<PAGE>
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15 (d) of the
Securities Exchange Act of 1934
For Quarter Ended: September 30, 1997 Commission File Number: 0-19345
PENNFIRST BANCORP, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
Pennsylvania 25-1659846
- -------------------------------------------------------------- ---------------------------------
(State or other jurisdiction of incorporation or organization) (IRS Employer Identification No.)
600 Lawrence Avenue, Ellwood City, PA 16117
- -------------------------------------------------------------- ---------------------------------
(Address of principal executive offices) (Zip Code)
</TABLE>
Registrant's telephone number, including area code: (412) 758-5584
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. X Yes No
----- -----
Number of shares of common stock outstanding as of October 29, 1997:
COMMON STOCK, $0.01 PAR VALUE 5,310,603 SHARES
----------------------------- ----------------
(Class) (Outstanding)
<PAGE>
PENNFIRST BANCORP, INC.
TABLE OF CONTENTS
PART I--FINANCIAL INFORMATION
-----------------------------
ITEM 1. FINANCIAL STATEMENTS
Consolidated Statements of Financial Condition
as of September 30, 1997 (Unaudited) and December 31, 1996.......... 1
Consolidated Statements of Operations for the three and nine
month periods ended September 30, 1997 and 1996 (Unaudited)......... 2
Consolidated Statements of Cash Flows for the nine
months ended September 30, 1997 and 1996 (Unaudited)................ 3
Notes to Consolidated Financial Statements.......................... 4
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of Operations.................... 8
Item 3 Quantitative and Qualitative Disclosures about Market Risk.......... 16
PART II--OTHER INFORMATION
Item 1. Legal Proceedings................................................... 17
Item 2. Changes in Securities............................................... 17
Item 3. Defaults Upon Senior Securities..................................... 17
Item 4. Submission of Matters to a Vote of Security Holders................. 17
Item 5. Other Information................................................... 17
Item 6. Exhibits and Reports on Form 8-K.................................... 17
Signatures.......................................................... 18
<PAGE>
PART I--FINANCIAL INFORMATION
Item 1. Financial Statements
PENNFIRST BANCORP, INC. AND SUBSIDIARIES
Consolidated Statements of Financial Condition
As of September 30, 1997 (Unaudited) and December 31, 1996
(Dollar amounts in thousands, except share data)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1997 1996
(UNAUDITED)
------------- ------------
<S> <C> <C>
Assets:
Cash on hand and in banks........................................... $ 2,441 $ 1,884
Interest-earning deposits with banks................................ 4,023 5,244
Federal funds sold.................................................. 49 156
Securities available for sale; cost of $356,316 and $347,924........ 360,714 348,129
Securities held to maturity; market value of $86,608 and $93,561.... 87,696 96,200
Loans receivable, net............................................... 330,714 216,865
Accrued interest receivable......................................... 5,668 5,557
Federal Home Loan Bank stock........................................ 17,254 15,153
Premises and equipment, net......................................... 3,361 2,740
Real estate acquired through foreclosure, net....................... 521 37
Prepaid expenses and other assets................................... 9,909 6,770
------------- ------------
Total assets.................................................. $822,350 $698,735
------------- ------------
------------- ------------
Liabilities and stockholders' equity:
Liabilities:
Deposits.......................................................... $394,130 $332,889
Advance payments by borrowers for taxes and insurance............. 1,717 1,855
Borrowed funds.................................................... 350,661 309,195
Accrued expenses and other liabilities............................ 7,016 3,253
------------- ------------
Total liabilities............................................... 753,524 647,192
------------- ------------
------------- ------------
Stockholders' equity:
Preferred stock, $.01 par value, 5,000,000 shares
authorized; none issued......................................... -- --
Common stock, $.01 par value, 10,000,000 shares authorized;
issued 5,819,808 and 4,753,380; outstanding 5,310,173
and 4,291,137................................................... 58 48
Additional paid-in capital........................................ 48,595 26,461
Retained earnings, substantially restricted....................... 26,787 31,990
Treasury stock, at cost; 509,635 and 462,243 shares............... (6,630) (5,956)
Unearned Employee Stock Ownership Plan shares..................... (2,659) (1,136)
Unvested shares held by Management Recognition Plan............... (237) --
Unrealized gain on securities available for sale, net............. 2,912 136
------------- ------------
Total stockholders' equity...................................... 68,826 51,543
------------- ------------
------------- ------------
Total liabilities and stockholders' equity.................... $822,350 $698,735
------------- ------------
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</TABLE>
See accompanying notes to consolidated financial statements.
1
<PAGE>
<TABLE>
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PENNFIRST BANCORP, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
For the three and nine month periods ended September 30, 1997 and 1996 (Unaudited)
(Dollar amounts in thousands, except share data)
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
---------------------- ----------------------
1997 1996 1997 1996
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Interest income:
Loans receivable............................................ $ 6,678 $ 4,181 $ 17,405 $ 12,021
Securities available for sale............................... 5,844 5,957 17,754 17,298
Securities held to maturity................................. 1,339 1,510 4,201 4,770
Federal Home Loan Bank stock................................ 272 239 777 663
Deposits with banks......................................... 116 51 283 141
---------- ---------- ---------- ----------
Total interest income..................................... 14,249 11,938 40,420 34,893
---------- ---------- ---------- ----------
Interest expense:
Deposits.................................................... 4,335 3,557 12,211 10,863
Borrowed funds.............................................. 5,595 4,806 15,829 13,377
---------- ---------- ---------- ----------
Total interest expense.................................... 9,930 8,363 28,040 24,240
---------- ---------- ---------- ----------
Net interest income before provision for (recovery of)
loan losses................................................. 4,319 3,575 12,380 10,653
Provision for (recovery of) loan losses..................... (4) 396 796 681
---------- ---------- ---------- ----------
Net interest income after provision for (recovery of)
loan losses................................................. 4,323 3,179 11,584 9,972
---------- ---------- ---------- ----------
Other operating income:
Loan fees and service charges............................... 294 167 740 501
Gain (loss) on sales of securities available for sale....... 41 (9) (4) (31)
Other non-interest income................................... 17 15 44 42
---------- ---------- ---------- ----------
Total other operating income.............................. 352 173 780 512
---------- ---------- ---------- ----------
Other operating expenses:
Salaries and personnel...................................... 1,370 1,064 3,904 3,182
Occupancy and equipment..................................... 278 257 792 751
Federal insurance premiums.................................. 63 2,389 137 2,777
Data processing............................................. 181 88 399 273
Other....................................................... 650 442 1,654 1,323
---------- ---------- ---------- ----------
Total other operating expenses............................ 2,542 4,240 6,886 8,306
---------- ---------- ---------- ----------
Net income (loss) before income taxes......................... 2,133 (888) 5,478 2,178
Provision for (benefit from) income taxes................... 701 (602) 1,446 364
---------- ---------- ---------- ----------
Net income (loss)............................................. $ 1,432 $ (286) $ 4,032 $ 1,814
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Net income (loss) per share................................... $ 0.27 $ (0.07) $ 0.81 $ 0.42
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Dividends per share........................................... $ 0.09 $ 0.09 $ 0.27 $ 0.77
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Weighted average shares and equivalents outstanding........... 5,302,876 4,317,958 5,000,374 4,369,366
</TABLE>
See accompanying notes to consolidated financial statements.
