE BENEFIT PLANS.
(a) Each employee benefit plan or arrangement of PennFirst or either of
the PennFirst Subsidiaries which is an "employee benefit plan" within the
meaning of Section 3(3) of the Employee Retirement Income Security Act of
1974, as amended ("ERISA"), is listed in PennFirst Disclosure Schedule
3.08(a) ("PennFirst Plans"). PennFirst has previously furnished or made
available to THB true and complete copies of each of the PennFirst Plans
together with (i) the most recent actuarial and financial reports prepared
with respect to any qualified PennFirst Plans, (ii) the most recent annual
reports filed with any government agency, and (iii) all rulings and
determination letters and any open requests for rulings or letters that
pertain to any qualified PennFirst Plans.
(b) Each PennFirst Plan has been operated in compliance in all material
respects with the applicable provisions of ERISA, the Code, all regulations,
rulings and announcements promulgated or issued thereunder, and all other
applicable governmental laws and regulations.
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(c) Neither PennFirst nor any PennFirst Subsidiary participates in or
has incurred any liability under Section 4201 of ERISA for a complete or
partial withdrawal from a multi-employer plan (as such term is defined in
ERISA).
(d) The present value of all accrued benefits under each of the
PennFirst Plans subject to Title IV of ERISA did not, as of the latest
valuation date of each such Plan, exceed the then current value of the assets
of such plans allocable to such accrued benefits, based upon the actuarial
and accounting assumptions currently utilized for such PennFirst Plans.
(e) Neither PennFirst nor any of the PennFirst Subsidiaries, nor, to
the best knowledge of PennFirst, any trustee, fiduciary or administrator of a
PennFirst Plan or any trust created thereunder, has engaged in a "prohibited
transaction," as such term is defined in Section 4975 of the Code, which
could subject PennFirst or any of the PennFirst Subsidiaries, or, to the best
knowledge of PennFirst, any trustee, fiduciary or administrator thereof, to
the tax or penalty on prohibited transactions imposed by said Section 4975.
(f) No PennFirst Plan or any trust created thereunder has been
terminated, nor have there been any "reportable events" with respect to any
PennFirst Plan, as that term is defined in Section 4043(b) of ERISA.
(g) No PennFirst Plan or any trust created thereunder has incurred any
"accumulated funding deficiency," as such term is defined in Section 302 of
ERISA.
(h) Each of the PennFirst Plans which is intended to be a qualified
plan within the meaning of Section 401(a) of the Code has been determined by
the IRS to be so qualified, and PennFirst is not aware of any fact or
circumstance which would adversely affect the qualified status of any such
Plan.
3.09. SECURITIES DOCUMENTS AND REGULATORY REPORTS.
(a) PennFirst has previously delivered or made available to THB a
complete copy of each final registration statement, prospectus, annual,
quarterly or current report and definitive proxy statement or other
communication (other than general advertising materials) filed pursuant to
the 1933 Act or the 1934 Act or mailed by PennFirst to its stockholders as a
class since January 1, 1993, and each such final registration statement,
prospectus, annual, quarterly or current report and definitive proxy
statement or other communication, as of its date, complied in all material
respects with all applicable statutes, rules and regulations and did not
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary in order to make the
statements made therein, in light of the circumstances under which they were
made, not misleading; provided that information as of a later date shall be
deemed to modify information as of an earlier date.
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(b) PennFirst and each of the PennFirst Subsidiaries has duly filed
with the OTS and the FDIC in correct form the monthly, quarterly and annual
reports required to be filed under applicable laws and regulations, and
PennFirst has delivered or made available to THB accurate and complete copies
of such reports. PennFirst Disclosure Schedule 3.09(b) lists all
examinations of PennFirst or of the PennFirst Subsidiaries conducted by the
applicable thrift regulatory authorities since January 1, 1993 and the dates
of any responses thereto submitted by PennFirst. In connection with the most
recent examinations of PennFirst or the PennFirst Subsidiaries by the
applicable thrift regulatory authorities, neither PennFirst nor any PennFirst
Subsidiary was required to correct or change any action, procedure or
proceeding which PennFirst or such PennFirst Subsidiary believes has not been
now corrected or changed as required.
3.10. PENNFIRST INFORMATION. None of the information relating to
PennFirst and the PennFirst Subsidiaries to be contained in (i) the Form S-4
will, at the time the Form S-4 becomes effective, contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements therein, in light of the circumstances under which they
were made, not misleading, and (ii) the Joint Proxy Statement/Prospectus, as
of the date(s) such Joint Proxy Statement/Prospectus is mailed to
stockholders of PennFirst and THB and up to and including the date(s) of the
meetings of stockholders to which such Joint Proxy Statement/Prospectus
relates, will contain any untrue statement of a material fact or omit to
state a material fact necessary to make the statements therein, in light of
the circumstances under which they were made, not misleading, provided that
information as of a later date shall be deemed to modify information as of an
earlier date.
3.11. COMPLIANCE WITH APPLICABLE LAW.
(a) PennFirst and each of the PennFirst Subsidiaries has all permits,
licenses, certificates of authority, orders and approvals of, and has made
all filings, applications and registrations with, federal, state, local and
foreign governmental or regulatory bodies that are required in order to
permit it to carry on its business as it is presently being conducted and the
absence of which could have a material adverse effect on the business,
operations, assets or financial condition of PennFirst and the PennFirst
Subsidiaries taken as a whole; all such permits, licenses, certificates of
authority, orders and approvals are in full force and effect; and to the best
knowledge of PennFirst and the PennFirst Subsidiaries, no suspension or
cancellation of any of the same is threatened.
(b) Neither PennFirst nor any of the PennFirst Subsidiaries is in
violation of its respective Articles of Incorporation or other governing
instrument or Bylaws, or of any applicable federal, state or local law or
ordinance or any order, rule or regulation of any federal, state, local or
other governmental agency or body (including, without limitation, all
banking, securities, municipal securities, safety, health, zoning,
anti-discrimination, antitrust, and wage and hour laws, ordinances, orders,
rules and regulations), or in default with respect to any order, writ,
injunction or decree of any court, or in default under any order, license,
regulation or demand of any governmental agency, any of which violations or
defaults could have a
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material adverse effect on the business, operations, assets or financial
condition of PennFirst and the PennFirst Subsidiaries taken as a whole; and
neither PennFirst nor any PennFirst Subsidiary has received any notice or
communication from any federal, state or local governmental authority
asserting that PennFirst or any PennFirst Subsidiary is in violation of any
of the foregoing which could have a material adverse effect on the business,
operations, assets or financial condition of PennFirst and the PennFirst
Subsidiaries taken as a whole. Neither PennFirst nor any PennFirst
Subsidiary is subject to any regulatory or supervisory cease and desist
order, agreement, written directive, memorandum of understanding or written
commitment (other than those of general applicability to all savings
associations issued by governmental authorities), and none of them has
received any written communication requesting that they enter into any of the
foregoing.
3.12. DEPOSIT INSURANCE AND OTHER REGULATORY MATTERS.
(a) The deposit accounts of ESBB are insured by the Savings Association
Insurance Fund administered by the FDIC to the maximum extent permitted by
the FDIA, and ESBB has paid all premiums and assessments required by the FDIA
and the regulations thereunder.
(b) ESBB is a member in good standing of the FHLB of Pittsburgh and
owns the requisite amount of stock in the FHLB of Pittsburgh.
(c) ESBB is a "qualified thrift lender," as such term is defined in the
HOLA and the regulations thereunder.
(d) ESBB has at all times qualified as a "domestic building and loan
association," as such term is defined in Section 7701(a)(19) of the Code, for
purposes of Section 593 of the Code.
3.13. PROPERTIES AND INSURANCE.
(a) All real and personal property owned by PennFirst or any of the
PennFirst Subsidiaries or presently used by any of them in their respective
business is in an adequate condition (ordinary wear and tear excepted) and is
sufficient to carry on the business of PennFirst and the PennFirst
Subsidiaries in the ordinary course of business consistent with their past
practices. PennFirst and the PennFirst Subsidiaries have good and, as to
owned real property, marketable title to all material assets and properties,
whether real or personal, tangible or intangible, reflected in PennFirst's
consolidated statement of financial condition as of June 30, 1996, or owned
and acquired subsequent thereto (except to the extent that such assets and
properties have been disposed of for fair value in the ordinary course of
business since June 30, 1996), subject to no encumbrances, liens, mortgages,
security interests or pledges, except (i) those items that secure liabilities
that are reflected in said consolidated statement of financial condition or
the notes thereto or have been incurred in the ordinary course of business
after the date of such consolidated statement of financial condition, (ii)
statutory liens for amounts not yet delinquent or which are being contested
in good faith, (iii) such encumbrances, liens, mortgages,
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security interests, pledges and title imperfections that are not in the
aggregate material to the business, operations, assets or financial condition
of PennFirst and the PennFirst Subsidiaries taken as a whole, and (iv) with
respect to owned real property, title imperfections noted in title reports
prior to the date hereof. PennFirst and the PennFirst Subsidiaries as
lessees have the right under valid and subsisting leases to occupy, use,
possess and control all property leased by them in all material respects as
presently occupied, used, possessed and controlled by PennFirst and the
PennFirst Subsidiaries and the consummation of the transactions contemplated
hereby and by the Agreement of Merger will not affect any such right.
(b) The business operations and all insurable properties and assets of
PennFirst and the PennFirst Subsidiaries are insured for their benefit
against all risks which, in the reasonable judgment of the management of
PennFirst, should be insured against, in each case under valid, binding and
enforceable policies or bonds issued by insurers of recognized
responsibility, in such amounts with such deductibles and against such risks
and losses as are in the opinion of the management of PennFirst adequate for
the business engaged in by PennFirst and the PennFirst Subsidiaries. As of
the date hereof, neither PennFirst nor either of the PennFirst Subsidiaries
has received any notice of cancellation or notice of a material amendment of
any such insurance policy or bond or is in default under such policy or bond,
no coverage thereunder is being disputed and all material claims thereunder
have been filed in a timely fashion.
3.14. ENVIRONMENTAL MATTERS.
(a) To the best knowledge of PennFirst and the PennFirst Subsidiaries,
neither PennFirst nor any of the PennFirst Subsidiaries has been or is in
violation of or liable under any Environmental Law, except any such
violations or liabilities which would not singly or in the aggregate have a
material adverse effect on the business, operations, assets or financial
condition of PennFirst and PennFirst Subsidiaries taken as a whole.
(b) To the best knowledge of PennFirst and the PennFirst Subsidiaries,
none of the Loan Portfolio Properties and Other Properties Owned by PennFirst
or the PennFirst Subsidiaries has been or is in violation of or liable under
any Environmental Law, except any such violations or liabilities which singly
or in the aggregate would not have a material adverse effect on the business,
operations, assets or financial condition of PennFirst and the PennFirst
Subsidiaries taken as a whole.
(c) To the best knowledge of PennFirst and the PennFirst Subsidiaries,
there are no actions, suits, demands, notices, claims, investigations or
proceedings pending or threatened relating to the liability of the Loan
Portfolio Properties and Other Properties Owned by PennFirst or the PennFirst
Subsidiaries under any Environmental Law, including without limitation any
notices, demand letters or requests for information from any federal or state
environmental agency relating to any such liabilities under or violations of
Environmental Law, except such which would not have or result in a material
adverse effect on the business, operations, assets or financial condition of
PennFirst and the PennFirst Subsidiaries taken as a whole.
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3.15. ALLOWANCE FOR LOAN LOSSES AND REAL ESTATE OWNED. The
allowance for loan losses reflected on PennFirst's consolidated statements of
financial condition included in the consolidated financial statements
referred to in Section 3.04 hereof is, or will be in the case of subsequently
delivered financial statements, as the case may be, in the opinion of
PennFirst's management adequate in all material respects as of their
respective dates under the requirements of generally accepted accounting
principles to provide for reasonably anticipated losses on outstanding loans
net of recoveries. The real estate owned reflected on the consolidated
statements of financial condition included in the consolidated financial
statements referred to in Section 3.04 hereof is, or will be in the case of
subsequently delivered financial statements, as the case may be, carried at
the lower of cost or fair value, or the lower of cost or net realizable
value, as required by generally accepted accounting principles.
3.16. MINUTE BOOKS. Since January 1, 1992, the minute books of
PennFirst and the PennFirst Subsidiaries contain complete and accurate
records of all meetings and other corporate action held or taken by their
respective Boards of Directors (including committees of their respective
Boards of Directors) and stockholders.
3.17. BROKER FEES. Except as set forth in PennFirst Disclosure
Schedule 3.17, neither PennFirst nor any of its directors or officers has
employed any consultant, broker or finder or incurred any liability for any
consultant's, broker's or finder's fees or commissions in connection with any
of the transactions contemplated by this Agreement.
3.18. DISCLOSURES. No representation or warranty contained in
Article III of this Agreement, and no statement contained in the PennFirst
Disclosure Schedules, contains any untrue statement of a material fact or
omits to state a material fact necessary in order to make the statements
herein or therein not misleading.
ARTICLE IV
COVENANTS OF THE PARTIES
4.01. CONDUCT OF THE BUSINESS OF THB. During the period from the
date hereof to the Effective Time, THB shall, and shall cause each of the THB
Subsidiaries to, conduct its businesses and engage in transactions permitted
hereunder or only in the ordinary course and consistent with past practice,
except with the prior written consent of PennFirst, which consent shall not
be unreasonably withheld. THB shall use its best efforts to (i) preserve its
business organization and that of the THB Subsidiaries intact, (ii) keep
available to itself and PennFirst the present services of the employees of
THB and the THB Subsidiaries, and (iii) preserve for itself and PennFirst the
goodwill of the customers of itself and the THB Subsidiaries and others with
whom business relationships exist.
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4.02. NEGATIVE COVENANTS. THB agrees that from the date hereof to
the Effective Time, except as otherwise approved by PennFirst in writing or
as permitted or required by this Agreement, THB will not, nor will THB permit
any of the THB Subsidiaries to:
(i) change any provision of the Articles of Incorporation or other
governing instrument or Bylaws of THB or either of the THB Subsidiaries;
(ii) except for the issuance of THB Common Stock pursuant to the present
terms of stock options which are outstanding as of the date hereof (and
identified on THB Disclosure Schedule 4.02) and compliance with the terms of
the Option Agreement of even date herewith, change the number of shares of
its authorized or issued capital stock or issue or grant any option, warrant,
call, commitment, subscription, award, right to purchase or agreement of any
character relating to the authorized or issued capital stock of THB or either
of the THB Subsidiaries, or any securities convertible into shares of such
capital stock, or split, combine or reclassify any shares of its capital
stock, or redeem or otherwise acquire any shares of such capital stock;
(iii) declare, set aside or pay any dividend or other distribution
(whether in cash, stock or property or any combination thereof) in respect of
the capital stock of THB or either of the THB Subsidiaries, except for
regular quarterly cash dividends not in excess of $0.10 per share of THB
Common Stock (but THB shall not alter its practices as to payment and record
dates without PennFirst's consent);
(iv) grant any severance or termination pay (other than pursuant to
binding contracts of THB in effect on the date hereof and disclosed to
PennFirst on THB Disclosure Schedule 2.13(a)), to, or enter into or amend any
employment, consulting or compensation agreement with, any of its directors,
officers or employees; or award any increase in compensation or benefits to
its directors, officers or employees, except, in the case of employees, such
as may be granted in the ordinary course of business and consistent with past
practices and policies;
(v) enter into or modify (except as may be required by applicable law
or as may be required by Section 4.12 hereof, with the prior written consent
of PennFirst, which shall not be unreasonably withheld) any pension,
retirement, stock option, stock purchase, stock grant, stock appreciation
right, savings, profit sharing, deferred compensation, consulting, bonus,
group insurance or other employee benefit, incentive or welfare contract,
plan or arrangement, or any trust agreement related thereto, in respect of
any of its directors, officers or employees; or make any contributions to
THB's Employee Stock Ownership Plan or any other defined contribution plan or
any defined benefit pension or retirement plan other than in the ordinary
course of business consistent with past practice;
(vi) sell or dispose of any significant assets or incur any significant
liabilities other than in the ordinary course of business consistent with
past practices and policies, or acquire in any manner whatsoever (other than
to realize upon collateral for a defaulted loan) any business or entity;
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(vii) make any capital expenditures in excess of $25,000 in the
aggregate, other than pursuant to binding commitments existing on the date
hereof, other than expenditures necessary to maintain existing assets in good
repair and other than as set forth in THB Disclosure Schedule 4.02(vii);
(viii) except as set forth on THB Disclosure Schedule 4.02(viii),
file any applications or make any contract with respect to branching or site
location or relocation;
(ix) make any material change in its accounting methods or practices,
other than changes required by generally accepted accounting principles, or
change any of its methods of reporting income and deductions for federal
income tax purposes, except as required by changes in laws or regulations;
(x) change its lending, investment, deposit or asset and liability
management or other banking policies in any material respect except as may be
required by applicable law;
(xi) engage in any transaction with an "affiliated person" or
"affiliate," in each case as defined in Section 2.18(a) hereof;
(xii) enter into any futures contract, option or other agreement or
take any other action for purposes of hedging the exposure of its
interest-earning assets and interest-bearing liabilities to changes in market
rates of interest;
(xiii) take any action that would result in any of its
representations and warranties contained in Article II of this Agreement not
being true and correct in any material respect at the Effective Time; or
(xiv) agree to do any of the foregoing.
4.03. NO SOLICITATION. Neither THB nor either of the THB
Subsidiaries shall, nor shall THB or either of the THB Subsidiaries authorize
or permit any of its directors, officers or employees or any investment
banker, financial advisor, attorney, accountant or other representative of
THB or either of the THB Subsidiaries to, directly or indirectly, encourage
or solicit or hold discussions or negotiations with, or provide any
information to, any person, entity or group (other than PennFirst) concerning
any merger, sale of substantial assets or liabilities not in the ordinary
course of business, sale of shares of capital stock or similar transactions
involving THB or either of the THB Subsidiaries (an "Acquisition
Transaction"); provided, however, that THB may provide information in
connection with an unsolicited possible Acquisition Transaction if the Board
of Directors of THB, after consulting with counsel, determines in the
exercise of its fiduciary responsibilities that such information should be
furnished. THB will promptly communicate to PennFirst the terms of any
proposal which it may receive in respect of any such Acquisition Transaction
and shall provide PennFirst with copies of (i) any written legal advice
provided to the Board of Directors of THB, (ii) all such written inquiries or
proposals and (iii) an accurate and complete written synopsis of all such
oral inquiries or proposals.
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4.04. CURRENT INFORMATION. During the period from the date hereof
to the Effective Time, each party will cause one or more of its designated
representatives to confer on a monthly or more frequent basis with
representatives of the other party regarding its business, operations,
prospects, assets and financial condition and matters relating to the
completion of the transactions contemplated hereby. As soon as reasonably
available, but in no event more than 45 days after the end of each calendar
quarter (other than the last quarter of each calendar year) ending after the
date of this Agreement, each party will deliver to the other party its
quarterly report on Form 10-Q (or Form 10-QSB) under the 1934 Act, and, as
soon as reasonably available, but in no event more than 90 days after the end
of each fiscal year, each party will deliver to the other party its Annual
Report on Form 10-K (or Form 10-KSB). Within 25 days after the end of each
month, each party shall provide the other party with a consolidated statement
of financial condition and a consolidated statement of operations, without
related notes, for such month prepared in accordance with generally accepted
accounting principles.
4.05. ACCESS TO PROPERTIES AND RECORDS; CONFIDENTIALITY.
(a) THB shall permit PennFirst and its representatives reasonable
access to its properties and those of the THB Subsidiaries, and shall
disclose and make available to PennFirst all books, papers and records
relating to the assets, stock ownership, properties, operations, obligations
and liabilities of THB and the THB Subsidiaries, including, but not limited
to, all books of account (including the general ledger), tax records, minute
books of directors' and stockholders' meetings, organizational documents,
bylaws, material contracts and agreements, filings with any regulatory
authority, accountants' work papers, litigation files, plans affecting
employees, and any other business activities or prospects in which PennFirst
may have a reasonable interest. Neither THB nor either of the THB
Subsidiaries shall be required to provide access to or to disclose
information where such access or disclosure would violate or prejudice the
rights of any customer or would contravene any law, rule, regulation, order
or judgment. THB will use its best efforts to obtain waivers of any such
restriction and in any event make appropriate substitute disclosure
arrangements under circumstances in which the restrictions of the preceding
sentence apply. THB and the THB Subsidiaries shall make their respective
directors, officers, employees and agents and authorized representatives
(including counsel and independent public accountants) available to confer
with PennFirst and its representatives, provided that such access shall be
reasonably related to the transactions contemplated hereby and not unduly
interfere with normal operations. Similar access shall be provided by
PennFirst to THB and its representatives to the extent necessary to enable
THB to satisfy its due diligence obligations with respect to PennFirst.
(b) All information furnished previously in connection with the
transactions contemplated by this Agreement or pursuant hereto shall be
treated as the sole property of the party furnishing the information until
consummation of the Merger and, if such Merger shall not occur, the party
receiving the information shall, at the request of the party which furnished
such information, either return to the party which furnished such information
or destroy all documents or other materials containing, reflecting or
referring to such information; shall use its best effort to keep confidential
all such information; shall use such information only for the purpose of
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consummating the transactions contemplated by this Agreement; and shall not
directly or indirectly use such information for any competitive or commercial
purposes. The obligation to keep such information confidential shall
continue for three years from the date the proposed Merger is abandoned but
shall not apply to (i) any information which (A) the party receiving the
information can establish by convincing evidence was already in its
possession prior to the disclosure thereof to it by the party furnishing the
information; (B) was then generally known to the public; (C) became known to
the public through no fault of the party receiving the information; or (D)
was disclosed to the party receiving the information by a third party not
bound by an obligation of confidentiality; or (ii) disclosures pursuant to a
legal requirement or in accordance with an order of a court of competent
jurisdiction.
(c) From the date hereof until the earlier of the Effective Time or the
termination of this Agreement in accordance with the terms hereof, THB may
invite one person (to be designated by PennFirst) to attend all meetings of
the Board of Directors of THB and the THB Subsidiaries.
4.06. REGULATORY MATTERS.
(a) The parties hereto will cooperate with each other and use their
best efforts to prepare all necessary documentation (including without
limitation the Form S-4 and the Joint Proxy Statement/Prospectus), to effect
all necessary filings and to obtain all necessary permits, consents,
approvals and authorizations of all third parties and governmental bodies
necessary to consummate the transactions contemplated by this Agreement as
soon as practicable. The parties shall each have the right to review and
approve in advance all information relating to the other, as the case may be,
and any of their respective subsidiaries, which appears in any filing made
with, or written material submitted to, any third party or governmental body
in connection with the transactions contemplated by this Agreement.
(b) Each of the parties will furnish each other with all information
concerning themselves, their subsidiaries, directors, officers and
stockholders and such other matters as may be necessary or advisable in
connection with any statement or application made by or on behalf of them, or
any of their respective subsidiaries to any governmental body in connection
with the Merger and the other transactions, applications or filings
contemplated by this Agreement.
(c) Each of the parties will promptly furnish each other with copies of
written communications received by them or any of their respective
subsidiaries from, or delivered by any of the foregoing to, any governmental
body in connection with the Merger and the other transactions, applications
or filings contemplated by this Agreement.
4.07. APPROVAL OF STOCKHOLDERS. Each party will (a) take all steps
(including, without limitation, the preparation of the Form S-4 and Joint
Proxy Statement/Prospectus in accordance with all applicable requirements)
necessary to duly call, give notice of, convene and hold a meeting of its
stockholders as soon as reasonably practicable for the purposes of securing
the approval of such stockholders of this Agreement and the Agreement of
Merger, (b) recommend
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to its stockholders the approval of this Agreement and the Agreement of
Merger and the transactions contemplated hereby and thereby, and use its best
efforts to obtain, as promptly as practicable, such approvals, and (c)
cooperate and consult with the other party with respect to the foregoing
matters.
4.08. FURTHER ASSURANCES. Subject to the terms and conditions
herein provided, each of the parties hereto agrees to use its best efforts to
take, or cause to be taken, all reasonable action and to do, or cause to be
done, all things necessary, proper or advisable under applicable laws and
regulations to satisfy the conditions to closing contained herein and to
consummate and make effective the transactions contemplated by this Agreement
and the Agreement of Merger. In case at any time after the Effective Time
any further action is necessary or desirable to carry out the purposes of
this Agreement, the proper officers and directors of each party to this
Agreement shall take all such necessary action. Nothing in this section
shall be construed to require any party to participate in any threatened or
actual legal, administrative or other proceedings (other than proceedings,
actions or investigations to which it is a party or subject or threatened to
be made a party or subject) in connection with consummation of the
transactions contemplated by this Agreement unless such party shall consent
in advance and in writing to such participation and the other party agrees to
reimburse and indemnify such party for and against any and all costs and
damages related thereto.
4.09. DISCLOSURE SUPPLEMENTS. From time to time prior to the
Effective Time, each party will promptly supplement or amend its respective
Disclosure Schedules delivered pursuant hereto with respect to any matter
hereafter arising which, if existing, occurring or known as of the date
hereof, would have been required to be set forth or described in such
Schedules or which is necessary to correct any information in such Schedules
which has been rendered inaccurate thereby. No supplement or amendment to
such Schedules shall have any effect for the purpose of determining
satisfaction of the conditions set forth in Article V or the compliance by
THB with the covenants set forth in Section 4.01 hereof.
4.10. PUBLIC ANNOUNCEMENTS. The parties hereto shall approve in
advance the substance of and cooperate with each other in the development and
distribution of all news releases and other public disclosures with respect
to this Agreement or any of the transactions contemplated hereby, except as
may be otherwise required by law or regulation and as to which the parties
releasing such information have used their best efforts to discuss with the
other parties in advance.
4.11. FAILURE TO FULFILL CONDITIONS. In the event that either of
the parties hereto determines that a condition to its respective obligations
to consummate the transactions contemplated hereby cannot be fulfilled on or
prior to September 30, 1997 and that it will not waive that condition, it
will promptly notify the other party. PennFirst and THB will promptly inform
the other of any facts applicable to them, or their respective directors or
officers, that would be likely to prevent or materially delay approval of the
Merger by any governmental authority or which would otherwise prevent or
materially delay completion of the Merger.
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4.12. CERTAIN POST-MERGER AGREEMENTS.
The parties hereto agree to the following arrangements following the
Effective Time:
(a) OPERATIONS OF TROY HILL. PennFirst shall maintain Troy Hill as a
separate subsidiary of PennFirst for a period of not less than one year from
the Effective Time. Following such one-year period, PennFirst may, in its
sole discretion, determine to merge or consolidate Troy Hill with ESBB.
(b) BOARDS OF DIRECTORS OF PENNFIRST AND ESBB. Effective as of the
Effective Time, the number of directors of both PennFirst and ESBB shall be
increased by one and PennFirst shall nominate and elect one current director
of THB (to be designated by PennFirst) as a director of each of PennFirst and
ESBB for a term of not less than three years. In addition, in the event
PennFirst determines to merge or consolidate Troy Hill and ESBB on or after
one year from the Effective Time, two of the current directors of Troy Hill
who continue as directors of Troy Hill (but not PennFirst and ESBB) after the
Effective Time shall be elected to the Board of Directors of ESBB for a term
of not less than three years, and the current Chairman of the Board of Troy
Hill will be appointed to a newly created Troy Hill Advisory Board for a
period of not less than one year and shall receive advisory Board fees
therefor in an amount not less than $1,300 per month. The provisions of this
Section 4.12(b) are intended to be for the benefit of, and shall be
enforceable by, current members of the Board of Directors of Troy Hill.
(c) BOARD OF DIRECTORS OF TROY HILL. Effective as of the Effective
Time, Charlotte A. Zuschlag, the President and Chief Executive Officer of
PennFirst, shall be elected to the Board of Directors of Troy Hill.
(d) OFFICERS AND EMPLOYEES OF THB AND TROY HILL. The employment of the
current President and Chief Executive Officer of THB and Troy Hill, Ellry N.
Davis, will be terminated effective as of the Effective Date, and Mr. Davis
will thereupon be entitled to, and PennFirst agrees to provide, the payments
and benefits reflected on THB Disclosure Schedule 2.13(a). On or before the
Effective Date, in lieu of serving as a director of PennFirst, ESBB or Troy
Hill, PennFirst and Mr. Davis will negotiate and enter into a consulting
agreement on mutually acceptable terms. PennFirst agrees to continue the
employment of all other personnel of THB and the THB Subsidiaries as of the
Effective Date, except in the event of good cause for termination, for a
period of not less than twelve (12) months subsequent to the Effective Date.
After the Effective Time, Troy Hill shall not hire any additional employees
without the prior consent of PennFirst.
(e) EMPLOYEE BENEFIT PLANS.
(1) Subject to the provisions of this Section 4.12, all employees of
THB or the THB Subsidiaries immediately prior to the Effective Time who are
employed by PennFirst, ESBB or Troy Hill (the "Employers") immediately
following the Effective Time ("Transferred Employees") will be covered by
Employers' employee benefit plans on substantially the same basis as any
employee of the Employers in a comparable position. Notwithstanding the
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foregoing, PennFirst may determine to continue any of the THB benefit plans
for Transferred Employees in lieu of offering participation in the Employers'
benefit plans providing similar benefits (e.g., medical and hospitalization
benefits), to terminate any of THB's benefit plans, or to merge any such
benefit plans with the Employers' benefit plans, provided the result is the
provision of benefits to Transferred Employees that are substantially similar
to the benefits provided to the Employers' employees generally. Except as
specifically provided in this Section 4.12 and as otherwise prohibited by
law, Transferred Employees' service with THB or Troy Hill shall be recognized
as service with the Employers for purposes of eligibility to participate and
vesting, if applicable (but not for purposes of benefit accrual) under the
Employers' benefit plans, subject to applicable break-in-service rules.
PennFirst agrees that any pre-existing condition, limitation or exclusion in
its medical, long-term disability and life insurance plans shall not apply to
Transferred Employees or their covered dependents who are covered under a
medical or hospitalization indemnity plan maintained by THB or Troy Hill on
the Effective Time and who then change coverage to the Employers' medical or
hospitalization indemnity health plan at the time such Transferred Employees
are first given the option to enroll. Notwithstanding anything herein to the
contrary, after the Effective Time, (x) any amendment to, or grant of
additional benefits under, any THB or Troy Hill benefit plan, including stock
based plans, which continues to exist subsequent to the Effective Time, shall
require the prior consent of the PennFirst, and (y) PennFirst may cause any
of the THB or Troy Hill benefit plans which continue to exist, including
stock based plans, to be amended in order to provide that employees of
PennFirst or ESBB may be participants in such plans.
(2) On or after the Effective Time, the THB employee stock ownership
plan ("THB ESOP") may, at PennFirst's discretion, be combined with the
PennFirst employee stock ownership plan ("PennFirst ESOP"); provided,
however, that prior to any such combination of the THB ESOP and the PennFirst
ESOP, the parties shall take all necessary action in order to amend the THB
ESOP in order to ensure that any such combination does not accelerate (other
than as required by law or regulation) or materially increase the benefits
available to any participant in the THB ESOP. Notwithstanding anything
herein to the contrary, the parties hereto will take all necessary action to
amend the THB ESOP in order to provide that the Merger will not accelerate
(other than as required by law or regulation) or materially increase the
benefits available to any participant in the THB ESOP.
ARTICLE V
CLOSING CONDITIONS
5.01. CONDITIONS TO THE PARTIES' OBLIGATIONS UNDER THIS AGREEMENT.
The respective obligations of the parties under this Agreement shall be
subject to the fulfillment at or prior to the Effective Time of the
following conditions:
(a) All necessary regulatory or governmental approvals and consents
(including without limitation any required approval of the OTS required to
consummate the transactions contemplated hereby) shall have been obtained
without any term or condition which would
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materially impair the value of THB and the THB Subsidiaries to PennFirst; all
conditions required to be satisfied prior to the Effective Time by the terms
of such approvals and consents shall have been satisfied; and all waiting
periods in respect thereof shall have expired.
(b) All corporate action necessary to authorize the execution and
delivery of this Agreement and consummation of the transactions contemplated
hereby and by the Agreement of Merger shall have been duly and validly taken
by PennFirst and THB, including approval by the requisite vote of the
stockholders of PennFirst and THB of this Agreement and the Agreement of
Merger.
(c) No order, judgment or decree shall be outstanding against a party
hereto or a third party that would have the effect of preventing completion
of the Merger; no suit, action or other proceeding shall be pending or
threatened by any governmental body in which it is sought to restrain or
prohibit the Merger; and no suit, action or other proceeding shall be pending
before any court or governmental agency in which it is sought to restrain or
prohibit the Merger or obtain other substantial monetary or other relief
against one or more of the parties hereto in connection with this Agreement
and which PennFirst or THB determines in good faith, based upon the advice of
their respective counsel, makes it inadvisable to proceed with the Merger
because any such suit, action or proceeding has a significant potential to be
resolved in such a way as to deprive the party electing not to proceed of any
of the material benefits to it of the Merger.
(d) The Form S-4 shall have become effective under the 1933 Act, and
PennFirst shall have received all state securities laws or "blue sky" permits
and other authorizations or there shall be exemptions from registration
requirements necessary to issue the PennFirst Common Stock in connection with
the Merger, and neither the Form S-4 nor any such permit, authorization or
exemption shall be subject to a stop order or threatened stop order by the
Commission or any state securities authority.
(e) The parties shall have received, in form and substance reasonably
satisfactory to them, an opinion of Elias, Matz, Tiernan & Herrick to the
effect that, for federal income tax purposes, the Merger will qualify as a
"reorganization" under Section 368(a) of the Code; no taxable gain will be
recognized by PennFirst or THB (i) upon the transfer of THB's assets to
PennFirst in exchange for PennFirst Common Stock, cash and the assumption of
THB's liabilities or (ii) upon the distribution of such PennFirst Common
Stock and cash to THB stockholders.
5.02. CONDITIONS TO THE OBLIGATIONS OF PENNFIRST UNDER THIS
AGREEMENT. The obligations of PennFirst under this Agreement shall be
further subject to the satisfaction, at or prior to the Effective Time, of
the following conditions, any one or more of which may be waived by
PennFirst:
(a) Each of the obligations of THB required to be performed by it at or
prior to the Closing pursuant to the terms of this Agreement shall have been
duly performed and complied with in all material respects and the
representations and warranties of THB contained in this
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Agreement shall have been true and correct as of the date hereof and as of
the Effective Time as though made at and as of the Effective Time, except (i)
as to any representation or warranty which specifically relates to an earlier
date or (ii) where the facts which caused the failure of any representation
or warranty to be so true and correct would not, either individually or in
the aggregate, constitute a material adverse change in the business,
operations, assets or financial condition of THB and the THB Subsidiaries
taken as a whole, and PennFirst shall have received a certificate to that
effect signed by the President and Chief Executive Officer of THB.
(b) All permits, consents, waivers, clearances, approvals and
authorizations of all regulatory or governmental authorities or third parties
which are necessary in connection with the consummation of the Merger shall
have been obtained, and none of such permits, consents, waivers, clearances,
approvals and authorizations shall contain any term or condition which would
materially impair the value of THB and the THB Subsidiaries to PennFirst.
(c) PennFirst shall have received, in form and substance satisfactory
to it, a letter dated the date of the Closing, from KPMG Peat Marwick to the
effect that the Merger will qualify for purchase accounting treatment.
(d) Holders of THB Common Stock who dissent from the Merger pursuant to
Chapter 15, Subchapter D of the PBCL by meeting the requirements set forth in
the PBCL shall not hold more than 15% of the THB Common Stock immediately
prior to the Effective Time.
(e) Each stockholder of THB who is a THB Affiliate shall have executed
and delivered a commitment and undertaking to the effect that (i) such
stockholder will dispose of the shares of PennFirst Common Stock received by
him in connection with the Merger only in accordance with the provisions of
paragraph (d) of Rule 145 under the 1933 Act; (ii) such stockholder will not
dispose of any of such shares until PennFirst has received an opinion of
counsel acceptable to it that such proposed disposition is in compliance with
the provisions of paragraph (d) of Rule 145 under the 1933 Act, which opinion
shall be rendered promptly following counsel's receipt of such stockholder's
written notice of its intention to sell shares of PennFirst Common Stock; and
(iii) the certificates representing said shares may bear a legend referring
to the foregoing restrictions.
(f) THB shall have furnished PennFirst with such certificates of its
officers or others and such other documents to evidence fulfillment of the
conditions set forth in this Section 5.02 as PennFirst may reasonably
request.
5.03. CONDITIONS TO THE OBLIGATIONS OF THB UNDER THIS AGREEMENT. The
obligations of THB under this Agreement shall be further subject to the
satisfaction, at or prior to the Effective Time, of the following
conditions, any one or more of which may be waived by THB:
(a) Each of the obligations of PennFirst required to be performed by it
at or prior to the Closing pursuant to the terms of this Agreement shall have
been duly performed and complied with in all material respects and the
representations and warranties of PennFirst contained in this Agreement shall
have been true and correct as of the date hereof and as of the
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Effective Time as though made at and as of the Effective Time, except (i) as
to any representation or warranty which specifically relates to an earlier
date or (ii) where the facts which caused the failure of any representation
or warranty to be so true and correct would not, either individually or in
the aggregate, constitute a material adverse change in the business,
operations, assets or financial condition of PennFirst and the PennFirst
Subsidiaries taken as a whole, and THB shall have received a certificate to
that effect signed by the President and Chief Executive Officer of PennFirst.
(b) PennFirst shall have furnished THB with such certificates of its
officers or others and such other documents to evidence fulfillment of the
conditions set forth in this Section 5.03 as THB may reasonably request.
ARTICLE VI
TERMINATION, AMENDMENT AND WAIVER, ETC.
6.01. TERMINATION. This Agreement may be terminated at any time
prior to the Effective Time, whether before or after approval of this
Agreement and the Agreement of Merger by the stockholders of PennFirst and/or
THB:
(a) by mutual written consent of the parties hereto;
(b) by PennFirst or THB (i) if the Effective Time shall not have
occurred on or prior to September 30, 1997 or (ii) if a vote of the
stockholders of PennFirst or THB is taken and either of such stockholders
fails to approve this Agreement and the Agreement of Merger at the meetings
of stockholders (or any adjournment thereof) of PennFirst and THB
contemplated by Section 4.07 hereof; unless in each case the failure of such
occurrence shall be due to the failure of the party seeking to terminate this
Agreement to perform or observe its agreements set forth herein to be
performed or observed by such party at or before the Effective Time;
(c) by PennFirst or THB upon written notice to the other 30 or more
days after the date upon which any application for a regulatory or
governmental approval necessary to consummate the Merger and the other
transactions contemplated hereby shall have been denied or withdrawn at the
request or recommendation of the applicable regulatory agency or governmental
authority, unless within such 30-day period a petition for rehearing or an
amended application is filed or noticed, or 30 or more days after any
petition for rehearing or amended application is denied;
(d) by PennFirst in writing if THB has, or by THB in writing if
PennFirst has, breached (i) any covenant or undertaking contained herein or
in the Agreement of Merger, or (ii) any representation or warranty contained
herein, which breach would have a material adverse effect on the business,
operations, assets or financial condition of THB and the THB Subsidiaries or
PennFirst and the PennFirst Subsidiaries, as applicable, taken as a whole, or
upon the consummation of the transactions contemplated hereby, in any case if
such breach has not been
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cured by the earlier of 30 days after the date on which written notice of
such breach is given to the party committing such breach or the Effective
Time; provided that it is understood and agreed that either party may
terminate this Agreement on the basis of any such material breach of any
representation or warranty contained herein, notwithstanding any
qualification therein relating to the knowledge of the other party;
(e) by PennFirst or THB in writing, if any of the applications for
prior approval referred to in Section 4.06 hereof are denied or are approved
contingent upon the satisfaction of any condition or requirement which, in
the reasonable opinion of the Board of Directors of PennFirst, would
materially impair the value of THB and the THB Subsidiaries to PennFirst, and
the time period for appeals and requests for reconsideration has run.