2
<PAGE>
PENNFIRST BANCORP, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
For the nine months ended September 30, 1997 and 1996 (Unaudited)
(Amounts in thousands)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
------------------
1997 1996
------ ----
<S> <C> <C>
Operating activities:
Net income.................................. $4,032 $1,814
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization.............. 233 311
Provision for losses....................... 845 689
Amortization of premiums and accretion of
discounts................................. 474 791
Loss on sales of securities available for
sale...................................... 4 31
Decrease/(increase) in accrued interest
receivable................................ 459 (618)
Decrease/(increase) in prepaid expenses and
other assets.............................. 883 (669)
Increase in accrued expenses and other
liabilities............................... 450 2,914
Other...................................... 31 111
------- -------
Net cash provided by operating activities... 7,411 5,374
------- -------
Investing activities:
Loan originations and purchases............ (84,041) (75,252)
Purchases of:
Securities available for sale............. (100,065) (141,269)
Securities held to maturity............... (5,970) (8,489)
Principle repayments of:
Loans..................................... 59,343 46,529
Securities available for sale............. 41,233 47,903
Securities held to maturity............... 14,191 20,906
Proceeds from the sale of securities
available for sale........................ 57,227 66,917
Purchase of Federal Home Loan Bank stock... (9) (2,805)
Purchases of premises and equipment........ (247) (261)
Payment for purchase of Troy Hill Bancorp,
Inc. (THBC), net of cash acquired......... (2,734) --
------- -------
Net cash used in investing activities.... (21,072) (45,821)
-------- -------
Financing activities:
Net increase/(decrease) in deposits........ 7,458 (12,655)
Net increase in borrowed funds............. 7,632 57,770
Proceeds received from exercise of stock
options................................... 121 611
Dividends paid............................. (1,137) (3,049)
Payments to acquire treasury stock......... (938) (2,805)
Stock purchased by Employee Stock Ownership
Plan (ESOP).............................. (500) (146)
Principal repayment of ESOP loan........... 254 175
-------- -------
Net cash provided by financing
activities.............................. 12,890 39,901
-------- -------
Net decrease in cash equivalents............ (771) (546)
Cash equivalents at beginning of period..... 7,284 6,794
-------- -------
Cash equivalents at end of period........... $6,513 $ 6,248
-------- -------
-------- -------
Supplemental information:
Interest paid.............................. $25,654 $21,220
Income taxes paid.......................... 1,101 1,082
Non-cash transactions:
Transfers from loans receivable to real
estate acquired through foreclosure...... 201 55
Dividends declared but not paid........... 478 343
Supplemental schedule of noncash investing
and financing activities:
The Company purchased all of the common stock
of THBC for $23.5 million. In conjuncion with
the acquisition, the assets acquired and
liabilities assumed were as follows:
Fair value of assets acquired............ $109,296 $ --
Stock and stock options issued for the
purchase of THBC common stock........... (14,204) --
Cash paid for THBC commom stock.......... (9,270) --
Liabilities assumed...................... (89,362) --
-------- -------
Excess liabilities assumed over assets
acquired............................... $(3,540) $ --
-------- -------
-------- -------
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE>
PENNFIRST BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
PennFirst Bancorp, Inc. (the Company) is a publicly traded thrift holding
company. The consolidated financial statements include the accounts of the
Company and its direct and indirect wholly owned subsidiaries, ESB Bank, FSB
(ESB), Troy Hill Federal Savings Bank (Troy Hill), PennFirst Financial
Services, Inc., AMSCO, Inc. and ESB Bank Building Associates. ESB and Troy
Hill (collectively, the Banks) are federally chartered Federal Deposit
Insurance Corporation (FDIC) insured stock savings banks.
The accompanying unaudited consolidated financial statements for the
interim periods include all adjustments, consisting only of normal recurring
accruals, which are necessary, in the opinion of management, to fairly
reflect the Company's financial position and results of operations.
Additionally, these consolidated financial statements for the interim periods
have been prepared in accordance with instructions for the SEC's Form 10-Q
and therefore do not include all information or footnotes necessary for a
complete presentation of financial condition, results of operations and cash
flows in conformity with generally accepted accounting principles. For
further information, refer to the audited consolidated financial statements
and footnotes thereto for the year ended December 31, 1996, as contained in
the 1996 Annual Report to Stockholders.
The results of operations for the three and nine month periods ended
September 30, 1997 are not necessarily indicative of the results that may be
expected for the entire year.
Certain amounts previously reported have been reclassified to conform
with the current year's reporting format.
2. ACQUISITION
On April 3, 1997, the Company completed its acquisition of Troy Hill
based in Pittsburgh, Pennsylvania. Troy Hill is a community savings bank that
offers a variety of financial products and services through two branch
offices that operate in Allegheny County, Pennsylvania.
The acquisition was accounted for under the purchase method of
accounting. Under the terms of the merger agreement, Troy Hill Bancorp, Inc.
(THBC), the holding company for Troy Hill, merged with and into the Company.
The consideration paid by the Company in connection with the acquisition
consisted of $9.3 million in cash and 974,000 shares of the Company's common
stock. In addition, options to purchase shares of THBC were converted into
options to acquire 104,000 shares of the Company's common stock.
Goodwill arising from this transaction was $3.5 million. The estimated
useful life for the straight-line amortization of the goodwill is expected to
be 15 years.
Pro forma combined historical results of operations for the current year
up to the most recent interim statement of financial condition date as though
the Company and Troy Hill had combined at the beginning of the year are
presented below. These unaudited condensed pro forma combined statements of
operations are presented as if the acquisition had been effective on January
1, 1997 and 1996, respectively.
4
<PAGE>
The unaudited condensed pro forma combined statements of operations for
the nine months ended September 30, 1997 combines Troy Hill's results of
operations for the period January 1, 1997 through March 31, 1997, and the
Company's results of operations for the nine months ended September 30, 1997,
which include Troy Hill's results of operations from April 1, 1997 to
September 30, 1997. The unaudited condensed pro forma combined statements of
operations include the estimated effect of a pro forma adjustment for the
amortization of goodwill attributed to the merger that would have been
realized had the acquisition actually occurred at the beginning of the
respective periods. In addition, certain expenses have been eliminated from
the combined results of operations for the nine months ended September 30,
1997, as these expenses, related primarily to the acquisition, do not
represent ongoing expenses of the Company. The unaudited condensed pro forma
combined statements of operations have also been adjusted to reflect the
income tax impact of the non-ongoing expense adjustments for the respective
periods.
The unaudited condensed pro forma combined statement of operations
information is intended for informational purposes only and is not
necessarily indicative of the future results of operations of the Company, or
results of operations that would have actually occurred had the acquisition
been in effect for the periods presented.
The unaudited condensed pro forma combined statements of operations for
the nine month periods ended September 30, 1997 and 1996 are as follows:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA) PRO FORMA PRO FORMA
COMBINED FOR THE COMBINED FOR THE
NINE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, 1997 SEPTEMBER 30, 1996
- -------------------------------------------------------------------------- ------------------ ------------------
<S> <C> <C>
Interest income........................................................... $ 42,457 $ 40,140
Interest expense.......................................................... 29,128 26,726
------- -------
Net interest income before provision for loan losses.................... 13,329 13,414
Provision for loan losses................................................. 796 871
------- -------
Net interest income after provision for loan losses..................... 12,533 12,543
Other operating income.................................................... 860 693
Other operating expenses.................................................. 7,443 10,311
------- -------
Net income before provision for income taxes............................ 5,950 2,925
Provision for income taxes................................................ 1,673 668
------- -------
Net income.............................................................. $ 4,277 $ 2,257
------- -------
------- -------
Net income per share.................................................... $ 0.86 $ 0.52
------- -------
------- -------
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
5
<PAGE>
3. SECURITIES
The securities available for sale and securities held to maturity
portfolios consist of the following:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
(IN THOUSANDS) AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Available for sale:
September 30, 1997:
U.S. Government securities.................................... $ 11,012 $ 35 $ (15) $ 11,032
Municipal securities.......................................... 44,297 1,384 -- 45,681
Equity securities............................................. 1,270 9 -- 1,279
Mortgage-backed securities.................................... 299,737 3,365 (380) 302,722
---------- ----------- ----------- ----------
$ 356,316 $ 4,793 $ (395) $ 360,714
---------- ----------- ----------- ----------
---------- ----------- ----------- ----------
December 31, 1996:
U.S. Government securities.................................... $ 32,489 $ 19 $ (612) $ 31,896
Municipal securities.......................................... 56,084 679 (225) 56,538
Equity securities............................................. 250 3 -- 253
Mortgage-backed securities.................................... 259,101 1,776 (1,435) 259,442
---------- ----------- ----------- ----------
$ 347,924 $ 2,477 $ (2,272) $ 348,129
---------- ----------- ----------- ----------
---------- ----------- ----------- ----------
Held to maturity:
September 30, 1997:
U.S. Government securities.................................... $ 15,477 $ 63 $ (99) $ 15,441
Municipal securities.......................................... 571 19 -- 590
Mortgage-backed securities.................................... 71,648 19 (1,090) 70,577
---------- ----------- ----------- ----------
$ 87,696 $ 101 $ (1,189) $ 86,608
---------- ----------- ----------- ----------
---------- ----------- ----------- ----------
December 31, 1996:
U.S. Government securities.................................... $ 17,489 $ 30 $ (278) $ 17,241
Municipal securities.......................................... 593 16 (1) 608
Mortgage-backed securities.................................... 78,118 -- (2,406) 75,712
---------- ----------- ----------- ----------
$ 96,200 $ 46 $ (2,685) $ 93,561
---------- ----------- ----------- ----------
---------- ----------- ----------- ----------
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
4. LOANS RECEIVABLE
Loans receivable consist of the following:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------
(IN THOUSANDS) SEPTEMBER 30, DECEMBER 31,
1997 1996
- -----------------------------------------------------------------------------------------
<S> <C> <C>
Mortgage loans:
Residential--single family................................ $ 221,232 $ 126,854
Residential--multi family................................. 9,916 3,516
Commercial real estate.................................... 27,765 20,473
Construction.............................................. 24,272 20,942
------------- ------------
283,185 171,785
Other loans:
Consumer loans............................................ 51,932 45,486
Commercial business....................................... 8,191 9,656
------------- ------------
343,308 226,927
Less:
Allowance for loan losses................................. 4,874 3,309
Deferred loan fees and net discounts...................... 774 380
Loans in process.......................................... 6,946 6,373
------------- ------------
$ 330,714 $ 216,865
------------- ------------
------------- ------------
- -----------------------------------------------------------------------------------------
</TABLE>
6
<PAGE>
5. DEPOSITS
Deposits consist of the following:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
(DOLLAR AMOUNTS IN THOUSANDS) SEPTEMBER 30, 1997 DECEMBER 31, 1996
---------------------------------- ----------------------------------
WEIGHTED WEIGHTED
AVERAGE AVERAGE
TYPE OF ACCOUNTS RATE AMOUNT % RATE AMOUNT %
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Noninterest-bearing...................................... -- $ 4,885 1.2% -- $ 5,082 1.5%
Interest-bearing demand deposits......................... 2.56% 149,531 37.9% 2.72% 137,807 41.4%
Time deposits............................................ 5.84% 239,714 60.9% 5.67% 190,000 57.1%
---------- --------- ---------- ---------
4.52% $ 394,130 100.0% 4.36% $ 332,889 100.0%
---------- --------- ---------- ---------
---------- --------- ---------- ---------
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
6. BORROWED FUNDS
Borrowed funds consist of the following:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
(DOLLAR AMOUNTS IN THOUSANDS) SEPTEMBER 30, 1997 DECEMBER 31, 1996
---------------------- ----------------------
WEIGHTED WEIGHTED
AVERAGE AVERAGE
RATE AMOUNT RATE AMOUNT
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Secured notes payable to the Federal Home Loan Bank of
Pittsburgh:
Due within 12 months.......................................... 6.01% $ 185,972 6.17% $ 158,335
Due beyond 12 months but within 5 years....................... 6.43% 148,503 5.98% 135,721
Due beyond 5 years but within 10 years........................ 8.92% 1,035 8.82% 1,072
Due beyond 10 years........................................... 6.37% 335 6.61% 394
--------- --------
335,845 295,522
Treasury tax and loan note payable............................... -- 141 -- 223
Reverse repurchase agreements.................................... 5.90% 14,675 5.58% 13,450
--------- --------
$ 350,661 $ 309,195
--------- --------
--------- --------
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
7. NET INCOME PER SHARE
Net income or loss per share is calculated by dividing net operating results
for the period by the weighted average number of common shares and equivalents
outstanding during the period. Net income or loss per share and weighted average
shares and equivalents outstanding for all periods reported have been restated
to reflect the 10% stock dividend paid during the quarter ended September 30,
1997. The Company has not separately reported fully diluted earnings per share
as it is not different than primary earnings per share.