6.02. EFFECT OF TERMINATION. In the event of termination of this
Agreement by either PennFirst or THB as provided above, this Agreement shall
forthwith become void (other than Sections 4.05(b) and 7.01 hereof, which
shall remain in full force and effect) and there shall be no further
liability on the part of the parties or their respective officers or
directors except for the liability of the parties under Sections 4.05(b) and
7.01 hereof and except for liability for any breach of this Agreement.
6.03. AMENDMENT, EXTENSION AND WAIVER. Subject to applicable law,
at any time prior to the consummation of the Merger, whether before or after
approval thereof by the stockholders of PennFirst and/or THB, the parties may
(a) amend this Agreement and the Agreement of Merger, (b) extend the time for
the performance of any of the obligations or other acts of the other parties
hereto, (c) waive any inaccuracies in the representations and warranties
contained herein or in any document delivered pursuant hereto, or (d) waive
compliance with any of the agreements or conditions contained herein;
provided, however, that after any approval of the Merger by the stockholders
of PennFirst and/or THB, there may not be, without further approval of such
stockholders, any amendment or waiver of this Agreement or the Agreement of
Merger which modifies either the amount or the form of the Merger
Consideration to be delivered to stockholders of THB. This Agreement and the
Agreement of Merger may not be amended except by an instrument in writing
signed on behalf of each of the parties hereto. Any agreement on the part of
a party hereto to any extension or waiver shall be valid only if set forth in
an instrument in writing signed on behalf of such party, but such waiver or
failure to insist on strict compliance with such obligation, covenant,
agreement or condition shall not operate as a waiver of, or estoppel with
respect to, any subsequent or other failure.
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ARTICLE VII
MISCELLANEOUS
7.01. EXPENSES.
(a) All costs and expenses incurred in connection with this Agreement
and the transactions contemplated hereby (including without limitation legal,
accounting, investment banking and printing expenses) shall be borne by the
party incurring such costs and expenses, provided that PennFirst shall bear
all costs of printing, mailing and filing the Form S-4 and Joint Proxy
Statement/Prospectus and all other registration and filing fees relating to
the Merger.
(b) Notwithstanding any provision in this Agreement to the contrary, in
the event that either of the parties shall default in its obligations
hereunder, the non-defaulting party may pursue any remedy available at law or
in equity to enforce its rights and shall be paid by the defaulting party for
all damages, costs and expenses, including without limitation legal,
accounting, investment banking and printing expenses, incurred or suffered by
the non-defaulting party in connection herewith or in the enforcement of its
rights hereunder; provided, further, however, that in the event that, (x)
PennFirst's Board of Directors fails to recommend to its stockholders the
approval of this Agreement and the Agreement of Merger and such stockholders
fail to approve this Agreement and the Agreement of Merger at a duly held
meeting of such stockholders or at any adjournment or postponement thereof or
(y) PennFirst fails to duly hold a meeting of its stockholders for the
purpose of voting on this Agreement and the Agreement of Merger, then
PennFirst will promptly reimburse THB for its out-of-pocket costs and
expenses (documented with reasonable specificity) incurred by THB in
connection with entering into this Agreement and carrying out any and all
acts contemplated hereunder up to a maximum amount of $150,000 and shall also
promptly pay THB a termination fee of $150,000.
7.02. SURVIVAL. The respective representations, warranties and
covenants of the parties to this Agreement shall not survive the Effective
Time but shall terminate as of the Effective Time, except for the provisions
of Section 4.12 hereof.
7.03. NOTICES. All notices or other communications hereunder shall
be in writing and shall be deemed given if delivered personally, sent by
overnight express or mailed by prepaid registered or certified mail (return
receipt requested) or by cable, telegram or telex addressed as follows:
(a) If to PennFirst, to:
PennFirst Bancorp, Inc.
600 Lawrence Avenue
Ellwood City, Pennsylvania 16117
Attn: Charlotte A. Zuschlag
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Copy to:
Plowman, Spiegel & Lewis, P.C.
2nd Floor, The Grant Building
Pittsburgh, Pennsylvania 15219
Attn: Charles B. Jarrett, Jr.
(b) If to THB, to:
Troy Hill Bancorp, Inc.
1706 Lowrie Street
Pittsburgh, Pennsylvania 15212
Attn: Ellry N. Davis
Copy to:
Elias, Matz, Tiernan and Herrick L.L.P.
734 15th Street, N.W.
Washington, D.C. 20005
Attn: Raymond A. Tiernan, Esq.
Jeffrey D. Haas, Esq.
or such other address as shall be furnished in writing by any party, and any
such notice or communication shall be deemed to have been given as of the
date so mailed.
7.04. PARTIES IN INTEREST. This Agreement shall be binding upon and
shall inure to the benefit of the parties hereto and their respective
successors and assigns; provided, however, that neither this Agreement nor
any of the rights, interests or obligations hereunder shall be assigned by
any party hereto without the prior written consent of the other party and,
except as otherwise expressly provided herein, that nothing in this Agreement
is intended to confer, expressly or by implication, upon any other person any
rights or remedies under or by reason of this Agreement.
7.05. COMPLETE AGREEMENT. This Agreement and the Agreement of
Merger, including the documents and other writings referred to herein or
therein or delivered pursuant hereto or thereto, contain the entire agreement
and understanding of the parties with respect to their subject matter and
shall supersede all prior agreements and understandings between the parties,
both written and oral, with respect to such subject matter. There are no
restrictions, agreements, promises, representations, warranties, covenants or
undertakings between the parties other than those expressly set forth herein
or therein.
7.06. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement and
each of which shall be deemed an original.
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7.07. GOVERNING LAW. This Agreement shall be governed by the laws
of the Commonwealth of Pennsylvania, without giving effect to the principles
of conflicts of laws thereof.
7.08. HEADINGS. The Article and Section headings contained in this
Agreement are for reference purposes only and shall not affect in any way the
meaning or interpretation of this Agreement.
IN WITNESS WHEREOF, PennFirst and THB have caused this Agreement to be
executed by their duly authorized officers as of the day and year first above
written.
PENNFIRST BANCORP, INC.
Attest:
/s/ Frank D. Martz By: /s/ Charlotte A. Zuschlag
- --------------------- --------------------------------
Frank D. Martz Charlotte A. Zuschlag
Senior Vice President of Operations President and Chief Executive Officer
and Secretary
TROY HILL BANCORP, INC.
Attest:
/s/ Nancy H. Kufner By: /s/ Ellry N. Davis
- ------------------- --------------------------------
Nancy H. Kufner Ellry N. Davis
Secretary President and Chief Executive Officer
44
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APPENDIX A
AGREEMENT OF MERGER
This Agreement of Merger is dated as of September 16, 1996, by and
between PennFirst Bancorp, Inc. ("PennFirst"), a Pennsylvania corporation,
and Troy Hill Bancorp, Inc. ("THB"), a Pennsylvania corporation.
W I T N E S S E T H:
WHEREAS, PennFirst and THB have entered into an Agreement and Plan of
Reorganization, dated as of the date hereof (the "Reorganization Agreement");
and
WHEREAS, pursuant to the Reorganization Agreement and this Agreement of
Merger, and subject to the terms and conditions set forth therein and herein,
THB shall be merged with and into PennFirst, with PennFirst the surviving
corporation of such merger;
NOW, THEREFORE, in consideration of the premises and the mutual
covenants and agreements contained herein and in the Reorganization
Agreement, the parties hereto do mutually agree as follows:
ARTICLE I
DEFINITIONS
Except as otherwise provided herein, the capitalized terms set forth
below shall have the following meanings:
1.1 "EFFECTIVE TIME" shall mean the date and time at which the Merger
contemplated by this Agreement of Merger becomes effective as provided in
Section 2.2 of this Agreement of Merger.
1.2 "THB COMMON STOCK" shall mean the common stock, par value $.01 per
share, of THB.
1.3 "MERGER" shall refer to the merger of THB with and into PennFirst
as provided in Section 2.1 of this Agreement of Merger.
1.4 "MERGING CORPORATIONS" shall collectively refer to PennFirst and
THB.
1.5 "PENNFIRST COMMON STOCK" shall mean the common stock, par value
$.01 per share, of PennFirst.
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1.6 "STOCKHOLDER MEETINGS" shall mean the respective meetings of the
stockholders of PennFirst and THB held pursuant to Section 4.07 of the
Agreement.
1.7 "SURVIVING CORPORATION" shall mean PennFirst as the surviving
corporation of the Merger.
ARTICLE II
TERMS OF THE MERGER
2.1 THE MERGER. Subject to the terms and conditions set forth in the
Reorganization Agreement, at the Effective Time, THB shall be merged with and
into PennFirst pursuant to Chapter 19, Subchapter C of the Pennsylvania
Business Corporation Law ("PBCL"). PennFirst shall be the Surviving
Corporation of the Merger and shall continue to be governed by the laws of
the Commonwealth of Pennsylvania. At the Effective Time, the separate
existence and corporate organization of THB shall cease, and PennFirst shall
thereupon and thereafter possess all the rights, privileges, powers and
franchises of a public as well as of a private nature of each of THB and
PennFirst; and be subject to all the restrictions, disabilities and duties of
each of THB and PennFirst; and all and singular, the rights, privileges,
powers and franchises of each of THB and PennFirst, and all property, real,
personal and mixed, and all debts due to either THB or PennFirst on whatever
account, as well for stock subscriptions and all other things in action or
belonging to each of THB and PennFirst shall be vested in the Surviving
Corporation; and all property, rights, privileges, powers and franchises, and
all and every other interest shall be thereafter as effectually the property
of the Surviving Corporation as they were of, respectively, THB and
PennFirst, and the title to any real estate vested by deed or otherwise,
under the laws of the Commonwealth of Pennsylvania or elsewhere in either THB
or PennFirst shall not revert or be in any way impaired by reason of the
Merger, but all rights of creditors and all liens upon any property of either
of THB or PennFirst shall be preserved unimpaired, and all debts, liabilities
and duties of THB and PennFirst shall thenceforth attach to the Surviving
Corporation and may be enforced against it to the same extent as if said
debts, liabilities and duties had been incurred or contracted by it.
2.2 EFFECTIVE TIME. The Merger shall become effective on the date and
at the time that Articles of Merger are executed and filed with the Secretary
of State of the Commonwealth of Pennsylvania pursuant to Section 1927 of the
PBCL, unless a later date and time is specified as the Effective Time in such
Articles of Merger.
2.3 NAME OF THE SURVIVING CORPORATION. The name of the Surviving
Corporation shall be "PennFirst Bancorp, Inc."
2.4 ARTICLES OF INCORPORATION. On and after the Effective Time, the
Articles of Incorporation of PennFirst shall be the Articles of Incorporation
of the Surviving Corporation until amended in accordance with applicable law.
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2.5 BYLAWS. On and after the Effective Time, the Bylaws of PennFirst
shall be the Bylaws of the Surviving Corporation until amended in accordance
with applicable law.
ARTICLE III
CONVERSION OF SHARES
3.1 CONVERSION OF THB COMMON STOCK AND OPTIONS TO PURCHASE THB COMMON
STOCK.
(a) Subject to Section 3.2 hereof, each share of THB Common Stock
outstanding immediately prior to the Effective Time, other than (i) shares
held by THB (including Treasury shares) or PennFirst or any of their
respective wholly owned subsidiaries and (ii) THB Dissenting Shares (as
hereinafter defined), shall be converted into the number of shares of
PennFirst Common Stock equal to the Exchange Ratio (as defined in the
Reorganization Agreement) or $21.15 in cash in accordance with the terms of
Section 1.03 of the Reorganization Agreement.
(b) Notwithstanding any other provision hereof, no fractional shares of
PennFirst Common Stock shall be issued to holders of THB Common Stock. In
lieu thereof, each holder of shares of THB Common Stock entitled to a
fraction of a share of PennFirst Common Stock shall, at the time of surrender
of the certificate or certificates representing such holder's shares, receive
an amount of cash in accordance with the terms of Section 1.05 of the
Reorganization Agreement. No such holder shall be entitled to dividends,
voting rights or any other rights in respect of any fractional share.
(c) At or immediately prior to the Effective Time, each option to
purchase THB Common Stock issued pursuant to THB's 1994 Stock Option Plan
shall be cancelled, and each holder of any such option, whether or not then
vested or exercisable, shall be entitled to receive from PennFirst or THB
either a new option to acquire shares of PennFirst Common Stock or a cash
amount determined in accordance with Section 1.06 of the Reorganization
Agreement. The payment of the consideration referred to in this Section
3.1(c) to holders of options to purchase THB Common Stock shall be subject to
the execution by any such holder of such instruments of cancellation as
PennFirst may reasonably deem appropriate.
3.2 EXCHANGE OF CERTIFICATES FOR STOCK AND/OR CASH.
After the Effective Time, each holder of a certificate for theretofore
outstanding shares of THB Common Stock, shall be surrendered and exchanged
for cash or stock consideration in the manner provided in Section 1.04 of the
Reorganization Agreement.
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3.3 DISSENTING SHARES. Notwithstanding anything in this Agreement of
Merger to the contrary, shares of THB Common Stock which are outstanding
immediately prior to the Effective Time and which are held by stockholders
(other than PennFirst or any wholly-owned subsidiary thereof) who shall not
have voted such shares in favor of the Agreement and this Agreement of Merger
and who shall have satisfied all of the applicable requirements of Chapter
15, Subchapter D of the PBCL ("THB Dissenting Shares"), shall not be
converted into the right to receive, or be exchangeable for, shares of
PennFirst Common Stock or cash as set forth in Section 3.1 hereof, but the
holders thereof shall be entitled to payment of the fair value of such shares
in accordance with said section of the PBCL, subject to the procedures and
the conditions specified in such provision of the PBCL, unless and until such
holders shall have failed to perfect or shall have effectively withdrawn or
lost their right to appraisal and payment under such law. If any such holder
shall have failed to perfect or shall have effectively withdrawn or lost such
right of appraisal, the shares of THB Common Stock held by such holder shall
thereupon be deemed to have been converted into the right to receive, or be
exchangeable at the Effective Time for, cash as provided in 1.08 of the
Reorganization Agreement. PennFirst hereby agrees to make, or cause to be
made, payment in cash for any Dissenting Shares.
3.4 PENNFIRST COMMON STOCK. Each share of PennFirst Common Stock
issued and outstanding immediately prior to the Effective Time shall, on and
after the Effective Time, continue to be issued and outstanding as an
identical share of PennFirst Common Stock.
ARTICLE IV
MISCELLANEOUS
4.1 CONDITIONS PRECEDENT. The respective obligations of each party
under this Agreement of Merger shall be subject to the satisfaction, or
waiver by the party permitted to do so, of the conditions set forth in
Article V of the Reorganization Agreement.
4.2 TERMINATION. This Agreement of Merger shall be terminated
automatically without further act or deed of either of the parties hereto in
the event of the termination of the Reorganization Agreement in accordance
with Section 6.01 thereof.
4.3 AMENDMENTS. To the extent permitted by the PBCL, this Agreement of
Merger may be amended by a subsequent writing signed by each of the parties
hereto upon the approval of the Board of Directors of each of the parties
hereto; provided, however, that the provisions of Article III of this
Agreement of Merger relating to the consideration to be paid for the shares
of THB Common Stock shall not be amended after either of the Stockholder
Meetings so as to modify either the amount or the form of such consideration
or to otherwise materially adversely affect the shareholders of PennFirst or
THB without the approval of the stockholders of PennFirst and THB who are so
affected.
4.4 SUCCESSORS. This Agreement of Merger shall be binding on the
successors of PennFirst and THB.
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IN WITNESS WHEREOF, PennFirst and THB have caused this Agreement of
Merger to be executed by their duly authorized officers as of the day and
year first above written.
PENNFIRST BANCORP, INC.
Attest:
/s/ Frank D. Martz By: /s/ Charlotte A. Zuschlag
- ------------------ --------------------------
Frank D. Martz Charlotte A. Zuschlag
Senior Vice President of Operations President and Chief Executive Officer
and Secretary
TROY HILL BANCORP, INC.
Attest:
/s/ Nancy H. Kufner By: /s/ Ellry N. Davis
- ------------------- ------------------------
Nancy H. Kufner Ellry N. Davis
Secretary President and
Chief Executive Officer
6
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APPENDIX B
STOCK OPTION AGREEMENT
STOCK OPTION AGREEMENT, dated as of September 16, 1996, by and between
PennFirst Bancorp, Inc. ("PennFirst"), a Pennsylvania corporation, and Troy
Hill Bancorp, Inc. ("THB"), a Pennsylvania corporation (the "Agreement").
WITNESSETH
WHEREAS, PennFirst and THB have entered into an Agreement and Plan of
Reorganization and related Agreement of Merger, each dated as of September
16, 1996 (collectively, the "Reorganization Agreement");
WHEREAS, PennFirst has requested the execution of this Agreement by THB
in order to increase the likelihood that the transactions contemplated by
the Reorganization Agreement will be consummated in accordance with its
terms and as a condition to PennFirst's obligation to complete the
transactions contemplated by the Reorganization Agreement and, in
consideration for such execution, THB has agreed to issue to PennFirst an
option entitling PennFirst to purchase shares of its common stock upon the
terms and subject to the conditions set forth herein; and
NOW, THEREFORE, in consideration of the execution of the Reorganization
Agreement and the premises therein and herein contained, the parties agree
as follows:
1. GRANT OF OPTION. Subject to the terms and conditions hereof, THB
irrevocably grants to PennFirst as of September 16, 1996 the option
("Option") to purchase at one time or from time to time an aggregate of
213,000 shares of common stock, par value $.01 per share, of THB ("Common
Stock") at a price per share equal to $15.75 (the price per share is
referred to below as the "Purchase Price" and the price when used with
respect to a number of shares is referred to below as the "aggregate
Purchase Price" for such shares). As used in this Agreement, the term
"Shares" means the shares of Common Stock subject to the Option.
2. EXERCISE OF OPTION.
(a) Subject to the terms and conditions hereof, PennFirst may exercise
the Option, in whole at any time or in part from time to time, to the extent
not previously exercised, if a Purchase Event (as defined below) shall have
occurred and be continuing, provided that to the extent the Option shall not
have been exercised, it shall terminate and be of no further effect, except
as to notices of exercise given prior thereto, on the Termination Date, which
shall be the date on which occurs the earliest of (i) immediately prior to
the Effective Time, as defined in Section 1.02 of the Reorganization
Agreement, (ii) twelve (12) months after the first occurrence of a Purchase
Event, (iii) twelve (12) months following a termination of the Reorganization
Agreement by PennFirst pursuant to Section 6.01(d) thereof prior to the
occurrence of a Purchase
<PAGE>
Event; and (iv) a termination of the Reorganization Agreement in accordance
with its terms (other than by PennFirst pursuant to Section 6.01(d) thereof)
prior to the occurrence of a Purchase Event, provided, however, that any
purchase of shares upon exercise of the Option shall be subject to compliance
with applicable laws and regulations.
(b) As used herein, a "Purchase Event" shall mean any of the following
events or transactions occurring after the date hereof:
(i) THB or any of its subsidiaries shall have entered into an
agreement with any person (other than PennFirst or any subsidiary
thereof) (A) to merge, consolidate or enter into any similar
transaction with such person, (B) for the disposition, by sale, lease,
exchange or otherwise, of all or substantially all of the consolidated
assets or deposits of THB or any of its subsidiaries or (C) for the
issuance, sale or other disposition (including by way of merger,
consolidation, share exchange or any similar transaction) of securities
(or an option or right to acquire such securities) representing 15% or
more of the voting power of THB or any of its subsidiaries;
(ii) any person (other than PennFirst or any subsidiary thereof)
shall have acquired beneficial ownership of, or any group of persons
shall have been formed which beneficially owns, 15% or more of the then
outstanding Common Stock (any of the foregoing in Section 2(b)(i) or
(ii) is hereinafter referred to as an "Acquisition Transaction");
(iii) any person (other than PennFirst or any subsidiary thereof)
shall have (A) commenced a tender offer or filed a registration statement
under the Securities Act of 1933, as amended ("Securities Act"), with
respect to an exchange offer to purchase or otherwise acquire control of
15% or more of the then outstanding shares of Common Stock (such offers
being referred to herein as a "Tender Offer" and an "Exchange Offer,"
respectively); or
(iv) the holders of the outstanding Common Stock shall not have
approved the Reorganization Agreement (including the related Agreement
of Merger) at the meeting of such holders called for such purpose
pursuant to the Reorganization Agreement, such meeting shall not have
been held or shall have been cancelled prior to the termination of the
Reorganization Agreement in accordance with its terms, or THB's Board
of Directors shall have withdrawn or modified in a manner which is
adverse to PennFirst the recommendation of THB's Board of Directors
with respect to the Reorganization Agreement and the Agreement of
Merger, in each case after it shall have been publicly announced that
any person (other than PennFirst or any subsidiary thereof) shall have
(A) commenced a Tender Offer or filed a registration statement under
the Securities Act with respect to an Exchange Offer, (B) made, or
disclosed an intention to make, a proposal to engage in an Acquisition
Transaction, (C) filed an application (or given notice), whether in
draft or final form, under the Bank Holding Company Act of 1956, the
Home Owners' Loan Act, the Bank Merger Act or the Change in Bank
Control Act of 1978, for approval
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to engage in an Acquisition Transaction or (D) any person shall have
solicited proxies in a proxy solicitation subject to Regulation 14A under
the Securities Exchange Act of 1934, as amended ("Exchange Act"), in
opposition to approval of the Reorganization Agreement by THB's
stockholders.
(c) As used in this Agreement, (i) "beneficial ownership," "person"
and "group of persons" shall have the meanings conferred thereon by Section
13(d) of the Exchange Act and the regulations promulgated thereunder and
(ii) "commenced" shall have the meaning conferred thereon by Rule 14d-2
under the Exchange Act.
(d) THB shall promptly give written notice to PennFirst of the
occurrence of a Purchase Event known to THB. However, the giving of such
notice by THB shall not be a condition to the right of PennFirst to exercise
the Option. If more than one transaction or event giving rise to a Purchase
Event is undertaken or effected, then all such transactions shall give rise
to only one Purchase Event, which Purchase Event shall be deemed continuing
for all purposes hereunder until all such transactions or events are
abandoned.
(e) Notwithstanding the foregoing, THB shall not be obligated to issue
Shares upon exercise of the Option (i) in the absence of any required
governmental, regulatory or stockholder approval or consent necessary for
THB to issue the Shares or for PennFirst to exercise the Option or prior to
the expiration or termination of any waiting period required by law, or (ii)
so long as any injunction or other order, decree or ruling issued by any
federal or state court of competent jurisdiction is in effect which
prohibits the sale or delivery of the Shares. If the Option is otherwise
exercisable but cannot be exercised prior to termination as specified in
Section 2(a) hereof solely because of any injunction, order or similar
restraint issued by a court of competent jurisdiction, the Option shall
continue and will expire on the twentieth business day after such
injunction, order or restraint shall have been dissolved or when such
injunction, order or restraint shall have become permanent and no longer
subject to appeal, as the case may be.
3. NOTICE OF EXERCISE; PAYMENT AND DELIVERY OF SHARES.
(a) In the event that PennFirst desires to exercise the Option,
PennFirst shall send a written notice (the date of which being herein
referred to as the "Notice Date") to THB specifying the total number of
Shares it will purchase and a place and date for the closing of such
purchase, which date shall be not later than 60 calendar days nor earlier
than three business days from the date such notice is given, unless
additional time is needed to give notification to or to obtain approval from
any governmental or regulatory authority and, if so required, three business
days from the date on which the required notification period has expired or
been terminated or such approval has been obtained and any requisite waiting
period with respect thereto shall have passed.
(b) At any closing hereunder, (a)(i) PennFirst shall make payment to THB
of the aggregate Purchase Price for the Shares to be purchased by delivery to
THB of a certified, cashier's or bank check payable to the order of THB in
such amount or, if mutually agreed, by
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<PAGE>
wire transfer of funds in such amount to an account designated in writing by
THB, or (ii) if requested by PennFirst, in lieu of the payment set forth in
(a)(i) above, THB shall issue to PennFirst a number of whole Shares
determined by (A) multiplying the excess, if any, of the closing price of the
Common Stock on the Notice Date over the Purchase Price by the number of
Shares with respect to which the Option is being exercised, and (B) dividing
such product by the Purchase Price; and (b) THB shall deliver to PennFirst a
certificate or certificates representing the Shares so purchased, registered
in the name of PennFirst or its designee. THB shall pay any and all federal,
state and local taxes, or other charges that may be imposed upon PennFirst in
connection with the preparation, issuance and delivery of stock certificates
hereunder.
4. REPRESENTATIONS AND WARRANTIES OF THB. THB hereby represents and
warrants to PennFirst as follows:
(a) This Agreement has been duly authorized, executed and delivered by
THB and constitutes a valid and binding agreement of THB, enforceable
against THB in accordance with its terms, except to the extent that the
obligations of THB set forth in Section 8(a) and (d) hereof may be
unenforceable under applicable federal and state securities laws.
(b) THB has taken all necessary corporate and other action (excluding
any required governmental or stockholder approvals) to authorize and reserve
and to permit it to issue, and at all times from the date hereof until such
time as the obligation to deliver Shares upon the exercise of the Option
terminates, will have reserved for issuance, upon any exercise of the
Option, the number of Shares subject to the Option (less the number of
Shares previously issued upon any partial exercise of the Option or as to
which the Option may no longer be exercised). All of the Shares to be
issued pursuant to the Option are duly authorized and, upon issuance and
delivery thereof pursuant to this Agreement, will be duly and validly
issued, fully paid and nonassessable, free and clear of all claims, liens,
charges, encumbrances and security interests, and will not have been issued
in violation of, and will not be subject to, any preemptive rights of any
stockholders of THB.
(c) The execution, delivery and performance by THB of this Agreement
and the consummation of the transactions contemplated hereby (excluding any
required governmental approvals) do not contravene, or constitute a default
under, (i) the Articles of Incorporation or Bylaws of THB or (ii) any
agreement, instrument, judgment, decree, order, statute, rule or
governmental regulation binding upon THB or any of its subsidiaries.
5. REPRESENTATIONS AND WARRANTIES OF PENNFIRST. PennFirst hereby
represents and warrants to THB as follows:
(a) This Agreement has been duly authorized, executed and delivered by
PennFirst and constitutes a valid and binding agreement of PennFirst,
enforceable against PennFirst in accordance with its terms, except to the
extent that the obligations of PennFirst set forth in Section 8(b) and (d)
hereof may be unenforceable under applicable federal and state securities
laws.
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(b) PennFirst is acquiring the Option for the purpose set forth in the
second Whereas clause of this Agreement and hereby acknowledges that (i) the
Option has not been, and the Shares may not be, registered under the
Securities Act or any other applicable securities registration requirements
and (ii) the Option and the Shares may not be transferred except in
compliance with applicable registration requirements or an available
exemption therefrom.
6. ADJUSTMENT UPON CHANGE IN CAPITALIZATION, ETC. In the event of
any change in the Common Stock by reason of stock dividends, stock splits,
mergers, consolidations, recapitalizations, combinations, conversions,
exchanges of shares, extraordinary or liquidating dividends, or other
changes in the corporate or capital structure of THB which would have the
effect of diluting or changing PennFirst's rights hereunder, the number and
kind of shares or securities subject to the Option and the Purchase Price
(but not the aggregate Purchase Price of the Shares) shall be appropriately
and equitably adjusted so that PennFirst shall receive upon exercise of the
Option the number and class of shares or other securities or property that
PennFirst would have received in respect of the Shares that could have been
purchased upon exercise of the Option if the Option could have been and had
been exercised immediately prior to such event or the record date therefor,
as applicable. In the event that after the date hereof THB issues any
additional shares of Common Stock other than pursuant to any event described
in the preceding sentence or pursuant to the exercise of the Option, the
number of shares of Common Stock which can be purchased pursuant to the
Option shall be increased by an amount so that after such issuance the
number of shares of Common Stock subject to the Option, less any shares
previously acquired upon exercise of the Option, shall equal (a) 20.0% of
the number of shares of Common Stock then issued and outstanding minus (b)
one share, without giving effect to any shares which may be issued pursuant
to the Option. THB shall take such steps in connection with any
consolidation, merger, liquidation or other such action as may be necessary
to ensure that the provisions hereof shall thereafter apply as nearly as
possible to any securities or property thereafter deliverable upon exercise
of the Option. Nothing contained in this Section 6 shall be deemed to
authorize THB to effect any of the changes contemplated by this Section 6 in
breach of the provisions of the Reorganization Agreement.
7. REGISTRATION OF THE SHARES.
(a) If PennFirst requests THB in writing to register under the
Securities Act or any other applicable securities registration requirements
Shares which have been purchased by PennFirst hereunder, THB will use its
best efforts to cause the Shares so specified in such request to be
registered as soon as practicable so as to permit the sale or other
distribution by PennFirst of such Shares (and to keep such registration in
effect for a period of at least 180 days) and in connection therewith shall
prepare and file as promptly as reasonably possible (but in no event later
than 45 days from receipt of PennFirst's request) a registration statement
under the Securities Act to effect such registration on an appropriate form,
which would permit the sale of the Shares by PennFirst in the manner
specified by PennFirst in its request. In connection with such
registration, THB shall use its best efforts to cause to be delivered to
PennFirst (and any other holder whose Shares are the subject of such
registration) such certificates, opinions, accountants' letters and other
documents as PennFirst (or any such other holder) shall reasonably
5
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request and are customarily rendered in connection with the registration of
securities under the Securities Act. PennFirst shall provide all information
reasonably requested by THB for inclusion in any documents to be prepared
hereunder. All expenses incurred by THB in complying with the provisions of
this Section 7, including, without limitation, all registration and filing
fees, printing expenses, fees and disbursements of counsel for THB and blue
sky fees and expenses shall be paid by THB. Underwriting discounts and
commissions to brokers and dealers relating to the Shares, fees and
disbursements of counsel to PennFirst and any other expenses incurred by
PennFirst in connection with such registration shall be borne by PennFirst.
THB shall not be obligated to make effective more than two registration
statements pursuant to this Section 7(a).
(b) THB shall notify PennFirst in writing not less than ten business
days prior to filing a registration statement under the Securities Act with
respect to any Common Stock (other than a filing on Form S-4 or Form S-8) of
THB's intention so to file. If PennFirst wishes to have any portion of its
Shares purchased hereunder included in such registration statement, it shall
advise THB in writing to that effect within five business days following
receipt of such notice from THB pursuant to the preceding sentence, and THB
will thereupon include the number of shares indicated by PennFirst under
such registration statement, provided, however, that if the managing
underwriter determines and advises THB and PennFirst in writing that the
inclusion in the registration statement of the number of shares indicated by
PennFirst would interfere with the successful marketing of the Common Stock
proposed to be registered and sold by THB, then the number of shares
indicated by PennFirst to be included in the underwriting shall be reduced
or eliminated pro rata among all holders of shares of Common Stock
requesting such registration, and further provided, however, that nothing
herein shall prevent THB from, at any time, abandoning or delaying any
registration.
(c) The rights provided under this Section 7 shall expire upon the
third annual anniversary of the first acquisition of Shares by PennFirst
hereunder.
8. INDEMNIFICATION.
(a) In connection with any registration under the provisions of
Section 7 hereof, THB shall indemnify and hold harmless PennFirst and any
underwriter (as defined in the Securities Act) for PennFirst and each person
who controls PennFirst or such underwriter within the meaning of the
Securities Act, from and against any and all loss, damage, liability, cost
and expense to which PennFirst or any such underwriter or controlling person
may become subject under the Securities Act or otherwise, insofar as such
losses, damages, liabilities, costs or expenses are caused by or arise out
of or are based upon any untrue statement or alleged untrue statement of any
material fact contained in such registration statement, any preliminary or
final offering prospectus contained therein or any amendment or supplement
thereto, or arise out of or are based upon the omission or alleged omission
to state therein a material fact required to be stated therein or necessary
to make the statements therein, in light of the circumstances in which they
were made, not misleading; provided, however, that THB will not be liable in
any such case to the extent that any such loss, damage, liability, cost or
expense arises out of or is based upon an untrue statement or omission so
made in conformity with information furnished by PennFirst,
6
<PAGE>
such underwriter or such controlling persons in writing specifically for use
in the preparation thereof.
(b) PennFirst will indemnify and hold harmless THB, any underwriter
for THB and each person who controls THB or such underwriter within the
meaning of the Securities Act, from and against any and all loss, damage,
liability, cost and expense to which THB or any such underwriter or
controlling person may become subject under the Securities Act or otherwise,
insofar as such losses, damages, liabilities, costs or expenses are caused
by or arise out of or are based upon any untrue statement or alleged untrue
statement of any material fact contained in such registration statement, any
preliminary or final offering prospectus contained therein or any amendment
or supplement thereto, or arise out of or are based upon the omission or
alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances in which they were made, not misleading, in each case to the
extent, but only to the extent, that such untrue statement or omission was
so made in conformity with information furnished by PennFirst in writing
specifically for use in the preparation thereof.
(c) Promptly after receipt by an indemnified party pursuant to the
provisions of Section 8(a) or (b) of notice of the commencement of any
action involving the subject matter of the foregoing indemnity provisions,
such indemnified party will, if a claim in respect thereof is to be made
against the indemnifying party pursuant to the provisions of Section 8(a) or
(b), promptly notify the indemnifying party of the commencement thereof;
except to the extent of any actual prejudice to the indemnifying party, the
omission to so notify the indemnifying party will not relieve it from any
liability which it may have to any indemnified party otherwise hereunder.
In case such action is brought against any indemnified party and it notifies
the indemnifying party of the commencement thereof, the indemnifying party
shall have the right to participate in, and, to the extent that it may wish,
jointly with any other indemnifying party similarly notified, to assume the
defense thereof, with counsel reasonably satisfactory to such indemnified
party; provided, however, that if the defendants in any action include both
the indemnified party and the indemnifying party and there is a conflict of
interests which would prevent counsel for the indemnifying party from also
representing the indemnified party, the indemnified party or parties shall
have the right to select one separate counsel to participate in the defense
of such action on behalf of such indemnified party or parties. After notice
from the indemnifying party to such indemnified party of its election so to
assume the defense thereof, the indemnifying party will not be liable to
such indemnified party pursuant to the provisions of Section 8(a) or (b) for
any legal or other expenses subsequently incurred by such indemnified party
in connection with the defense thereof other than reasonable costs of
investigation, unless (i) the indemnified party shall have employed counsel
in accordance with the provisions of the preceding sentence, (ii) the
indemnifying party shall not have employed counsel reasonably satisfactory
to the indemnified party to represent the indemnified party within a
reasonable time after the notice of the commencement of the action, or (iii)
the indemnifying party has authorized the employment of counsel for the
indemnified party at the expense of the indemnifying party.
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(d) If recovery is not available under the foregoing indemnification
provisions, for any reason other than as expressly specified therein, the
parties entitled to indemnification by the terms thereof shall be entitled
to contribution to liabilities and expenses, except to the extent that
contribution is not permitted under Section 11(f) of the Securities Act. In
determining the amount of contribution to which the respective parties are
entitled, there shall be considered the parties' relative fault, knowledge
and access to information concerning the matter with respect to which the
claim was asserted, the opportunity to correct and/or prevent any statement
or omission, and any other equitable considerations appropriate under the
circumstances.
9. QUOTATION. If the Common Stock or any other securities to be
acquired upon exercise of the Option are then authorized for quotation or
trading or listing on the Nasdaq National Market System ("Nasdaq NMS") or any
securities exchange, THB, upon the request of PennFirst after the occurrence
of a Purchase Event, will promptly file an application, if required, to
authorize for quotation or trading or listing the Shares of Common Stock (or
other securities to be acquired upon exercise of the Option pursuant to the
terms of Section 6 hereof) on the Nasdaq NMS or such other securities
exchange and will use its best efforts to obtain approval, if required, of
such quotation or listing as soon as practicable.
10. FURTHER ASSURANCES. THB agrees to execute and deliver such
documents and instruments and take such further actions as may be necessary
or appropriate or as PennFirst may reasonably request in order to ensure
that PennFirst receives the full benefits of this Agreement (including,
without limitation, the prompt filing of any required notice or application
for approval with any applicable federal or state regulatory agency and the
expeditious processing of the same). Prior to the Termination Date, THB
will refrain from taking any action which would have the effect of
preventing or interfering with the delivery by THB of the Shares (or other
securities deliverable pursuant to Section 6 hereof) to PennFirst upon any
exercise of the Option or from otherwise performing its obligations under
this Agreement.
11. REMEDIES. The parties agree that PennFirst would be irreparably
damaged if for any reason THB failed to issue any of the Shares (or other
securities deliverable pursuant to Section 6 hereof) upon exercise of the
Option or to perform any of its other obligations under this Agreement, and
that PennFirst would not have an adequate remedy at law in such event.
Accordingly, PennFirst shall be entitled to specific performance and
injunctive and other equitable relief to enforce the performance of this
Agreement by THB. This provision is without prejudice to any other rights
that PennFirst may have against THB for any failure to perform its
obligations under this Agreement.
12. MISCELLANEOUS.
(a) Expenses. Except as otherwise provided herein, each of the
parties hereto shall bear and pay all costs and expenses incurred by it or
on its behalf in connection with the transactions contemplated hereunder,
including fees and expenses of its own financial consultants, investment
bankers, accountants and counsel.
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(b) Notices. All notices or other communications hereunder shall be
in writing and shall be deemed given if delivered personally, sent by
overnight express or mailed by prepaid registered or certified mail (return
receipt requested) or by cable, telegram, telecopy or telex addressed as
follows:
(i) If to PennFirst, to:
PennFirst Bancorp, Inc.
600 Lawrence Avenue
Ellwood City, Pennsylvania 16117
ATTN: Charlotte A. Zuschlag
Copy to:
Plowman, Spiegal & Lewis, P.C.
2nd Floor, The Grant Building
Pittsburgh, Pennsylvania 15219
ATTN: Charles B. Jarrett, Jr.
(ii) If to THB, to:
Troy Hill Bancorp, Inc.
1706 Lowrie Street
Pittsburgh, Pennsylvania 15212
ATTN: Ellry N. Davis
Copy to:
Elias, Matz, Tiernan and Herrick L.L.P.
734 15th Street, N.W.
Washington, D.C. 20005
ATTN: Raymond A. Tiernan, Esq.
Philip R. Bevan, Esq.
Hugh T. Wilkinson, Esq.
or such other address as shall be furnished in writing by any party, and any
such notice or communication shall be deemed to have been given as of the
date so mailed.
(c) Severability. If any term, provision, covenant or restriction of
this Agreement is held to be invalid, void or unenforceable, the remainder
of the terms, provisions, covenants and restrictions of this Agreement shall
remain in full force and effect and shall in no way be affected, impaired or
invalidated.
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If for any reason any court or regulatory agency determines that the
Option will not permit the holder to acquire the full number of Shares, it
is the express intention of THB to allow the holder to acquire such lesser
number of shares as may be permissible, without any amendment or
modification hereof.
(d) Governing Law. This Agreement shall be governed by and construed
in accordance with the laws of the Commonwealth of Pennsylvania without
giving effect to the principles of conflicts of laws thereof.
(e) Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be an original, but all of which together
shall constitute one and the same agreement.
(f) Headings. The section headings herein are for convenience only
and shall not affect the construction hereof.