7
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
CHANGES IN FINANCIAL CONDITION
GENERAL. The Company's total assets increased a net $123.6 million or
17.7% to $822.4 million at September 30, 1997 from $698.7 million at December
31, 1996. This increase was primarily the result of the acquisition of Troy
Hill on April 3, 1997, which included the acquisition of Troy Hill's assets
of $109.3 million, including cash and equivalents of $6.5 million, securities
available for sale of $7.0 million, loans receivable of $90.0 million,
Federal Home Loan Bank (FHLB) stock of $2.1 million and other assets of $3.7
million. Also contributing to the increase in total assets was an increase in
loans receivable of $23.8 million due to internal growth in the Company's
loan portfolios and an increase in prepaid expenses and other assets of $3.5
million related to goodwill associated with the Troy Hill merger. Offsetting
the net increase in assets during the period was a reduction in Troy Hills'
cash and equivalents and securities available for sale. The proceeds from the
reduction of these accounts were utilized to help fund the Company's loan
growth.
The increase in total assets reflects corresponding increases in
liabilities of $106.3 million or 16.4% and stockholders' equity of $17.3
million or 33.5%. In connection with the acquisition of Troy Hill, the
Company assumed $89.4 million in liabilities, including deposits of $53.8
million, borrowed funds of $33.8 million and all other liabilities combined
of $1.8 million. Also contributing to the increase in liabilities, and
contributing to funding the loan growth noted above, was an increase in
deposits of $7.4 million or 2.2% due to internal growth and an increase in
borrowings with the FHLB of $7.7 million or 2.5%. The net increase in
stockholders' equity can principally be attributed to the issuance of 974,000
shares of the Company's common stock to partially fund the Troy Hill
acquisition, net income of $4.0 million during the nine months ended
September 30, 1997 and an increase of $2.8 million in the unrealized gains on
securities available for sale, net during the period.
CASH ON HAND, INTEREST-EARNING DEPOSITS AND FEDERAL FUNDS SOLD. Cash on
hand, interest-earning deposits and federal funds sold represent cash and
cash equivalents and decreased a combined $771,000 or 10.6% to $6.5 million
at September 30, 1997 from $7.3 million at December 31, 1996. These accounts
are typically increased by deposits from customers into savings and checking
accounts, loan and security repayments and proceeds from borrowed funds.
Decreases result from customer withdrawals, new loan originations, security
purchases and repayments of borrowed funds.
SECURITIES. The Company's securities portfolios increased a net $4.1
million to $448.4 million at September 30, 1997 from $444.3 million at December
31, 1996. This net increase was the result of the addition of $7.0 million in
securities from Troy Hill, $106.0 million of purchases consisting of $100.0
million in mortgage-backed securities and $6.0 million in U.S. government
securities and an increase in the unrealized gain on securities available for
sale of $4.2 million (before taxes) during the period, partially offset by $55.4
million of maturities and repayments of principal and $57.2 million of
securities sold consisting primarily of $25.3 million of U.S. government
securities, $11.9 million of municipal securities and $19.7 million of
mortgage-backed securities during the period.
LOANS RECEIVABLE. Net loans receivable increased a net $113.8 million or
52.5% to $330.7 million at September 30, 1997 from $216.9 million at December
31, 1996. The increase in loans receivable can be attributed to the addition
of Troy Hill's loans receivable as a result of the merger and to internal
growth within the Company's loan portfolios. Troy Hill's loan portfolio
amounted to $101.7 million at September 30, 1997, including single-family
residential mortgage loans of $76.5 million, multi-family residential
mortgage loans of $6.7 million, commercial real estate mortgage loans of $7.4
million, construction mortgage loans of $6.2 million, consumer loans of $4.3
million and commercial business loans of $628,000. ESB's single-family
residential mortgage loans increased a net $17.9 million or 14.1%, while all
other loan categories remained relatively consistent, from December 31, 1996
to September 30, 1997. The net increase in loans receivable was slightly
offset by an increase in the Company's allowance for loan
8
<PAGE>
losses of $1.6 million or 47.3% to $4.9 million at September 30, 1997 from
$3.3 million at December 31, 1996.
ACCRUED INTEREST RECEIVABLE. Accrued interest receivable increased
$111,000 or 2.0% to $5.7 million at September 30, 1997 from $5.6 million at
December 31, 1996, primarily as a result of the acquisition of Troy Hill.
FHLB STOCK. FHLB stock increased $2.1 million or 13.9% to $17.3 million
at September 30, 1997 from $15.2 million at December 31, 1996, primarily as a
result of the acquisition of Troy Hill.
NONPERFORMING ASSETS. Nonperforming assets include nonaccrual loans and
real estate acquired through foreclosure (REO). Nonperforming assets
increased $1.4 million or 34.7% to $5.6 million or 0.68% of total assets at
September 30, 1997 from $4.1 million or 0.59% of total assets at December 31,
1996. This increase was principally the result of the acquisition of Troy
Hill, including Troy Hill's REO of $478,000 at September 30, 1997.
PREMISES AND EQUIPMENT. Premises and equipment increased $621,000 or
22.7% to $3.4 million at September 30, 1997 from $2.7 million at December 31,
1996, primarily as a result of the acquisition of Troy Hill.
PREPAID EXPENSES AND OTHER ASSETS. Prepaid expenses and other assets
increased $3.1 million or 46.4% to $9.9 million at September 30, 1997 from
$6.8 million at December 31, 1996. This net increase can primarily be
attributed to the $3.5 million in goodwill which was recognized in connection
with the acquisition of Troy Hill.
DEPOSITS. Total deposits increased $61.2 million or 18.4% to $394.1
million at September 30, 1997 from $332.9 at December 31, 1996. Included in
this increase was the assumption of Troy Hill's deposits associated with the
merger and internal deposit growth by the Company of $7.4 million. Troy
Hill's total deposits were $55.6 million at September 30, 1997, including
time deposits of $38.0 million, interest bearing demand deposits of $17.4
million and non-interest bearing deposits of $236,000.
ADVANCE PAYMENTS BY BORROWERS FOR TAXES AND INSURANCE. Advance payments
by borrowers for taxes and insurance (escrow accounts) decreased $138,000 to
$1.7 million at September 30, 1997 from $1.9 million at December 31, 1996 due
to the timing of payment of customer escrow account balances.
BORROWED FUNDS. Borrowed funds increased $41.5 million or 13.4% to
$350.7 million at September 30, 1997 from $309.2 million at December 31,
1996. This increase was primarily the result of the addition of Troy Hill's
borrowed funds, comprised primarily of FHLB advances of $33.8 million, and
the Company utilizing additional FHLB advances to contribute to funding the
increase in loans receivable.
ACCRUED EXPENSES AND OTHER LIABILITIES. Accrued expenses and other
liabilities increased $3.8 million to $7.0 million at September 30, 1997 from
$3.3 million at December 31, 1996. This increase can primarily be attributed
to the acquisition of Troy Hill.
STOCKHOLDERS' EQUITY. Stockholders' equity increased by $17.3 million or
33.5% to $68.8 million at September 30, 1997 from $51.5 million at December
31, 1996. This increase was primarily the result of the issuance of 974,000
shares of the Company's common stock to partially fund the acquisition of
Troy Hill, net income of $4.0 million for the nine months ended September 30,
1997 and a $2.8 million increase in the unrealized gain on securities
available for sale, net of income taxes. Partially offsetting these increases
in stockholders' equity, were dividends declared of $1.3 million, net
treasury stock purchases of $674,000 and a $1.8 million increase in unearned
employee stock plans shares.
9
<PAGE>
RESULTS OF OPERATIONS
GENERAL. The Company recorded net income of $1.4 million and $4.0
million for the three and nine month periods ended September 30, 1997,
respectively, as compared to a net loss of $286,000 and net income of $1.8
million, respectively, for the same periods last year.
The deposits of the Banks are currently insured by the Savings
Association Insurance Fund (SAIF) which is administered by the FDIC. The FDIC
also administers the Bank Insurance Fund (BIF) which generally provides
insurance for commercial bank deposits. Both the SAIF and the BIF are
required by law to attain and maintain a reserve ratio of 1.25% of insured
deposits. As the result of the BIF achieving a fully funded status, the FDIC
promulgated a regulation in November 1995, which reduced deposit premiums
paid by BIF-insured banks in the lowest risk category from 27 basis points to
zero (subject to an annual minimum of $2,000).
On September 30, 1996, legislation was enacted into law to recapitalize
the SAIF through a one-time assessment on SAIF-insured deposits as of March
31, 1995. The special assessment amounted to approximately $4.5 billion or
approximately $0.65 for every $100 of assessable deposits. ESB's assessment
amounted to $2.2 million ($1.3 million, net of income tax benefit). As a
result of the special assessment, deposit insurance premiums decreased from
$0.23 per $100 of deposits to approximately $0.06 per $100 of deposits
beginning in January 1997.
The $1.7 million and $2.2 million increases in net operating results for
the three and nine month periods ended September 30, 1997, as compared to the
same periods in the prior year were related primarily to the special one-time
SAIF assessment of $1.3 million, net of income taxes, incurred in the prior
year periods and the addition of Troy Hill's operations in the current year
periods.
NET INTEREST INCOME. Net interest income is determined by the Company's
interest rate spread (i.e., the difference between the yields earned on
interest-earning assets and the rates paid on interest-bearing liabilities)
and the relative amounts, or volumes, of interest-earning assets and
interest-bearing liabilities.
Net interest income was $4.3 million for the three months ended September
30, 1997, as compared to $3.6 million for the same period in the prior year.
The $744,000 or 20.8% increase in net interest income was attributable to an
increase in interest income of $2.3 million or 19.4%, partially offset by a
$1.6 million or 18.7% increase in interest expense.
Net interest income was $12.4 million for the nine months ended September
30, 1997, as compared to $10.7 million for the same period in the prior year.
The $1.7 million or 16.2% increase in net interest income was attributable to
an increase in interest income of $5.5 million or 15.8%, partially offset by
a $3.8 million or 15.7% increase in interest expense.
INTEREST INCOME. Interest income was $14.2 million and $40.4 million for
the three and nine month periods ended September 30, 1997, respectively, as
compared to $11.9 million and $34.9 million, respectively, for the same
periods in the prior year. The $2.3 million or 19.4% and $5.5 million or
15.8% increases for the three and nine month periods ended September 30,
1997, respectively, as compared to the same periods in the prior year, can be
attributed primarily to an increase in interest income recorded on loans
receivable.
Interest income from loans receivable increased $2.5 million or 59.7% and
$5.4 million or 44.8% for the three and nine month periods ended September
30, 1997, respectively, as compared to the same period in the prior year due
primarily to an increase in loans outstanding during the respective periods.
Average loans receivable increased $119.1 million or 57.4% to $326.6 million
for the quarter ended September 30, 1997 from $207.5 million for the same
quarter last year. Average loans receivable increased $91.7 million or 46.8%
to $287.6 million for the nine months ended September 30, 1997 from $195.9
million for the same period in the prior year. The weighted average yield on
loans receivable increased 12 basis points to
10
<PAGE>
8.18% during the three months ended September 30, 1997 from 8.06% for the
same period in the prior year. The weighted average yield on loans receivable
decreased 11 basis points to 8.07% for the nine months ended September 30,
1997 from 8.18% for the same period in the prior year. The increase in
average loans receivable was primarily attributable to the acquisition of
Troy Hill.
Interest income from securities and other interest-earning assets
(including U.S. Government and agency obligations, municipal obligations,
mortgage-backed securities, interest-earning deposits with banks, FHLB stock
and federal funds sold) was $7.6 million and $23.0 million for the three and
nine month periods ended September 30, 1997, respectively as compared to $7.8
million and $22.9 for the same periods last year. Interest income from
securities and other interest earning assets remained relatively consistent
for the three and nine month periods ended September 30, 1997, compared to
the same period last year.
INTEREST EXPENSE. Interest expense was $9.9 million and $28.0 million
for the three and nine month periods ended September 30, 1997, respectively,
as compared to $8.4 million and $24.2 million for the same periods in the
prior year. The $1.6 million or 18.7% and $3.8 million or 15.7% increases for
the three and nine month periods ended September 30, 1997 respectively, as
compared to the same periods in the prior year, were due to increases in
interest expense on both deposits and borrowed funds.
Interest expense on deposits increased by $778,000 or 21.9% and $1.3
million or 12.4% for the three and nine month periods ended September 30,
1997, respectively, as compared to the same periods in the prior year. These
increases were primarily the result of an increase in the average balance of
interest-bearing deposits and escrow. The average balance of interest-bearing
deposits and escrow accounts increased $60.2 million or 18.3% to $389.0
million for the three months ended September 30, 1997 from $328.8 million for
the same quarter last year. Average interest-earning deposits and escrow
accounts increased $36.9 million or 11.1% to $370.2 million for the nine
months ended September 30, 1997 from $333.3 million for the same period in
the prior year. The weighted average cost of funds on interest-bearing
deposits and escrow accounts increased to 4.42% and 4.41% for the three and
nine month periods ended September 30, 1997, respectively, from 4.30% and
4.37%, respectively, for the same periods in the prior year. The increase in
average deposit balances was primarily attributable to the acquisition of
Troy Hill.