(g) Assignment. PennFirst may assign this Agreement to any wholly
owned subsidiary of PennFirst. PennFirst may not, without the prior written
consent of THB, assign this Agreement to any other person in whole or in
part, provided that upon the occurrence of and following a Purchase Event,
PennFirst may sell, transfer, assign or otherwise dispose of its rights and
obligations hereunder in whole or in part without such consent. In the case
of any permitted sale, transfer, assignment or disposition in part of this
Option, THB shall do all things necessary to facilitate the same and the
person to whom this Option is sold, transferred assigned or disposed of
shall agree in writing to the terms and conditions hereof. This Agreement
shall not be assignable by THB except by operation of law. Subject to the
foregoing, this Agreement shall be binding upon, inure to the benefit of and
be enforceable by the parties and their respective successors and assigns.
(h) Parties in Interest. This Agreement shall be binding upon and
inure solely to the benefit of each party hereto, and nothing in this
Agreement, express or implied, is intended to confer upon any other person
(other than an assignee or transferee of PennFirst pursuant to Section 12(g)
hereof) any rights or remedies of any nature whatsoever under or by any
reason of this Agreement.
13. ENTIRE AGREEMENT. This Agreement, including the documents and
other writings referred to herein or delivered pursuant hereto, contains the
entire agreement and understanding of the parties with respect to its
subject matter. There are no restrictions, agreements, promises,
warranties, covenants or undertakings between the parties other than those
expressly set forth herein or therein. This Agreement supersedes all prior
agreements and understandings between the parties, both written and oral,
with respect to its subject matter.
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IN WITNESS WHEREOF, PennFirst and THB have caused this Agreement to be
executed by their duly authorized officers as of the day and year first
above written.
PENNFIRST BANCORP, INC.
Attest:
/s/ Frank D. Martz By: /s/ Charlotte A. Zuschlag
- ----------------------------------- -------------------------------------
Frank D. Martz Charlotte A. Zuschlag
Senior Vice President of Operations President and Chief Executive Officer
and Secretary
TROY HILL BANCORP, INC.
Attest:
/s/ Nancy H. Kufner By: /s/ Ellry N. Davis
- ---------------------------------- -------------------------------------
Nancy H. Kufner Ellry N. Davis
Secretary President and Chief Executive Officer
11
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APPENDIX C
[CHARLES WEBB & COMPANY LETTERHEAD]
September 16, 1996
Board of Directors
Troy Hill Bancorp, Inc
1706 Lowrie Street
Pittsburgh, Pennsylvania 15212
Dear Gentlemen:
You have requested our opinion as an independent investment banking firm
regarding the fairness, from a financial point of view, to the shareholders
of Troy Hill Bancorp, Inc. ("THBC"), of the consideration to be received by
such shareholders in the merger (the "Merger") between THBC and PennFirst
Bancorp, Inc., ("PWBC"). We have not been requested to opine as to, and our
opinion does not in any matter address, THBC's underlying business decision
to proceed with or effect the Merger.
Pursuant to the terms and conditions of the Agreement and Plan of
Reorganization, dated September 16, 1996, by and between THBC and its wholly
owned subsidiary, Troy Hill Federal Savings Bank ("Troy Hill"), and PWBC,
(the "Agreement"), at the effective time of the Merger, PWBC will acquire all
of THBC's issued and outstanding shares of common stock (1,067,917 shares as
of the date of the Agreement) and the holders of such shares of common stock
shall have the right to receive either (i) $21.15 in cash per share of THBC
Common Stock or (ii) the number of shares of PWBC's Common Stock which equals
the result of dividing $21.15 by the "Average Share Price", as defined in
Section 1.03 of the Agreement, in exchange for each share of THBC Common
Stock. Aggregate Cash Consideration to be received by THBC shareholders will
equal 40% of the aggregate total consideration which results by multiplying
$21.15 times the number of shares of THBC Common Stock at the effective time.
Therefore, 60% of total consideration will be PWBC common stock, pursuant to
terms described in the Agreement.
In addition, the holders of unexercised and outstanding options awarded
pursuant to the THBC 1994 Stock Option Plan, will elect to receive, for each
share subject to such option, either (i) cash equal to the difference between
$21.15 and the option exercise price, or (ii) an option to purchase shares of
PWBC common stock in an
<PAGE>
Troy Hills Bancorp, Inc.
September 16 1996
Page 2
amount and at an exercise price determined pursuant to Section 1.06 of the
Agreement. The complete terms of the proposed transaction are described in
the Agreement, and this summary is qualified in its entirety by reference
thereto.
Charles Webb & Company, as part of its investment banking business, is
regularly engaged in the evaluation of businesses and securities in
connection with mergers and acquisitions, negotiated underwritings, and
distributions of listed and unlisted securities. We are familiar with the
market for common stocks of publicly traded banks, thrifts and bank and
thrift holding companies.
In September, 1996, you engaged us to issue a fairness opinion to be
delivered upon execution of an agreement for the acquisition of THBC. Prior
to your execution of the Agreement with PWBC, we reviewed certain financial
and other business data supplied to us by THBC including audited financial
statements for the years ended June 30, 1995 and 1994 and a draft of June 30,
1996 financial statements and certain other information we deemed relevant.
We considered historical quotations and the prices of recorded transactions
in THBC's common stock since its public offering and conversion to a stock
holding company on June, 1994. We reviewed financial and stock market data
of other thrifts, particularly in the Mid-Atlantic region, and the financial
and structural terms of several other recent transactions involving savings
and loan mergers and acquisitions or proposed changes of control of
comparably situated companies.
For PWBC, we reviewed the audited financial statements for the fiscal years
ended December 31, 1995 1994, 1993 and quarterly financial statements
(unaudited) for the quarters ending March 31, 1996, June 30, 1996 and related
SEC reports and certain other information deemed relevant. We considered
historical quotations and the prices of recorded transactions in PWBC's
common stock. For comparative purposes, we reviewed financial and stock
merger data of other financial institutions in the Mid-Atlantic region.
For purposes of this opinion we have relied, without independent
verification, on the accuracy and completeness of the material furnished to
us by THBC and PWBC and the material otherwise made available to us,
including information from published sources, and we have not made any
independent effort to verify such data. With respect to the financial
information, including forecasts and asset valuations we received from THBC,
we assumed (with your consent) that they had been reasonably prepared
reflecting the best currently available estimates and judgment of THBC's
management. In addition, we have not made or obtained any independent
appraisals or evaluations of the assets or liabilities, and potential and/or
contingent liabilities of THBC or PWBC. We have further relied on the
assurances of management of THBC and PWBC that they are not aware of any
facts that would make such information
<PAGE>
Troy Hills Bancorp, Inc.
September 16 1996
Page 2
inaccurate or misleading. We express no opinion on matters of a legal,
regulatory, tax or accounting nature or the ability of the Merger, as set
forth in the Agreement, to be consummated.
In rendering our opinion, we have assumed that in the course of obtaining the
necessary approvals for the Merger, no restrictions or conditions will be
imposed that would have a material adverse effect on the contemplated
benefits of the Merger to THBC or the ability to consummate the Merger. Our
opinion is based on the market, economic and other relevant considerations as
they exist and can be evaluated on the date hereof.
We have been engaged to issue a fairness opinion for a fee, a majority of
which is contingent upon the affirmative shareholder approval of the Merger.
In addition, THBC has agreed to indemnify us for certain liabilities arising
out of our engagement by THBC in connection with the Merger. We have also
performed various investment banking services for THBC in the past and have
received customary fees for such services.
Based upon and subject to the foregoing, as outlined in the foregoing
paragraphs and based on such other matters as we considered relevant, it is
our opinion that as of the date hereof, the consideration to be received by
the shareholders of THBC in the Merger is fair, from a financial point of
view, to the shareholders of THBC.
This opinion may not, however, be summarized, excerpted from or otherwise
publicly referred to without our prior written consent, although this opinion
may be included in its entirety in the proxy statements of THBC used to
solicit shareholder approval of the Merger. It is understood that this
letter is directed to the Board of Directors of THBC in its consideration of
the Agreement, and is not intended to be and does not constitute a
recommendation to any shareholder as to how such shareholder should vote with
respect to the Merger.
Very truly yours,
/s/ Charles Webb & Company
Charles Webb & Company
<PAGE>
APPENDIX C
1997
Board of Directors
Troy Hill Bancorp, Inc
1706 Lowrie Street
Pittsburgh, Pennsylvania 15212
Dear Board of Directors:
We hereby confirm our letter of September 16, 1996 regarding the merger
proposal, whereby Troy Hill Bancorp, Inc. ("THBC") shall merge with PennFirst
Bancorp, Inc. In our opinion, the above referenced transaction remains fair
to the THBC shareholders, from a financial point of view.
Very truly yours,
Charles Webb & Company,
A Division of Keefe, Bruyette & Woods, Inc.
<PAGE>
APPENDIX D
PENNSYLVANIA BUSINESS CORPORATION LAW OF 1988, AS AMENDED,
PROVISIONS FOR DISSENTING SHAREHOLDERS
SUBCHAPTER D.--DISSENTERS RIGHTS.
Section 1571. APPLICATION AND EFFECT OF SUBCHAPTER.
(a) GENERAL RULE.--Except as otherwise provided in subsection (b), any
shareholder of a business corporation shall have the right to dissent from,
and to obtain payment of the fair value of his shares in the event of, any
corporate action, or to otherwise obtain fair value for his shares, where
this part expressly provides that a shareholder shall have the rights and
remedies provided in this subchapter. See:
Section 1906(c) (relating to dissenters rights upon special
treatment).
Section 1930 (relating to dissenters rights).
Section 1931(d) (relating to dissenters rights in share exchanges).
Section 1932(c) (relating to dissenters rights in asset transfers).
Section 1952(d) (relating to dissenters rights in division).
Section 1962(c) (relating to dissenters rights in conversion).
Section 2104(b) (relating to procedure).
Section 2324 (relating to corporation option where a restriction on
transfer of a security is held invalid).
Section 2325(b) (relating to minimum vote requirement).
Section 2704(c) (relating to dissenters rights upon election).
Section 2705(d) (relating to dissenters rights upon renewal of
election).
Section 2907(a) (relating to proceedings to terminate breach of
qualifying conditions).
Section 7104(b)(3) (relating to procedure).
<PAGE>
(b) EXCEPTIONS.--(1) Except as otherwise provided in paragraph
(2), the holders of the shares of any class or series of shares that, at
the record date fixed to determine the shareholders entitled to notice
of and to vote at the meeting at which a plan specified in any of
section 1930, 1931(d), 1932(c) or 1952(d) is to be voted on, are either:
(i) listed on a national securities exchange; or
(ii) held of record by more than 2,000 shareholders;
shall not have the right to obtain payment of the fair value of any such
shares under this subchapter.
(2) Paragraph (1) shall not apply to and dissenters rights shall
be available without regard to the exception provided in that paragraph
in the case of:
(i) Shares converted by a plan if the shares are not converted
solely into shares of the acquiring, surviving, new or other
corporation or solely into such shares and money in lieu of
fractional shares.
(ii) Shares of any preferred or special class unless the
articles, the plan or the terms of the transaction entitle all
shareholders of the class to vote thereon and require for the
adoption of the plan or the effectuation of the transaction the
affirmative vote of a majority of the votes cast by all
shareholders of the class.
(iii) Shares entitled to dissenters rights under section
1906(c) (relating to dissenters rights upon special treatment).
(3) The shareholders of a corporation that acquires by purchase,
lease, exchange or other disposition all or substantially all of the
shares, property or assets of another corporation by the issuance of
shares, obligations or otherwise, with or without assuming the
liabilities of the other corporation and with or without the
intervention of another corporation or other person, shall not be
entitled to the rights and remedies of dissenting shareholders provided
in this subchapter regardless of the fact, if it be the case, that the
acquisition was accomplished by the issuance of voting shares of the
corporation to be outstanding immediately after the acquisition
sufficient to elect a majority or more of the directors of the
corporation.
(c) GRANT OF OPTIONAL DISSENTERS RIGHTS.--The bylaws or a resolution of
the board of directors may direct that all or a part of the shareholders
shall have dissenters rights in connection with any corporate action or other
transaction that would otherwise not entitle such shareholder to dissenters
rights.
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(d) NOTICE OF DISSENTERS RIGHTS.--Unless otherwise provided by statute,
if a proposed corporate action that would give rise to dissenters rights
under this subpart is submitted to a vote at a meeting of shareholders, there
shall be included in or enclosed with the notice of meeting:
(1) a statement of the proposed action and a statement that the
shareholders have a right to dissent and obtain payment of the fair
value of their shares by complying with the terms of this subchapter;
and
(2) a copy of this subchapter.
(e) OTHER STATUTES.--The procedures of this subchapter shall also be
applicable to any transaction described in any statute other than this part
that makes reference to this subchapter for the purpose of granting
dissenters rights.
(f) CERTAIN PROVISIONS OF ARTICLES INEFFECTIVE.--This subchapter may not
be relaxed by any provision of the articles.
(g) CROSS REFERENCES.--See sections 1105 (relating to restriction on
equitable relief), 1904 (relating to de facto transaction doctrine abolished)
and 2512 (relating to dissenters rights procedure).
Section 1572. DEFINITIONS.
The following words and phrases when used in this subchapter shall have
the meanings given to them in this section unless the context clearly
indicates otherwise:
"CORPORATION." The issuer of the shares held or owned by the dissenter
before the corporate action or the successor by merger, consolidation,
division, conversion or otherwise of that issuer. A plan of division may
designate which of the resulting corporations is the successor corporation
for the purposes of this subchapter. The successor corporation in a division
shall have sole responsibility for payments to dissenters and other
liabilities under this subchapter except as otherwise provided in the plan of
division..
"DISSENTER." A shareholder or beneficial owner who is entitled to and
does assert dissenters rights under this subchapter and who has performed
every act required up to the time involved for the assertion of those rights.
"FAIR VALUE." The fair value of shares immediately before the
effectuation of the corporate action to which the dissenter objects taking
into account all relevant factors, but excluding any appreciation or
depreciation in anticipation of the corporate action.
"INTEREST." Interest from the effective date of the corporate action
until the date of payment at such rate as is fair and equitable under all the
circumstances, taking into account
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all relevant factors including the average rate currently paid by the
corporation on its principal bank loans.
Section 1573. RECORD AND BENEFICIAL HOLDERS AND OWNERS.
(a) RECORD HOLDERS OF SHARES.--A record holder of shares of a business
corporation may assert dissenters rights as to fewer than all of the shares
registered in his name only if he dissents with respect to all the shares of
the same class or series beneficially owned by any one person and discloses
the name and address of the person or persons on whose behalf he dissents. In
that event, his rights shall be determined as if the shares as to which he
has dissented and his other shares were registered in the names of different
shareholders.
(b) BENEFICIAL OWNERS OF SHARES.--A beneficial owner of shares of a
business corporation who is not the record holder may assert dissenters
rights with respect to shares held on his behalf and shall be treated as a
dissenting shareholder under the terms of this subchapter if he submits to
the corporation not later than the time of the assertion of dissenters rights
a written consent of the record holder. A beneficial owner may not dissent
with respect to some but less than all shares of the same class or series
owned by the owner, whether or not the shares so owned by him are registered
in his name.
Section 1574. NOTICE OF INTENTION TO DISSENT.
If the proposed corporate action is submitted to a vote at a meeting of
shareholders of a business corporation, any person who wishes to dissent and
obtain payment of the fair value of his shares must file with the
corporation, prior to the vote, a written notice of intention to demand that
he be paid the fair value for his shares if the proposed action is
effectuated, must effect no change in the beneficial ownership of his shares
from the date of such filing continuously through the effective date of the
proposed action and must refrain from voting his shares in approval of such
action. A dissenter who fails in any respect shall not acquire any right to
payment of the fair value of his shares under this subchapter. Neither a
proxy nor a vote against the proposed corporate action shall constitute the
written notice required by this section.
Section 1575. NOTICE TO DEMAND PAYMENT.
(a) GENERAL RULE.--If the proposed corporate action is approved by the
required vote at a meeting of shareholders of a business corporation, the
corporation shall mail a further notice to all dissenters who gave due notice
of intention to demand payment of the fair value of their shares and who
refrained from voting in favor of the proposed action. If the proposed
corporate action is to be taken without a vote of shareholders, the
corporation shall send to all shareholders who are entitled to dissent and
demand payment of the fair value of their shares a notice of the adoption of
the plan or other corporate action. In either case, the notice shall:
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(1) State where and when a demand for payment must be sent and
certificates for certificated shares must be deposited in order to
obtain payment.
(2) Inform holders of uncertificated shares to what extent
transfer of shares will be restricted from the time that demand for
payment is received.
(3) Supply a form for demanding payment that includes a request
for certification of the date on which the shareholder, or the person on
whose behalf the shareholder dissents, acquired beneficial ownership of
the shares.
(4) Be accompanied by a copy of this subchapter.
(b) TIME FOR RECEIPT OF DEMAND FOR PAYMENT.--The time set for receipt
of the demand and deposit of certificated shares shall be not less than 30
days from the mailing of the notice.
Section 1576. FAILURE TO COMPLY WITH NOTICE TO DEMAND PAYMENT, ETC.
(a) EFFECT OF FAILURE OF SHAREHOLDER TO ACT.--A shareholder who fails
to timely demand payment, or fails (in the case of certificated shares) to
timely deposit certificates, as required by a notice pursuant to section 1575
(relating to notice to demand payment) and shall not have any right under
this subchapter to receive payment of the fair value of his shares.
(b) RESTRICTION ON UNCERTIFICATED SHARES.--If the shares are not
represented by certificates, the business corporation may restrict their
transfer from the time of receipt of demand for payment until effectuation of
the proposed corporate action or the release of restrictions under the terms
of section 1577(a) (relating to failure to effectuate corporate action).
(c) RIGHTS RETAINED BY SHAREHOLDER.--The dissenter shall retain all
other rights of a shareholder until those rights are modified by effectuation
of the proposed corporate action.
Section 1577. RELEASE OF RESTRICTIONS OR PAYMENT FOR SHARES.
(a) FAILURE TO EFFECTUATE CORPORATE ACTION.--Within 60 days after the
date set for demanding payment and depositing certificates, if the business
corporation has not effectuated the proposed corporate action, it shall
return any certificates that have been deposited and release uncertificated
shares from any transfer restrictions imposed by reason of the demand for
payment.
(b) RENEWAL OF NOTICE TO DEMAND PAYMENT.--When uncertificated shares
have been released from transfer restrictions and deposited certificates have
been returned, the
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<PAGE>
corporation may at any later time send a new notice conforming to the
requirements of section 1575 (relating to notice to demand payment), with
like effect.
(c) PAYMENT OF FAIR VALUE OF SHARES.--Promptly after effectuation of the
proposed corporation action, or upon timely receipt of demand for payment if
the corporate action has already been effectuated, the corporation shall
either remit to dissenters who have made demand and (if their shares are
certificated) have deposited their certificates the amount that the
corporation estimates to be the fair value of the shares, or give written
notice that no remittance under this section will be made. The remittance or
notice shall be accompanied by:
(1) The closing balance sheet and statement of income of the
issuer of the shares held or owned by the dissenter for a fiscal year
ending not more than 16 months before the date of remittance or notice
together with the latest available interim financial statements.
(2) A statement of the corporation's estimate of the fair value of
the shares.
(3) A notice of the right of the dissenter to demand payment or
supplemental payment, as the case may be, accompanied by a copy of this
subchapter.
(d) FAILURE TO MAKE PAYMENT.--If the corporation does not remit the
amount of its estimate of the fair value of the shares as provided by
subsection (c), it shall return any certificates that have been deposited and
release uncertificated shares from any transfer restrictions imposed by
reason of the demand for payment. The corporation may make a notation on any
such certificate or on the records of the corporation relating to any such
uncertificated shares that such demand has been made. If shares with respect
to which notation has been so made shall be transferred, each new certificate
issued therefor or the records relating to any transferred uncertificated
shares shall bear a similar notation, together with the name of the original
dissenting holder or owner of such shares. A transferee of such shares shall
not acquire by such transfer any rights in the corporation other than those
that the original dissenters had after making demand for payment of their
fair value.