Interest expense on borrowed funds increased by $789,000 or 16.4% and
$2.5 million or 18.3% for the three and nine month periods ended September
30, 1997, respectively, as compared to the same periods in the prior year.
The average balance of borrowed funds increased $38.3 million or 12.3% to
$350.3 million for the three months ended September 30, 1997 from $311.9
million for the same quarter in the prior year. The average balance of
borrowed funds increased $47.0 million or 16.2% to $337.5 million for the
nine months ended September 30, 1997 from $290.5 million for the same period
in the prior year. The weighted average cost of borrowed funds increased to
6.34% and 6.27% for the three and nine month periods ended September 30,
1997, respectively, from 6.13% and 6.17%, respectively, for the same periods
in the prior year. The increase in average borrowings was primarily
attributable to the acquisition of Troy Hill.
PROVISION FOR (RECOVERY OF) LOAN LOSSES. The fluctuations in the
provision for (recovery of) loan losses for the three and nine month periods
ended September 30, 1997, respectively, compared to the same periods in the
prior year, reflects the Company's policy of recording provisions for loan
losses in amounts necessary to bring the total allowance for loan losses to a
level deemed adequate to cover potential losses in the loan portfolio. In
determining the appropriate level of allowance for loan losses, management
considers historical loss experience, the present and prospective financial
condition of borrowers, current and prospective economic conditions
(particularly as they relate to markets where the Company originates loans),
the status of nonperforming assets, the estimated underlying value of the
collateral and other factors related to the collectibility of the loan
portfolio.
During the three and nine month periods ended September 30, 1997, the
Company established a provision for (recovery of) loan losses of ($4,000) and
$796,000, respectively, as compared to $396,000 and $681,000 for the same
periods in the prior year. The decline in the provision during the three
months
11
<PAGE>
ended September 30, 1997 primarily reflected the adequacy of the allowance for
loan losses at September 30, 1997 based on management's assessment of the loan
portfolios and provisions established during previous periods. The increase in
the provision during the nine months ended September 30, 1997 was primarily
attributable to the $600,000 provision for loan losses recorded by the Company
during the quarter ended June 30, 1997 in connection with the previously
disclosed thirteen nonperfoming lease agreements between the Company and Bennett
Funding Group and affiliates of Syracuse, NY. The lease agreements were
purchased by the Company and are secured by commercial equipment leases located
in various parts of the country. On March 29, 1996, it was reported that Bennett
Funding Group was the target of a civil complaint filed by the Securities and
Exchange Commission (SEC) and further reported on April 1, 1996 that Bennett
Funding Group filed a Chapter 11 bankruptcy petition and was halting payments on
the lease agreements.
As a result of the foregoing, during the quarter ended March 31, 1996,
the Company placed all $3.6 million of the lease agreements on nonaccrual
status and established a reserve of approximately $900,000 for potential
losses related to such lease agreements. During the quarter ended June 30,
1997, as a result of questions concerning the ultimate collectibility of
certain of the lease agreements and concerns with respect to the Company's
security interest in the collateral securing certain of the lease agreements,
the Company provided an additional $600,000 in loan loss reserves.
Consequently, as of September 30, 1997, the Company had total loan loss
reserves relating to such lease agreements of approximately $1.7. While the
Company has insurance with a private carrier with respect to a portion of the
Bennett Funding Group lease agreements, because of payments made or expected
to be made on insured leases, the Company does not anticipate that it will
recover any significant amount of funds under its insurance policy.
On October 15, 1997, the U.S. Bankruptcy Court for the Northern District
of New York ordered the Bankruptcy Trustee for Bennett Funding Group to pay
over to the Company within 30 days thereof an aggregate of approximately $1.2
million, which represents principal payments, excluding interest accrued
thereon and certain settoffs on ten of the thirteen lease agreements. Such
payments would reduce the outstanding balance of the lease agreements to
approximately $2.4 million. The Court further ordered the Bankruptcy Trustee
to turn over to the Company on a monthly basis payments collected on such
leases. The Bankruptcy Trustee has since appealed the Order of the Bankruptcy
Court.
As a result of the foregoing recovery and provision amounts realized,
during the three and nine month periods ended September 30, 1997, the
Company's total allowance for losses on loans at September 30, 1997 amounted
to $4.9 million or 1.42% of the Company's total loan portfolio, as compared
to $3.3 million or 1.46% at December 31, 1996. The Company's allowance for
losses on loans as a percentage of nonperforming loans at September 30, 1997
was 96.9%, as compared to 81.0% at December 31, 1996.
OTHER OPERATING INCOME. Other operating income was $352,000 and $780,000
for the three and nine month periods ended September 30, 1997, respectively,
as compared to $173,000 and $512,000, respectively, for the same periods in
the prior year. The increases in other operating income between periods were
primarily the result of the inclusion of other operating income of Troy Hill
for the three and nine month periods ended September 30, 1997.
OTHER OPERATING EXPENSES. Other operating expenses were $2.5 million and
$6.9 million for the three and nine month periods ended September 30, 1997,
respectively, as compared to $4.2 million and $8.3 million, respectively, for
the same periods in the prior year. The net decreases in other operating
expenses between the two periods was primarily the result of the $2.2 million
SAIF assessment (before taxes) incurred in September 1996 and a reduction in
regular FDIC insurance premiums between years, which was partially offset by
an increase in operating expenses as a result of the inclusion of Troy Hills
operating results in 1997.
INCOME TAXES. For the three and nine month periods ended September 30,
1997, the Company recorded provisions for income taxes of $701,000 and $1.4
million, respectively, as compared to an income tax
12
<PAGE>
benefit of $602,000 and a provision of $364,000, respectively, for the same
periods in the prior year. The significant fluctuations in income taxes
between the respective periods are principally a result of the SAIF
assessment incurred in the prior year which was deductible for federal income
tax purposes.
ASSET AND LIABILITY MANAGMENT
The primary objective of the Company's asset and liability management
function is to maximize the Company's net interest income while
simultaneously maintaining an acceptable level of interest rate risk given
the Company's operating environment, capital and liquidity requirements,
performance objectives and overall business focus. The principal determinant
of the exposure of the Company's earnings to interest rate risk is the timing
difference between the repricing or maturity of interest-earning assets and
the repricing or maturity of its interest-bearing liabilities. The Company's
asset and liability management policies have decreased interest rate
sensitivity primarily by shortening the maturities of interest-earning assets
while at the same time extending the maturities of interest-bearing
liabilities. The Board of Directors of the Company continues to believe in
strong asset/liability management in order to insulate the Company from
material and prolonged increases in interest rates. As a result of this
policy, the Company emphasizes a larger, more diversified portfolio of
residential mortgage loans in the form of mortgage-backed securities.
Mortgage-backed securities generally increase the quality of the Company's
assets by virtue of the insurance or guarantees that back them, are more
liquid than individual mortgage loans and may be used to collateralize
borrowings or other obligations of the Company.
The Company's Board of Directors has established an Asset and Liability
Management Committee consisting of two outside directors, the President and
Chief Executive Officer, Senior Vice President and Chief Financial Officer,
Senior Vice President of Operations and the Senior Vice President of Lending
of the Company. This committee, which meets quarterly, generally monitors
various asset and liability management policies which were implemented by the
Company over the past few years. These strategies have included: (i) an
emphasis on the investment in adjustable-rate and shorter duration
mortgage-backed securities and (ii) an emphasis on the origination of
single-family residential adjustable-rate mortgages (ARMs), residential
construction loans and commercial real estate loans, which generally have
adjustable or floating interest rates and/or shorter maturities than
traditional single-family residential loans, and consumer loans, which
generally have shorter terms and higher interest rates than mortgage loans.
As of September 30, 1997, the implementation of these asset and liability
initiatives resulted in the following: (i) $172.4 million or 50.2% of the
Company's total loan portfolio had adjustable interest rates or maturities of
12 months or less; (ii) $117.7 million or 49.3% of the Company's portfolio of
single-family residential mortgage loans (including residential construction
loans) consisted of ARMs and (iii) $151.0 million or 40.4% of the Company's
portfolio of mortgage-backed securities (including mortgage-backed securities
available for sale) were secured by ARMs.
In addition to and complementing these asset and liability management
initiatives followed over the past few years, during the past nine months the
Committee has pursued and implemented additional strategies to mitigate the
Company's exposure to interest rate risk. These strategies have included: (i)
shortening the duration of the Company's mortgage-backed securities
classified as available for sale, (ii) increasing the percentage of
adjustable rate securities as opposed to fixed rate securities in the
available for sale securities portfolio, (iii) lengthening the weighted
average term to maturity of FHLB advances and (iv) purchasing interest rate
caps to mitigate the Company's risk to a rising interest rate environment.
As of September 30, 1997, the implementation of these additional asset
and liability management strategies has resulted in the following: (i) a
decrease in the duration of the Company's mortgage-backed securities
classified as available for sale to 25 months at September 30, 1997 from
approximately 28 months at
13
<PAGE>
December 31, 1996, (ii) an increase in the percentage of adjustable rate
securities in the available for sale securities portfolio to 41.6% of the
portfolio at September 30, 1997 from 37.6% of the portfolio at December 31,
1996, (iii) an increase in the weighted average term to maturity of FHLB
advances to 15 months at September 30, 1997 from 13 months at December 31,
1996 and (iv) an increase in the notional amount of interest rate caps to
$100.0 million at September 30, 1997 from $35.0 million at December 31, 1996.
The implementation of the foregoing asset and liability initiatives and
strategies, combined with other external factors such as demand for the
Company's products and economic and interest rate environments in general,
has resulted in the Company being able to maintain a one-year interest rate
sensitivity gap ranging between a positive 5.0% of total assets to a negative
15.0% of total assets. The one-year interest rate sensitivity gap is defined
as the difference between the Company's interest-earning assets which are
scheduled to mature or reprice within one year and its interest-bearing
liabilities which are scheduled to mature or reprice within one year. At
September 30, 1997, the Company's interest-earning assets maturing or
repricing within one year totaled $313.2 million while the Company's
interest-bearing liabilities maturing or repricing within one-year totaled
$411.9 million, providing a deficiency of interest-earning assets over
interest-bearing liabilities of $98.7 million or a negative 12.0% of total
assets. At September 30, 1997, the percentage of the Company's assets to
liabilities maturing or repricing within one year was 76.0%. The Company does
not presently anticipate that its one-year interest rate sensitivity gap will
fluctuate beyond a range of a positive 5.0% of total assets to a negative
15.0% of total assets.
The one year interest rate sensitivity gap has been the most common
industry standard used to measure an institution's interest rate risk
position. The Company also utilizes income simulation modeling in measuring
its interest rate risk and managing its interest rate sensitivity. The Asset
and Liability Management Committee of the Company believes that simulation
modeling enables the Company to more accurately evaluate and manage the possible
effects on net interest income due to changing market interest
rates, the slope of the yield curve and different prepayment and decay
assumptions under various interest rate scenarios. At September 30, 1997, the
Company's simulation model indicated that the Company's statement of financial
condition is liability sensitive, and as such in a 300 basis point gradually
rising rate environment over 24 months, with minor changes in the statement of
financial condition and limited reinvestment changes, net interest income would
be projected to slightly decrease by approximately 2.0% over such 24 month
period.
LIQUIDITY AND CAPITAL RESOURCES
The Banks are required by the Office of Thrift Supervision (OTS) to
maintain minimum levels of liquidity to assure their ability to meet demands
for customers withdrawals and the repayment of short term borrowings. The
liquidity requirement is calculated as a percentage of deposits and
short-term borrowings, as defined by the OTS, and currently must be
maintained at amounts not less than 5.0%. The Banks' liquidity ratios
fluctuate depending primarily upon deposit flows but have been consistently
maintained at levels in excess of the required percentage. At September 30,
1997, the ESB's liquidity ratio was approximately 10.6%, and Troy Hill's
liquidity ratio was approximately 8.4%.
The Company's primary source of funds generally have been deposits
obtained through the offices of the Banks, borrowings from the FHLB and, to a
lesser extent, amortization and prepayments of outstanding loans and maturing
investment securities. During the nine months ended September 30, 1997, the
Company used its sources of funds primarily to purchase securities, and to a
lesser extent, the funding of loan commitments. As of such date, the Company
had outstanding loan commitments totaling $11.8 million, unused lines of
credit totaling $25.1 million and $6.9 million of undisbursed loans in
process.
14
<PAGE>
At September 30, 1997, certificates of deposits amounted to $239.7
million or 60.8% of the Company's total consolidated deposits, including
$149.0 million which were scheduled to mature by September 30, 1998. At the
same date, the total amount of FHLB advances which were scheduled to mature
by September 30, 1998 was $186.0 million. Management of the Company believes
that it has adequate resources to fund all of its commitments, that all of
its commitments will be funded by September 30, 1998 and that, based upon
past experience and current pricing policies, it can adjust the rates of
savings certificates to retain a substantial portion of its maturing
certificates and also, to the extent deemed necessary, refinance the maturing
FHLB advances.