Section 1578. ESTIMATE BY DISSENTER OF FAIR VALUE OF SHARES.
(a) GENERAL RULE.--If the business corporation gives notice of its
estimate of the fair value of the shares, without remitting such amount, or
remits payment of its estimate of the fair value of a dissenter's shares as
permitted by section 1577(c) (relating to payment of fair value of shares)
and the dissenter believes that the amount stated or remitted is less than
the fair value of his shares, he may send to the corporation his own estimate
of the fair value of the shares, which shall be deemed a demand for payment
of the amount or the deficiency.
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(b) EFFECT OF FAILURE TO FILE ESTIMATE.--Where the dissenter does not
file his own estimate under subsection (a) within 30 days after the mailing
by the corporation of its remittance or notice, the dissenter shall be
entitled to no more than the amount stated in the notice or remitted to him
by the corporation.
Section 1579. VALUATION PROCEEDINGS GENERALLY.
(a) GENERAL RULE.--Within 60 days after the latest of:
(1) Effectuation of the proposed corporate action;
(2) Timely receipt of any demands for payment under section 1575
(relating to notice to demand payment); or
(3) Timely receipt of any estimates pursuant to section 1578
(relating to estimate by dissenter of fair value of shares);
If any demands for payment remain unsettled, the business corporation may
file in court an application for relief requesting that the fair value of the
shares be determined by the court.
(b) MANDATORY JOINDER OF DISSENTERS.--All dissenters, wherever
residing, whose demands have not been settled shall be made parties to the
proceeding as in an action against their shares. A copy of the application
shall be served on each such dissenter. If a dissenter is a nonresident, the
copy may be served on him in the manner provided or prescribed by or pursuant
to 42 Pa.C.S. Ch. 53 (relating to bases of jurisdiction and interstate and
international procedure).
(c) JURISDICTION OF THE COURT.--The jurisdiction of the court shall be
plenary and exclusive. The court may appoint an appraiser to receive
evidence and recommend a decision on the issue of fair value. The appraiser
shall have such power and authority as may be specified in the order of
appointment or in any amendment thereof.
(d) MEASURE OF RECOVERY.--Each dissenter who is made a party shall be
entitled to recover the amount by which the fair value of his shares is found
to exceed the amount, if any, previously remitted, plus interest.
(e) EFFECT OF CORPORATION'S FAILURE TO FILE APPLICATION.--If the
corporation fails to file an application as provided in subsection (a), any
dissenter who made a demand and who has not already settled his claim against
the corporation may do so in the name of the corporation at any time within
30 days after the expiration of the 60-day period. If a dissenter does not
file an application within the 30-day period, each dissenter entitled to file
an application shall be paid the corporation's estimate of the fair value of
the shares and no more, and may bring an action to recover any amount not
previously remitted.
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Section 1580. COSTS AND EXPENSES OF VALUATION PROCEEDINGS.
(a) GENERAL RULE.-- The costs and expenses of any proceeding under
section 1579 (relating to valuation proceedings generally), including the
reasonable compensation and expenses of the appraiser appointed by the court,
shall be determined by the court and assessed against the business
corporation except that any part of the costs and expenses may be apportioned
and assessed as the court deems appropriate against all or some of the
dissenters who are parties and whose action in demanding supplemental payment
under section 1578 (relating to estimate by dissenter of fair value of
shares) the court finds to be dilatory, obdurate, arbitrary, vexatious or in
bad faith.
(b) ASSESSMENT OF COUNSEL FEES AND EXPERT FEES WHERE LACK OF GOOD FAITH
APPEARS.--Fees and expenses of counsel and of experts for the respective
parties may be assessed as the court deems appropriate against the
corporation and in favor of any or all dissenters if the corporation failed
to comply substantially with the requirements of this subchapter and may be
assessed against either the corporation or a dissenter, in favor of any other
party, if the court finds that the party against whom the fees and expenses
are assessed acted in bad faith or in a dilatory, obdurate, arbitrary or
vexatious manner in respect to the rights provided by this subchapter.
(c) AWARD OF FEES FOR BENEFITS TO OTHER DISSENTERS.--If the court finds
that the services of counsel for any dissenter were of substantial benefit to
other dissenters similarly situated and should not be assessed against the
corporation, it may award to those counsel reasonable fees to be paid out of
the amounts awarded to the dissenters who were benefited.
Section 1930. DISSENTERS RIGHTS.
(a) GENERAL RULE.--If any shareholder of a domestic business corporation
that is to be a party to a merger or consolidation pursuant to a plan of
merger or consolidation objects to the plan of merger or consolidation and
complies with the provisions of Subchapter D of Chapter 15 (relating to
dissenters rights), the shareholder shall be entitled to the rights and
remedies of dissenting shareholders therein provided, if any. See also
section 1906(c) (relating to dissenters rights upon special treatment).
(b) PLANS ADOPTED BY DIRECTORS ONLY.--Except as otherwise provided
pursuant to section 1571(c) (relating to grant of optional dissenters
rights), Subchapter D of Chapter 15 shall not apply to any of the shares of a
corporation that is a party to a merger or consolidation pursuant to section
1924(b)(1)(i) (relating to adoption by board of directors).
(c) CROSS REFERENCES.--See sections 1571(b) (relating to exceptions) and
1904 (relating to de facto transaction doctrine abolished).
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PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Article 9 of the Registrant's Amended and Restated Articles of
Incorporation provides as follows:
ARTICLE 9. INDEMNIFICATION, ETC. OF OFFICERS, DIRECTORS,
EMPLOYEES AND AGENTS.
A. PERSONAL LIABILITY OF DIRECTORS. A director of the Corporation
shall not be personally liable for monetary damages for any action taken, or any
failure to taken any action, as a director except to the extent that by law a
director's liability for monetary damages may not be limited.
B. INDEMNIFICATION. The Corporation shall indemnify any person who
was or is a party or is threatened to be made a party to any threatened,
pending or completed action, suit or proceeding, including actions by or in
the right of the Corporation, whether civil, criminal, administrative or
investigative, by reason of the fact that such person is or was a director,
officer, employee or agent of the Corporation, or is or was serving at the
request of the Corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise, against
expenses (including attorneys' fees), judgments, fines, excise taxes and
amounts paid in settlement actually and reasonably incurred by such person in
connection with such action, suit or proceeding to the full extent permissible
under Pennsylvania law.
C. ADVANCEMENT OF EXPENSES. Reasonable expenses incurred by a
director, officer, or employee or agent of the Corporation in defending a civil
or criminal action, suit or proceeding described in Article 9.B may be paid by
the Corporation in advance of the final disposition of such action, suit or
proceeding upon receipt of an undertaking by or on behalf of such person to
repay such amount if it shall ultimately be determined that the person is not
entitled to be indemnified by the Corporation.
D. OTHER RIGHTS. The indemnification and advancement of expenses
provided by or pursuant to this Article 9 shall not be deemed exclusive of any
other rights to which those seeking indemnification or advancement of expenses
may be entitled under any insurance or other agreement, vote of stockholders or
directors or otherwise, both as to actions in their official capacity and as to
actions in another capacity while holding an office, and shall continue as to a
person who has ceased to be a director, officer, employee or agent and shall
inure to the benefit of the heirs, executors and administrators of such person.
E. INSURANCE. The Corporation shall have the power to purchase and
maintain insurance on behalf of any person who is or was a director, officer,
<PAGE>
employee or agent of the Corporation, or is or was serving at the request of the
Corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust, or other enterprise, against any liability
asserted against him and incurred by him in any such capacity, or arising out of
his status as such, whether or not the Corporation would have the power to
indemnify him against such liability under the provisions of this Article 9.
F. SECURITY FUND; INDEMNITY AGREEMENTS. By action of the Board of
Directors (notwithstanding their interest in the transaction), the Corporation
may create and fund a trust fund or fund of any nature, and may enter into
agreements with its officers, directors, employees and agents for the purpose of
securing or insuring in any manner its obligation to indemnify or advance
expenses provided for in this Article 9.
G. MODIFICATION. The duties of the Corporation to indemnify and to
advance expenses to any person as provided in this Article 9 shall be in the
nature of a contract between the Corporation and each such person, and no
amendment or repeal of any provision of this Article 9, and no amendment or
termination of any trust or other fund created pursuant to Article 9.F hereof,
shall alter to the detriment of such person the right of such person to the
advancement of expenses or indemnification related to a claim based on an act or
failure to act which took place prior to such amendment, repeal or termination.
H. PROCEEDINGS INITIATED BY INDEMNIFIED PERSONS. Notwithstanding
any other provision of this Article 9, the Corporation shall not indemnify a
director, officer, employee or agent for any liability incurred in an action,
suit or proceeding initiated by (which shall not be deemed to include
counter-claims or affirmative defenses) or participated in as an intervenor
or amicus curiae by the person seeking indemnification unless such initiation
of or participation in the action, suit or proceeding is authorized, either
before or after its commencement, by the affirmative vote of a majority of
the directors then in office.
Sections 1741 to 1747 of the Pennsylvania Business Corporation Law
provide as follows with respect to indemnification:
1741 THIRD-PARTY ACTIONS.--Unless otherwise restricted in its
bylaws, a business corporation shall have power to indemnify any person who
was or is a party or is threatened to be made a party to any threatened,
pending or completed action or proceeding, whether civil, criminal,
administrative or investigative (other than an action by or in the right of
the corporation), by reason of the fact that he is or was a representative of
the corporation, or is or was serving at the request of the corporation as a
representative of another domestic or foreign corporation for profit or
not-for-profit, partnership, joint venture, trust or other enterprise,
against expenses (including attorney's fees), judgements, fines and amounts
paid in settlement actually and reasonably incurred by him in connection with
the action or proceeding if he acted in good faith and in a manner he
reasonably believed to be in, or not opposed to, the best interests of the
corporation and, with respect to any criminal proceeding, had no reasonable
cause to believe his conduct was unlawful. The termination of any action or
proceeding by judgement, order, settlement or conviction or upon a plea of
nolo contendere or its equivalent shall not of itself create a presumption
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that the person did not act in good faith and in a manner that he
reasonably believed to be in, or not opposed to, the best interests of the
corporation and, with respect to any criminal proceeding, had reasonable cause
to believe that his conduct was unlawful.
1742 DERIVATIVE AND CORPORATE ACTIONS.--Unless otherwise restricted
in its bylaws, a business corporation shall have power to indemnify any
person who was or is a party, or is threatened to be made a party, to any
threatened, pending or completed action by or in the right of the corporation
to procure a judgement in its favor by reason of the fact that he is or was a
representative of the corporation or is or was serving at the request of the
corporation as a representative of another domestic or foreign corporation
for profit or not-for-profit, partnership, joint venture, trust or other
enterprise, against expenses (including attorneys' fees) actually and
reasonably incurred by him in connection with the defense or settlement of
the action if he acted in good faith and in a manner he reasonably believed
to be in, or not opposed to, the best interests of the corporation.
Indemnification shall not be made under this section in respect of any claim,
issue or matter as to which the person has been adjudged to be liable to the
corporation unless and only to the extent that the court of common pleas of
the judicial district embracing the county in which the registered office of
the corporation is located or the court in which the action was brought
determines upon application that, despite the adjudication of liability but
in view of all the circumstances of the case, the person is fairly and
reasonably entitled to indemnity for the expenses that the court of common
pleas or other court deems proper.
1743 MANDATORY INDEMNIFICATION.--To the extent that a
representative of a business corporation has been successful on the merits or
otherwise in defense of any action or proceeding referred to in Section 1741
(relating to third-party actions) or 1742 (relating to derivative and
corporate actions) or in defense of any claim, issue or matter therein, he
shall be indemnified against expenses (including attorney fees) actually and
reasonably incurred by him in connection therewith.
1744 PROCEDURE FOR EFFECTING INDEMNIFICATION.--Unless ordered by a
court, any indemnification under Section 1741 (relating to third-party
actions) or 1742 (relating to derivative and corporate actions) shall be made
by the business corporation only as authorized in the specific case upon a
determination that indemnification of the representative is proper in the
circumstances because he has met the applicable standard of conduct set forth
in those sections. The determination shall be made:
(1) by the board of directors by a majority vote of a quorum
consisting of directors who were not parties to the action or proceeding;
(2) if such a quorum is not obtainable or if obtainable and a
majority vote of a quorum of disinterested directors so directs, by
independent legal counsel in a written opinion; or
(3) by the shareholders.
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1745 ADVANCING EXPENSES.--Expenses (including attorneys' fees)
incurred in defending any action or proceeding referred to in this subchapter
may be paid by a business corporation in advance of the final disposition of
the action or proceeding upon receipt of an undertaking by or on behalf of
the representative to repay the amount if it is ultimately determined that he
is not entitled to be indemnified by the corporation as authorized in this
subchapter or otherwise.
1746 SUPPLEMENTARY COVERAGE.--(a) General rule.--The
indemnification and advancement of expenses provided by, or granted pursuant
to, the other sections of this subchapter shall not be deemed exclusive of
any other rights to which a person seeking indemnification or advancement of
expenses may be entitled under any bylaw, agreement, vote of shareholders or
disinterested directors or otherwise, both as to action in his official
capacity and as to action in another capacity while holding that office.
Section 1728 (relating to interested directors or officers; quorum) and in,
the case of a registered corporation, section 2538 (relating to approval of
transactions with interested shareholders) shall be applicable to any bylaw,
contract or transaction authorized by the directors under this section. A
corporation may create a fund of any nature, which may, but need not be,
under the control of a trustee, or otherwise secure or insure in any manner
its indemnification obligations, whether arising under or pursuant to this
section or otherwise.
(b) When indemnification is not to be made.--Indemnification
pursuant to subsection (a) shall not be made in any case where that act or
failure to act giving rise to the claim for indemnification is determined by
a court to have constituted willful misconduct or recklessness. The articles
may not provide for indemnification in the case of willful misconduct or
recklessness.
(c) Grounds.--Indemnification pursuant to subsection (a) under any
bylaw, agreement, vote of shareholders or directors or otherwise may be
granted for any action taken and may be made whether or not the corporation
would have the power to indemnify the person under any other provision of law
except as provided in this section and whether or not the indemnified
liability arises or arose from any threatened, pending or completed action by
or in the right of the corporation. Such indemnification is declared to be
consistent with the public policy of this Commonwealth.
1747 POWER TO PURCHASE INSURANCE.--Unless otherwise restricted in
its bylaws, a business corporation shall have power to purchase and maintain
insurance on behalf of any person who is or was a representative of the
corporation or is or was serving at the request of the corporation as a
representative of another domestic or foreign corporation for profit or
not-for-profit, partnership, joint venture, trust or other enterprise against
any liability asserted against him and incurred by him in any such capacity,
or arising out of his status as such, whether or not the corporation would
have the power to indemnify him against that liability under the provisions
of this subchapter. Such insurance is declared to be consistent with the
public policy of this Commonwealth.
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<PAGE>
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
The exhibits and financial statement schedules filed as a part of this
Registration Statement are as follows:
(a) List of Exhibits:
Exhibit No. Exhibit
2(a) Agreement and Plan of Reorganization, dated as of September 16,
1996, between PennFirst and THB, including a related Agreement
of Merger, dated as of September 16, 1996, attached as
Appendix A thereto (1)
2(b) Stock Option Agreement, dated as of September 16, 1996, between
PennFirst and THB (2)
2(c) Stockholders Agreement, dated as of September 16, 1996, between
PennFirst and certain stockholders of THB
3(a) Amended and Restated Articles of Incorporation of PennFirst (3)
3(b) Bylaws of PennFirst (3)
4(a) Specimen Common Stock Certificate (4)
5 Opinion of Elias, Matz, Tiernan & Herrick L.L.P. regarding
legality of securities being registered
8 Opinion of Elias, Matz, Tiernan & Herrick L.L.P. regarding
certain federal income tax consequences
10(a) Stock Option Plan (4)
10(b) Employee Stock Ownership Plan (4)
10(c) Management Development and Recognition Plan and Trust
Agreement (4)
10(d) Employment Agreement with Charlotte A. Zuschlag (4)
10(e) 1992 Stock Incentive Plan (5)
21 Subsidiaries of PennFirst (6)
23 Consent of Elias, Matz, Tiernan & Herrick L.L.P. (contained in
the opinion included as Exhibit 5)
23(b) Consents of KPMG Peat Marwick LLP
23(c) Consent of Grant Thornton LLP
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Exhibit No. Exhibit
- ----------- ---------
23(d) Consent of Charles Webb & Company
24 Powers of Attorney (included in the signature page to the
initial filing of this Registration Statement)
99(a) Form of proxy for the PennFirst Special Meeting
99(b) Form of proxy for the THB Special Meeting
99(c) Other PennFirst solicitation materials
99(d) Other THB solicitation materials
(1) Exhibit is attached as an Appendix A to the Joint Proxy
Statement/Prospectus included herein.
(2) Exhibit is incorporated by reference to the Form 8-K report filed by
PennFirst with the SEC on September 25, 1996. In addition, the exhibit is
attached as Appendix B to the Joint Proxy Statement/Prospectus included
herein.
(3) Exhibit is incorporated by reference from the Current Report on Form 8-K
filed by PennFirst with the SEC on March 27, 1991.
(4) Incorporated by reference from the Registration Statement on Form S-4
(Registration No. 33-39219) filed by PennFirst with the SEC on March 1,
1991.
(5) Incorporated by reference from the Annual Report on Form 10-K filed by
PennFirst with the SEC on March 29, 1993.
(6) Exhibit and/or discussion is incorporated by reference to PennFirst's
Annual Report on Form 10-K for the year ended December 31, 1995, filed with
the SEC on March 29, 1996.
PennFirst's management contracts or compensatory plans or arrangements
consist of Exhibit Nos. 10(a)-(e) listed above.
(b) Financial Statement Schedules.
No financial statement schedules are filed because the required information
is not applicable or is included in the consolidated financial statements or
related notes.
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<PAGE>
ITEM 22. UNDERTAKINGS
(a) The undersigned Registrant hereby undertakes as follows:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of
the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising
after the effective date of the registration statement (or
the most recent post-effective amendment thereof) which,
individually or in the aggregate, represent a fundamental
change in the information set forth in the registration
statement; and
(iii) To include any material information with respect to the
plan of distribution not previously disclosed in the
registration statement or any material change to such
information in the registration statement;
PROVIDED, HOWEVER, that paragraphs (a) (1) (i) and (a) (1) (ii)
do not apply if the registration statement is on Form S-3 or Form S-8,
and the information required to be included in a post-effective
amendment by those paragraphs is contained in periodic reports filed
by the registrant pursuant to Section 13 or Section 15(d) of the
Securities Exchange Act of 1934 that are incorporated by reference in
the registration statement.
(2) That, for purposes of determining any liability under the
Securities Act of 1933, each filing of the registrant's annual report
pursuant to section 13(a) or section 15(d) of the Securities Exchange Act
of 1934 (and, where applicable, each filing of an employee benefit plan's
annual report pursuant to section 15(d) of the Securities Exchange Act of
1934) that is incorporated by reference in the registration statement shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
(3) That prior to any public reoffering of the securities registered
hereunder through use of a prospectus which is a part of this registration
statement, by any person or party who is deemed to be an underwriter within
the meaning of Rule 145(c), the issuer undertakes that such reoffering
prospectus will contain the information called for by the applicable
registration form with respect to reofferings by persons who may be deemed
underwriters, in addition to the information called for by the other Items
of the applicable form.
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(4) That every prospectus (i) that is filed pursuant to paragraph (3)
immediately preceding, or (ii) that purports to meet the requirements of
Section 10(a)(3) of the Act and is used in connection with an offering of
securities subject to Rule 415, will be filed as a part of an amendment to
the registration statement and will not be used until such amendment is
effective, and that, for purposes of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
(5) That, for the purpose of determining any liability under the
Securities Act of 1933, each post-effective amendment that contains a form
of prospectus shall be deemed to be a new registration statement relating
to the securities offered therein, and the offering of such securities at
that time shall be deemed to be the initial bona fide offering thereof.