Current regulatory requirements specify that the Banks and similar
institutions must maintain tangible capital equal to 1.5% of adjusted totals
assets, core capital equal to 3% of adjusted total assets and risk-based
capital equal to 8% of risk-weighted assets. The Office of the Comptroller of
the Currency and the FDIC have adopted more stringent core capital
requirements which require that the most highly rated banks have a minimum
core capital ratio of 3%, with an additional 100 to 200 basis point cushion
required for all other banks as established by the regulator on a
case-by-case basis. Both the FDIC and the OTS reserve the right to apply this
higher standard to any insured financial institution when considering an
institution's capital adequacy. At September 30, 1997, ESB was in compliance
with all regulatory capital requirements with tangible, core and risk-based
capital ratios of 6.4%, 6.4% and 17.7%, respectively. At September 30, 1997,
Troy Hill was in compliance with all regulatory capital requirements with
tangible, core and risk-based capital ratios of 11.6%, 11.6% and 19.7%,
respectively.
RECENT ACCOUNTING AND REGULATORY MATTERS
In June 1996, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 125, "Accounting For
Transfers and Servicing of Financial Assets and Extinguishments of
Liabilities", which will be effective in whole, on a prospective basis, for
fiscal years beginning after December 31, 1996. SFAS No. 125 provides
accounting and reporting standards for transfers and servicing of financial
assets and extinguishment of liabilities based on consistent application of a
financial-components approach and focuses on control. SFAS No. 125 extends
the "available for sale" and "trading" approach of SFAS No. 115, "Accounting
for Certain Investments in Debt and Equity Securities", to non-security
financial assets that can be contractually prepaid or otherwise settled in
such a way that the holder of the asset would not recover substantially all
of its recorded investment. In addition, SFAS No. 125 amends SFAS No. 115 to
prevent a security from being classified as held to maturity if the security
can be prepaid or settled in such a manner that the holder of the security
would not recover substantially all of its recorded investment. The extension
of the SFAS No. 115 approach to certain non-security financial assets and the
amendment of SFAS No. 115 are effective for financial assets held on or
acquired after January 1, 1997.
In December 1996, the FASB issued SFAS No. 127, "Deferral of the
Effective Date of Certain Provisions of FASB Statement No. 125", which defers
the effective date of SFAS No. 125 until January 1, 1998 for certain
transactions including repurchase agreements, dollar-roll, securities lending
and similar transactions.
In February 1997, the FASB issued SFAS No. 128, "Earnings Per Share".
SFAS No. 128 establishes standards for computing and presenting earnings per
share (EPS) and applies to entities with publicly held common stock or
potential common stock. SFAS No. 128 simplifies previous standards for
computing EPS. SFAS No. 128 is effective for financial statements issued for
periods ending after December 15, 1997, including interim periods; earlier
application is not permitted. SFAS No. 128 requires restatement of all prior
period EPS data presented. Management does not expect SFAS No. 128 to have a
significant impact on the Company's net income per share amounts disclosed.
15
<PAGE>
In February 1997, the FASB issued SFAS No. 129, "Disclosure of
Information about Capital Structure". SFAS No. 129 summarizes previously
issued disclosure guidance contained within APB Opinions No. 10 and 15 as
well as SFAS No. 47. There will be no changes to the Company's disclosures
pursuant to the adoption of SFAS No. 129. This statement is effective for
financial statements issued for periods ending after December 15, 1997.
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income", which establishes standards for reporting and display of
comprehensive income and its components in a full set of general-purpose
financial statements. Comprehensive income is defined as "the change in
equity of a business enterprise during a period from transactions and other
events and circumstances from nonowner sources. It includes all changes in
equity during a period except those resulting from investments by owners and
distributions to owners". The comprehensive income and related cumulative
equity impact of comprehensive income items will be required to be disclosed
prominently as part of the notes to the financial statements. Only the impact
of unrealized gains or losses on securities available for sale is expected to
be disclosed as an additional component of the Company's income under the
requirements of SFAS No. 130. This statement is effective for fiscal years
beginning after December 15, 1997.
In June 1997, the FASB issued SFAF No. 131, "Disclosures about Segments
of an Enterprise and Related Information", which establishes standards for
the way that public business enterprises report information about operating
segments in financial statements. This statement is effective for fiscal
years beginning after December 15, 1997, and the adoption of the statement is
not expected to have a material impact on the Company's consolidated
financial statements.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
16
<PAGE>
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company and its subsidiaries are involved in various legal
proceedings occurring in the ordinary course of business. It is the opinion
of management, after consultation with legal counsel, that these matters will
not materially effect the Company's consolidated financial position or
results of operations.
ITEM 2. CHANGES IN SECURITIES
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a. Form 8-K--The Company filed a Form 8-K dated July 16, 1997 to report
second quarter 1997 earnings and to report a ten percent stock dividend.
b. Form 8-K--The Company filed a Form 8-K dated September 17, 1997 to
report a $0.09 per share quarterly cash dividend.
17
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
PENNFIRST BANCORP, INC.
Date: November 7, 1997 By: /s/ Charlotte A. Zuschlag
--------------------------------
Charlotte A. Zuschlag
President and Chief Executive Officer
Date: November 7, 1997 By: /s/ Charles P. Evanoski
--------------------------------
Charles P. Evanoski
Senior Vice President and
Chief Financial Officer
18
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE THIRD
QUARTER 10-Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY>U.S. Dollars
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<EXCHANGE-RATE> 1
<CASH> 2,441
<INT-BEARING-DEPOSITS> 4,023
<FED-FUNDS-SOLD> 49
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 360,174
<INVESTMENTS-CARRYING> 87,696
<INVESTMENTS-MARKET> 88,918
<LOANS> 335,587
<ALLOWANCE> 4,874
<TOTAL-ASSETS> 822,350
<DEPOSITS> 394,130
<SHORT-TERM> 178,972
<LIABILITIES-OTHER> 7,016
<LONG-TERM> 171,689
0
0
<COMMON> 58
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<TOTAL-LIABILITIES-AND-EQUITY> 822,350
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<INTEREST-TOTAL> 40,420
<INTEREST-DEPOSIT> 12,211
<INTEREST-EXPENSE> 28,040
<INTEREST-INCOME-NET> 12,380
<LOAN-LOSSES> 796
<SECURITIES-GAINS> (4)
<EXPENSE-OTHER> 6,886
<INCOME-PRETAX> 5,478
<INCOME-PRE-EXTRAORDINARY> 5,478
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,032
<EPS-PRIMARY> 0.81
<EPS-DILUTED> 0.81
<YIELD-ACTUAL> 7.31
<LOANS-NON> 5,031
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 3,309
<CHARGE-OFFS> 14
<RECOVERIES> 7
<ALLOWANCE-CLOSE> 4,874
<ALLOWANCE-DOMESTIC> 4,874
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