(6) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at the
termination of the offering.
(7) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and
controlling persons of the registrant pursuant to the foregoing provisions,
or otherwise, the registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities (other than
the payment by the registrant of expenses incurred or paid by a director,
officer or controlling person of the registrant in the successful defense
of any action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate
jurisdiction the questions whether such indemnification by it is against
public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
(b) The undersigned registrant hereby undertakes to respond to requests
for information that is incorporated by reference into the prospectus pursuant
to Items 4, 10(b) 11 or 13 of this form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through the
date of responding to the request.
(c) The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
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SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in Ellwood City, Commonwealth of
Pennsylvania on the 11th day of December 1996.
PENNFIRST BANCORP, INC.
By: /s/ Charlotte A. Zuschlag
-----------------------------------------
Charlotte A. Zuschlag
President and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated. Each of the directors and/or officers of
PennFirst Bancorp, Inc. whose signature appears below hereby appoints Charlotte
A. Zuschlag, and each of them severally, as his/her attorney-in-fact to sign in
his/her name and behalf, in any and all capacities stated below and to file with
the Securities and Exchange Commission any and all amendments, including
post-effective amendments, to this Registration Statement on Form S-4, making
such changes in the Registration Statement as appropriate, and generally to do
all such things in their behalf in their capacities as directors and/or officers
to enable PennFirst Bancorp, Inc. to comply with the provisions of the
Securities Act of 1933, and all requirements of the Securities and Exchange
Commission.
/s/ Charlotte A. Zuschlag Date: December 11, 1996
- --------------------------
Charlotte A. Zuschlag
President, Chief Executive Officer
and Director
(principal executive officer)
/s/ William B. Salsgiver Date: December 11, 1996
- ----------------------------------
William B. Salsgiver
Chairman of the Board
/s/ Herbert S. Skuba
- ---------------------------------- Date: December 11, 1996
Herbert S. Skuba
Vice Chairman of the Board
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<PAGE>
/s/ Charles P. Evanoski Date: December 11, 1996
- ----------------------------------
Charles P. Evanoski
Senior Vice President and Chief
Financial Officer (principal
financial and accounting officer)
/s/ George William Blank, Jr. Date: December 11, 1996
- ----------------------------------
George William Blank, Jr.
Director
/s/ Lloyd L. Kildoo
- ---------------------------------- Date: December 11, 1996
Lloyd L. Kildoo
Director
/s/ Charles Delman Date: December 11, 1996
- ---------------------------------
Charles Delman
Director
/s/ Edmund C. Smith Date: December 11, 1996
- ---------------------------------
Edmund C. Smith
Director
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EXHIBIT INDEX
Exhibit No. Exhibit
- ----------- --------
2(a) Agreement and Plan of Reorganization, dated as of September 16, 1996,
between PennFirst and THB, including a related Agreement of Merger,
dated as of September 16, 1996, attached as Appendix A thereto (1)
2(b) Stock Option Agreement, dated as of September 16, 1996, between
PennFirst and THB (2)
2(c) Stockholders Agreement, dated as of September 16, 1996, between
PennFirst and certain stockholders of THB
3(a) Amended and Restated Articles of Incorporation of PennFirst (3)
3(b) Bylaws of PennFirst (3)
4(a) Specimen Common Stock Certificate (4)
5 Opinion of Elias, Matz, Tiernan & Herrick L.L.P. regarding legality of
securities being registered
8 Opinion of Elias, Matz, Tiernan & Herrick L.L.P. regarding certain
federal income tax consequences
10(a) Stock Option Plan (4)
10(b) Employee Stock Ownership Plan (4)
10(c) Management Development and Recognition Plan and Trust Agreement (4)
10(d) Employment Agreement with Charlotte A. Zuschlag (4)
10(e) 1992 Stock Incentive Plan (5)
21 Subsidiaries of PennFirst (6)
23 Consent of Elias, Matz, Tiernan & Herrick L.L.P. (contained in the
opinion included as Exhibit 5)
23(b) Consents of KPMG Peat Marwick LLP
23(c) Consent of Grant Thornton LLP
23(d) Consent of Charles Webb & Company
24 Powers of Attorney (included in the signature page to the initial
filing of this Registration Statement)
99(a) Form of proxy for the PennFirst Special Meeting
99(b) Form of proxy for the THB Special Meeting
<PAGE>
Exhibit No. Exhibit
- ----------- --------
99(c) Other PennFirst solicitation materials
99(d) Other THB solicitation materials
_______________
(1) Exhibit is attached as an Appendix A to the Joint Proxy
Statement/Prospectus included herein.
(2) Exhibit is incorporated by reference to the Form 8-K report filed by
PennFirst with the SEC on September 25, 1996. In addition, the exhibit is
attached as Appendix B to the Joint Proxy Statement/Prospectus included
herein.
(3) Exhibit is incorporated by reference from the Current Report on Form 8-K
filed by PennFirst with the SEC on March 27, 1991.
(4) Incorporated by reference from the Registration Statement on Form S-4
(Registration No. 33-39219) filed by PennFirst with the SEC on March 1,
1991.
(5) Incorporated by reference from the Annual Report on Form 10-K filed by
PennFirst with the SEC on March 29, 1993.
(6) Exhibit and/or discussion is incorporated by reference to PennFirst's
Annual Report on Form 10-K for the year ended December 31, 1995, filed with
the SEC on March 29, 1996.
<PAGE>
EXHIBIT 2(c)
STOCKHOLDERS AGREEMENT
STOCKHOLDERS AGREEMENT, dated as of September 16, 1996, by and between
PennFirst Bancorp, Inc. ("PennFirst"), a Pennsylvania corporation
headquartered in Ellwood City, Pennsylvania, and certain stockholders of Troy
Hill Bancorp, Inc. ("THB"), a Pennsylvania corporation headquartered in
Pittsburgh, Pennsylvania, named on Schedule I hereto (collectively the
"Stockholders").
WHEREAS, PennFirst and THB have entered into an Agreement and Plan of
Reorganization, dated as of the date hereof ("Agreement"), which is being
executed simultaneously with the execution of this Stockholders Agreement
("Stockholders Agreement") and provides for, among other things, PennFirst's
acquisition of THB ("Agreement"), by means of a merger of THB with and into
PennFirst ("Merger") pursuant to an Agreement of Merger which is attached as
Appendix A to the Agreement; and
WHEREAS, in order to induce PennFirst to enter into the Agreement, each
of the Stockholders agrees, among other things, to vote in favor of the
Agreement in his or her capacity as a stockholder of THB.
NOW, THEREFORE, in consideration of the premises, the mutual covenants
and agreements set forth herein and other good and valuable consideration,
the sufficiency of which is hereby acknowledged, the parties hereto agree as
follows:
1. OWNERSHIP OF THB COMMON STOCK. Each Stockholder represents and warrants
that he or she has or shares the right to vote and dispose of the number of
shares of common stock of THB, par value $.01 per share ("THB Common Stock"),
set forth opposite such Stockholder's name on Schedule I hereto.
2. AGREEMENTS OF THE STOCKHOLDERS. Each Stockholder covenants and agrees
that:
(a) such Stockholder shall, at any meeting of THB's stockholders
called for the purpose ("THB Stockholder Meeting"), vote, or cause to be
voted, all shares of THB Common Stock in which such stockholder has the
right to vote (whether owned as of the date hereof or hereafter
acquired) in favor of the Agreement and the related Agreement of Merger
and against any plan or proposal pursuant to which THB or any subsidiary
thereof is to be acquired by or merged with, or pursuant to which THB or
any subsidiary thereof proposes to sell all or substantially all of its
assets and liabilities to, any person, entity or group (other than
PennFirst or any affiliate thereof);
(b) such Stockholder shall, at a THB Stockholder Meeting, use his
or her best efforts to have each member of his or her immediate family
who owns THB Common Stock vote, or cause to be voted, all shares of THB
Common Stock in
<PAGE>
which such immediate family member has the right to vote (whether owned
as of the date hereof or hereinafter acquired) in favor of the Agreement
and related Agreement of Merger and against any plan or proposal
pursuant to which THB or any subsidiary thereof is to be acquired or
merged with, or pursuant to which THB or any subsidiary thereof proposes
to sell all or substantially all of its assets and liabilities to any
person, entity or group (other than PennFirst or any affiliate thereof);
(c) such Stockholder shall not, prior to the final voting record
date established in connection with the THB Stockholder Meeting, sell,
pledge, transfer or otherwise dispose of his shares of THB Common Stock;
(d) such Stockholder shall use his best efforts to cause THB to
comply with the covenants made by THB in the Agreement, to consummate
the Merger and the other transactions contemplated by the Agreement and
the related Agreement of Merger;
(e) such Stockholder shall not in his capacity as a stockholder of
THB directly or indirectly encourage or solicit or hold discussions or
negotiations with, or provide any information to, any person, entity or
group (other than PennFirst or an affiliate thereof) concerning any
merger, sale of substantial assets or liabilities not in the ordinary
course of business, sale of shares of capital stock or similar
transactions involving THB or any subsidiary thereof (provided that
nothing herein shall be deemed to affect the ability of any Stockholder
to fulfill his duties as a director or officer of THB); and
(f) such Stockholder shall use his best efforts to take or cause
to be taken all action, and to do or cause to be done all things
necessary, proper or advisable under applicable laws and regulations to
consummate and make effective the agreements contemplated by this
Stockholders Agreement.
3. CERTAIN TRANSFERS. In the event of any transfer of shares of THB Common
Stock by operation of law, this Stockholders Agreement shall be binding upon
and inure to the benefit of the transferee. Any transfer or other
disposition of shares of THB Common Stock in violation of Section 2 hereof
shall be null and void.
4. TERMINATION. The parties agree and intend that this Stockholders
Agreement be a valid and binding agreement enforceable against the parties
hereto and that damages and other remedies at law for the breach of this
Stockholders Agreement are inadequate. This Stockholders Agreement may be
terminated at any time prior to the consummation of the Merger by mutual
written consent of the parties hereto and shall be automatically terminated
in the event that the Agreement is terminated in accordance with its terms.
2
<PAGE>
5. NOTICES. Notices may be provided to PennFirst and the Stockholders in
the manner specified in Section 7.03 of the Agreement, with all notices to
the Stockholders being provided to them at THB in the manner specified in
such section.
6. GOVERNING LAW. This Stockholders Agreement shall be governed by the
laws of the Commonwealth of Pennsylvania, without giving effect to the
principles of conflicts of laws thereof.
7. COUNTERPARTS. This Stockholders Agreement may be executed in one or
more counterparts, all of which shall be considered one and the same and each
of which shall be deemed an original.
8. HEADINGS AND GENDER. The Section headings contained herein are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Stockholders Agreement. Use of the masculine gender
herein shall be considered to represent the masculine, feminine or neuter
gender whenever appropriate.
3
<PAGE>
IN WITNESS WHEREOF, PennFirst, by a duly authorized officer, and each of
the Stockholders have caused this Stockholders Agreement to be executed as of
the day and year first above written.
PENNFIRST BANCORP, INC.
By: /s/ Charlotte A. Zuschlag
-------------------------------------
Charlotte A. Zuschlag
President and Chief Executive Officer
STOCKHOLDERS:
--------------------------------------
Harry B. Thaner
/s/ Ellry N. Davis
--------------------------------------
Ellry N. Davis
/s/ Raymond K. Aiken
--------------------------------------
Raymond K. Aiken
/s/ Joseph W. Snyder
--------------------------------------
Joseph W. Snyder
/s/ Edwin A. Thaner
--------------------------------------
Edwin A. Thaner
/s/ Lawrence C. Kerr
--------------------------------------
Lawrence C. Kerr
/s/ Nancy H. Kufner
--------------------------------------
Nancy H. Kufner
/s/ Marilyn L. Scripko
--------------------------------------
Marilyn L. Scripko
4
<PAGE>
SCHEDULE I
Number of Shares of THB
Common Stock
Name of Stockholder Beneficially Owned
- -------------------- ------------------------
Raymond K. Aiken 12,246
Ellry N. Davis 22,079
Lawrence C. Kerr 8,243
Nancy H. Kufner 2,578
Marilyn L. Scripko 7,605
Joseph W. Snyder 7,346
Edwin A. Thaner 9,681
Harry B. Thaner 9,496
5
<PAGE>
EXHIBIT 5
[Elias, Matz, Tiernan & Herrick L.L.P. letterhead]
December 13, 1996
Board of Directors
PennFirst Bancorp, Inc.
600 Lawrence Avenue
Ellwood City, Pennsylvania 16117
Re: Registration Statement on Form S-4
1,315,000 Shares of Common Stock
Ladies and Gentlemen:
We have acted as special counsel to PennFirst Bancorp, Inc. (the
"Company") in connection with the preparation and filing with the Securities
and Exchange Commission pursuant to the Securities Act of 1933, as amended,
of the registration statement on Form S-4 (the "Registration Statement")
relating to the issuance of up to 1,315,000 shares of the Company's common
stock, $.01 par value per share (the "Shares"), in connection with the
proposed merger of Troy Hill Bancorp, Inc. with and into the Company, all as
described in the Registration Statement. As such counsel, we have made such
legal and factual examinations and inquiries as we deemed advisable for the
purpose of rendering this opinion.
Based upon the foregoing, it is our opinion that the Shares, when
issued, delivered and exchanged in the manner described in the Registration
Statement, will be legally issued, fully paid and nonassessable.
We hereby consent to the filing of this opinion as an exhibit to the
Company's Registration Statement, and we consent to the use of our name under
the headings "The Merger - Certain Federal Income Tax Consequences" and
"Legal Opinions" in the Joint Proxy Statement/Prospectus constituting a part
thereof.
ELIAS, MATZ, TIERNAN & HERRICK L.L.P.
By: /s/ Jeffrey D. Haas
Jeffrey D. Haas, a Partner
<PAGE>
EXHIBIT 8
[Elias, Matz, Tiernan & Herrick L.L.P. letterhead]
December 13, 1996
Board of Directors
PennFirst Bancorp, Inc.
600 Lawrence Avenue
Ellwood City, Pennsylvania 16117
Board of Directors
Troy Hill Bancorp, Inc.
1706 Lowrie Street
Pittsburgh, Pennsylvania 15212
Ladies and Gentlemen:
We have acted as special counsel to PennFirst Bancorp, Inc.
("PennFirst"), a Pennsylvania company, and Troy Hill Bancorp, Inc. ("Troy
Hill"), a Pennsylvania company, in connection with the Registration Statement
on Form S-4 (the "Registration Statement") filed on the date hereof with the
Securities and Exchange Commission under the Securities Act of 1933, as
amended (the "Securities Act"). The Registration Statement relates to the
proposed merger of Troy Hill with and into PennFirst. This opinion is
delivered in accordance with the requirements of Item 601(b) of Regulation
S-K under the Securities Act.
In connection with this opinion, we have examined and are familiar with
originals or copies, certified or otherwise identified to our satisfaction,
of the Registration Statement, the Joint Proxy Statement/Prospectus included
therein (the "Joint Proxy Statement/Prospectus"), representation letters from
PennFirst and Troy Hill, and such other documents as we have deemed necessary
or appropriate.
We hereby confirm that the disclosure in the Joint Proxy
Statement/Prospectus under the captions "SUMMARY - Certain Federal Income Tax
Consequences" and "THE MERGER - Certain Federal Income Tax Consequences" are
fair and accurate summaries of the matters addressed therein, based upon
current law and the assumptions stated or referred to therein. There can be
no assurance that contrary positions may not be taken by the Internal Revenue
Service.
<PAGE>
PennFirst Bancorp, Inc.
Troy Hill Bancorp, Inc.
December 13, 1996
Page 2
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the use of our name under the caption "THE
MERGER - Certain Federal Income Tax Consequences" in the Joint Proxy
Statement/Prospectus. In giving such consent, we do not thereby admit that
we are in the category of persons whose consent is required under Section 7
of the Securities Act.
Very truly yours,
ELIAS, MATZ, TIERNAN & HERRICK L.L.P.
By: /s/ Jeffrey D. Haas
Jeffrey D. Haas, a Partner
<PAGE>
EXHIBIT 23(b)
[KPMG Peat Marwick LLP letterhead]
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors
PennFirst Bancorp, Inc.:
We consent to the use of our report dated January 19, 1996 incorporated
herein by reference and to the reference to our firm under the heading
"Experts" in the Joint Proxy Statement/Prospectus. Our report refers to a
change in accounting for income taxes in 1993 and to a change in accounting
for certain debt and equity securities during 1994.
/s/ KPMG Peat Marwick LLP
Pittsburgh, Pennsylvania
December 12, 1996
<PAGE>
EXHIBIT 23(b)
[KPMG Peat Marwick LLP letterhead]
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors
Troy Hill Bancorp, Inc.:
We consent to the use of our report dated August 16, 1996 except as to note
18, which is as of September 16, 1996, included herein and to the reference
to our firm under the heading of "Experts" in the Joint Proxy
Statement/Prospectus.
/s/ KPMG Peat Marwick LLP
Pittsburgh, Pennsylvania
December 12, 1996
<PAGE>
EXHIBIT 23(c)
[Grant Thornton LLP letterhead]
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
We have issued our reports dated August 11, 1995 accompanying the June
30, 1995 consolidated statement of financial condition of Troy Hill Bancorp,
Inc. and subsidiary and the related consolidated statements of earnings,
stockholders' equity and cash flows for each of the two years in the period
ended June 30, 1995 contained in the Registration Statement and Prospectus.
We consent to the use of the aforementioned reports in the Registration
Statement and Prospectus of PennFirst Bancorp, Inc. on Form S-4, and to the
use of our name as it appears under the caption "Experts" in the Registration
Statement.
/s/ Grant Thornton LLP
Chicago, Illinois
December 11, 1996
<PAGE>
EXHIBIT 23(d)
[Charles Webb & Company letterhead]
December 11, 1996
Board of Directors
Troy Hill Bancorp, Inc
1706 Lowrie Street
Pittsburgh, Pennsylvania 15212
Gentlemen:
This letter will constitute our consent to the inclusion of our opinion
regarding the fairness from a financial point of view, to the shareholders of
Troy Hill Bancorp, Inc. ("THB") of the consideration to be received set forth
in the Agreement and Plan of Reorganization dated September 16, 1996 by and
among THB and PennFirst Bancorp, Inc., the summary of such opinion and the
use of our name in the Registration Statement. In giving the foregoing
consent, we do not admit that we come within the category of persons whose
consent is required under Section 7 of the Securities Act of 1933, as amended
(the "Securities Act"), or the rules and regulations of the Securities and
Exchange Commission (the "Commission") with respect to any part of such
Registration Statement within the meaning of the term "experts" as used in
the Securities Act and the rules and regulations of the Commission
promulgated thereunder.
Very truly yours,
/s/ Charles Webb & Company
CHARLES WEBB & COMPANY,
A DIVISION OF KEEFE, BRUYETTE & WOODS, INC.
<PAGE>
EXHIBIT 99(a)
PENNFIRST BANCORP, INC.
REVOCABLE PROXY
SPECIAL MEETING OF STOCKHOLDERS
______________ ___, 1997
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS.
The undersigned, as a holder of Common Stock of PennFirst Bancorp, Inc.
("PennFirst"), hereby appoints the Board of Directors of PennFirst, or any
successors thereto, as Proxies, with full powers of substitution, to
represent and to vote as designated on the reverse of this card all of the
shares of Common Stock of PennFirst which the undersigned is entitled to vote
at the Special Meeting of Stockholders to be held at the Connoquenessing
Country Club located at RD #2, Route 65, Ellwood City, Pennsylvania, on
________ __, 1997 at __:__ _.m., Eastern Time, or any adjournment thereof.
THIS PROXY MAY BE REVOKED AT ANY TIME BEFORE IT IS EXERCISED.
SHARES OF COMMON STOCK OF PENNFIRST WILL BE VOTED AS SPECIFIED. UNLESS
OTHERWISE SPECIFIED, THIS PROXY WILL BE VOTED FOR THE PROPOSAL TO ADOPT AN
AGREEMENT AND PLAN OF REORGANIZATION, DATED AS OF SEPTEMBER 16, 1996, BY AND
BETWEEN PENNFIRST AND TROY HILL BANCORP, INC, AND A RELATED AGREEMENT OF
MERGER. IF ANY OTHER MATTER IS PROPERLY PRESENTED AT THE SPECIAL MEETING OF
STOCKHOLDERS, THE PROXY WILL BE VOTED IN ACCORDANCE WITH THE JUDGMENT OF THE
PERSONS APPOINTED AS PROXIES.
IMPORTANT: PLEASE DATE AND SIGN THE PROXY ON REVERSE SIDE.
<PAGE>
PLEASE MARK YOUR CHOICE LIKE THIS /X/ IN BLUE OR BLACK INK
I plan to attend
the meeting
/ /
Proposal to adopt an Agreement and Plan of Reorganization, dated as of
September 16, 1996, by and between PennFirst and Troy Hill Bancorp, Inc.
("THB"), and a related Agreement of Merger (together, the "Merger
Agreement"), pursuant to which (i) THB will be merged into PennFirst (the
"Merger"), with PennFirst as the surviving corporation of the Merger; and
(ii) each share of common stock of THB, par value $.01 per share ("THB Common
Stock"), outstanding immediately prior to consummation of the Merger (other
than shares as to which dissenters' rights have been asserted and duly
perfected in accordance with Pennsylvania law and shares held by PennFirst,
THB or any of their respective subsidiaries) shall be converted into and
represent the right to receive either (i) $21.15 in cash or (ii) a number of
shares of PennFirst common stock, par value $.01 per share ("PennFirst Common
Stock"), with a value equal to $21.15, as determined by applying a formula
(the "Exchange Ratio") set forth in the Merger Agreement and based on the
average market price ("Average Share Price") of PennFirst Common Stock over
the 20 trading day period ending on the date PennFirst and THB receive all
requisite regulatory approvals and satisfy all applicable waiting periods
related to the Merger.
FOR AGAINST ABSTAIN
/ / / / / /
THE BOARD OF DIRECTORS OF PENNFIRST RECOMMENDS A VOTE FOR APPROVAL OF
THE MERGER AGREEMENT. SUCH VOTES ARE HEREBY SOLICITED BY THE BOARD OF
DIRECTORS.
Dated: ______________________________, 1997
Signature _________________________________
Signature _________________________________
(print name)
IMPORTANT: Please sign your name exactly as
it appears hereon. When shares are held as
joint tenants, either may sign. When signing
as an attorney, executor, administrator,
trustee or guardian, add such title to your
signature.
NOTE: If you receive more than one proxy
card, please date and sign each card and
return all proxy cards in the enclosed
envelope.
<PAGE>
EXHIBIT 99(b)
TROY HILL BANCORP, INC.
REVOCABLE PROXY
SPECIAL MEETING OF STOCKHOLDERS
______________ ___, 1997
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS.
The undersigned, as a holder of Common Stock of Troy Hill Bancorp, Inc.
("THB"), hereby appoints the Board of Directors of the Company or any
successors thereto as Proxies, with full powers of substitution, to represent
and to vote as designated on the reverse of this card all of the shares of
Common Stock of THB which the undersigned is entitled to vote at the Special
Meeting of Stockholders to be held at the Holiday Inn located at 4859
McKnight Road, Pittsburgh, Pennsylvania, on ________ __, 1997 at __:__ _.m.,
Eastern Time, or any adjournment thereof.
THIS PROXY MAY BE REVOKED AT ANY TIME BEFORE IT IS EXERCISED.
SHARES OF COMMON STOCK OF THB WILL BE VOTED AS SPECIFIED. UNLESS
OTHERWISE SPECIFIED, THIS PROXY WILL BE VOTED FOR THE PROPOSAL TO ADOPT AN
AGREEMENT AND PLAN OF REORGANIZATION, DATED AS OF SEPTEMBER 16, 1996, BY AND
BETWEEN PENNFIRST BANCORP, INC. AND THB, AND A RELATED AGREEMENT OF MERGER.
IF ANY OTHER MATTER IS PROPERLY PRESENTED AT THE SPECIAL MEETING OF
STOCKHOLDERS, THE PROXY WILL BE VOTED IN ACCORDANCE WITH THE JUDGMENT OF THE
PERSONS APPOINTED AS PROXIES.
IMPORTANT: PLEASE DATE AND SIGN THE PROXY ON REVERSE SIDE.
<PAGE>
PLEASE MARK YOUR CHOICE LIKE THIS [X] IN BLUE OR BLACK INK
I plan to attend
the meeting
/ /
Proposal to adopt an Agreement and Plan of Reorganization, dated as of
September 16, 1996, by and between PennFirst Bancorp, Inc. ("PennFirst") and
THB, and a related Agreement of Merger (together, the "Merger Agreement"),
pursuant to which (i) THB will be merged into PennFirst (the "Merger"), with
PennFirst as the surviving corporation of the Merger; and (ii) each share of
common stock of THB, par value $.01 per share ("THB Common Stock"),
outstanding immediately prior to consummation of the Merger (other than
shares as to which dissenters' rights have been asserted and duly perfected
in accordance with Pennsylvania law and shares held by PennFirst, THB or any
of their respective subsidiaries) shall be converted into and represent the
right to receive either (i) $21.15 in cash or (ii) a number of shares of
PennFirst common stock, par value $.01 per share ("PennFirst Common Stock"),
with a value equal to $21.15, as determined by applying a formula (the
"Exchange Ratio") set forth in the Merger Agreement and based on the average
market price ("Average Share Price") of PennFirst Common Stock over the 20
trading day period ending on the date PennFirst and THB receive all requisite
regulatory approvals and satisfy all applicable waiting periods related to
the Merger.
FOR AGAINST ABSTAIN
/ / / / / /
THE BOARD OF DIRECTORS OF THB RECOMMENDS A VOTE FOR APPROVAL OF THE
MERGER AGREEMENT. SUCH VOTES ARE HEREBY SOLICITED BY THE BOARD OF DIRECTORS.
Dated: ________________________, 1997
Signature ___________________________
Signature ___________________________
(print name)
IMPORTANT: Please sign your name
exactly as it appears hereon. When
shares are held as joint tenants,
either may sign. When signing as an
attorney, executor, administrator,
trustee or guardian, add such title
to your signature.
NOTE: If you receive more than one
proxy card, please date and sign
each card and return all proxy cards
in the enclosed envelope.
<PAGE>
EXHIBIT 99(c)
[PennFirst Letterhead]
____________ __, 1997
To: Participants in the Employee Stock Ownership Plan
of PennFirst Bancorp, Inc.
As described in the enclosed materials, your proxy as a shareholder of
PennFirst Bancorp, Inc. ("PennFirst") is being solicited in connection with
an upcoming Special Meeting of Stockholders of PennFirst, at which
stockholders of PennFirst will consider and vote upon a proposal to adopt an
Agreement and Plan of Reorganization, dated as of September 16, 1996 (the
"Merger Agreement"), by and between PennFirst and Troy Hill Bancorp, Inc.
("THB"), and a related Agreement of Merger, pursuant to which, among other
things, THB will be merged into PennFirst (the "Merger"). If the Merger is
approved and consummated, each share of common stock of THB, par value $.01
per share ("THB Common Stock"), outstanding immediately prior to consummation
of the Merger (other than shares as to which dissenters' rights have been
asserted and duly perfected in accordance with Pennsylvania law and shares
held by PennFirst, THB or any of their respective subsidiaries) shall be
converted into and represent the right to receive either (i) $21.15 in cash
or (ii) a number of shares of PennFirst common stock, par value $.01 per
share ("PennFirst Common Stock"), with a value equal to $21.15, as determined
by applying a formula (the "Exchange Ratio") set forth in the Merger
Agreement and based on the average market price ("Average Share Price") of
PennFirst Common Stock over the 20 trading day period ending on the date
PennFirst and THB receive all requisite regulatory approvals and satisfy all
applicable waiting periods related to the Merger. I hope you will take
advantage of the opportunity to direct, on a confidential basis, the manner
in which shares of PennFirst Common Stock allocated to your account under
PennFirst's Employee Stock Ownership Plan (the "ESOP") will be voted.
Enclosed with this letter is a Joint Proxy Statement/Prospectus, which
describes the matter to be voted upon, a voting instruction ballot for the
ESOP, which will permit you to vote the shares allocated to your account
under the ESOP, and a stamped, pre-addressed return envelope. After you have
reviewed the Joint Proxy Statement/Prospectus, I urge you to vote your shares
in the ESOP by marking, dating, signing and returning the enclosed voting
instruction ballot to Frank D. Martz, Senior Vice President of Operations and
Secretary of PennFirst. Your voting instructions will remain completely
confidential. Only Mr. Martz, who will tabulate the voting instructions,
will have access to your ballot. Messrs. William B. Salsgiver, George
William Blank, Jr., Herbert S. Skuba and Edmund C. Smith, as the trustees for
the ESOP, will vote as directed the shares held in the ESOP. No other person
associated with PennFirst will see the individual voting instructions.
<PAGE>
If your voting instructions are not received, the shares allocated to
your account will be voted in the same proportion as the shares under the
ESOP have voted.
Your Board of Directors has determined the Merger to be fair to and in
the best interests of PennFirst and its stockholders and has unanimously
approved the Merger Agreement and the transactions contemplated thereby,
including the Merger. THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT
STOCKHOLDERS VOTE FOR APPROVAL OF THE MERGER AGREEMENT.
On behalf of the Board, I thank you for your attention to this important
matter.
Sincerely,
Charlotte A. Zuschlag
President and Chief Executive Officer
<PAGE>
EXHIBIT 99(c)
(CONT.)
PENNFIRST BANCORP, INC.
SPECIAL MEETING OF STOCKHOLDERS
______________ ___, 1997
The undersigned, as a holder of Common Stock of PennFirst Bancorp, Inc.
("PennFirst") pursuant to PennFirst's Employee Stock Ownership Plan (the
"ESOP"), hereby instructs William B. Salsgiver, George William Blank, Jr.,
Herbert S. Skuba and Edmund C. Smith, as Trustees for the ESOP, to vote as
designated on the reverse of this card all of the shares of Common Stock of
PennFirst which the undersigned holds pursuant to the ESOP at the Special
Meeting of Stockholders to be held at the Connoquenessing Country Club
located at RD #2, Route 65, Ellwood City, Pennsylvania, on ________ __, 1997
at __:__ _.m., Eastern Time, or any adjournment thereof.
SHARES OF COMMON STOCK OF PENNFIRST WILL BE VOTED AS SPECIFIED. IF YOU
RETURN THIS BALLOT PROPERLY SIGNED BUT DO NOT OTHERWISE SPECIFY, SHARES HELD
BY YOU PURSUANT TO THE ESOP WILL BE VOTED FOR THE PROPOSAL TO ADOPT AN
AGREEMENT AND PLAN OF REORGANIZATION, DATED AS OF SEPTEMBER 16, 1996, BY AND
BETWEEN PENNFIRST AND TROY HILL BANCORP, INC., AND A RELATED AGREEMENT OF
MERGER. IF YOU DO NOT RETURN THIS BALLOT, SHARES HELD BY YOU PURSUANT TO THE
ESOP WILL BE VOTED IN THE SAME PROPORTION AS THE SHARES UNDER THE ESOP HAVE
VOTED.
IMPORTANT: PLEASE DATE AND SIGN THIS BALLOT ON REVERSE SIDE.
<PAGE>
PLEASE MARK YOUR CHOICE LIKE THIS /X/ IN BLUE OR BLACK INK
I plan to attend
the meeting
/ /
Proposal to adopt an Agreement and Plan of Reorganization, dated as of
September 16, 1996, by and between PennFirst and Troy Hill Bancorp, Inc.
("THB"), and a related Agreement of Merger (together, the "Merger
Agreement"), pursuant to which (i) THB will be merged into PennFirst (the
"Merger"), with PennFirst as the surviving corporation of the Merger; and
(ii) each share of common stock of THB, par value $.01 per share ("THB Common
Stock"), outstanding immediately prior to consummation of the Merger (other
than shares as to which dissenters' rights have been asserted and duly
perfected in accordance with Pennsylvania law and shares held by PennFirst,
THB or any of their respective subsidiaries) shall be converted into and
represent the right to receive either (i) $21.15 in cash or (ii) a number of
shares of PennFirst common stock, par value $.01 per share ("PennFirst Common
Stock"), with a value equal to $21.15, as determined by applying a formula
(the "Exchange Ratio") set forth in the Merger Agreement and based on the
average market price ("Average Share Price") of PennFirst Common Stock over
the 20 trading day period ending on the date PennFirst and THB receive all
requisite regulatory approvals and satisfy all applicable waiting periods
related to the Merger.
FOR AGAINST ABSTAIN
/ / / / / /
THE BOARD OF DIRECTORS OF PENNFIRST RECOMMENDS A VOTE FOR APPROVAL OF
THE MERGER AGREEMENT. SUCH VOTES ARE HEREBY SOLICITED BY THE BOARD OF
DIRECTORS.
Dated: __________________________, 1997
Signature _____________________________
Signature _____________________________
(print name)
IMPORTANT: Please sign your name
exactly as it appears hereon. When
shares are held as joint tenants,
either may sign. When signing as an
attorney, executor, administrator,
trustee or guardian, add such title
to your signature.
<PAGE>
EXHIBIT 99(d)
[THB Letterhead]
____________ __, 1997
To: Participants in the Employee Stock Ownership Plan
of Troy Hill Bancorp, Inc.
As described in the enclosed materials, your proxy as a shareholder of
Troy Hill Bancorp, Inc. ("THB") is being solicited in connection with an
upcoming Special Meeting of Stockholders of THB, at which stockholders of THB
will consider and vote upon a proposal to adopt an Agreement and Plan of
Reorganization, dated as of September 16, 1996 (the "Merger Agreement"), by
and between PennFirst Bancorp, Inc. ("PennFirst") and THB, pursuant to which,
among other things, THB will be merged with and into PennFirst (the
"Merger"). If the Merger is approved and consummated, each share of common
stock of THB, par value $.01 per share ("THB Common Stock"), outstanding
immediately prior to consummation of the Merger (other than shares as to
which dissenters' rights have been asserted and duly perfected in accordance
with Pennsylvania law and shares held by PennFirst, THB or any of their
respective subsidiaries) shall be converted into and represent the right to
receive either (i) $21.15 in cash or (ii) a number of shares of PennFirst
common stock, par value $.01 per share ("PennFirst Common Stock"), with a
value equal to $21.15, as determined by applying a formula (the "Exchange
Ratio") set forth in the Merger Agreement and based on the average market
price ("Average Share Price") of PennFirst Common Stock over the 20 trading
day period ending on the date PennFirst and THB receive all requisite
regulatory approvals and satisfy all applicable waiting periods related to
the Merger. I hope you will take advantage of the opportunity to direct, on
a confidential basis, the manner in which shares of THB Common Stock
allocated to your account under THB's Employee Stock Ownership Plan (the
"ESOP") will be voted.
Enclosed with this letter is a Joint Proxy Statement/Prospectus, which
describes the matter to be voted upon, a voting instruction ballot for the
ESOP, which will permit you to vote the shares allocated to your account
under the ESOP, and a stamped, pre-addressed return envelope. After you have
reviewed the Joint Proxy Statement/Prospectus, I urge you to vote your shares
in the ESOP by marking, dating, signing and returning the enclosed voting
instruction ballot to Nancy H. Kufner, Secretary of THB. Your voting
instructions will remain completely confidential. Only Ms. Kufner, who will
tabulate the voting instructions, will have access to your ballot. Messrs.
Ellry N. Davis, Joseph W. Snyder and Raymond K. Aiken, as the trustees for
the ESOP, will vote as directed the shares held in the ESOP. No other person
associated with THB will see the individual voting instructions.
<PAGE>
If your voting instructions are not received, the shares allocated to
your account will be voted in the same proportion as the shares under the
ESOP have voted.
Your Board of Directors has determined the Merger to be fair to and in
the best interests of THB and its stockholders and has unanimously approved
the Merger Agreement and the transactions contemplated thereby, including the
Merger. THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS VOTE
FOR APPROVAL OF THE MERGER AGREEMENT.
On behalf of the Board, I thank you for your attention to this important
matter.
Sincerely,
Ellry N. Davis
President and Chief Executive Officer
<PAGE>
EXHIBIT 99(d)
(CONT.)
TROY HILL BANCORP, INC.
SPECIAL MEETING OF STOCKHOLDERS
______________ ___, 1997
The undersigned, as a holder of Common Stock of Troy Hill Bancorp, Inc.
("THB") pursuant to THB's Employee Stock Ownership Plan (the "ESOP"), hereby
instructs Ellry N. Davis, Joseph W. Snyder and Raymond K. Aiken, as Trustees
for the ESOP, to vote as designated on the reverse of this card all of the
shares of Common Stock of THB which the undersigned holds pursuant to the
ESOP at the Special Meeting of Stockholders to be held at the Holiday Inn
located at 4859 McKnight Road, Pittsburgh, Pennsylvania, on ________ __, 1997
at __:__ _.m., Eastern Time, or any adjournment thereof.
SHARES OF COMMON STOCK OF THB WILL BE VOTED AS SPECIFIED. IF YOU RETURN
THIS BALLOT PROPERLY SIGNED BUT DO NOT OTHERWISE SPECIFY, SHARES HELD BY YOU
PURSUANT TO THE ESOP WILL BE VOTED FOR THE PROPOSAL TO ADOPT AN AGREEMENT AND
PLAN OF REORGANIZATION, DATED AS OF SEPTEMBER 16, 1996, BY AND BETWEEN THB
AND PENNFIRST BANCORP, INC., AND A RELATED AGREEMENT OF MERGER. IF YOU DO
NOT RETURN THIS BALLOT, SHARES HELD BY YOU PURSUANT TO THE ESOP WILL BE VOTED
IN THE SAME PROPORTION AS THE SHARES UNDER THE ESOP HAVE VOTED.
IMPORTANT: PLEASE DATE AND SIGN THIS BALLOT ON REVERSE SIDE.
<PAGE>
PLEASE MARK YOUR CHOICE LIKE THIS /X/ IN BLUE OR BLACK INK
I plan to attend
the meeting
/ /
Proposal to adopt an Agreement and Plan of Reorganization, dated as of
September 16, 1996, by and between PennFirst Bancorp, Inc. ("PennFirst") and
THB, and a related Agreement of Merger (together, the "Merger Agreement"),
pursuant to which (i) THB will be merged into PennFirst (the "Merger"), with
PennFirst as the surviving corporation of the Merger; and (ii) each share of
common stock of THB, par value $.01 per share ("THB Common Stock"),
outstanding immediately prior to consummation of the Merger (other than
shares as to which dissenters' rights have been asserted and duly perfected
in accordance with Pennsylvania law and shares held by PennFirst, THB or any
of their respective subsidiaries) shall be converted into and represent the
right to receive either (i) $21.15 in cash or (ii) a number of shares of
PennFirst common stock, par value $.01 per share ("PennFirst Common Stock"),
with a value equal to $21.15, as determined by applying a formula (the
"Exchange Ratio") set forth in the Merger Agreement and based on the average
market price ("Average Share Price") of PennFirst Common Stock over the 20
trading day period ending on the date PennFirst and THB receive all requisite
regulatory approvals and satisfy all applicable waiting periods related to
the Merger.
FOR AGAINST ABSTAIN
/ / / / / /
THE BOARD OF DIRECTORS OF THB RECOMMENDS A VOTE FOR APPROVAL OF THE
MERGER AGREEMENT. SUCH VOTES ARE HEREBY SOLICITED BY THE BOARD OF DIRECTORS.
Dated: __________________________, 1997
Signature _____________________________
Signature _____________________________
(print name)
IMPORTANT: Please sign your name
exactly as it appears hereon. When
shares are held as joint tenants,
either may sign. When signing as an
attorney, executor, administrator,
trustee or guardian, add such title
to your signature.
